J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
SIDLEY AUSTIN BROWN & WOOD LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Counsel for Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - x
: Chapter 11
In re: :
: Case Nos. 01-41643 (RLB)
: through 01-41680 (RLB)
THE WARNACO GROUP, INC., et al., :
:
: (Jointly Administered)
Debtors. :
:
- - - - - - - - - - - - - - - - - - - - - - - - - x
DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE
WITH RESPECT TO THE FIRST AMENDED JOINT PLAN
OF REORGANIZATION OF THE WARNACO GROUP, INC. AND
ITS AFFILIATED DEBTORS AND DEBTORS IN POSSESSION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Dated: New York, New York
November 8, 2002
================================================================================
THIS DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED BY THE
BANKRUPTCY COURT AND, THEREFORE, IN ACCORDANCE WITH 11 U.S.C. 'SS'
1125, THIS DISCLOSURE STATEMENT SHOULD NOT BE CONSTRUED AS SOLICITING
ACCEPTANCES OF THE FIRST AMENDED PLAN UNTIL IT HAS BEEN SO APPROVED.
================================================================================
Table of Contents
Page
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INTRODUCTORY STATEMENT/DISCLAIMER.............................................................................2
I. EXECUTIVE SUMMARY........................................................................................4
A. Overview of Chapter 11 Filing.......................................................................4
B. The Debtors.........................................................................................5
C. The Disclosure Statement; Voting Requirements.......................................................6
D. Sources of Information..............................................................................8
E. General Structure of the Plan.......................................................................8
F. Summary of the Treatment Under the Plan of Holders of Claims and Interests.........................13
G. Conditions to Effectiveness of the Plan............................................................16
II. DESCRIPTION OF THE DEBTORS..............................................................................16
A. Background Information Regarding the Debtors.......................................................16
1. Overview of History and Operations...........................................................16
2. Pre-Petition Capital Structure...............................................................19
(a) Pre-Petition Secured Indebtedness......................................................19
(b) 6% Convertible Trust Originated Preferred Securities and 6%
Convertible Common Securities..........................................................21
(c) Group Common Stock.....................................................................23
B. The Debtors' Operations in Chapter 11..............................................................24
1. Overview of the Debtors' Operations and Business Plan........................................24
2. Parties-in-Interest; Retention of Professionals and Appointment of Creditors' Committee......25
(a) Advisors to the Debtors................................................................25
(b) The Creditors' Committee and its Advisors..............................................26
(c) United States Trustee..................................................................26
3. Operating Results During Chapter 11..........................................................26
4. Summary of Significant Orders Entered and Other Actions Taken
During the Cases.............................................................................28
(a) Significant "First Day" Orders.........................................................28
(i) Interim DIP Financing............................................................28
(ii) Interim Order Employing Antonio C. Alvarez II as Chief Restructuring Officer.....29
(iii) Employee Matters.................................................................29
(iv) Cash Management System...........................................................30
(v) Reclamation Claims...............................................................30
(vi) Pre-Petition Shipping Charges....................................................30
(vii) Essential Trade Creditors and Licensees..........................................30
(viii)Pre-Petition Customer Accommodation Programs.....................................31
(ix) Payment of Pre-Petition Sales, Use and Other Taxes...............................31
(x) Warnaco of Canada................................................................31
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(b) Debtor-In-Possession Financing.........................................................31
(c) Change In Chief Executive Officer......................................................32
(d) Exclusivity Orders.....................................................................32
(e) Sales of Certain Real and Personal Property............................................32
(f) Store Closing Sales....................................................................33
(g) Sale of Business Units.................................................................33
(h) Orders and Claims Relating to the Debtors' Employees and Executives....................34
(i) "First Day" Order to Pay Employee Wages, etc.....................................34
(ii) Employee Retention Plan..........................................................35
(iii) Rejection of Wachner Employment Agreement. ......................................35
(iv) Antonio C. Alvarez II Employment Agreement.......................................36
(i) Claim by ILGWU National Retirement Fund for Withdrawal Liability
Under MultiEmployer Pension Plan Under ERISA...........................................37
(j) Administrative Orders - Schedules; Bar Date............................................38
(k) Other Legal Proceedings................................................................39
(i) Speedo Litigation................................................................39
(ii) Shareholder Class Actions........................................................40
(iii) SEC Investigation................................................................41
(l) Restatement of Financial Statements....................................................42
(m) Property Leases........................................................................42
(n) Personal Property Leases and Executory Contracts.......................................43
(o) Termination of License Agreement with Weight Watchers..................................43
(p) Termination of Fruit of the Loom License...............................................44
(q) Customs Duties.........................................................................44
(r) Transaction with Floor Ready Apparel...................................................46
(s) Administrative Claims..................................................................47
5. Settlement of Significant Claims.............................................................47
(a) Bancomext Claim....................................................................... 47
(b) Amster Claim...........................................................................49
(c) HIS Claim..............................................................................49
(d) GE Capital Secured Claims..............................................................50
6. Current Executive Officers and Directors.....................................................52
(a) Antonio C. Alvarez II..................................................................52
(b) James P. Fogarty.......................................................................52
(c) Stanley P. Silverstein.................................................................53
(d) Stuart D. Buchalter....................................................................53
(e) Joseph A. Califano, Jr.................................................................53
(f) Donald G. Drapkin......................................................................53
(g) Richard Karl Goeltz....................................................................54
(h) Harvey Golub...........................................................................54
(i) Dr. Manuel T. Pacheco..................................................................54
ii
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(continued)
Page
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(j) Linda J. Wachner.......................................................................54
III. FUTURE BUSINESS OF THE REORGANIZED DEBTORS..............................................................54
A. Structure and Business of the Reorganized Debtors..................................................54
B. Executive Officers and Directors of the Reorganized Debtors........................................55
C. Projected Financial Information....................................................................55
1. Risk Factors.................................................................................56
(a) Adverse Retail Industry Conditions.....................................................56
(b) Fluctuations in Price, Availability and Quality of Raw Materials.......................56
(c) Relationships with Suppliers and Vendors...............................................57
(d) Relationships with Customers...........................................................57
(e) Substantial Competition................................................................57
(f) Licensing Risks........................................................................57
(g) Changing Fashion Trends................................................................58
(h) International Operations...............................................................59
(i) Fluctuations in Foreign Exchange Rates.................................................59
(j) Import Restrictions....................................................................59
(k) Dependence on Key Personnel............................................................60
IV. SUMMARY OF THE PLAN OF REORGANIZATION...................................................................60
A. Brief Explanation of Chapter 11 Plan of Reorganization.............................................60
B. Structure of the Plan..............................................................................61
C. Classification and Treatment of Claims and Interests...............................................63
1. General......................................................................................63
2. Treatment of Unclassified Claims.............................................................64
(a) Administrative Claims..................................................................64
(b) Priority Tax Claims....................................................................65
(c) DIP Facility Claim.....................................................................65
3. Treatment of Classified Claims and Interests.................................................66
D. Conditions to Effective Date.......................................................................70
E. Executory Contracts and Unexpired Leases...........................................................70
1. General......................................................................................71
2. Assumption and Rejection of Executory Contracts and Unexpired Leases.........................71
3. Payments Related to Assumption of Executory Contracts and Unexpired Leases...................72
4. Post-Petition Contracts and Leases...........................................................72
5. Rejection Damages Bar Date...................................................................72
F. Implementation of the Plan.........................................................................73
1. Pre-Effective Date Management and Operation of Debtors.......................................73
2. Post-Effective Date Committee; Dissolution of Committee......................................73
iii
Table of Contents
(continued)
Page
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3. Merger of Certain Debtors....................................................................74
4. Amended Certificates of Incorporation and Bylaws.............................................74
5. Post-Effective Date Management and Operation of Reorganized Debtors..........................74
6. Repayment of DIP Facility/Exit Financing.....................................................75
7. Issuance of New Warnaco Second Lien Notes....................................................75
8. Issuance of New Warnaco Common Shares........................................................76
9. Adoption of Rights Plan......................................................................77
10. Registration Rights Agreement................................................................77
11. Management Stock Incentive Program and Confirmation Bonuses..................................81
12. Continuation of Pension Plan.................................................................82
13. Employment, Retirement, and Incentive Compensation Plans and Programs........................83
G. Distributions Under the Plan.......................................................................83
1. Distributions................................................................................83
(a) Distributions to Holders of Senior Secured Bank Claims.................................83
(b) Distributions to Holders of Allowed Class 5 Claims.....................................83
(c) Distributions to Holders of TOPrS Claims, if Any.......................................84
(d) Fractional Interests...................................................................85
(e) Disputed Claims and Payments...........................................................86
(f) Unclaimed Property.....................................................................86
H. Procedure For Determination of Claims and Interests................................................86
I. Effect of the Plan on Claims and Interests.........................................................87
J. Miscellaneous Provisions...........................................................................90
K. Exemption From Securities Laws.....................................................................92
(a) Initial Offer and Sale of Securities...................................................92
(b) Subsequent Transfers of Securities.....................................................93
(c) Certain Transactions by Stockbrokers...................................................94
V. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................95
A. General Tax Considerations.........................................................................95
B. Tax Consequences of the Plan on the Debtors........................................................95
C. Federal Income Tax Consequences to U.S. Holders of Certain Claims..................................98
VI. CONFIRMATION OF THE PLAN UNDER THE CODE................................................................102
A. The Confirmation Hearing and Objections...........................................................102
B. Confirmation Requirements Under the Code..........................................................102
C. Satisfaction of Conditions Precedent to Confirmation Under the Code...............................105
1. Acceptance by Impaired Classes..............................................................105
2. Best Interests of Claim Holders.............................................................106
(a) Generally.............................................................................106
(b) Enterprise Valuation of the Reorganized Debtors.......................................107
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(continued)
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(c) Liquidation Value of the Debtors......................................................108
(d) Application of the Best Interests Test................................................109
(i) Class 2 Senior Secured Bank Claims..............................................109
(ii) Class 5 Allowed Unsecured Claims................................................111
(iii) Class 6 TOPrS Claims............................................................111
(iv) Class 8 Common Stock Claims and Interests.......................................111
(v) Best Interests Test Conclusion..................................................111
3. Feasibility of the Plan.....................................................................112
4. Confirmation Without Acceptance by All Impaired Classes ("Cramdown")........................113
VII. ALTERNATIVES TO THE PLAN...........................................................................114
VIII. RECOMMENDATION.....................................................................................115
IX. CONCLUSION.........................................................................................115
v
INTRODUCTORY STATEMENT/DISCLAIMER
This Disclosure Statement contains a summary of certain provisions of
the First Amended Joint Plan of Reorganization dated as of ________ __, 2002
(the "Plan")(1) proposed by The Warnaco Group, Inc. ("Group") and certain
subsidiaries of The Warnaco Group, Inc., as debtors and debtors-in-possession
(collectively, the "Debtors"), and summaries of certain other documents relating
to the consummation of the Plan or the treatment of certain parties in interest,
and certain financial information relating thereto.
While the Debtors believe that the summaries contained herein provide
adequate information with respect to the documents summarized, such summaries
are qualified to the extent that they do not set forth the entire text of such
documents. Before casting a ballot, each holder of an impaired claim entitled to
vote on the Plan should review all pertinent documentation, including the Plan.
The terms of the Plan govern in the event of any inconsistency with the
summaries contained in this Disclosure Statement.
No party is authorized by the Debtors to provide any information to
the Debtors' creditors with respect to the Plan other than that contained in
this Disclosure Statement. Other than as set forth in this Disclosure Statement,
the Debtors have not authorized any representations concerning the Debtors,
their anticipated financial position or operations after confirmation of the
Plan or the value of their business and property. To the extent information in
this Disclosure Statement relates to the Debtors, the Debtors or their advisors
have provided the information in this Disclosure Statement.
The information in this Disclosure Statement is being provided solely
for purposes of voting to accept or reject the Plan or objecting to Confirmation
of the Plan. Nothing in this Disclosure Statement may be used by any person or
entity for any other purpose.
The deadline for receipt by the Debtors' voting agent, Bankruptcy
Services, LLC, of ballots voting to accept or reject the Plan is 4:00 p.m.,
Prevailing Eastern Time, on [_______, 2002], unless extended in writing by the
Debtors or order of the Bankruptcy Court.
Nothing contained in this Disclosure Statement, express or implied, is
intended to give rise to any commitment or obligation of the Debtors or confers
upon any person any rights, benefits or remedies of any nature whatsoever (other
than as set forth in the Plan), nor should the contents of this Disclosure
Statement be construed as providing any legal, business, financial or tax
advice. Holders of claims and interests should consult with their own advisors.
The contents of this Disclosure Statement shall not constitute or be construed
as an admission of any fact or liability, stipulation or waiver, but rather as a
statement made in settlement negotiations.
Except as hereafter noted, the information contained herein is
generally intended to describe facts and circumstances only as of the date of
this Disclosure Statement, and neither the delivery of the Disclosure Statement
nor the Confirmation of the Plan will create any implication, under any
circumstances, that the information contained herein or therein is correct
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(1) Capitalized terms not defined herein have the meanings ascribed to them in
the Plan unless otherwise noted.
2
or complete at any time after the date hereof or thereof, or that the Debtors
are or will be under any obligation to update such information in the future.
11 U.S.C. 'SS' 1125(b) prohibits the solicitation of an acceptance
or rejection of a plan of reorganization from a holder of a claim or interest
with respect to such claim or interest unless, at the time of or before such
solicitation, there is transmitted to such holder such plan or a summary of such
plan and a written disclosure statement approved, after notice and hearing, by
the Bankruptcy Court as containing adequate information.
This Disclosure Statement has not been approved or disapproved by, and
the securities offered hereby have not been registered with or approved or
recommended by, the Securities and Exchange Commission (the "SEC") or any
securities regulatory authority of any state, nor has the SEC nor any state
securities regulatory authority passed upon the accuracy or adequacy of this
Disclosure Statement or the statements or information contained herein. Any
representation to the contrary is a criminal offense.
This Disclosure Statement contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are made pursuant to the safe harbor provisions of 11 U.S.C. 'SS'
1125 reflecting, when made, expectations or beliefs concerning future events
that involve risks and uncertainties, including the ability of the Debtors to
satisfy the conditions and requirements of their credit facilities, the effects
of the Cases on the operations of the Debtors, the Debtors' ability to obtain
court approval with respect to motions in the Cases prosecuted by them from time
to time, the ability of the Debtors to develop, prosecute, confirm and
consummate one or more plans of reorganization with respect to the Cases, the
effect of national, international and regional economic conditions, the overall
level of consumer spending, the performance of the Debtors' products within the
prevailing retail environment, customer acceptance of both new designs and newly
introduced product lines, financial difficulties encountered by customers, the
ability of the Debtors to attract, motivate and retain key executives and
employees and the ability of the Debtors to attract and retain customers.
All statements other than statements of historical facts included in
this Disclosure Statement, without limitation, are forward-looking statements.
Although the Debtors believe that the expectations reflected in such
forward-looking statements are reasonable, they can give no assurance that such
expectations will prove to have been correct. The Debtors disclaim any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. These forward-looking
statements may contain the words "believe", "anticipate", "expect", "estimate",
"project", "will be", "will continue", "will likely result" and other similar
words and phrases. Forward-looking statements and the Debtors' plans and
expectations are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated, and the Debtors'
business in general is subject to certain risks that could affect the value of
the Debtors' stock.
The unaudited projections attached hereto as Exhibit E (the
"Projections") have been prepared by the Debtors as projections of possible
future results based upon the assumptions set forth therein, and are dependent
on many factors over which the Debtors do not have control. No assurance can be
given that any of the assumptions on which the Projections
3
are based will prove to be correct. The Projections were not prepared in
compliance with (i) published guidelines of the SEC, (ii) the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or (iii) generally accepted accounting principles ("GAAP"). Neither
Deloitte & Touche LLP ("Deloitte & Touche"), the independent auditors for the
Debtors, nor BDO Seidman, LLP ("BDO Seidman"), the Debtors' bankruptcy
consultant and financial advisors, has participated in the preparation of or
compiled such Projections and, accordingly, neither party expresses any view,
opinion or any other form of assurance with respect to, assume no responsibility
for and disclaim any association with, such Projections. In connection with its
enterprise valuation of the Reorganized Debtors, BDO Seidman, did, however,
perform certain procedures that included evaluating selected assumptions
underlying the Projections relating to revenues and EBITDAR.(2) See Section
VI.C.2.(b), entitled "Best Interests of Claim Holders - Enterprise Valuation of
the Reorganized Debtors." While presented with numerical specificity, such
Projections are based upon a variety of assumptions, which may not be realized,
relating to the future business and operations of the Debtors and are subject to
significant uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of the Debtors. To the extent
that actual results vary from the assumptions, recoveries may vary from the
Projections. The Debtors do not make any express or implied representation or
warranty as to the attainability of the projected financial information set
forth in the Projections or as to the accuracy or completeness of the
assumptions from which that projected information is derived.
I. EXECUTIVE SUMMARY
A. Overview of Chapter 11 Filing
The Warnaco Group, Inc., a Delaware corporation, and certain of its
subsidiaries, as debtors and debtors-in-possession, transmit this Disclosure
Statement (the "Disclosure Statement") pursuant to Section 1125(b) of title 11,
United States Code, 11 U.S.C. 'SS''SS' 101 et seq. (the "Code"), to all known
impaired creditors of the Debtors entitled to vote on the Plan in connection
with the solicitation of acceptances of the Plan. A copy of the Plan, which has
been filed with the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"), is annexed hereto and made a part hereof as
Exhibit A.
On June 11, 2001 (the "Petition Date"), each of the Debtors filed a
voluntary petition for reorganization under chapter 11 of the Code. During the
Cases, the Debtors' management has continued to manage the operation and affairs
of the Debtors as debtors-in-possession under the jurisdiction of the Bankruptcy
Court. The Cases currently are pending before the Honorable Richard L. Bohanon,
United States Bankruptcy Judge for the Southern District of New York.
Chapter 11 is the principal business reorganization chapter of the
Code. Under chapter 11 of the Code, a debtor is authorized to reorganize its
business for the benefit of its creditors and stockholders. In addition to
permitting rehabilitation of the debtor, another goal of chapter 11 is to
promote equality of treatment of creditors and equity security holders of equal
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(2) EBITDAR is defined as earnings before interest, taxes, depreciation,
amortization, restructuring charges and other items as set forth in the DIP
Credit Agreement.
4
rank with respect to the restructuring of debt. Recognizing the need for
representation of unsecured creditors in the reorganization process, Section
1102 of the Code provides for the establishment of a creditors' committee. The
Creditors' Committee in the Cases, initially comprised of nine creditor
representatives, was appointed by the United States Trustee for the Southern
District of New York on June 19, 2001.
Confirmation and consummation of a plan of reorganization are the
principal objectives of a chapter 11 reorganization case. A plan of
reorganization sets forth the means for satisfying claims against, and interests
in, a debtor. Confirmation of a plan requires, among other things, the
affirmative vote of creditors holding at least two-thirds in total dollar amount
and more than one-half in number of the allowed claims in each impaired class of
claims that have voted on the plan, and two-thirds in amount of equity interests
in each impaired class of interests that have voted on the plan. Section 1129(b)
of the Code, commonly referred to as the "cramdown" provision, permits
confirmation of a plan over the objection of an impaired class under certain
circumstances. Confirmation of a plan of reorganization by a bankruptcy court
makes the plan binding upon the debtor, any issuer of securities under the plan,
any person acquiring property under the plan and any creditor or equity security
holder of the debtor. Subject to certain limited exceptions, the confirmation
order discharges the debtor from any debt that arose prior to the effective date
of the plan and substitutes therefor the obligations, if any, specified under
the confirmed plan.
THE DEBTORS BELIEVE THAT THE PLAN COMPLIES WITH ALL REQUIREMENTS OF
THE CODE AND PROVIDES THE BEST AVAILABLE RECOVERY TO THEIR RESPECTIVE ESTATES.
THE PLAN ALSO HAS THE SUPPORT OF THE CREDITORS' COMMITTEE, WHICH WILL RECOMMEND
TO ITS CONSTITUENCY THAT IT VOTE TO ACCEPT THE PLAN. THE DEBTORS URGE ALL
IMPAIRED CREDITORS THAT ARE ENTITLED TO VOTE ON THE PLAN TO ACCEPT THE PLAN.
B. The Debtors
Group is a holding company and the ultimate corporate parent of
approximately 100 domestic (the "U.S. Subsidiaries") and foreign subsidiaries
(the "Foreign Subsidiaries" and, collectively with Group and the U.S.
Subsidiaries, the "Company") with operations in various jurisdictions throughout
the United States and in approximately 25 foreign countries. The Company
designs, manufactures and markets a broad line of: (i) women's intimate apparel,
such as bras, panties, sleepwear, shapewear and daywear; (ii) men's apparel,
such as sportswear, jeanswear, khakis, underwear and accessories; (iii) women's
and junior's apparel, such as sportswear and jeanswear; and (iv) active apparel,
such as swimwear, swim accessories and fitness apparel. The Company's products
are sold to wholesale accounts or directly to consumers through the Company's
Retail Stores Division under a variety of internationally recognized brand
names. The Company's products are marketed under owned or licensed brand names,
including Warner's'r', Olga'r', Calvin Klein'r', Lejaby'r', Rasurel'r',
Bodyslimmers'r', White Stag'r', Chaps by Ralph Lauren'r', Catalina'r', A.B.S. by
Allen Schwartz'r', Speedo'r', Speedo'r' Authentic Fitness'r', Anne Cole'r', Cole
of California'r', Lauren'r'/Ralph Lauren'r', Ralph'r'/Ralph Lauren'r', Ralph
Lauren'r', Polo Sport by Ralph Lauren'r', Polo Sport-RLX'r', Sunset Beach'r',
and Sandcastle'r'.
5
Group, 36 of its U.S. Subsidiaries and Warnaco of Canada Company
("Warnaco of Canada"), are Debtors in the Cases. The remainder of Group's
Foreign Subsidiaries are not Debtors in the Cases, nor are they subject to
foreign bankruptcy or insolvency proceedings.
C. The Disclosure Statement; Voting Requirements
This Disclosure Statement has been approved by the Bankruptcy Court
pursuant to an order dated [_________, 2002] (the "Disclosure Statement Approval
Order"), as containing information of a kind and in sufficient detail to enable
a hypothetical, reasonable investor typical of the holders of impaired Claims to
make an informed judgment with respect to voting to accept or reject the Plan. A
copy of the Disclosure Statement Approval Order is attached hereto as Exhibit B.
This Disclosure Statement is being transmitted in connection with the Plan to
provide adequate information to enable holders of Claims entitled to vote on the
Plan ("Voting Claims") to make an informed judgment with respect to such vote.
Approval by the Bankruptcy Court of this Disclosure Statement does not
constitute an endorsement of any of the representations contained in this
Disclosure Statement or in the Plan, nor does it constitute an endorsement of
the fairness or merits of the Plan itself.
Each holder of a Voting Claim should carefully review the material set
forth in this Disclosure Statement and the exhibits hereto in order to make an
independent determination as to whether to vote to accept or reject the Plan. In
addition, each holder of a Voting Claim should review the entire Plan and the
exhibits thereto before casting a Ballot.
Accompanying this Disclosure Statement are:
1. A copy of the Plan (attached hereto as Exhibit A);
2. A copy of the Disclosure Statement Approval Order (attached
hereto as Exhibit B);
3. A copy of an Organizational Chart for the Reorganized Debtors
(attached hereto as Exhibit C);
4. Copies of the audited consolidated financial statements of Group
for the three fiscal years ending January 5, 2002 (attached
hereto as Exhibit D);
5. A copy of the Projections relating to the Reorganized Debtors for
the fiscal years ended 2002 through 2005 (attached hereto as
Exhibit E);
6. Copies of the unaudited consolidated financial statements of
Group for the period January 6, 2002 through July 5, 2002
(attached hereto as Exhibit F).(3)
- ----------
(3) On or about November 15, 2002, the Company intends to file its Form 10-Q
which will contain the unaudited consolidated financial statements of Group
for the period January 6, 2002 through October 5, 2002, copies of which
will be available from the SEC's public reference room, through www.sec.gov
or, upon request, from the Debtors.
6
7. A copy of the projected consolidated balance sheet for the
Reorganized Debtors as of the Effective Date (attached hereto as
Exhibit G);
8. A liquidation analysis of the Debtors (attached hereto as Exhibit
H); and
9. The notice approved by the Bankruptcy Court (attached hereto as
Exhibit I) that sets forth, among other things, the time fixed by
the Bankruptcy Court for:
(a) receipt of Ballots indicating acceptance or rejection of the
Plan;
(b) Confirmation Hearing;
(c) filing objections to confirmation of the Plan, including,
without limitation, objections to the assumption of certain
executory contracts and unexpired leases under the Plan;
(d) filing of administrative claims by certain parties;
(e) filing claims arising from the rejection of leases and
executory contracts and unexpired leases under the Plan; and
(f) filing of objections to the Debtors' proposed cure payments
in connection with assumed leases and executory contracts
and unexpired leases under the Plan.
Holders of Claims in Class 2, Class 5 and Class 6 are entitled to vote
on the Plan. TO BE COUNTED, YOUR SIGNED ORIGINAL BALLOT MUST BE ACTUALLY
RECEIVED ON OR BEFORE 4:00 P.M. (PREVAILING EASTERN TIME) ON [________, 2002]
(THE "VOTING DEADLINE"), AS FOLLOWS:
For Ballots sent by regular mail:
Warnaco Ballot Processing
P.O. Box 5014
FDR Station
New York, NY 10150-5014
For Ballots sent by messenger or overnight mail:
Warnaco Ballot Processing
c/o Bankruptcy Services, LLC
70 East 55th Street, 6th Floor
New York, NY 10022-3222
Copies of Ballots and Ballots received by facsimile will NOT be counted.
7
D. Sources of Information
The information contained in this Disclosure Statement was derived
from (i) the Debtors' books and records (such as their general purpose financial
statements, books of account and corporate records) and (ii) consultations with
Group's Board of Directors and the Debtors' officers, senior management, key
personnel and various of their outside professionals, including legal,
accounting and financial advisors.
E. General Structure of the Plan
Each Debtor is a proponent of the Plan within the meaning of Section
1129 of the Code. In general, the Plan provides for the substantive
consolidation of all of the Debtors for voting and distribution purposes only,
and provides for the Debtors' reorganization pursuant to the terms of the Plan.
The Plan contemplates the payment in full in Cash of all administrative and
priority claims against the Debtors, and the repayment in full in Cash of
outstanding amounts, if any, under the Debtors' post-petition financing
facility. Furthermore, the Plan provides for the treatment of allowed claims
against, and interests in, the Debtors as follows:
o With respect to the Debtors' pre-petition secured lenders (a) payment
in Cash of all amounts due in respect of the Original Foreign Facility
Guaranty Claims, estimated at approximately $90.1 million; (b)
distribution of new second lien notes of Reorganized Warnaco in the
principal amount of $200 million and (c) distribution of 96.263% of
newly issued common stock of Reorganized Warnaco, subject to dilution
in respect of new common stock to be issued to management of
Reorganized Warnaco under a stock incentive plan, plus, in the event
holders of Class 6 Claims receive no distribution pursuant to Section
2.9.(C) of the Plan, an additional 0.581% of the newly issued common
stock of Reorganized Warnaco, subject to dilution as described above;
o With respect to each holder of an allowed unsecured claim other than a
TOPrS Claim, distribution of its pro rata share of 2.549% of the newly
issued common stock of Reorganized Warnaco, subject to dilution as
described above, plus, in the event holders of TOPrS Claims receive no
distribution pursuant to Section 2.9.(C) of the Plan, an additional
0.015% of the newly issued common stock of Reorganized Warnaco,
subject to dilution as described above;
o With respect to TOPrS Claims, distribution of 0.596% of the newly
issued common stock of Reorganized Warnaco, subject to dilution as
described above, in full satisfaction of any and all TOPrS Claims,
unless the holders of such Claims vote as a class to reject the Plan
in which case there will be no distribution on account of such claims;
and
o No distributions on account of common stock issued by Group, including
claims arising out of, or with respect to, such common stock
interests.
After careful review of the Debtors' current business operations,
estimated recoveries in sale or liquidation scenarios, the prospects of ongoing
businesses, and the strategic
8
business plan for future operations developed by the Debtors' management and
discussed more fully in Section III. hereof, entitled "Future Business of the
Reorganized Debtors," the Debtors have concluded that at this time the recovery
to their creditors will be maximized by the continued operation of the Debtors,
rather than a sale of some or all of the Debtors as a going concern to a third
party, or an orderly liquidation. Thus, the Plan provides for the reorganization
of the Debtors.
A complete list of the legal entities that comprise the Debtors, the
jurisdiction of incorporation and a brief description of the business purpose or
activities for each entity is set forth below. This list identifies each Debtor
by its case number in the Cases and designates those Debtors that are being
reorganized under the Plan and, therefore, will emerge from bankruptcy as
reorganized entities, as well as those Debtors that will be merged pursuant to
the Plan, and, therefore, will not exist following the Effective Date of the
Plan. Finally, for informational purposes only, the list sets forth the
non-Debtor subsidiaries of Group that are not subject to the Plan or the Cases.
The jurisdiction of incorporation and a brief description of the business
purpose or activities for each entity also is shown.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
DEBTORS BEING REORGANIZED UNDER THE PLAN
The Warnaco Group, Inc. (U.S.-Delaware), 01-41643 (RLB) - Parent Holding Company
184 Benton Street Inc. (U.S.-Delaware), 01-41644 (RLB) - Operator - Warnaco
Retail Outlet Stores*
Abbeville Manufacturing Company (U.S.-Delaware), 01-41646 (RLB) - Inactive CK
Jeanswear Manufacturing Company*
A.B.S. Clothing Collection, Inc. (U.S.-California), 01-41645 (RLB) Principal
A.B.S. Operating Company
Authentic Fitness Corporation (U.S.-Delaware), 01-41648 (RLB) - Holding Company
for Authentic Fitness
Authentic Fitness Products Inc. (U.S.-Delaware), 01-41650 (RLB) - Principal
Authentic Fitness Operating Company
Authentic Fitness On-Line, Inc. (U.S.-Nevada), 01-41649 (RLB) - Authentic
Fitness Retail On-line Company
Authentic Fitness Retail Inc. (U.S.-Delaware), 01-41651 (RLB) - Operator -
Authentic Fitness Retail Stores
Calvin Klein Jeanswear Company (U.S.-Delaware), 01-41656 (RLB) - Principal CK
Jeanswear Operating Company
CCC Acquisition Corp. (U.S.-Delaware), 01-41653 (RLB) - Holding Company for
Catalina Trademarks
C.F. Hathaway Company (U.S.-Delaware), 01-41655 (RLB) - Inactive*
CKJ Holdings, Inc. (U.S.-Delaware), 01-41657 (RLB) - Holder of CK Jeanswear
License
Designer Holdings Ltd. (U.S.-Delaware), 01-41659 (RLB) - Holding Company for CK
Jeanswear Business in U.S.
Gregory Street, Inc. (U.S.-Delaware), 01-41660 (RLB) - Accounts Receivable
Management Company
Jeanswear Holdings, Inc. (U.S.-Delaware), 01-41661 (RLB) - Inactive*
Kai Jay Manufacturing Company (U.S.-Delaware), 01-41662 (RLB) - Inactive CK
Jeanswear Manufacturing Company*
Myrtle Avenue, Inc. (U.S.-Delaware), 01-41663 (RLB) - Intercompany Financing
Corporation*
Penhaligon's by Request, Inc. (U.S.-Delaware), 01-41666 (RLB) - Inactive U.S.
Mail Order Company*
Outlet Holdings, Inc. (U.S.-Delaware), 01-41664 (RLB) - Holding Company for CK
Outlet Stores*
Outlet Stores, Inc. (U.S.-Delaware), 01-41665 (RLB) - Operator - CK Jeanswear
Retail Outlet Stores*
Rio Sportswear, Inc. (U.S.-Delaware), 01-41667 (RLB) - Inactive*
Ubertech Products, Inc. (U.S.-Delaware), 01-41668 (RLB) - Research and
Development Company; assets sold in July 2002; now Inactive*
Warmana Limited (U.S.-Delaware), 01-41670 (RLB) - Holding Company for certain
offshore manufacturing operations
Warnaco Inc. (U.S.-Delaware), 01-41671 (RLB) - Principal Warnaco Operating
Company
Warnaco International, Inc. (U.S.-Delaware), 01-41672 (RLB) - Holding Company
for foreign subsidiaries
Warnaco International, LLC (U.S.-Delaware), 01-41673 (RLB) - Inactive*
Warnaco of Canada Company (Canada), 01-41675 (RLB) - Principal Canadian
Operating Company
Warnaco Puerto Rico, Inc. (U.S.-Delaware), 01-41676 (RLB) - Operator - Intimate
Apparel Retail Store in Puerto Rico
Warnaco Sourcing Inc. (U.S.-Delaware), 01-41677 (RLB) - Inactive*
Warnaco U.S., Inc. (U.S.-Delaware), 01-41678 (RLB) - Intangibles Holding Company
Warner's De Costa Rica Inc. (U.S.-Delaware), 01-41680 (RLB) - Inactive
* Commencing within 18 months of the Effective Date, the Company intends to
continue to simplify its corporate structure through the merger of each of
the entities indicated with an asterisk above into their respective parent.
10
DEBTORS BEING MERGED UNDER THE PLAN*
AEI Management Corporation (U.S.-California), 01-41647 (RLB) - to be merged into
Rio Sportswear Inc.
Blanche, Inc. (U.S.-Delaware), 01-41652 (RLB) - to be merged into Warnaco Inc.
CCC Acquisition Realty Corp. (U.S.-Delaware), 01-41654 (RLB) - to be merged into
Authentic Fitness Products Inc.
CKJ Sourcing, Inc. (U.S.-Delaware), 01-41658 (RLB) - to be merged into Calvin
Klein Jeanswear Company
Ventures Ltd. (U.S.-Delaware), 01-41669 (RLB) - to be merged into Warnaco
Ventures Ltd.
Warnaco Men's Sportswear Inc. (U.S.-Delaware), 01-41674 (RLB) - to be merged
into Warnaco Inc.
Warnaco Ventures Ltd. (U.S.-Delaware), 01-41679 (RLB) - to be merged into
Warnaco Inc.
* The Debtors expect each merger to be governed by the liquidation provisions
of the Internal Revenue Code for United States tax purposes.
11
NON-DEBTOR DOMESTIC SUBSIDIARIES THAT ARE NOT SUBJECT TO THE
CHAPTER 11 CASES AND ARE NOT GENERALLY SUBJECT TO THE PLAN
Warnaco Operations Corporation (U.S.-Delaware) - Accounts Receivable
Management Company
NON-DEBTOR FOREIGN SUBSIDIARIES THAT ARE NOT SUBJECT TO THE
CHAPTER 11 CASES AND ARE NOT GENERALLY SUBJECT TO THE PLAN
Authentic Fitness (HK) Ltd. (Barbados) - Inactive Corporation*
Authentic Fitness de Mexico S.A. de C.V. (Mexico) - Inactive Corporation*
Authentic Fitness of Canada Inc. (Canada) - Canadian manufacturer/sales
subsidiary of Authentic Fitness
Calvin Klein France S.N.C. (France) - Commissioned agent for sale of Calvin
Klein Underwear and Accessories in France
Centro de Corte de Tetla, SA de CV (Mexico) - Operator - Mexican cutting center
Designer Holdings Overseas Limited (Hong Kong) - Inactive corporation*
Donatex-Warnaco S.A. (Belgium) - Belgian sales corporation for Lejaby and
Rasurel products
Eratex-Warnaco LAC TWO GmbH & Co. KG (Germany) - German sales corporation for
Lejaby and Rasurel products
Euralis S.A.S. (France) - Holding company for Intangibles and Leases in France
Hamlet Manufacturing, S.A. (Honduras) - Operator - Honduran sewing facility
Hamlet Shirt Company Limited (UK) - Inactive Company*
Juarmex, S.A. de C.V. (Mexico) - Inactive Corporation*
Lejaby S.A.S. (France) - Manufacturing and distribution company for Lejaby
products
Lenitex Warnaco Handelsgesellschaft mbH (Austria) - Austrian sales corporation
for CKU, Lejaby and Warner's products
Leratex-Warnaco Ltd. (United Kingdom) - Inactive Company*
Linda Vista de Tlaxcala S.A. de C.V. (Mexico) - Maquiladora operation involved
in production of AFC and Intimate Apparel products
Linda Vista de Veracruz, S.A. de C.V. (Mexico) - Mexican sales corporation for
CKJ, CKU and Chaps products
Lintex-Warnaco SA (Switzerland) - Swiss sales corporation for Lejaby and Rasurel
products
Mullion International Limited (BVI) - Inactive corporation with intercompany
debt*
Olga de Villanueva S.A. (Honduras) - Operator - Honduras sewing facility
Olguita de Mexico, SA (Mexico) - Maquiladora operation involved in production of
Intimate Apparel products
PMJ S.A. (France) - Inactive manufacturing facility of IZKA*
Private Pleasures Ltd. (United Kingdom) - Holder of internet Domain Name
Tilbes Servisport, Inc. (Canada) - Inactive corporation*
Vista de Huamantla, S.A. de C.V. (Mexico) - Maquiladora operation involved in
production of AFC products
Vista de Puebla, S.A. de C.V. (Mexico) - Inactive operation
Vista de Yucatan, S.A. de C.V. (Mexico) - Sales facility which purchases
products from AFC US for sale into the Mexican market
Warnaco (HK) Ltd. (Barbados) - Sourcing Company for Calvin Klein Underwear; and
retail and distribution company for Calvin Klein Underwear and Accessories in
Asia
Warnaco B.V. (Netherlands) - Holding Company which acts as a treasury hub for
all European Companies and performs sales and distribution functions of the
CK products
Warnaco France S.A.R.L. (France) - Holding Company for Calvin Klein France
S.N.C. (France)*
Warnaco Germany GmbH (Germany) - German sales corporation for CKU products
Warnaco Holland B.V. (Netherlands) - Holding Company for CKU.
Warnaco Intimo S.A. (Spain) - Spanish sales corporation for CKU, Lejaby and
Warner's products
Warnaco Japan K.K. (Japan) - Inactive Corporation*
Warnaco LAC ONE GmbH (Germany) - Holding Company Eratex-Warnaco LAC TWO GmbH &
Co. KG
Warnaco LAC TWO GmbH (Germany) - Holding Company Eratex-Warnaco LAC TWO GmbH &
Co. KG
Warnaco Ltd. (U.K.) (United Kingdom) - Inactive Company*
Warnaco Netherlands B.V. (Netherlands) - Holding Company for the trademark of
Warner's UK Ltd. and Warnaco of Canada Company related to the Warner's and
Olga marks
Warnaco Portugal - Vesutario e Acessorios, Sociedade Unipessoal, Lda. (Portugal)
- Portugese sales corporation for CKU products
Warnaco S.r.L. (Italy) - Italian sales corporation for Lejaby and Rasurel
products
Warnaco Singapore Private Ltd. (Singapore) - Operator - Retail stores located in
Singapore
Warner's (Eire) Teoranta (Ireland) - Inactive corporation with intercompany
debt*
Warner's (U.K.) Limited (United Kingdom) - Corporation manufacturing Warner's
and selling Warner's, CKU and Lejaby products in U.K.
Warner's Aiglon, S.A. (France) - French sales corporation involved in the sale
of Warner's products in France
Warner's Company (Belgium) S.A. (Belgium) - Belgian sales corporation involved
in the sale of Warner's and CKU products
Warner's de Honduras, S.A. (Honduras) - Operator - Honduran manufacturing
facility
Warner's de Mexico, S.A. de C.V. (Mexico) - Mexican sales corporation for CKU,
CKJ, Chaps and Intimate Apparel products
Williams Manufacturing S.A. (Honduras) - Inactive corporation
* Commencing within 18 months of the Effective Date, the Company intends to
continue to simplify its corporate structure through the merger of each of
the entities indicated with an asterisk above into their respective parent.
12
F. Summary of the Treatment Under the Plan of Holders of Claims and
Interests
The following summary is qualified in its entirety by reference to the
Plan and to the more detailed description of provisions for the Classes created
under the Plan set forth in Section IV hereof, entitled "Summary of the Plan of
Reorganization". This Disclosure Statement contains only a summary of the terms
of the Plan. It is the Plan (as may be modified by the Confirmation Order) and
not this Disclosure Statement that governs the rights and obligations of the
parties.
Summary of Treatment of Claims and Interests Under the Plan
Estimate of Aggregate Estimated
Class Description Allowed Claim Amount(4) Treatment Recovery (%)
- ----- --------------------- ----------------------- ------------------------- ----------------
Administrative Claims $1.9 million(5) Paid in full in Cash (i) 100%
- General at the Debtors' sole
option (a) on the Initial
Distribution Date or (b)
in the ordinary course of
business as such Claim
becomes due and owing or
(ii) on such other date
as the Bankruptcy Court
may order.
Administrative Claims $5.7 million Distribution on the 100%
- Alvarez Incentive Effective Date of: (i)
Bonus(6) $1.95 million in Cash;
(ii) New Warnaco Second
Lien Notes in the
principal amount of $0.94
million; and (iii) 0.592%
of the New Warnaco Common
Shares issued, subject to
Dilution in respect of
the Management Stock
Incentive Program (valued
at approximately $2.81
million).
Priority Tax Claims $2.5 million At the Debtors' sole 100%
option, (i) paid in Cash
equal to the allowed
amount of such Claim on
the Effective Date or
(ii) paid in Cash in six
equal annual
installments, together
with interest thereon at
the legal rate required
for such Claims in
chapter 11 cases, which
interest will be paid
annually in arrears
pursuant to Section
1129(a)(9)(C) of the
Code.
- -------------
(4) The estimates set forth in this table are as of the date of this Disclosure
Statement and are for descriptive purposes only, and do not and will not
constitute an admission as to the Debtors' obligations with respect to any
Claim.
(5) Estimate does not include (i) pre-confirmation professional fees which will
be paid upon the approval of final fee applications post-confirmation by
the Bankruptcy Court, (ii) administrative liabilities to be paid in the
ordinary course of business, (iii) the Alvarez Incentive Bonus, (iv) the
Designated Post-Petition Loans or (v) claims of the Debt Coordinators and
the Pre-Petition Collateral Trustee payable under paragraph 22 of the DIP
Approval Orders.
(6) See Section II.B.4.(h)(iv) entitled "Summary of Significant Orders Entered
and Other Actions Taken During the Cases - Order Relating to the Debtors'
Employees and Executives - Antonio C. Alvarez II Employment Agreement" for
a description of the Alvarez Incentive Bonus.
13
DIP Facility Claim $0 million Paid in full in Cash on 100%
the Effective Date, or
otherwise satisfied in a
manner acceptable to the
DIP Lenders, provided
however, that all letters
of credit under the DIP
Facility as of the
Effective Date will
remain outstanding as of
the Effective Date and
will be paid, in the
event drawn, through a
borrowing by the
Reorganized Debtors under
the Exit Financing
Facility.
1 Priority Non-Tax $0 Paid in full in Cash on 100%
Claims the Initial Distribution
Date or upon such other
terms as the Debtors and
the holder of such Claim
may agree.
2 Senior Secured Bank Approximately $2185.4 Each holder of a Senior 34.2%
Claims million Secured Bank Claim will
receive on the Effective
Date its pro rata share
of the following:
(i) Cash equal to the
amount of the balance due
on the original Foreign
Facilities Guaranty
Claims, which will be
applied to repay in full
satisfaction of any
outstanding amounts owing
by the Debtors under the
Original Foreign
Facilities as of the
Petition Date;
(ii) New Warnaco Second
Lien Notes in the
aggregate principal
amount of $200 million;
and
(iii) 96.263% of the New
Warnaco Common Shares,
subject to Dilution in
respect of the Management
Stock Incentive Program.
In the event that holders
of Class 6 Claims are not
entitled to receive a
distribution as provided
in Section 2.9.(C) of the
Plan, each holder of a
Senior Secured Bank Claim
will receive its pro rata
share of an additional
0.581% of the New Warnaco
Common Shares, subject to
Dilution.
All distributions in
respect of Senior Secured
Bank Claims will be made
by the Administrative
Agent to the holders of
such claims in accordance
with the pro rata sharing
arrangement contained in
the Pre-Petition Facility
and Intercreditor
Agreements.
3 GE Capital Secured $15.2 million, with a Paid in Cash without 100%
Claims under the 1997 balance of $5.4 interest at the rate of
MLA million as of the $750,000 per month from
Effective Date and after the Effective
Date until the GE
Settlement Amount (i.e.,
$15.2 million) is paid in
full.
14
4 Other Secured Claims $1.8 million At the Debtors' sole 100%
option, (i) paid in full
in Cash on the Initial
Distribution Date; (ii)
reinstated according to
the terms of the relevant
instrument; (iii) paid on
such other terms as the
Debtors and the holder of
such Claim may agree; or
(iv) satisfied through
the surrender by the
applicable Debtor of the
collateral securing the
Claim to the holder
thereof.
5 Unsecured Claims $169.2 million Each holder of an Allowed 7.2%
Unsecured Class 5 Claim
will receive its pro rata
share of 2.549% of the
New Warnaco Common
Shares, subject to
Dilution. In the event
that holders of Class 6
Claims are not entitled
to receive a distribution
as provided in Section
2.9.(C) of the Plan, each
holder of an Allowed
Unsecured Claim will
receive its pro rata
share of an additional
0.015% of the New Warnaco
Common Shares, subject to
Dilution.
6 TOPrS Claims $125.2 million In the event that holders 2.3%,
of the TOPrS Claims vote plus
as a class to reject the reimbursement of
Plan, the holders of actual and
TOPrS Claims will not reasonable fees
receive or retain any and expenses of
interest or property the TOPrS
under the Plan, and no Trustee incurred
distribution will be made under the TOPrS
on account of the TOPrS Indenture.
Claims. In such event,
the New Warnaco Common
Shares that would
otherwise be distributed
on account of the TOPrS
Claims as set forth in
the next sentence will
instead be distributed
pro rata to holders of
Allowed Class 2 and
Allowed Class 5 Claims in
the following
percentages: 0.581% to
the holders of Allowed
Class 2 Claims and 0.015%
to the holders of Allowed
Class 5 Claims, subject
to Dilution. Otherwise,
in full satisfaction of
the TOPrS Claims, on the
Initial Distribution
Date, the Reorganized
Debtors will distribute
to the TOPrS Trustee,
subject to the right of
the TOPrS Trustee to
assert its TOPrS Trustee
Charging Lien against the
distributions to the
holders of the TOPrS to
the extent the TOPrS
Trustee Fee remains
unpaid, or such persons
as the TOPrS Trustee
designates at least ten
days prior to the
Confirmation Hearing, for
redelivery to the
holder(s) of the TOPrS
Claims a stock
certificate evidencing
ownership of 0.596% of
the New Warnaco Common
Shares, subject to
Dilution, and in addition
will pay the amount of up
to $300,000 to the TOPrS
Trustee on account of the
TOPrS Trustee Fee,
subject to receipt and
review by the Debtors of
invoices detailing such
fees and expenses.
15
7 Intercompany Claims Not Estimated Intercompany Claims will N/A
be discharged, provided,
however, that prior to
discharge the Debtors
have the right to retain
or effect such transfers
and setoffs with respect
to, Intercompany Claims
as they may deem
appropriate for
accounting, tax and
commercial business
purposes, to the fullest
extent permitted by
applicable law.
8 Common Stock Claims Not estimated No distribution 0%
and Interests
G. Conditions to Effectiveness of the Plan
The Bankruptcy Court has scheduled a hearing to consider confirmation
of the Plan for [INSERT DATE]. The Code imposes a number of voting and other
requirements as conditions to the confirmation of a plan of reorganization.
These Code requirements are described in Section VI.B. hereof, entitled
"Confirmation Requirements Under the Code".
In addition, certain conditions specified in the Plan must be
satisfied or waived prior to the Effective Date of the Plan in order for the
Plan to become effective. A summary of these conditions is set forth in Section
IV.D. hereof, entitled "Conditions to Effective Date", and reference is made to
the terms of the Plan, which is attached hereto as Exhibit A.
II. DESCRIPTION OF THE DEBTORS
A. Background Information Regarding the Debtors
1. Overview of History and Operations
Generally. Group was organized in 1986 for the purpose of acquiring
the outstanding shares of Warnaco Inc., then a diversified public apparel
company. Since the acquisition of Warnaco Inc. in 1986, the Company expanded the
scope and size of its business substantially, through a series of acquisitions,
mergers and joint ventures.
The Debtors' operations currently are conducted through eight
principal lines: (i) Authentic Fitness, (ii) CK Jeanswear, (iii) CK Underwear,
(iv) Chaps by Ralph Lauren, (v) Sportswear Licensing, (vi)
Warner's/Olga/Bodyslimmers'r', (vii) Lejaby and (viii) ABS by Allen B. Schwartz.
The Debtors design, manufacture, import and market moderate to premium priced
intimate apparel and other products for women under the Warner's'r', Olga'r',
Calvin Klein'r', Lejaby'r', Rasurel'r' and Bodyslimmers'r' brand names. In
addition, the Company designs, manufactures, imports and markets men's underwear
under the Calvin Klein'r' brand name. Through its Sportswear Licensing, the
Company licenses and provides design support for White Stag'r' women's
sportswear. The Warner's'r' and Olga'r' brand names, which are owned by the
Company, have been utilized for 128 and 61 years, respectively. All of the
Company's continuing intimate apparel brands are owned. The Company designs,
manufactures, imports and markets (i) moderate to premium priced men's apparel
and accessories under the Chaps by Ralph Lauren'r', Calvin Klein'r' and
Catalina'r' brand names, (ii) better to premium priced women's and junior's
apparel under the Calvin Klein'r' and A.B.S. by Allen Schwartz'r' brand
16
names and (iii) moderate to better priced swimwear and activewear under the
Speedo'r', Speedo'r' Authentic Fitness'r', Catalina'r', Anne Cole'r', Cole of
California'r', Lauren'r'/Ralph Lauren'r', Ralph'r'/Ralph Lauren'r', Ralph
Lauren'r', Polo Sport Ralph Lauren'r', Polo Sport-RLX'r', Sunset Beach'r' and
Sandcastle'r' brand names. The Company sells many of its products to the general
public through both outlet stores and full-price retail stores (the "Retail
Stores"). As of January 5, 2002, the Company operated 86 Warners/Olga and CK
Jeanswear outlet stores (64 in the United States, seven in Canada, 13 in the
United Kingdom, one in France and one in Spain). As of the same date, the
Company also operated 95 Speedo/Authentic Fitness'r' full price retail stores.
Geography. The Company engages in sourcing, sales, manufacturing and
marketing activities through North American subsidiaries in the United States,
Canada and Mexico, along with foreign subsidiaries in the United Kingdom,
France, Belgium, Ireland, Spain, Italy, Austria, Switzerland, the Netherlands,
Germany and Hong Kong. The Company's products are distributed to approximately
20,000 wholesale customers operating approximately 50,000 department, specialty
and mass merchandising stores, including leading retailers in the United States
such as Dayton-Hudson, Macy's and other units of Federated Department Stores,
The May Department Stores, J. C. Penney, Kohl's, Sears, Kmart and Wal-Mart and
leading retailers in Canada such as The Hudson Bay Company and Zeller's. The
Company's products are also distributed to leading European retailers such as
House of Fraser, Harrods, Galeries Lafayette, Au Printemps, Karstadt, Kaufhof
and El Corte Ingles, and to leading Mexican retailers such as Palacio de Hierro
and Liverpool.
Employees. As of September 1, 2002, the Company employed approximately
13,000 employees. The Company's U.S. Subsidiaries employ approximately 23% of
the Company's workforce and the Foreign Subsidiaries employed the remaining 77%.
As of September 1, 2002, approximately 156 of the Company's domestic were
members of the Union of Needletrades, Industrial and Textile Employees, AFL-CIO,
CLC.
Facilities. The Company has domestic manufacturing and warehouse
facilities located in California, Georgia and Pennsylvania. Additionally, the
Company has 44 international manufacturing and warehouse facilities located in
Canada, Costa Rica, France, Honduras, Mexico, the Netherlands (through a joint
venture) and the United Kingdom. The Company operates manufacturing facilities
in Mexico and in the Caribbean pursuant to duty-advantaged (commonly referred to
as "Item 807") programs. Because the Company has many potential sources of
manufacturing, a disruption at any one facility will not significantly impact
the Company.
Licenses. The Company has license agreements permitting it to
manufacture and market specific products using the trademarks of others,
including Chaps by Ralph Lauren, Calvin Klein Jeans, and Speedo. The Company's
exclusive license and design agreements for the Chaps by Ralph Lauren trademark
expire on December 31, 2008. These licenses grant the Company an exclusive right
to use the Chaps by Ralph Lauren trademark in the United States, Canada and
Mexico.
The Company's license to develop, manufacture and market designer
jeanswear and jeans-related sportswear under the Calvin Klein Jeans trademark in
North, South and Central
17
America extends for an initial term expiring on December 31, 2034, and is
extendable at the Company's option for a further 10 year term expiring on
December 31, 2044. The Company's exclusive worldwide license agreement with
Calvin Klein, Inc. to produce Calvin Klein men's accessories expires June 30,
2004.
The Company has license agreements in perpetuity with Speedo
International, Ltd. which permit it to design, manufacture and market certain
men's, women's and children's apparel including swimwear, sportswear and a wide
variety of other products using the Speedo trademark and certain other
trademarks, including Speedo Surf Walker'r', and Speedo Authentic Fitness. The
Company's license to use the Speedo trademark and such other trademarks was
granted in perpetuity subject to certain conditions and is exclusive in the
United States, its territories and possessions, Canada, Mexico and the
Caribbean. Speedo International, Ltd., retains the right to use or license such
brand names in other jurisdictions and actively uses and licenses such brand
names throughout the world outside of the Company's licensed areas. Also, the
license agreements may be terminated in the event the Company manufactures or is
controlled by a company that manufactures racing/competitive swimwear, swimwear
caps or swimwear accessories, under a different trademark, as specifically
defined in the license agreements. The Company has certain rights to sublicense
the Speedo trademark within the geographic regions covered by the licenses.
In 1992, the Company entered into an agreement with Speedo Holdings
B.V. and its successor, Speedo International, Ltd., granting certain irrevocable
rights to the Company relating to the use of the Authentic Fitness name and
service mark, which rights are in addition to the rights under the license
agreements with Speedo International, Ltd. The Company is currently engaged in
litigation with Speedo International, Ltd. with respect to these agreements. See
Section II.B.4.(k)(i) hereof, entitled "Summary of Significant Orders Entered
and Other Actions Taken During the Cases - Other Legal Proceedings - Speedo
Litigation".
In October 1993, the Company entered into a worldwide license
agreement with Anne Cole and Anne Cole Design Studio Ltd. Under the licensing
agreement, the Company obtained the exclusive right in perpetuity to use the
Anne Cole trademark for women's swimwear, activewear, beachwear and children's
swimwear, subject to certain terms and conditions. Under the license, the
licensee is required to pay certain minimum guaranteed annual royalties, to be
credited against earned royalties, based on a percentage of net sales. Anne Cole
and Anne Cole Design Studio Ltd. have the right to approve products bearing the
licensed trademark, as set forth in the license.
On February 1, 1998, the Company entered into an exclusive worldwide
license agreement with The Polo/Lauren Company, L.P. and PRL USA, Inc., and a
design services agreement with Polo/Ralph Lauren Corporation for Ralph Lauren,
Polo Sport Ralph Lauren and Polo Sport-RLX brand swimwear for women and girls.
Under the license, the Company produces and markets swimsuits, bathing suits and
coordinating cover-ups, tops and bottoms for women and girls. Shipments under
this license agreement began in January 1999. Effective January 1, 2001, the
Lauren/Ralph Lauren and Ralph/Ralph Lauren marks were added to the license.
These agreements will expire on June 30, 2003.
18
Although the specific terms of each of the Company's license
agreements vary, generally such agreements provide for minimum royalty payments
and/or royalty payments based on a percentage of net sales. Such license
agreements also generally grant the licensor the right to approve any designs
marketed by the licensee.
The Company owns or has other ownership rights in other trademarks,
the most important of which are Warner's, Olga, Calvin Klein men's underwear and
sleepwear, Calvin Klein women's intimate apparel and sleepwear, Lejaby, Rasurel,
Bodyslimmers, White Stag, Catalina, A.B.S by Allen Schwartz, Sunset Beach,
Sandcastle and Cole of California.
The Company sub-licenses the White Stag and Catalina brand names to
Wal-Mart for sportswear and other products. These agreements require the
licensee to pay royalties and fees to the Company. The Company regularly
monitors product design, development, quality, merchandising and marketing and
schedules meetings throughout the year with third-party licensees to assure
compliance with the Company's overall marketing, merchandising and design
strategies, and to ensure uniformity and quality control. The Company, on an
ongoing basis, evaluates entering into distribution or license agreements with
other companies that would permit such companies to market products under the
Company's trademarks. Generally, in evaluating a potential distributor or
licensee, the Company considers the experience, financial stability,
manufacturing performance and marketing ability of the proposed licensee.
Royalty income derived from licensing was approximately $16.1 million, $16.5
million and $17.7 million in fiscal 2001, 2000 and 1999, respectively.
Office and Store Leases. The Company has been assessing, and continues
to assess, its office and store leases. Currently, the principal executive
offices of the Company are located at 90 Park Avenue, New York, New York 10016,
and are occupied pursuant to a lease that expires in 2004. In addition to its
executive offices, the Company leases offices in Connecticut, California and New
York, pursuant to leases that expire between 2003 and 2008.
The Company leases sales offices in a number of major cities,
including Atlanta, Dallas, Los Angeles and New York in the United States;
Brussels, Belgium; Toronto, Canada; Mexico City, Mexico; Paris, France; Cologne,
Germany; Hong Kong; Milan, Italy; and Lausanne, Switzerland. The sales office
leases expire between 2002 and 2008 and generally are renewable at the Company's
option. The Company also occupies office space in London, England subject to a
freehold lease that expires in 2114. The Company currently leases 26 U.S. outlet
store locations for CK Jeanswear (see Section II.B.4.(e) hereof, entitled
"Summary of Significant Orders Entered and Other Actions Taken During The Cases
- - Sales of Certain Real and Personal Property"), 14 European outlet store
locations for Warner's/Olga and 47 Speedo/Authentic Fitness retail store sites.
The outlet store and retail store leases expire between 2002 and 2008 and
generally are renewable at the Company's option.
2. Pre-Petition Capital Structure
(a) Pre-Petition Secured Indebtedness. Until October 2000, the Company
had funded its worldwide operations through numerous unsecured domestic credit
facilities (the "Original Domestic Facilities") and foreign credit facilities
(the "Original Foreign Facilities" and together with the Original Domestic
Facilities, the "Original Facilities"), each of which was
19
provided by one or more of the Pre-Petition Secured Lenders. By the summer of
2000, the Company faced the upcoming maturity in July of its existing $500
million trade credit facility and the maturity in October of a $600 million
bridge loan utilized to acquire Authentic Fitness, as well as potential defaults
under certain financial covenants, which were waived on a short-term basis by
the Pre-Petition Secured Lenders. Through the summer and early fall of 2000, the
Company engaged in extensive negotiations with the Pre-Petition Secured Lenders
towards a global restructuring of all of the Original Domestic Facilities and
Original Foreign Facilities. As a result of such negotiations, the Company and
the Pre-Petition Secured Lenders entered into an Amendment, Modification,
Restatement and General Provisions Agreement, dated as of October 6, 2000,
together with various related loan, intercreditor and security agreements, that
accomplished the overall restructuring by linking the Original Facilities
together (collectively, the "Pre-Petition Facility and Intercreditor
Agreements"). In general, under the Pre-Petition Facility and Intercreditor
Agreements, the Company's Original Facilities were modified (as modified, the
"Modified Facilities") to, inter alia, permanently waive all existing defaults
under the Original Facilities, and to provide for identical representations and
warranties, covenants, mandatory prepayment obligations, and events of default
with respect to each of the Original Facilities. In addition, the Pre-Petition
Facility and Intercreditor Agreements provided for: (i) the extension of the
maturity of each of the Original Facilities to August 12, 2002 (unless the
maturity of an Original Facility occurred after such date); (ii) the conversion
of those Original Facilities that were uncommitted into committed facilities,
and the elimination of any demand features in such Original Facilities; (iii)
collective voting on amendments, waivers and enforcement of the Modified
Facilities and (iv) aggregate commitment reductions under the Original
Facilities of approximately $300 million.
Furthermore, in conjunction with entering into the Pre-Petition
Facility and Intercreditor Agreements, the Company entered into a new $400
million trade credit facility to replace its $500 million original trade credit
facility and to continue to obtain letters of credit to finance the Company's
international sourcing and manufacturing operations. The Company also amended
its existing $300 million receivables securitization facility (the "Pre-Petition
Securitization Facility") to, inter alia, extend the maturity date thereof to
August 12, 2002.
The Pre-Petition Facility and Intercreditor Agreements required that
mandatory and voluntary repayments (other than amortization payments) made by
the Company with respect to any Modified Facility must be shared pro rata by the
lenders party to the Pre-Petition Facility and Intercreditor Agreements. As a
result of the global restructuring of the Original Domestic Facilities, as of
October 6, 2000, the Company had committed to Modified Facilities in the
aggregate amount of $2,593.2 million, all of which were due to mature on or
after August 12, 2002.
Group and its U.S. Subsidiaries pledged substantially all of their
assets to secure their respective obligations under the Modified Facilities
(including their obligations under guarantees) (the "Pre-Petition Collateral").
The common stock of Group's U.S. Subsidiaries, two-thirds of the stock of
Foreign Subsidiaries owned by U.S. Subsidiaries and all of the stock of Foreign
Subsidiaries in certain jurisdictions, also were pledged as security for the
obligations under the Modified Facilities. Additionally, in conjunction with
entering into the Pre-Petition Facility and Intercreditor Agreements in October
of 2000, Group and its U.S. Subsidiaries
20
guaranteed all of the Company's obligations under the Modified Facilities, and
certain of the Foreign Subsidiaries guaranteed the foreign Modified Facilities.
The scope, validity and effectiveness of the grant of the Pre-Petition
Collateral were the subject of investigations conducted by the Creditors'
Committee during the Cases. Specifically, pursuant to paragraph 18(ii) of the
DIP Order (as defined in Section II.B.4.(b), entitled "Summary of Significant
Orders Entered and Other Actions Taken During the Cases - Debtor-in-Possession
Financing"), the Creditors' Committee had until October 22, 2001 to object to or
contest in any manner the validity, perfection, priority or enforceability of
the Pre-Petition Secured Lenders' interest in the Pre-Petition Collateral (the
"Objection Deadline"). Pursuant to subsequent orders of the Bankruptcy Court,
the Objection Deadline was extended through and including March 22, 2002. The
Debtors, the Creditors' Committee and the Pre-Petition Secured Lenders
ultimately entered into a stipulation (the "Bank Collateral Stipulation") that
was approved by the Bankruptcy Court on April 18, 2002, pursuant to which the
Parties agreed that all of the Debtors' personal property and other assets,
wherever located, and the proceeds, products, rents, and profits thereof
constitute Pre-Petition Collateral of the Pre-Petition Secured Lenders except
for (i) inventory and equipment owned by the Debtors, together with the proceeds
and products thereof as of the Petition Date, located in Tennessee, (ii) certain
real property owned by the Debtors located in, inter alia, Costa Rica, Rhode
Island, Pennsylvania and South Carolina and (iii) license agreements relating
to, inter alia, use of the Calvin Klein, Ralph Lauren and Speedo brand names,
listed in the Bank Collateral Stipulation (the "License Agreements"), except
that any licensed products on hand as of the Petition Date, in the process of
manufacture and uncut piece goods on hand, packaging and business materials used
on or in connection with the aforementioned merchandise in connection with any
of the License Agreements, would constitute Pre-Petition Collateral.
The Debtors' Foreign Subsidiaries are not Debtors in the Cases or
otherwise subject to insolvency proceedings. Certain of the Company's Foreign
Subsidiaries are parties to or guarantors of the Original Foreign Facilities
that are subject to standstill and intercreditor agreements. These agreements
provide, inter alia, for (i) certain restrictions on asset transfers, (ii) a
standstill of enforcement of default provisions under the Original Foreign
Facilities and (iii) payments made under any respective Original Foreign
Facility to be shared pro rata with all other Original Domestic Facilities and
Original Foreign Facilities. As of the Petition Date, the aggregate amount
outstanding under the Original Foreign Facilities was $90.1 million, and is
estimated (together with non-default rate interest and other applicable charges)
to be $100.8 million as of January 6, 2003, the assumed effective date of the
Plan. The Company has accrued interest of $4.1 million in fiscal year 2001 on
certain of these Original Foreign Facilities (the "Foreign Interest") and will
continue to accrue interest through the Effective Date. On the Effective Date,
all amounts due and owing under the Original Foreign Facilities will be paid in
full in Cash in accordance with the terms of the Original Foreign Facilities (i)
pursuant to the terms of the Plan by the Debtors or (ii) by the applicable
non-Debtor foreign subsidiary obligors.
(b) 6% Convertible Trust Originated Preferred Securities and 6%
Convertible Common Securities. In 1997, Group acquired Designer Holdings Ltd.
("Designer Holdings"). In 1996, Designer Finance Trust, a non-debtor affiliate
of Designer Holdings (the "Trust") issued 2.4 million mandatorily redeemable
convertible preferred securities for aggregate gross proceeds of $120 million,
and certain convertible common securities for aggregate gross proceeds of
21
$3,711,350 (collectively, the "TOPrS"). In turn, Designer Holdings issued
certain 6% Convertible Subordinated Debentures due 2016 to the Trust in return
for the proceeds of the TOPrS (the "Convertible Debentures"). The TOPrS are
mandatorily redeemable upon the maturity of the Convertible Debentures on
December 31, 2016. The holders of the TOPrS, which were publicly traded on the
New York Stock Exchange until August 10, 2001, were entitled to receive certain
cash distributions, payable quarterly in arrears, from the Trust. However,
Designer Holdings had the right to defer distributions on the TOPrS, as well as
interest payments on the Convertible Debentures, for up to five years. Beginning
in December 2000, Designer Holdings exercised this right. Designer Holdings
guaranteed distributions with respect to the TOPrS only to the extent that the
Trust had funds available for that purpose, and the Trust failed to make such
distributions (the "DH Guarantee").
On or about March 31, 1998, Group entered into a supplemental
indenture (the "Supplemental Indenture") pursuant to which it became a joint and
several obligor with Designer Holdings for the payment of principal, premium and
interest on the Convertible Debentures. On the same date, Group also entered
into a guarantee in substantially the same form as the DH Guarantee (together
with the DH Guarantee, the "TOPrS Guarantee").
Any claim by holders of the TOPrS (the "TOPrS Claims") against
Designer Holdings with respect to the Convertible Indentures is (i)
contractually subordinated to claims of the Pre-Petition Secured Lenders and
(ii) structurally subordinated to all general unsecured claims below the
Designer Holdings level. Similarly, the TOPrS Claim under the Supplemental
Indenture against Group is (i) contractually subordinated to claims of the
Pre-Petition Secured Lenders and (ii) structurally subordinated to all debt
below the Group level.
As a consequence of the foregoing structure, the holders of TOPrS,
although owners in the first instance of equity securities of the Trust, which
is not a Debtor, also have the ability to assert rights as creditors of the
Debtors, and in particular against Designer Holdings, with respect to the
Subordinated Debentures issued to the Trust, and, to a more limited extent,
directly against Group and Designer Holdings under the TOPrS Guaranty which were
issued directly for the benefit of the holders of TOPrS. Accordingly, the TOPrS
are classified as creditors in the Plan, and are receiving a distribution,
subject to the terms of the Plan, which reflects the agreement of Class 2
holders to allow such distribution to the holders of Class 6 Claims,
notwithstanding the subordination provisions contained in the TOPrS
documentation which could require all distributions to holders of Class 6 Claims
to be turned over to holders of Class 2 Claims.
Notwithstanding the subordination of the TOPrS Claims as described
above, as part of the settlements and compromises embodied in the Plan, 0.596%
of the New Warnaco Common Shares (valued by the Debtors at approximately $2.8
million), subject to Dilution, will be made available to the TOPrS Trustee and
will be distributed to the holders of the TOPrS, unless the holders of the TOPrS
Claims reject the Plan. In addition, up to $300,000 will be paid to the TOPrS
Trustee on account of its actual and reasonable fees and expenses incurred under
the TOPrS Indenture, subject to receipt and review by the Debtors of invoices
detailing such fees and expenses, and subject to a further surcharge (as
provided in the TOPrS agreements for application of payment first to pay fees of
the TOPrS Trustee) by the TOPrS Trustee, to the extent the aforesaid $300,000 is
insufficient, against the property otherwise to be distributed to
22
the holders of TOPrS Claims. As a result of these compromises, holders of TOPrS
would receive distributions under the Plan aggregating approximately $2.8
million in value (less any surcharge) absent a rejection of the Plan by holders
of the TOPrS Claims, whereas the TOPrS Claims would receive no distribution if
the contractual and subordination provisions of the applicable agreements were
enforced in accordance with their terms (see Section VI.C.2.(d)(iii), entitled
"Best Interests of Claim Holders - Application of Best Interests Test - Class 6
TOPrS Claims").
(c) Group Common Stock. Group's Class A Common Stock, $0.01 par value
per share (the "Common Stock") was listed on the New York Stock Exchange under
the symbol "WAC" until June 11, 2001 and is now traded on the over-the-counter
electronic bulletin board under the symbol "WACGQ.PK". As of the Petition Date,
Group had 52,873,637 shares of Common Stock outstanding.
In addition, there are a number of stock compensation plans (the
"Pre-Petition Stock Compensation Plans") approved by the shareholders of Group
and administered by the Board of Directors of the Company including (i) the
Amended and Restated 1988 Employee Stock Purchase Plan, (ii) The Warnaco Group,
Inc. 1991 Stock Option Plan, (iii) The Warnaco Group, Inc. 1993 Stock Plan, (iv)
the Amended and Restated 1993 Non-Employee Director Stock Plan, (v) The Warnaco
Group, Inc. 1997 Stock Option Plan and (vi) the 1998 Stock Plan for Non-Employee
Directors.
In August 1999, the Board of Directors of Group adopted a rights plan
in relation to the Common Stock (the "Pre-Petition Rights Plan"). The
Pre-Petition Rights Plan was set to expire on August 31, 2009, unless earlier
redeemed or extended by Group. Under the Pre-Petition Rights Plan, each holder
of Common Stock received a dividend distribution of one right (a "Pre-Petition
Right") for each outstanding share of Common Stock entitling the holder to
purchase from Group one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $100, subject to adjustment. Under the
Pre-Petition Rights Plan, the Pre-Petition Rights separate from the Common Stock
and a Distribution Date (as defined in the Pre-Petition Rights Plan) generally
occurs upon the earlier of (i) ten business days following a public announcement
that a person or group of affiliated or associated persons, has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Stock or a person enters into an Acquisition Transaction (as
defined in the Pre-Petition Rights Plan) (the "Stock Acquisition Date") or (ii)
ten business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of such
outstanding Common Stock.
The Pre-Petition Rights Plan provides, inter alia, that, in the event
that a person becomes the beneficial owner of more than 15% of the then
outstanding Common Stock or enters into an Acquisition Transaction, each holder
of a Pre-Petition Right thereafter generally would have the right to receive,
upon exercise, Common Stock having a value equal to two times the exercise price
of the Pre-Petition Right. Pre-Petition Rights beneficially owned by any
Acquiring Person (as defined in the Pre-Petition Rights Plan) would be null and
void. Pre-Petition Rights would not be exercisable following the occurrence of
the event set forth above until such time as the Rights are no longer redeemable
by the Company as set forth below.
23
Further, the Pre-Petition Rights Plan provides that, in the event
that, at any time following the Stock Acquisition Date, (i) Group is acquired in
a merger or other business combination transaction in which Group is not the
surviving corporation or (ii) 50% or more of Group's assets, cash flow or
earning power is sold or transferred, each holder of a Pre-Petition Right
thereafter generally would have the right to receive, upon exercise, Common
Stock of the acquiring company having a value equal to two times the exercise
price of the Pre-Petition Right.
At any time until ten business days following the Stock Acquisition
Date, Group may redeem the Rights at a price of $.0l per Pre-Petition Right. The
Pre-Petition Rights generally could not be redeemed for 180 days following a
change in a majority of the Board as a result of a proxy contest.
B. The Debtors' Operations in Chapter 11
1. Overview of the Debtors' Operations and Business Plan
Since the Petition Date, the Cases have been pending before the
Honorable Richard L. Bohanon, United States Bankruptcy Judge for the Southern
District of New York. During this period, the Debtors have functioned as
debtors-in-possession pursuant to Sections 1107 and 1108 of the Code and have
continued to operate their business and manage their properties. The Bankruptcy
Court has exercised supervisory powers over the operations of the Debtors with
respect to the employment of attorneys, financial advisors and other
professionals, and transactions out of the Debtors' ordinary course of business
or otherwise requiring bankruptcy court approval under the Code. Generally, the
Debtors have been paying undisputed obligations that have arisen subsequent to
the Petition Date on a timely basis.
The Debtors completed a comprehensive business plan review process for
each of their operating units in late 2001. Based on these comprehensive
business plan reviews, the Debtors formulated a business plan (the "Business
Plan"). In general, the Business Plan contained three components intended to
maximize value in the Cases. First, the Debtors committed to continue in their
efforts to stabilize and improve the operations of their main business units.
Second, to permit the Debtors to focus on maximizing the value of their main
businesses, the Debtors planned to pursue the sale or liquidation of certain
ancillary businesses, including GJM, its private label sleepwear division,
Penhaligon's, its fragrance and toiletries division, Ubertech, a research and
development division, The Bra Company SARL, its Moroccan intimate apparel
manufacturing joint venture and IZKA, its French intimate apparel retail
subsidiary. Third, the Debtors determined that they would explore the sale of
their main businesses, or the Company as a whole, for purposes of comparing the
values that might be achieved in a sale with stand-alone reorganization values.
The Debtors aggressively have implemented the Business Plan. First, as
noted above, they have taken the steps necessary to stabilize and improve the
operations of their main businesses, including recruiting new leadership of
their main businesses and additional new talent where necessary, implementing
further cost-cutting measures and making operational changes that have
dramatically improved the performance of the businesses.
24
Second, the Debtors essentially have completed the sale or liquidation
process for certain ancillary businesses. The sales of substantially all of the
assets GJM, Penhaligon's and Ubertech Products, Inc. have been completed,
generating gross proceeds totaling approximately $20 million (see Section
II.B.4.(g), entitled "Summary of Significant Orders Entered and Other Actions
Taken During the Cases - Sale of Business Units"). Additionally, IZKA has been
liquidated.
Finally, during the Cases, the Debtors, with the assistance of Bear
Stearns & Co., Inc. ("Bear Stearns"), explored the potential sale of their core
businesses for purposes of comparing the values that might be achieved in a sale
with stand-alone reorganization values. To date, the Company and its creditor
constituencies believe that the stand-alone values for the core units exceed the
values that could be obtained by selling these assets. The Company continues to
receive and will continue to respond to offers or expressions of interest with
respect to acquisition offers. The Board of Directors will appropriately
consider any acquisition offers which reflect better values than a stand alone
restructuring of the Company.
2. Parties-in-Interest; Retention of Professionals and Appointment of
Creditors' Committee
(a) Advisors to the Debtors. The Bankruptcy Court entered interim
orders on June 11, 2001, and final orders on July 9, 2001, authorizing the
Debtors to retain the following professionals: Sidley Austin Brown & Wood LLP as
general bankruptcy counsel; Skadden, Arps, Slate, Meagher & Flom LLP as special
counsel with respect to certain corporate and litigation matters; Deloitte &
Touche as accountants, independent auditors and tax advisors; Blake Cassels &
Graydon LLP as special Canadian counsel; BDO Seidman, as bankruptcy consultants
and accountants, and Rosenman & Colin (now known as Katten Muchin Zavis
Rosenman) as special intellectual property counsel.
On June 11, 2001, the Bankruptcy Court approved the Debtors'
appointment of Bankruptcy Services, LLC as noticing, claims and administrative
agent of the Bankruptcy Court in order to assist the Debtors in (i) distributing
notices and ballots and (ii) engaging in organization, management, control and
reconciliation of claims asserted against the Debtors.
On July 26, 2001, the Bankruptcy Court approved the Debtors'
application to employ Keen Realty, LLC as special real estate consultants.
On September 24, 2001, the Bankruptcy Court approved the Debtors'
employment and retention of (i) Sharretts, Paley, Carter & Blauvelt, P.C. as
special customs and international trade counsel and (ii) Dewey Ballantine LLP as
special counsel to assist the Debtors' Audit Committee with its investigation of
suspected accounting errors relating to Designer Holdings Ltd.
On October 18, 2001, the Bankruptcy Court approved the Debtors'
applications to employ and retain (i) Bear Stearns as financial advisors in
connection with the sale of certain assets and (ii) FTI Consulting Inc. as
accountants to assist Dewey Ballantine LLP.
25
On August 5, 2002 and September 18, 2002, the Bankruptcy Court
approved subsequent expansions of BDO Seidman's retention to include enterprise
valuation services in connection with the preparation of the Plan.
In addition, pursuant to the Order Authorizing the Employment and
Compensation of Professionals for Specific Services Rendered to the Debtors in
the Ordinary Course of Business, entered by the Bankruptcy Court on June 20,
2001, the Debtors have employed approximately 56 professionals to assist in the
Debtors' substantial domestic and international operations.
(b) The Creditors' Committee and its Advisors. On June 19, 2001, the
United States Trustee appointed the Creditors' Committee pursuant to Section
1102 of the Code, comprised of the following members:
Milliken & Company
Charbert NFA Corp.
Liberty Fabrics, Inc.
Galey & Lord Industries, Inc.
Elastic Corp. of America, Inc.
United Parcel Service (UPS)
Systech Solutions, Inc.
Pension Benefit Guaranty Corporation
Wells Fargo Bank of Minnesota, N.A.
The Union of Needletrades, Industrial and Textile Employees serves as
an "ex-officio" member of the Creditors' Committee.
By orders of the Bankruptcy Court, dated July 9, 2001, the Creditors'
Committee retained Otterbourg, Steindler, Houston & Rosen, P.C. as its legal
counsel and Arthur Andersen LLP as its financial, accounting and tax advisors.
By order of the Bankruptcy Court dated July 9, 2002, Huron Consulting Group LLC
replaced Arthur Andersen LLP as financial, accounting and tax advisors to the
Creditors' Committee.
(c) United States Trustee. Carolyn S. Schwartz, United States Trustee
for Region 2, and Mary E. Tom, Assistant United States Trustee, have acted on
behalf of the office of the United States Trustee (the "U.S. Trustee") in the
Reorganization Cases.
3. Operating Results During Chapter 11
Since the Petition Date, the Debtors have filed Monthly Operating
Reports with the U.S. Trustee and the SEC on Forms 8-K. These Operating Reports
are public documents and are available at the Office of the U.S. Trustee and the
SEC's public reference room or www.sec.gov. Additional public financial
information can also be found in the Form 10-K for the Fiscal Year ended January
5, 2002, which Group filed with the SEC on July 31, 2002 and in the Form 10-Q
for the Quarterly Period ended April 6, 2002, which Group filed with the SEC on
September 27, 2002.
26
As part of its "first day" orders, the Bankruptcy Court approved on an
interim basis a $600 million debtor-in-possession facility (the "DIP Facility").
See Section II.B.4.(a)(i), entitled "Significant Orders Entered and Other
Actions Taken During the Cases - Significant `First Day' Orders - Interim DIP
Financing." Borrowings shortly after the Debtors filed for chapter 11 protection
amounted to approximately $186 million, which represented the use of the DIP
Facility to pay off the Debtors' Pre-Petition receivable securitization debt.
Peak borrowings of $203.4 million occurred in July, 2001, at which time trade
and standby letters of credit outstanding were $63.2 million. As of the close of
fiscal month September, 2002, outstanding funded borrowings under the DIP
Facility amounted to $0 with trade and standby letters of credit outstanding
amounting to approximately $59.3 million and availability of $152.9 million
under Tranche A of the DIP Facility. Tranche B of the DIP Facility was retired
in April, 2002 due to a stronger than expected liquidity position. Additionally,
as of the close of fiscal month September, 2002, the Debtors had approximately
$64 million in excess cash and cash equivalents on hand, which were pledged as
collateral for the outstanding letters of credit. Thus, the Debtors currently
have improved liquidity by $267 million from July 2001 peak borrowings of $203.4
million to an excess cash position of $64 million in September, 2002.
Increase in Liquidity
The Debtors' positive liquidity position primarily is attributable to
operating results in the first, second and third quarters of 2002 and
improvements in management of receivables and inventory. The Debtors' operating
results for the first, second and third quarters of 2002 reflect positive
consolidated EBITDAR of $101.6 million. By contrast, consolidated EBITDAR for
the entire 2001 fiscal year was $20.2 million. The improvement in operating
earnings as well as inventory and receivable turns has been achieved by changes
in operating discipline at the division level, as follows:
o Beginning in November 2001, the Debtors instituted monthly
operating reviews for each division to monitor
purchasing/production levels, key retailers' sell-through and
inventory positions and clean-up of excess/obsolete inventories
and past-due receivables.
o The Debtors now monitor purchasing and production levels against
what is sold to customers thereby minimizing requests by
customers for setoffs, credits or discounts. The Debtors have
minimized manufacturing and distribution inefficiencies by
selling to retailers what retailers are likely to sell.
o The Debtors' divisional management has focused on collecting past
due receivables and liquidating excess and obsolete inventories.
o The Debtors have strengthened credit policies throughout the
organization, particularly in their Authentic Fitness business
and Mexico operations (insisting that customers reduce accounts
receivable prior to shipment of new goods).
27
Strengthening of the Organization
On April 30, 2001, Warnaco appointed Antonio C. Alvarez II, a founding
partner of a leading turnaround and crisis management consulting firm, Alvarez &
Marsal, Inc. ("A&M"), as Chief Restructuring Advisor to oversee the
reorganization process. At the same time, A&M's James P. Fogarty joined Warnaco
as Senior Vice President-Finance. In November 2001, Mr. Alvarez was named
President and Chief Executive Officer to succeed Linda J. Wachner. In December
2001, Mr. Fogarty was appointed Chief Financial Officer, and Warnaco's General
Counsel, Stanley P. Silverstein, was named Chief Administrative Officer. In
addition, during 2002, the Debtors have recruited the following new management:
(i) John Kourakos as head of the CK Jeanswear, the CK Underwear and the Chaps by
Ralph Lauren lines, (ii) Roger Williams as head of the Authentic Fitness unit
comprised of Speedo and Designer Swimwear lines and (iii) Tom Wyatt as head of
Intimate Apparel, Lejaby, A.B.S. by Allen Schwartz and Sportswear Licensing.
Each of the new managers has recruited additional new talent to his respective
group.
The efforts and restructuring expertise of Messrs. Alvarez and Fogarty
have contributed substantially to the dramatic turnaround of the Company in
these Cases. As the Company approaches emergence from chapter 11, an executive
search firm has been engaged to identify internal and external candidates for
the roles of Chief Executive Officer and Chief Financial Officer. Mr. Alvarez
and Mr. Fogarty have committed to remain in place through the completion of the
restructuring process and to provide for a smooth and orderly transition.
Following the transition period, Messrs. Alvarez and Fogarty will return to A&M.
4. Summary of Significant Orders Entered and Other Actions Taken During
the Cases
Numerous motions, applications and stipulations have been filed, and
many orders have been entered on the Bankruptcy Court's official docket with
respect to the Cases, including the following significant motions and orders:
(a) Significant "First Day" Orders. Although, under the Code, the
Debtors continue to operate their businesses, they may not engage in
transactions outside the ordinary course of business without the Bankruptcy
Court's approval, following notice and opportunity for a hearing in accordance
with the Code and Bankruptcy Rules. Moreover, the Code prohibits the Debtors
from paying pre-petition claims absent a court order. Accordingly, on the
Petition Date, the Debtors requested entry of specific orders by the Bankruptcy
Court approving certain transactions outside the Debtors' ordinary course of
business, and authorizing the Debtors to pay certain pre-petition claims and to
continue specific pre-petition practices essential to its continued business
operations during the pendency of the Cases. Among such "first day" orders
entered by the Bankruptcy Court were the following:
(i) Interim DIP Financing. As part of its "first day" orders, the
Bankruptcy Court approved on an interim basis the DIP Facility
consisting of a borrowing-base revolving facility of $375 million and
a $225 million reducing revolving credit facility. On the Petition
Date, $375 million was made immediately
28
available under the DIP Facility to the Debtors in order to fund
immediately estimated working capital and general corporate
requirements as follows: $121 million for the issuance of new letters
of credit for products to be shipped post-petition (including $10
million of standby letters of credit); $185 million for the repurchase
of receivables generated by the Debtors and sold pre-petition under
the Pre-Petition Securitization Facility; $50 million for the purchase
of goods which were shipped pursuant to pre-petition letters of
credit, which could not be drawn due to various discrepancies in the
draw request or its supporting documentation. A final order was
entered approving the DIP Facility on July 9, 2001. See Section
II.B.4.(b), entitled "Summary of Significant Orders Entered and Other
Actions Taken During the Cases - Debtor-in-Possession Financing." As
also discussed in Section II.B.4.(b), the DIP Facility has been
subsequently amended.
(ii) Interim Order Employing Antonio C. Alvarez II as Chief
Restructuring Officer. On the Petition Date, the Debtors were
authorized to employ Antonio C. Alvarez II as Chief Restructuring
Officer pursuant to Section 363 of the Code to, inter alia, oversee
all restructuring and refinancing related efforts of the Company,
including: (i) the activities of all professionals retained to assist
in the marketing and sale of assets, the recapitalization of the
Company or otherwise retained as part of the restructuring efforts;
(ii) the preparation and presentation of reports and other general
communications with the Company's creditors and shareholders; (iii) at
the request of the Board of Group, the development of a restructuring
plan for the Company and to assist the CEO and other senior management
in the preparation of an operating plan and cash flow forecast; and
(iv) identification of cost reduction opportunities and working
capital opportunities. Mr. Alvarez's base salary was set at $175,000
per month. In November 2001, the Company terminated the employment of
Linda J. Wachner, former Chief Executive Officer, and elected Mr.
Alvarez to replace Mrs. Wachner as President and Chief Executive
Officer. As a result, the Company entered into an employment agreement
with Mr. Alvarez, the terms of which were approved by the Bankruptcy
Court on December 13, 2001, and later amended in February 2002. See
Section II.B.4.(h)(iv), entitled "Summary of Significant Orders
Entered and Other Actions Taken During the Cases - Orders Relating to
the Debtors' Employees and Executives - Antonio C. Alvarez II
Employment Agreement."
(iii) Employee Matters. The Debtors were authorized (but not required)
to: (i) pay their employees all wages, salaries, vacation pay
(including contributions to savings plans and all federal, state and
local payroll-related taxes, deductions and withholdings) and union
dues that have accrued by virtue of the services rendered by their
employees prior to the Petition Date; (ii) pay all out-of-pocket
business and business related expenses incurred by employees that
arose or accrued prior to the Petition Date in accordance with the
Debtors' existing policies; (iii) make payments to certain terminated
employees under the Debtors' pre-petition reduction-in-force program;
(iv) pay all workers' compensation and related policies that arose or
accrued prior to the Petition Date; (v) pay all employees' health,
medical, dental, disability and death claims that arose or accrued
prior to
29
the Petition Date, the premiums on the insurance policies pertaining
thereto, and the costs and expenses incurred in connection with the
servicing and administration of such policies and plans; (vi) continue
the employee benefit plans and programs in effect immediately prior to
the Petition Date; and (vii) make payments with respect to
pre-petition commissions owing to the commission-based independent
sales representatives. The Bankruptcy Court's order also directed all
banks to honor all checks and drafts drawn on the Debtors' Payroll
Accounts, whether presented for payment and/or drawn or issued before
or after the Petition Date.
(iv) Cash Management System. The Debtors were authorized to: (i)
continue to use their centralized cash management system; (ii)
maintain their pre-petition bank accounts; and (iii) maintain and
continue to use any and all existing business forms, stationery and
checks.
(v) Reclamation Claims. The Debtors were authorized to establish
certain detailed procedures for the treatment and reconciliation of
reclamation claims. The Debtors were directed to file a report within
90 days listing those reclamation claims that the Debtors deemed to be
valid. Additionally, any vendor asserting a reclamation right against
the Debtors was required to demonstrate that it had satisfied all the
requirements for a right of reclamation under applicable state law and
Section 546(c)(1) of the Code. The Debtors have paid approximately
$1.4 million to date in satisfaction of reclamation claims.
(vi) Pre-Petition Shipping Charges. The Debtors were authorized to
satisfy their pre-petition import obligations, shipping charges and
warehousing charges (the "Pre-Petition Shipping Charges") in order to
ensure the uninterrupted release of the Debtors' goods (including
imported goods held by shippers, distributors and warehousemen) and to
satisfy any liens in favor of shippers, distributors, warehousemen or
others with respect to such goods. The Debtors also were authorized to
pay such incidental pre-petition import expenses, including customs
duties, general order penalties, ocean freight, air freight, trucking
charges, brokerage fees, detention and demurrage fees, surety bond
premiums, and consolidation and deconsolidation charges (the "Import
Obligations") to date. The Debtors have paid approximately $3.7
million in Pre-Petition Shipping Charges and $2.8 million in Import
Obligations to date.
(vii) Essential Trade Creditors and Licensees. The Debtors were
authorized, but not obligated, to pay pre-petition trade claims to
"essential trade creditors" (the "Essential Vendor Claims") up to an
aggregate of $10 million and pre-petition royalty payment claims to
licensees (the "Royalty Claims") up to an aggregate of $4.8 million.
To date, the Debtors have made payments of approximately $9.4 million
in satisfaction of Essential Vendor Claims and $4.2 million in
satisfaction of Royalty Claims.
30
(viii) Pre-Petition Customer Accommodation Programs. The Debtors were
authorized to honor their pre-petition obligations arising under
various customer accommodation programs, including policies regarding
returns, refunds, gift certificates, and special promotional
certificates, enabling the Debtors to maintain high customer
satisfaction and customers' goodwill throughout the Cases.
(ix) Payment of Pre-Petition Sales, Use and Other Taxes. The Debtors
were authorized to pay certain specifically identified sales taxes,
use taxes, and other "trust fund taxes" that accrued pre-petition. The
Debtors have made payments of approximately $4.1 million to date under
this order.
(x) Warnaco of Canada. Warnaco of Canada was authorized, but was not
obligated, to pay pre-petition claims up to an aggregate of $2
million. Pursuant to this order, the Debtors made payments to all
known pre-petition creditors of Warnaco of Canada in the aggregate
amount of $744,875 shortly after the Petition Date, and have continued
to pay all ongoing obligations of Warnaco of Canada in full in the
ordinary course of business.
(b) Debtor-In-Possession Financing. On July 9, 2001, the Bankruptcy
Court entered an order (the "DIP Order") finally approving the DIP Facility,
which included approval of a $225 million tranche under the DIP Facility, to a
total of $600 million. The DIP Facility was provided to the Debtors pursuant to
the Senior Secured Super-Priority Debtor in Possession Revolving Credit
Agreement, dated as of June 11, 2001, by and among Warnaco Inc., Group and the
Domestic Subsidiaries, the Lenders and the Issuers (as defined therein) (the
"DIP Credit Agreement"). Among other things, the agreements entered into between
the Debtors, the DIP Lenders and the Pre-Petition Secured Lenders in connection
with the DIP Facility provided that the Debtors would pay or reimburse the fees
and expenses of counsel to the DIP Lenders and the Pre-Petition Secured Lenders.
The DIP Lenders retained the law firm of Weil, Gotshal & Manges LLP as counsel,
and the Pre-Petition Secured Lenders retained the law firm of Shearman &
Sterling as counsel.
The terms of the DIP Credit Agreement were negotiated by the Debtors
based on certain financial projections (the "DIP Financial Projections") which
were developed prior to the Petition Date. The DIP Financial Projections were
the basis for certain of the Debtors' covenants in the DIP Credit Agreement,
including, inter alia, a minimum EBITDAR requirement (the "DIP EBITDAR
Covenant").
The DIP Credit Agreement subsequently was amended as of August, 27,
2001, December 27, 2001, February 5, 2002 and May 15, 2002 (collectively, the
"DIP Amendments"). In addition, the Administrative Agent granted certain
extensions under the DIP on April 12, 2002, June 19, 2002, July 18, 2002, August
22, 2002 and September 30, 2002. By order dated December 27, 2001, the Debtors
were authorized to amend the DIP Credit Agreement to adjust, inter alia, the DIP
EBITDAR Covenant to reflect the Debtors' revised financial Projections and
business plans, which took into account current business performance and
Projections including economic developments since the Petition Date and the
tragic events of September 11, 2001. It also reduced the total commitment amount
under the DIP Facility from $600 million to $475
31
million in view of the stronger than projected post-petition liquidity
performance due to better working capital management. The DIP Amendments also
amended certain definitions and covenants, permitted the sale of certain of the
Company's assets and businesses and extended certain deadlines with respect to
required asset sales.
(c) Change In Chief Executive Officer. As discussed in Section
II.B.4.(a)(ii), entitled "Summary of Significant Orders Entered and Other
Actions Taken During the Cases - Significant `First Day' Orders - Interim Order
Employing Antonio C. Alvarez II as Chief Restructuring Officer," upon the filing
of these cases, Antonio C. Alvarez II was employed as Chief Restructuring
Officer of the Debtors to oversee the Debtors' restructuring efforts. In
November 2001, the Company terminated the employment of Linda J. Wachner, former
Chief Executive Officer, and elected Mr. Alvarez to replace Mrs. Wachner as
President and Chief Executive Officer.
(d) Exclusivity Orders. Pursuant to Section 1121 of the Code, the
Debtors are afforded periods of 120 and 180 days, respectively, from the
Petition Date during which period they have the exclusive right to file, and
solicit acceptances of, a plan or plans of reorganization. The Debtors have
obtained approval of five separate extensions of their exclusive periods, the
most recent extensions being to and including October 7, 2002 and December 6,
2002, respectively. The Plan was filed prior to the expiration of the Debtors'
exclusive period to file a plan of reorganization.
(e) Sales of Certain Real and Personal Property. Throughout these
Cases, the Debtors have obtained Bankruptcy Court authority to sell certain real
estate and miscellaneous personal property.
The Debtors have sold a number of real property holdings not necessary
to the Debtors' ongoing business operations. On July 26, 2001, the Bankruptcy
Court approved the sales of (i) a non-essential distribution facility in
Stratford, Connecticut for $4.5 million, and (ii) a corporate apartment located
at 80 Park Avenue, New York, New York for $675,000. On November 2, 2001, the
Bankruptcy Court approved the sale of a research and development facility in
Westerly, Rhode Island for $345,000. On April 18, 2002, the Bankruptcy Court
entered orders authorizing the sale of a parcel of vacant land located at
Duncansville, Pennsylvania for the amount of $340,000 and the sale of a closed
distribution and warehouse facility located at Murfreesboro, Tennessee for the
amount of $3,025,000. On July 11, 2002, the Bankruptcy Court approved the sale
of a closed distribution facility in Alajuela, Costa Rica for $635,000.
On July 15, 2002, the Bankruptcy Court approved auction procedures for
the sale of two improved real properties that housed sewing facilities used in
the manufacturing of jeans under the Calvin Klein'r' label to the highest bidder
without further court order. Such real properties are as follows: (i) the
Abbeville Facility located in Abbeville, South Carolina; and (ii) the Kai Jay
Facility, located in Nesquehoning, Pennsylvania. The Abbeville Facility sold for
$116,000 and the Kai Jay Facility sold for $150,000.
On July 10, 2001, the Bankruptcy Court entered an Order Approving
Procedures to Sell Certain Assets Free and Clear of all Liens, Claims and
Encumbrances Without Further
32
Court Approval. Pursuant to this order, the Debtors have sold various
miscellaneous assets which they have determined are not necessary to their
business operations, including aircraft and helicopter parts, motor vehicles,
artwork and surplus cutting and sewing equipment. These de minimus sales have
yielded approximately $1.8 million to the Debtors' estates.
(f) Store Closing Sales. On April 26, 2002, the Debtors filed a motion
seeking authority to conduct store closing sales at up to 25 of the Debtors'
Warner's'r', Olga'r' and Warnaco outlet stores (collectively, the "Warnaco
Stores"). On May 8, 2002, the Bankruptcy Court approved procedures for (i)
conducting the Warnaco Store closing sales, (ii) auctioning the sale rights to
an agent and (iii) rejecting leases subject to the Warnaco Store closings. On
May 21, 2002, the Bankruptcy Court approved the sale of the rights to conduct
the closing sales at the Warnaco Stores to a joint venture composed of SB
Capital Group, LLC and The Tiger Capital Group, LLC pursuant to an Agency
Agreement. The Debtors completed the Warnaco Store closing sales during the
period from June 3, 2002 through approximately September 16, 2002, and realized
cash proceeds of approximately $12 million.
On September 3, 2002, the Debtors filed a motion seeking authority to
conduct store closing sales at up to 26 Calvin Klein'r' outlet stores (the "CK
Stores") either by way of a independent facilitator if such facilitator were to
submit a sufficient bid for the sale rights or, if not, by the Debtors
themselves. On September 17, 2002, the Bankruptcy Court approved procedures for
(i) conducting the CK Store closing sales, (ii) auctioning the sale rights to a
facilitator and (iii) rejecting leases subject to the CK Store closings. On
October 22, 2002, the Bankruptcy Court approved the sale to Hilco Merchant
Resources, LLC of the rights to conduct the closing sales at the CK Stores
pursuant to a Store Closing Sale Agreement. The Debtors anticipate conducting
these sales during the period from October 23, 2002 through approximately
January 26, 2003.
(g) Sale of Business Units. On January 17, 2002, the Bankruptcy Court
entered an order approving the sale of one of the Company's business divisions,
GJM, to Luen Thai Overseas Limited for $10.1 million (the "GJM Sale"). Certain
of the assets of GJM, consisting of receivables, inventory and certain
trademarks, were property of Warnaco Inc., a Debtor. These assets (apart from
the trademarks) had a book value of approximately $3,774,000 as of the date of
the closing of the sale, February 6, 2002.
The remaining assets of GJM were owned by non-debtor foreign
subsidiaries and consisted of manufacturing plants in China, the Philippines,
and Sri Lanka (the "GJM Manufacturing Plants"), as well as trademarks,
inventory, receivables, and other assets. Some of the foreign assets or stock
that were sold in the GJM Sale were subject to a lien in favor of the
Pre-Petition Secured Lenders. Another portion of the remaining GJM assets,
including the GJM Manufacturing Plants, were not directly subject to the
Pre-Petition Secured Lenders' liens, but were owned by entities which are direct
or indirect subsidiaries of foreign subsidiaries which are themselves
independently liable on the Debtors' pre-petition debt to the Pre-Petition
Secured Lenders.
Under the Pre-Petition Facility and Intercreditor Agreements and the
Original Foreign Facilities, the non-debtor foreign subsidiaries are required to
remit the proceeds of any substantial asset sales to the Pre-Petition Secured
Lenders. Under the DIP Facility, the Debtors
33
were required to pay all asset disposition proceeds to the DIP Lenders. The DIP
Lenders, the Debtors and the Pre-Petition Secured Lenders agreed that the
proceeds of the GJM Sale (the "GJM Sale Proceeds") would be distributed as
follows. First, $4.2 million, which was equal to the amount advanced under the
DIP Credit Agreement with respect to the U.S. assets to be sold in the GJM Sale,
was paid by the Debtors to the DIP Lenders for application under the DIP Credit
Agreement. This payment to the DIP Lenders did not result in a permanent
reduction in the availability under the DIP Loan Agreement, but could be
reborrowed. After a payment of $51,000 due to GE Capital, the balance of the GJM
Sale proceeds was maintained in an escrow account established by certain
non-debtors in favor of the Collateral Trustee under the Modified Facility for
the benefit of the Pre-Petition Secured Lenders. On or about May 8, 2002, the
proceeds in the escrow account were paid to the Administrative Agent for the
benefit of the Pre-Petition Secured Lenders.
In addition to the GJM Sale, at the end of December, 2001, certain of
Group's non-debtor foreign subsidiaries entered into an agreement to sell the
stock of Penhaligon's, a specialized fragrance retail division, to Royal
Holdings, Inc. for $11 million (the "Penhaligon's Sale"). As part of that sale
process, the Bankruptcy Court entered an order on February 26, 2002, authorizing
Warnaco Inc. to transfer to Royal Holdings, Inc. certain assets relating to the
Penhaligon's business located in the United States. Similar to the ownership
structure of the foreign assets of GJM, the remaining assets of Penhaligon's
were owned by non-debtor foreign subsidiaries and directly subject to the liens
of the Pre-Petition Secured Lenders. Other Penhaligon's assets were not directly
subject to the Pre-Petition Secured Lenders' liens, but were owned by entities
which are direct or indirect subsidiaries of foreign subsidiaries which are
guarantors of the Original Foreign Facilities. Accordingly, after the repayment
of certain debt of Penhaligon's, the proceeds of the Penhaligon's Sale were
escrowed and ultimately disbursed to the Administrative Agent for the benefit of
the Pre-Petition Secured Lenders on or about May 8, 2002.
In addition, $1.7 million was placed in an escrow fund for the benefit
of the purchaser of Penhaligon's for potential indemnification claims and for
working capital valuation adjustments, if any, released upon the earlier of (i)
the first anniversary of the completion date of the Penhaligon's Sale and (ii)
the deadline set by the Bankruptcy Court to file and serve objections to the
Disclosure Statement filed in these Cases.
On July 11, 2002, the Bankruptcy Court entered an order approving the
sale of substantially all of the assets of one the Debtors' non-core business
divisions, Ubertech Products, Inc., a research and development enterprise
specializing in a silicone molding technique for affixing raised logos and other
message imprints and designs on sportswear apparel for $150,000 and certain
continuing interests.
(h) Orders and Claims Relating to the Debtors' Employees and
Executives.
(i) "First Day" Order to Pay Employee Wages, etc. As more fully set
forth in Section II.B.4.(a)(iii) above, entitled "Summary of
Significant Orders Entered and Other Actions Taken During the Cases -
Significant 'First Day' Orders - Employee Matters," on the Petition
Date, the Bankruptcy Court entered an order
34
allowing the Debtors to pay pre-petition wages, salaries and benefits
owing to their union and non-union employees.
(ii) Employee Retention Plan. On November 20, 2001, the Bankruptcy
Court authorized the Debtors to implement a key employee retention
plan (the "Employee Retention Plan") designed to provide appropriate
incentives and/or severance protection to certain key executives,
managers and employees, depending upon their function and anticipated
period of employment with the Debtors, in an effort to stem the
employee attrition the Debtors had been experiencing and to ensure the
full commitment of such key employees to the operation of the Debtors'
business during these Cases. The Employee Retention Plan covers
approximately 245 key domestic employees of the Debtors (the "Covered
Employees"), and provides for three types of cash compensation
including: (i) stay bonuses (the "Stay Bonuses"), (ii) severance
protection (the "Severance Protection") and (iii) transaction bonuses
(the "Transaction Bonuses"), which may be awarded in the event of a
sale of one of the Debtors' divisions, or a sale of the entire
company.
The total cost to the Debtors of the Stay Bonuses was
approximately $15.5 million, $3.1 million of which is attributable to
senior managers, $6.9 million of which is attributable to managers and
$5.5 million of which is attributable to supervisors. To date,
approximately $9.7 million has been paid in Stay Bonuses and the
Debtors anticipate a further $4.2 million will be paid. The total
potential cost to the Debtors of the Severance Protection is
approximately $10.3 million. Finally, Transaction Bonuses in an amount
equal to $6 million were available to be awarded. To date, only
$53,040.00 has been paid in Transaction Bonuses in connection with the
sale of GJM (see, Section II.B.4.(g), entitled "Summary of Significant
Orders Entered and Other Actions Taken During the Cases - Sale of
Business Units").
Further Transaction Bonuses will not be paid unless the Company
or any of its businesses are sold during these Cases.
(iii) Rejection of Wachner Employment Agreement. As of the Petition
Date, Mrs. Linda J. Wachner was the Chief Executive Officer and
President of the Company pursuant to an employment agreement dated
January 6, 1991. On November 16, 2001, the Company's Board of
Directors terminated Mrs. Wachner's employment. On December 13, 2001,
the Bankruptcy Court approved a stipulation entered into between Group
and Mrs. Wachner, pursuant to which Mrs. Wachner's employment
agreement was deemed rejected effective November 16, 2001. On January
18, 2002, Mrs. Wachner filed a proof of claim in the Cases asserting,
among other things, a claim for an administrative priority expense in
an amount in excess of $25 million allegedly arising from the
termination of her employment and the rejection of her employment
agreement (the "Wachner Claim"). On May 7, 2002, the Debt Coordinators
for the Pre-Petition Secured Lenders and the Creditors' Committee
filed a detailed objection to the Wachner Claim asserting, inter alia,
that the Wachner Claim, if any, is not
35
entitled to administrative priority and, to the extent that it is a
valid, pre-petition claim, it is limited by Section 502(b)(7) of the
Code. On May 14, 2002, the Debtors filed an objection to the Wachner
Claim on the same grounds. On August 2, 2002, Mrs. Wachner filed a
response to the objections. Following the conclusion of discovery and
additional briefing, the Bankruptcy Court will conduct a hearing and
render a decision with respect to the Wachner Claim. Confirmation and
the effectiveness of the Plan are not conditioned upon or otherwise
dependent upon resolving the Wachner Claim.
(iv) Antonio C. Alvarez II Employment Agreement. As more fully set
forth in Section II.B.4.(a)(ii) above, entitled "Summary of
Significant Orders Entered and Other Actions Taken During the cases -
Significant `First Day' Orders - Interim Order Employing Antonio C.
Alvarez II as Chief Restructuring Officer," on the Petition Date, the
Debtors obtained Bankruptcy Court approval to employ Antonio C.
Alvarez II as Chief Restructuring Officer of the Debtors. On November
16, 2001, Mr. Alvarez was named Chief Executive Officer and President
of Group to succeed Linda J. Wachner. On December 13, 2001, the
Bankruptcy Court authorized the Debtors to enter into an Employment
Agreement with Mr. Alvarez, as President and Chief Executive Officer
of Group. By an order entered by the Bankruptcy Court on February 21,
2002, Mr. Alvarez's employment agreement was amended (as amended, the
"Alvarez Agreement"). The principal terms of the Alvarez Agreement are
as follows:
o Mr. Alvarez receives a base salary of $125,000 per month
during the term of the Alvarez Agreement from June 11, 2001
through the earlier of April 30, 2003, or consummation of a
plan of reorganization for all or substantially all of the
Debtors.
o Mr. Alvarez will receive a minimum incentive payment in the
amount of $2.25 million (the "Minimum Bonus"), against which
$301,000 of payments previously received by Mr. Alvarez
during these Cases will be credited. In addition to the
Minimum Bonus, Mr. Alvarez is eligible to earn additional
incentive bonus amounts (the "Incremental Bonus") determined
by applying percentages to the excess "achieved values" over
a base amount of $625 million (the "Hurdle Amount"). The
concept of "achieved value" is a concept of value achieved
for the Debtors' pre-petition constituencies during the
pendency of the Cases through, among other things, repayment
of pre-petition debt or reduction in pre-petition creditor
exposure on guaranties, letters of credit or the like. In
particular, the definition of "Constituency Payment Pool" in
the Alvarez Agreement identifies eleven categories of
recoveries that may be achieved for the Debtors'
pre-petition constituencies that will be aggregated in most
cases on a present value basis as of April 11, 2002, to
determine the total achieved value for purposes of
calculating the Incremental Bonus (the "Achieved Value").
The Incremental Bonus is then determined by applying the
following percentages to the incremental amounts by which
Achieved Values exceed the Hurdle Amount:
36
Incremental Value of
Constituency Payment Pool in
Excess of the Hurdle Amount Percentage Bonus
-----------------------------------------------------------------
$0 to $100 million 1.5%
In excess of $100 million up to $200 million 2.0%
In excess of $200 million up to $300 million 2.5%
In excess of $300 million up to $400 million 3.0%
In excess of $400 million 0.0%
o The form of consideration received by Mr. Alvarez will be in the
same ratio as the consideration distributed as part of the
Constituency Payment Pool, subject to a minimum payment in cash
of $2.25 million, less the $301,000 in prior cash payments.
o In the event that Mr. Alvarez's employment is terminated by Group
other than for "Cause" or by Mr. Alvarez for "Good Reason" (as
defined in the Alvarez Agreement), Mr. Alvarez will receive a
severance payment equal to his base salary times the lesser of 12
and the number of months (including fractions thereof) remaining
until the expiration of the Alvarez Agreement.
Application of the methodology set forth in the Alvarez Agreement, and
assuming an estimated equity valuation of Reorganized Warnaco of $485.6 (see
Section VI.C.2.(b), entitled "Satisfaction of Conditions Precedent to
Confirmation Under the Code - Best Interests of Claim Holders - Enterprise
Valuation of the Reorganized Debtors"), would result in a total Incentive Bonus
under the Alvarez Agreement of approximately $5.045 million. This computation is
based upon payments or satisfaction of pre-petition letters of credit
aggregating approximately $64.2 million, payments on account of pre-petition
Claims throughout the Cases with a present value as of April 11, 2002 of
approximately $63.4 million, and an aggregate present value of securities to be
distributed as of the Effective Date of approximately $677.2 million. After
discussions among the Restructuring Committee of Group's Board of Directors, the
Steering Committee for the Pre-Petition Secured Lenders and the Creditors'
Committee, it was determined that, in view of Mr. Alvarez's substantial
contribution to the Debtors' successful reorganization in these Cases, he should
receive an additional 0.139% of New Warnaco Common Shares, valued at $660,000,
as part of his Incentive Bonus. Therefore, the Plan provides that Mr. Alvarez
will receive an Incentive Bonus with an aggregate estimated value of $5.705
million, comprised of $1.95 million in Cash ($2.25 million minimum cash bonus
paid to Mr. Alvarez as monthly salary under the Alvarez Agreement, minus
$301,000 already paid to Mr. Alvarez as monthly salary during these Cases),
$940,000 in New Warnaco Second Lien Notes and 0.592% of New Warnaco Common
Shares, with an estimated value of $2.81 million.
(i) Claim by ILGWU National Retirement Fund for Withdrawal Liability
Under MultiEmployer Pension Plan Under ERISA. In April 2002, as a part of their
restructuring efforts, the Debtors closed two of their sewing facilities used in
the manufacturing of jeans under the Calvin Klein'r' label located in Abbeville,
South Carolina and Nesquehoning, Pennsylvania (collectively, the "Abbeville and
Nesquehoning Facilities"). See Section II.B.4.(e), entitled "Summary of
Significant Orders Entered and Other Actions Taken During the Cases - Sales of
37
Certain Real and Personal Property." Approximately 224 employees who were
members of the Union of Needletrades, Industrial and Textile Employees, AFL-CIO,
CLC ("UNITE") were employed by the Debtors at the Abbeville and Nesquehoning
Facilities at the time of closure. Pursuant to the collective bargaining
agreement between the Debtors and UNITE, the Debtors are obligated to make
contributions to the ILGWU National Retirement Fund on behalf of these union
employees. The Debtors' obligations in this regard are governed by the
MultiEmployer Pension Plan Amendments Act of 1980, as amended ("MPPAA"), which
amended Title IV of the Employee Retirement Income Security Act of 1974, as
amended, 29 U.S.C. 'SS''SS' 1301-1461 (1994 and Supp. 14 1998) ("ERISA"). On
June 20, 2002, the ILGWU National Retirement Fund filed an amended proof of
claim against each of the Debtors in these Cases asserting a claim in the amount
of $978,931.00 on the basis of "withdrawal liability under ERISA" i.e., unfunded
benefit liability claims, based on the potential shortfall of the ILGWU National
Retirement Fund's assets in meeting its obligations to pay benefits to
participants in the Retirement Fund.
(j) Administrative Orders - Schedules; Bar Date. On the Petition Date,
the Bankruptcy Court granted the Debtors' motion to extend their time to file
their Schedules of Assets, Liabilities and Executory Contracts, and the
Statement of Financial Affairs (the "Schedules") on a consolidated basis to
August 27, 2001. The Debtors filed their Schedules on that date which, among
other things, list claims against the Debtors on a consolidated basis as of the
Petition Date, as reflected in the Debtors' books and records.
On November 2, 2001, the Bankruptcy Court entered an order (the "Bar
Date Order") setting a deadline of January 4, 2002 for the filing of certain
proofs of claim (the "Initial Bar Date"), including (i) claims (as defined in
Section 101(5) of the Code) against any of the Debtors that arose prior to the
Petition Date and (ii) administrative claims relating to executory contracts or
unexpired leases that have been rejected by the Debtors during the Cases.(7) The
Bar Date Order provided that, among other things, any holder of a claim listed
on the Schedules as liquidated, non-contingent and undisputed, and as to which
the holder agreed with the claim amount set forth in the Schedules, need not
file a proof of claim. In the event that the holder of a claim listed on the
Schedules chose to file a proof of claim, the amount set forth on such filed
proof of claim superseded the amount and classification of the Scheduled claim,
subject to further review, reconciliation and/or objection by the Debtors.
As of the date of this Disclosure Statement, the Debtors are aware
that 2,271 proofs of claim had been filed in the Cases, representing an
aggregate filed amount of approximately $25,403,550.85 in administrative claims,
$42,991,350.68 in secured claims (exclusive of the Senior Secured Bank Claims),
$116,292,224.52 in priority unsecured claims and $2,140,720,105.24 in
non-priority unsecured claims.(8) With the assistance of their professionals,
the Debtors promptly commenced a thorough review of the filed claims and are
well into the process of litigating or resolving the Claims, which process the
Debtors anticipate
- ----------
(7) On May 8, 2002, the Bankruptcy Court entered an order setting a
supplemental bar date of June 24, 2002 (the "Supplemental Bar Date"), for
the filing of proofs of claim by ProLogis Trust ("ProLogis") and Security
Capital Industrial Trust ("Security Capital")
(8) In addition to the Claims filed by Creditors in the Cases, the Debtors'
Schedules reflect approximately $58,411.00 in additional secured
liabilities, $0 in additional priority unsecured liabilities and
$14,820,860.96 in additional non-priority unsecured liabilities. These
scheduled amounts have been included in the Debtors' estimates of total
pre-petition liabilities set forth in this Section.
38
will continue after the Confirmation Date. The Debtors, after consultation with
their professionals and after (i) eliminating duplicative Claims and Claims that
had been amended, superceded or otherwise withdrawn by creditors, (ii)
reclassifying certain Claims that the Debtors believe erroneously were filed as
secured or priority unsecured Claims, (iii) comparing the filed claims to the
Debtors' books and records, and the amount listed in the Schedules and (iv)
analyzing the various legal and factual issues raised by the filed proofs of
claim, estimate that their approximate aggregate liability with respect to
Allowed Claims in the Cases on a consolidated basis to be:
o $1.9 million with respect to Administrative Claims;(9)
o $2.5 million with respect to Priority Tax Claims;
o $1.8 million with respect to Secured Claims (exclusive of the
Senior Secured Bank Claims and the GE Capital Secured Claim);
o Approximately $2185.4 million with respect to the Senior Secured
Bank Claims;
o $169.2 million with respect to non-priority Unsecured Claims
(exclusive of the TOPrS Claims); and
o $125.2 million with respect to the subordinated unsecured TOPrS
Claims.
CLAIMANTS MAY DISAGREE WITH THE DEBTORS' ANALYSIS OF THEIR CLAIMS, AND THE
AGGREGATE AMOUNT AND PRIORITY OF CLAIMS AS ULTIMATELY DETERMINED BY THE
BANKRUPTCY COURT OR AFTER NEGOTIATIONS BETWEEN THE DEBTORS AND THE RESPECTIVE
CLAIMANTS MAY DIFFER FROM THE FOREGOING ESTIMATES.
(k) Other Legal Proceedings. As a consequence of the filing of these
Cases, all pending claims and litigation against the Debtors have been
automatically stayed pursuant to Section 362 of the Code absent further order of
the Bankruptcy Court. Other than certain personal injury claims that currently
are being defended by the Debtors' insurance companies, the Debtors are aware of
the following material pending actions:
(i) Speedo Litigation. Authentic Fitness Corporation's ("AFC") right
to use the Speedo trademarks is derived from certain license
agreements with Speedo International Limited ("SIL"). The current
license agreements (the "Speedo Licenses") were entered into on May
10, 1990. These Speedo Licenses, however, were preceded by earlier
license agreements dating back to 1976.
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(9) Estimate does not include (i) pre-confirmation professional fees which will
be paid upon the approval of final fee applications post-confirmation by
the Bankruptcy Court, (ii) administrative liabilities to be paid in the
ordinary course of business, (iii) the Alvarez Incentive Bonus, (iv) the
Designated Post-Petition Loans, and (v) claims of the Debt Coordinators and
the Pre-Petition Collateral Trustee payable under paragraph 22 of the DIP
Approval Orders.
39
On September 14, 2000, SIL filed a complaint in the United States
District Court for the Southern District of New York (the "District
Court") captioned Speedo International Limited v. Authentic Fitness
Corp., et al., No. 00 Civ. 6931 (DAB) against AFC, Authentic Fitness
Products, Inc. ("AFI" and together with AFC, "Authentic"), Warnaco
Inc., and Group seeking, inter alia, a declaratory judgment entitling
SIL to terminate the Speedo Licenses based upon Authentic's alleged
defaults, including non-payment of royalties and unauthorized
ownership and use of the speedo.com web site (the "Speedo Lawsuit").
The Speedo Licenses are critical to Authentic's business, which
accounts for approximately 25% of projected net revenue of the Company
and 45% of its projected Consolidated EBITDAR.
On November 8, 2000, Authentic, Warnaco Inc. and Group filed an
answer and counterclaims against SIL seeking, inter alia, a
declaration that they have not engaged in trademark violations and are
not in breach of the licensing agreements, and that the Speedo
Licenses may not be terminated.
Pursuant to Section 362 of the Code, the Speedo Lawsuit was
stayed. On or about October 30, 2001, SIL filed a motion in the
Bankruptcy Court seeking relief from the automatic stay in these Cases
to pursue the Speedo Lawsuit in the District Court, and have its
rights determined through a jury trial (the "Speedo Motion"). SIL
argued that as a matter of law, the Bankruptcy Court did not have
jurisdiction over the breach of contract action and that it had a
constitutional right to a jury. Authentic opposed the motion, and oral
argument was held on February 21, 2002. On June 11, 2002, the
Bankruptcy Court rendered a decision denying the Speedo Motion on the
basis that, inter alia, (i) the Speedo Motion was premature and (ii)
the Bankruptcy Court has core jurisdiction over resolution of the
Speedo Claims.
Pursuant to, and in conjunction with seeking confirmation of, the
Plan, the Debtors will seek to assume the Speedo Licenses. The Debtors
believe that all issues raised by SIL with respect to the assumption
of the Speedo Licenses can be resolved by the Bankruptcy Court or
otherwise resolved in a manner which will not preclude assumption of
the Speedo Licenses as of the Effective Date.
(ii) Shareholder Class Actions. Between August 22, 2000 and October
26, 2000, seven putative class action complaints were filed in the
District Court against Group and certain of its officers and directors
(the "Shareholder I Class Action"). The complaints, on behalf of a
putative class of shareholders of Group who purchased Group stock
between September 17, 1997 and July 19, 2000 (the "First Class
Period"), allege, inter alia, that the defendants violated the
Exchange Act by artificially inflating the price of Group's stock and
failing to disclose certain information during the First Class Period.
On November 17, 2000, the District Court consolidated the
complaints into a single action, styled In Re The Warnaco Group, Inc.
Securities Litigation, No. 00-Civ-6266 (LMM), and appointed a lead
plaintiff and approved a lead
40
counsel for the putative class. A second amended consolidated
complaint was filed on May 31, 2001. On October 5, 2001, the
defendants other than Group filed a motion to dismiss based upon,
among other things, the running of the statute of limitations, failure
to state a claim and failure to plead fraud with the requisite
particularity. On April 25, 2002, the District Court granted the
motion to dismiss this action based on the statute of limitations. On
May 10, 2002, the plaintiffs filed a motion for reconsideration in the
District Court. On May 24, 2002, the plaintiffs filed a notice of
appeal. On July 23, 2002, plaintiffs' motion for reconsideration was
denied. On July 30, 2002, the plaintiffs voluntarily dismissed,
without prejudice, their claims against Group. On October 2, 2002, the
plaintiffs filed a notice of appeal with respect to the District
Court's entering a final judgment in favor of the individual
defendants.
Between April 20, 2001 and May 31, 2001, five putative class
action complaints against Group and certain of its officers and
directors were filed in the District Court (the "Shareholder II Class
Action"). The complaints, on behalf of a putative class of
shareholders of Group who purchased Group stock between September 29,
2000 and April 18, 2001 (the "Second Class Period"), allege, inter
alia, that defendants violated the Exchange Act by artificially
inflating the price of Group's stock and failing to disclose negative
information during the Second Class Period.
On August 3, 2001, the Court consolidated the actions into a
single action, styled In Re The Warnaco Group, Inc. Securities
Litigation (II), No. 01 CIV 3346 (MCG), and appointed a lead plaintiff
and approved a lead counsel for the putative class. A consolidated
amended complaint was filed against certain current and former
officers and directors of Group, which expanded the Second Class
Period to encompass August 16, 2000 to June 8, 2001. The amended
complaint also dropped Group as a defendant, but added as defendants
certain outside directors. On April 18, 2002, the Court dismissed the
amended complaint, but granted the plaintiffs leave to replead. On
June 7, 2002, the plaintiffs filed a second amended complaint, which
again expanded the Second Class Period to encompass August 15, 2000 to
June 8, 2001. On June 24, 2002, the defendants filed motions to
dismiss the second amended complaint, which motions are pending. On
August 21, 2002, the plaintiffs filed a third amended complaint adding
Group's current independent auditors as a defendant.
(iii) SEC Investigation. The staff of the SEC has been conducting an
investigation to determine whether there have been any violations of
the Exchange Act in connection with the preparation and publication of
various financial statements and other public statements. On July 18,
2002, the SEC staff informed Group that it intends to recommend that
the SEC authorize a civil enforcement action against Group and certain
persons who have been employed by or affiliated with Group since prior
to January 3, 1999 alleging violations of the federal securities laws.
The SEC staff invited Group to make a Wells Submission describing the
reasons why no such action should be brought. On September 3, 2002,
Group filed its Wells Submission. Group does not expect the
41
resolution of this matter as to Group to have a material effect on
Group's financial condition, results of operation or business.
(l) Restatement of Financial Statements. In June 2001, during the
course of reviewing its business operations, the Company became aware of certain
accounting errors involving the recording of intercompany pricing arrangements,
the recording of accounts payable primarily related to the purchase of inventory
from suppliers and the accrual of certain liabilities. The errors were related
to the Designer Holdings subsidiary. The correction of these errors, together
with additional errors primarily related to the recording of accounts payable
and inventory discovered in certain of the Company's European subsidiaries in
connection with the Company's year-end closing for fiscal 2001, caused the
Company to restate its previously issued financial statements for the years
ended January 1, 2000 and December 30, 2000 (fiscal 1999 and fiscal 2000,
respectively), its previously issued financial results for each of the quarterly
periods in fiscal 1999 and fiscal 2000 and for the fiscal 2001 quarter ended
April 7, 2001. The Company reduced previously reported net income by $4.132
million (net of income tax benefit of $2.703 million), or $0.07 per share, for
fiscal 1999, increased its previously reported net loss by $45.788 million (net
of income tax benefit of $0.137 million), or $0.87 per share, for fiscal 2000
and increased its previously reported net loss by $1.116 million, (no income tax
effect), or $0.02 per share, for the fiscal 2001 quarter ended April 7, 2001
(collectively, the "Restatements").
The Company began an internal investigation of the suspected
accounting errors in June 2001. In August 2001, after reviewing the preliminary
results of the internal investigation, the Audit Committee of the Board of
Directors of the Company retained the law firm of Dewey Ballantine LLP ("Dewey
Ballantine") to investigate the suspected accounting errors at Designer
Holdings. See Section II.B.2.(a), entitled "Parties-in-Interest; Retention of
Professionals and Appointment of Creditors' Committee - Advisors to the
Debtors." In addition, Dewey Ballantine retained FTI Consulting, Inc. ("FTI") to
assist in the investigation and provide accounting expertise to Dewey
Ballantine. See Section II.B.2.(a), entitled "Parties-in-Interest; Retention of
Professionals and Appointment of Creditors' Committee - Advisors to the
Debtors." Dewey Ballantine issued its report to the Audit Committee on February
6, 2002. Since the discovery of the accounting errors at Designer Holdings and
at certain of the Company's European subsidiaries, the Company has replaced
certain financial staff and has taken several steps to improve the accounting
for intercompany purchases and the reconciliation of Intercompany accounts.
The Company estimates that the total cost of conducting the
investigation into this matter, consisting primarily of professional fees, was
approximately $1 million. Approximately $0.681 million of the cost of the
investigation is included in the Company's results of operations for the year
ended January 5, 2002, and the remaining $0.319 million was included in the
results of operations in the first quarter of fiscal 2002.
(m) Property Leases. Since the Petition Date, the Debtors also have
undertaken a number of steps to address their more than 250 nonresidential real
property leases covering, among other things, the Debtors' retail stores,
administrative offices and storage and distribution facilities, including: (i) a
comprehensive evaluation of over 250 real property leases; resulting in the
rejection of approximately 139 leases of retail stores, offices and other
facilities, yielding approximately $19.0 million in annual savings to the
Debtors' estates; (ii) entering lease termination agreements relating to seven
retail stores; (iii) arranging a rent reduction agreement
42
at one of the Debtors' retail stores; (iv) assuming and assigning eight leases
to non-debtor third parties; (v) successfully prosecuting a contested motion to
reject the Debtors' lease of the Second Floor at its corporate headquarters at
90 Park Avenue in New York City resulting in approximately $1.8 million in
annual savings; and (vi) the assumption and assignment of a lease of the 25th
floor at the Debtors' corporate headquarters at 90 Park Avenue in New York City
for an approximate yield of $585,000.00 to the Debtors' estates. The Debtors
also determined that they no longer needed the full facility located in Van
Nuys, California, used primarily for pre-production engineering for Warners'r',
Olga'r' and Bodyslimmers'r' intimate apparel. Accordingly, the Debtors rejected
a portion of the leased premises, and entered a new lease for a smaller portion
of the Van Nuys facility at substantial savings to their estates.
(n) Personal Property Leases and Executory Contracts. Since the
Petition Date, the Debtors have undertaken a comprehensive review of their
extensive and numerous personal property lease agreements. As the Debtors have
downsized their operations and closed various facilities, approximately 63
personal property lease agreements were identified as unnecessary to the
Debtors' ongoing business operations and were rejected pursuant to nine motions
during the pendency of the Cases, achieving an approximate annual savings of
$3.9 million.
The Debtors also have comprehensively reviewed their extensive and
numerous executory contracts. To date, the Debtors have (i) rejected 124
executory contracts, yielding approximately $750,000 in annual savings to the
Debtors' estates, (ii) successfully litigated the rejection of a termination,
settlement and release agreement with Fruit of the Loom and (iii) rejected a
series of agreements with Active Media Services, Inc. ("Active Media") and a
related Consent Agreement with Active Media and National Westminster Bank PLC,
which permitted the Debtors to avoid making payments arising from pre-petition
arrearages totaling $505,000 and making an acceleration payment in excess of $14
million.
As part of the Debtors' ongoing marketing efforts in connection with
their Speedo brand swimwear and activewear, the Debtors entered a number of
endorsement agreements with various athletes to promote their products. On March
19, 2002 and September 19, 2002, the Bankruptcy Court entered orders rejecting
certain endorsement agreements with certain beach volleyball players and
swimmers that the Debtors determined were no longer necessary to the estates due
to a changing product line and marketing focus, resulting in a total savings of
approximately $265,000 plus potential bonuses.
(o) Termination of License Agreement with Weight Watchers. Warnaco
Inc. and Weight Watchers were parties to a license agreement dated January 8,
1999 (as amended from time to time, the "Weight Watchers License Agreement").
Pursuant to the Weight Watchers License Agreement, Weight Watchers granted a
license to Warnaco Inc. to use the "Weight Watchers" mark, all variations and
formatives thereof, and all associated logos in the United States and Canada for
an initial term through July 31, 2004, on intimate apparel for shaping,
enhancing and slenderizing and certain activewear manufactured by Warnaco Inc.
(the "Licensed Products") for distribution through approved retailers and
distributors. The Weight Watchers License Agreement also gave Warnaco Inc. the
right of first refusal to (i) distribute the Licensed Products to other
geographic areas and (ii) expand the Licensed Products to include other product
categories such as hosiery, pantyhose, swimwear and bodywear. The Parties
43
entered into a stipulation (the "Weight Watchers Stipulation") to execute a
termination of the Weight Watchers License Agreement on the terms set forth in a
termination agreement including, inter alia, the right to market, sell and
dispose of the Licensed Product for a period of six months following termination
of the Weight Watchers License Agreement (the "Disposition Period"). The Weight
Watchers Stipulation was approved by the Court on November 2, 2001. The
Disposition Period ended in April, 2002.
(p) Termination of Fruit of the Loom License. Group and Fruit of the
Loom, Inc. ("FOTL") were parties to a certain license agreement pursuant to
which FOTL granted Group the right to manufacture, distribute and sell certain
licensed articles bearing FOTL's trademarks (the "FOTL License Agreement"). In
April 2001, FOTL notified Group, via letter, of its intention to terminate the
FOTL License Agreement on the basis of certain alleged defaults. Following
extensive negotiations, in May 2001, Group and FOTL entered into a termination,
settlement and release agreement (the "FOTL Termination Agreement"), pursuant to
which Group received a limited, nonexclusive right to manufacture certain
articles bearing the FOTL trademark through July 31, 2001, and a limited,
nonexclusive right to sell certain articles bearing the FOTL trademark
domestically through October 31, 2001, and in Mexico and Canada through December
31, 2001. In return, pursuant to the FOTL Termination Agreement, Group agreed to
pay FOTL $3,689,000 in three installments, of which Group made two payments
totaling $2,476,500 prior to the Petition Date.
In October 2001, Group sought entry of an order of the Bankruptcy
Court pursuant to Section 365(a) of the Code authorizing the rejection of the
FOTL Termination Agreement. In response, FOTL filed an objection to the
rejection motion, arguing that Group was required to pay FOTL the remaining
installment as an administrative expense. After extensive argument, by Order
dated December 13, 2001, the Bankruptcy Court granted Group's request to reject
the FOTL Termination Agreement and denied FOTL's request for payment of the
remaining installment as an administrative expense. As a result, FOTL filed a
notice of appeal, dated December 13, 2001.
After extensive negotiations, Group and FOTL entered a settlement (the
"FOTL Settlement") that contemplated, among other things: (i) rejection of the
FOTL Termination Agreement as of December 13, 2001, (ii) payment by Group of
$500,000 to FOTL; and (iii) withdrawal by FOTL, with prejudice, its pending
appeal. Additionally, the FOTL Settlement provided for mutual general releases.
On May 8, 2002, the Bankruptcy Court approved the FOTL Settlement.
(q) Customs Duties. Prior to Petition Date, certain of the Debtors
were, and continue to be, importers of various goods associated with their
manufacturing, distribution and retail businesses. Accordingly, the Debtors
become obligated to pay duties to the U.S. Customs Service ("Customs") assessed
(based upon the import's tariff classification and value) at the time goods
arrive at a Customs port.
In certain instances, post-entry action taken by the Debtors, such as
filing a protest pursuant to 19 C.F.R. 'SS' 174, may result in a reduction
against the duty amount assessed at the time of entry. For example, Congress
passed the Caribbean Basin Trade Partnership Act (the "CBTPA") which, under
interim regulations, became effective October 1, 2000, and provides for
44
duty free treatment on entries of qualifying goods. As an importer of
merchandise from CBTPA beneficiary countries, Warnaco Inc. initiated an
extensive analysis of its manufacturing and sourcing practices and determined
that certain of its imported goods, entered on or after October 1, 2000, for
which it had tendered duties at the applicable General Column 1 duty rate,
qualified for duty free treatment under CBTPA. Accordingly, Warnaco Inc. filed
protests with Customs against the liquidation of such pre-petition entries where
duties were erroneously assessed at the applicable General Column 1 duty rate,
and requested that Customs reliquidate the subject entries and refund to Warnaco
Inc. the overpaid duties.
To date, Customs has approved protests that entitle Warnaco Inc. to
receive refunds of at least $1.7 million relating to pre-petition entries (the
"Approved Refunds"). Similarly, Warnaco Inc. anticipates receiving approvals by
Customs of other protests that will entitle Warnaco Inc. to receive future
refunds relating to pre-petition entries (the "Future Refunds"). The Approved
Refunds, Future Refunds and any other refunds are referred to collectively in
this subsection as the "Refunds."
Customs, however, has been withholding payment of the Refunds on the
grounds there is a possibility that Warnaco Inc. could owe Customs additional
duties relating to pre-petition entries that Customs would seek to setoff
against the Refunds. Such a right to setoff, for example, arguably may arise if
Customs determines that additional duties are due at liquidation of a
pre-petition entry. Warnaco Inc. has proposed entering into a stipulation with
Customs that will provide for the immediate payment of the Refunds by Customs to
Warnaco Inc.
In addition, Authentic Fitness Products Inc. ("AFPI"), a Debtor
herein, is an importer of goods that, under certain circumstances, are qualified
for duty free entry pursuant to the North American Free Trade Agreement
("NAFTA"). In or around December 2001, AFPI received notification from a
supplier that NAFTA origin certificates for certain fabrics had been issued in
error. Promptly thereafter, AFPI initiated a review of all entries covering
goods using such fabric.
AFPI also immediately advised Customs of the issue, and, by letter
dated June 7, 2002, provided Customs with its analysis of all additional duties
due resulting from this matter.
The entries underpayments can be divided into three categories:
o Entries for which there is no additional duty owing because such
entries properly qualify for duty free entry under another tariff
provision;
o Entries occurring during the year immediately preceding the
Petition Date and liquidated after the Petition Date that give
rise to a Priority Tax Claim. The duty underpayment resulting
from these entries is $612,542.59 plus interest; and
o Entries liquidating after the Petition Date that give rise to an
Administrative Claim. The duty underpayment resulting from these
entries is $1,551,551.37 plus interest. AFPI has tendered
45
payments to Customs totalling approximately one-third of the
Administrative Claim.
Although the foregoing represent significant mutual debts owing
between Customs and the Debtors, the Debtors will likely owe other duties to
Customs and/or other jurisdictions in the ordinary course of business in
connection with their current and former international trade activities.
(r) Transaction with Floor Ready Apparel. Prior to the Petition Date,
Calvin Klein Jeanswear, a subsidiary of Designer Holdings, and Floor Ready
Apparel Company LLC ("FRAC") were parties to that certain Distribution
Agreement, dated September 7, 1995 (the "Distribution Agreement"), pursuant to
which FRAC provided Calvin Klein Jeanswear with merchandise processing and
distribution services, including facilities, material handling equipment, labor
security, management and operating supplies. By its terms, the Distribution
Agreement was to expire on April 30, 1997.
In October, 1996, by written agreement, Calvin Klein Jeanswear and
FRAC extended the terms of the Distribution Agreement until January 1, 1998,
and, thereafter, entered into a series of supplemental agreements each of which:
(i) extended the term of the Distribution Agreement for an additional one year
period; (ii) provided for the continuation of FRAC's services on the same
general terms and conditions set forth in the Distribution Agreement; and (iii)
provided for new economic terms. Although the parties did not execute a formal
supplemental agreement for the year 2002, they have been performing under
revised terms of the Distribution Agreement that were agreed to in principle in
December 2001. In connection with its obligations to Calvin Klein Jeanswear
under the Distribution Agreement, FRAC is a party to a certain lease dated
November 18, 1996, with ProLogis (formerly Security Capital), as landlord (the
"ProLogis Trust Lease") evidencing a term of ten (10) years. Under the terms of
the Lease, FRAC leased approximately 500,000 square feet of space located at
1000 New Country Road, Secaucus, New Jersey (the "New Jersey Facility") for the
purposes of receiving, storing, shipping, selling and distributing Calvin Klein
Jeanswear Product. In turn, Designer Holdings is the Guarantor under a certain
Lease Guaranty dated November 12, 1996, pursuant to which Designer Holdings,
among other things, guaranteed FRAC's payment and performance obligations under
the ProLogis Trust Lease.
On or about January 4, 2002, FRAC filed two (2) proofs of claim with
the Clerk of the Bankruptcy Court in connection with the Debtors' Cases.
Pursuant to Proof of Claim number 1855 ("POC 1855"), FRAC asserted a claim
against the Debtors in the amount of $93.5 million, alleging that the alleged
Distribution Agreement is co-terminous with the ProLogis Trust Lease, which the
Debtors dispute. The Debtors have interpreted POC 1855 as a contingent claim for
rejection damages in the event that the Debtors reject the Distribution
Agreement. In addition, pursuant to Proof of Claim number 1856 ("POC 1856"),
FRAC asserted a claim against the Debtors in the amount of $64,520.99,
representing certain alleged pre-petition liabilities.
On May 8, 2002, the Bankruptcy Court approved an agreement (the
"Modified Distribution Agreement") between Designer Holdings and FRAC, to
provide Designer Holdings with logistic and distribution services at a facility
in Secaucus, New Jersey with respect to the distribution of Calvin Klein men's,
women's and children's jeans and sportswear manufactured
46
by the Debtors. The term of the Modified Distribution Agreement extends from
January 6, 2002 through November 30, 2002, and gave Designer Holdings the option
to extend the Modified Distribution Agreement through January 3, 2004 (the
"Option"). On July 30, 2002, Designer Holdings exercised the Option.
Pursuant to the Modified Distribution Agreement, Designer Holdings
will pay FRAC $260,764 per week for the period of January 6, 2002 through
November 30, 2002 (other than the week of January 7, 2002) in exchange for
certain services. Pursuant to the Option, Designer Holdings will pay $0.74 per
unit processing fee for a minimum of 19,000,000 units during the period of
December 1, 2002 through January 3, 2004. Upon execution of the Modified
Distribution Agreement, FRAC and Designer Holdings executed a general release
against each other and their affiliates from all claims they may have against
each other and their respective affiliates (except for claims related to the
Modified Distribution Agreement), and FRAC agreed to withdraw its claims with
prejudice with respect to POC 1855 and POC 1856.
(s) Administrative Claims. Administrative expenses payable in these
Cases include, among other things, the fees and expenses of attorneys,
accountants, financial advisors and other professionals retained by the Debtors
and the Creditors' Committee in connection with the Cases (collectively, the
"Case Professionals"). See Section II.B.2., entitled "Parties-in-Interest;
Retention of Professionals and Appointment of Creditors' Committee." Such fees
are calculated generally as the product of the customary hourly billing rates
and the aggregate hours billed by such Case Professionals. Some advisors are
paid a monthly fee plus expenses incurred, rather than on an hourly basis. The
Bankruptcy Court has entered orders (the "Interim Fee Orders") approving three
interim fee applications of such Case Professionals on January 29, 2002, June
12, 2002 and September 17, 2002 covering the periods June 11, 2001 through
October 31, 2001, November 1, 2001 through February 28, 2002 and March 1, 2002
through June 30, 2002, respectively. Pursuant to the Interim Fee Orders, the
Bankruptcy Court has approved fee applications in the aggregate amount of
$29,141,021.46 in fees and $2,227,664.72 in disbursements.
All due and unpaid fees of the U.S. Trustee will be paid on the
Effective Date. Such fees have been paid as they accrued during the pendency of
the Cases.
5. Settlement of Significant Claims
(a) Bancomext Claim. In 1998, Bancomext, the trade development bank of
Mexico, entered into an arrangement with Warnaco whereby, in the first instance,
Bancomext acquired the Company's three tracts of land located in the Mexican
municipalities of Huejotzingo, Huamantla and Tetla, and constructed a
manufacturing facility on each of the properties (the "Mexican Facilities"). In
turn, each of three non-debtor Mexican subsidiaries of Warnaco(10) entered into
three separate lease agreements (the "Bancomext Leases") with respect to the
respective Mexican Facilities, each for an initial term of twenty (20) years,
renewable for an additional ten (10) year term by Bancomext unilaterally
pursuant to a power of attorney granted by each of the Warnaco Mexico
Subsidiaries. Group executed a guaranty in favor of
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(10) These subsidiaries (the "Warnaco Mexico Subsidiaries") are (i) Vista de
Puebla, S.A. de C.V., as lessee with respect to the Huejotzingo Facility,
(ii) Vista de Huamantla, S.A. de C.V., as lessee with respect to the
Huamantla Facility, and (iii) Centro de Corte de Tetla, S.A. de C.V., as
lessee with respect to the Tetla Facility.
47
Bancomext with respect to the payment of rents and any other amounts due and
owing under the Bancomext Leases (the "Warnaco Guaranty"). To finance the
construction of the Mexican Facilities, Bancomext entered into a credit
agreement for the benefit of the Warnaco Mexico Subsidiaries in the amount of
$20.56 million (the "Bancomext Credit Agreement"). Under the Bancomext Credit
Agreement, amounts paid by the Warnaco Mexico Subsidiaries for rent and other
amounts due and owing under the Bancomext Leases were applied to amortize
amounts due and owing under the Bancomext Credit Agreement. Finally, the
Bancomext Leases are cross-defaulted to one another. Therefore, in the event of
a default under any of the Bancomext Leases, all amounts outstanding under the
Bancomext Credit Agreement, together with all rents and other amounts due over
the remaining term of the Bancomext Leases, could be accelerated and would
become immediately due and owing.
The Mexican Facilities are used primarily to manufacture swimwear. In
late 2000, the Company determined that it no longer needed all three Mexican
Facilities, and closed the Huejotzingo Facility, resulting in a default under
each of the Bancomext Leases. Warnaco's filing of a chapter 11 petition also
constituted an event of default under the Bancomext Leases. Based on the
foregoing, Bancomext filed a proof of claim in Warnaco's chapter 11 case in the
amount of $474 million (the "Bancomext Claim").
Warnaco and Bancomext reached a settlement in principle in April, 2002
and executed a Memorandum of Understanding containing the following terms: (i)
the Huejotzingo Lease will be terminated as of April 22, 2002; (ii) Warnaco will
pay the outstanding rent due under the Huejotzingo Lease in the total amount of
$104,487, together with $8,000 for the cost of an engineers' report prepared in
connection with Warnaco's exit from the Huejotzingo Facility, and will complete
certain repairs identified in the engineers' report; (iii) the Huamantla and
Tetla Leases will be amended (the "Amended Bancomext Leases") to terminate on
July 31, 2005 (the "Initial Term") and Warnaco, in its sole discretion, may
extend the Initial Term, in the first instance, for a period of one to three
years, and, thereafter, for seven successive renewable three year terms,
provided that Warnaco provides at least 12 months' prior written notice of any
such extension; during the Initial Term, the rent payable under the Huamantla
and Tetla leases will be reduced to 80.8% of the rent provided for in the
existing Bancomext Leases, and the rent during any renewable term will be at the
rate set forth in the existing Bancomext Leases; (iv) the Warnaco Guaranty will
be amended to secure the obligations of the Warnaco Mexico Subsidiaries under
the Amended Bancomext Leases; (v) Bancomext will withdraw its $474 million proof
of claim against Warnaco; and (vi) Bancomext will have an allowed unsecured
claim in the amount of $9.5 million in Group's chapter 11 case.
The Memorandum of Understanding was conditioned upon, among other
things, Bancomext obtaining certain approvals to consummate the above-described
settlement. Subject to Bancomext obtaining such approvals, the Bankruptcy Court
approved the settlement by order dated June 12, 2002. Bancomext has not yet
obtained such approval, and has indicated that certain terms of the Memorandum
of Understanding may not be acceptable. The parties continue to negotiate
towards a resolution of these issues, and the Debtors are endeavoring to
conclude a settlement with Bancomext. Pending the outcome of these settlement
negotiations, on October 11, 2002, the Debtors filed an objection to the
Bancomext Claim, and, if the settlement is not consummated, the Debtors intend
to discharge any obligations under the Warnaco Guaranty in these Cases. While
the Debtors believe that it is in all parties' best interests to
48
consummate a settlement with Bancomext, the Debtors believe that the termination
of the Warnaco Guaranty will not be materially detrimental to their estates,
inasmuch as the termination would result in a non-priority unsecured Claim that
would be capped at a maximum of approximately $4.6 million pursuant to Section
502(b)(6) of the Code.
(b) Amster Claim. Prior to the Petition Date, the Debtors employed
Amster Rothstein & Ebenstein ("Amster") to perform certain legal services (the
"Legal Services") with respect to various matters, including the Debtors'
worldwide intellectual property. Effective May 1, 2001, the Debtors changed
legal representation with respect to their intellectual property holdings to
Katten Muchin Zavis & Rosenman (then known as Rosenman & Colin). Amster retained
possession of files relating to the Legal Services including, but not limited
to, certain domestic and foreign patent and licensing files, and certain patent
litigation, arbitration and international trademark files. On or about October
4, 2001, the Debtors filed a motion with the Bankruptcy Court seeking turnover
of the files relating to the Legal Services. On December 27, 2001, Amster filed
a proof of claim in the Cases in the amount of approximately $3.5 million for
pre-petition legal fees and expenses (the "Amster Pre-Petition Claim"). To
resolve the Amster Pre-Petition Claim and the retaining lien asserted by Amster
against certain of the files relating to the Debtors' worldwide intellectual
property, the Debtors entered into a settlement agreement that was approved by
the Bankruptcy Court on January 29, 2002 (the "Amster Settlement Agreement").
Pursuant to the Amster Settlement Agreement, the Debtors agreed to pay Amster
the aggregate amount of $450,000 on the Amster Pre-Petition Claim, agreed to a
$500,000 allowed general unsecured claim and agreed to compensate Amster as an
"ordinary course" professional for post-petition fees and expenses. In
consideration thereof, Amster was to turnover promptly all files and documents
related in any way to the Legal Services (the "Files"). In connection with the
implementation of the Amster Settlement Agreement, various disputes arose
between Amster and the Debtors regarding: (i) the nature and scope of the Files
that were to be returned to the Debtors; (ii) whether Amster under the Amster
Settlement Agreement had released potential claims against certain non-debtor
affiliates of the Debtors; and (iii) the amount of post-petition fees and
expenses due to Amster (collectively the "Post-Settlement Disputes"). The
Debtors and Amster have reached an agreement in principle, subject to the
approval of the Bankruptcy Court, to resolve the Post-Settlement Disputes in
which Amster will deliver all Files claimed by the Debtors and will confirm the
release of all claims against the non-debtor affiliates in exchange for the
Debtors' payment of the remaining installments on the $450,000, and a settlement
and payment of the disputed post-petition fees.
(c) HIS Claim. Warnaco Inc. and Calvin Klein Jeanswear Company
(collectively, the "Debtor Litigants"), together with HIS Equipment Marketing
Co., LP and HIS Equipment Services Inc. (collectively, "HIS"), were parties to
certain lease agreements ("HIS Leases") whereby HIS leased computer equipment
and computer related equipment to the Debtor Litigants in exchange for the
Debtor Litigants making monthly payments to HIS. In June 1999, the Debtor
Litigants, believing that they had overpaid HIS for the leased equipment,
stopped making payments under the HIS Leases. As a result, HIS commenced an
action against the Debtor Litigants seeking, among other things, replevin of the
equipment and damages for unpaid rent under the leases. Subsequently, the Debtor
Litigants commenced an action against HIS seeking, among other things, recovery
of over $2 million in alleged overpayments made under the HIS leases.
49
After HIS filed an order to show cause, which was fully briefed and
argued, the trial court ordered the Debtor Litigants to return the computer
equipment. The court reserved for a jury trial the issue of HIS' damages for the
Debtor Litigants' failure to perform under the HIS Leases. Subsequently, as an
alternative to returning the equipment, the court permitted the Debtor Litigants
to pay HIS $895,145.12, which purported to reflect the value of the computer
equipment. Given that the Debtor Litigants continued to use the equipment, the
court entered a judgment in HIS' favor in the sum of $895,145.12. The Debtor
Litigants appealed the court's decision and posted an appeal bond in the amount
of the judgment issued by Liberty Mutual Insurance Company ("Liberty").
Group was the only signatory to an agreement indemnifying Liberty for
all of Liberty's losses under the bond. The indemnification agreement also
purported to confer liability for Liberty's losses on all of Group's affiliates
and subsidiaries, including those companies that are not Debtors in the Cases.
While the appeal was pending, the Debtor Litigants filed for relief
under chapter 11 of the Code thereby preventing any further prosecution of the
appeal without first seeking relief from the automatic stay. HIS subsequently
moved for relief from the automatic stay.
To avoid the risks of accruing an administrative claim in excess of $3
million and to reduce HIS' general unsecured claim from more than $6 million to
$1.9 million, the Debtor Litigants entered a settlement with HIS that
contemplated, among other things: (i) the Debtor Litigants withdrawing the
appeal with prejudice; (ii) HIS being granted an allowed general unsecured claim
in the amount of $1.9 million to be allocated appropriately against the chapter
11 estates of Warnaco Inc. and Calvin Klein Jeanswear Company; and (iii) Liberty
paying HIS the full amount of the appeals bond totaling $895,145.12 plus
interest from August 31, 2000 (the "HIS Settlement"). Liberty objected to the
settlement, arguing under various theories that it should be released from its
obligations to pay under the appeals bond.
To resolve Liberty's objection to the HIS Settlement, HIS agreed to
cap its claim under the bond at $890,000, of which Liberty paid $491,000 and the
Debtor Litigants paid $399,000. In addition, Liberty was granted an allowed
general unsecured claim in the amount of $1.0 million against the chapter 11
estate of Group and released its claims under the indemnification agreement
against the non-debtor affiliates. The other terms and conditions of the HIS
Settlement remained unaffected. On June 12, 2002, the Bankruptcy Court entered
an order approving these settlements.
(d) GE Capital Secured Claims. Warnaco Inc. and General Electric
Capital Corporation, for itself and other participants ("GE Capital") are
parties to certain lease agreements including: (i) a Master Lease Agreement
dated as of December 22, 1994 (as amended, the "1994 MLA"), pursuant to which
Warnaco Inc. leased certain equipment described therein (the "1994 Equipment");
(ii) an Aircraft Lease Agreement dated as of December 28, 1994 (as amended, the
"Helicopter Lease"), pursuant to which Warnaco Inc. leased a helicopter from GE
Capital; (iii) a certain Aircraft Lease Agreement dated as of February 20, 1995
(as amended, the "Aircraft Lease"), pursuant to which Warnaco Inc. leased an
aircraft from GE Capital; and (iv) a Master Lease Agreement dated as of October
21, 1997, and certain Equipment
50
Schedules designated as Schedule Nos. 001, 002, 003, A-1, A-2, A-3, B-1 and B-2
with GE Capital for itself and other participants (as amended and collectively,
the "1997 MLA"), pursuant to which Warnaco Inc. leased certain equipment
described therein (the "1997 Equipment"). Group guaranteed certain of Warnaco
Inc.'s obligations to GE Capital.
On the Petition Date, Warnaco Inc. rejected the Aircraft Lease and the
Helicopter Lease. On August 14, 2001, GE Capital filed (i) for itself and other
participants a Motion to Compel Assumption or Rejection of Unexpired Leases and
For Post-Petition Lease Payments Pursuant to Section 365(d)(10) of The
Bankruptcy Code (Docket #268 in the Bankruptcy Cases) and (ii) for itself, a
Motion to Compel Assumption or Rejection of Unexpired Leases and for
Post-Petition Lease Payments Pursuant to Section 365(d)(10) of The Bankruptcy
Code (collectively, the "Motions to Compel"), seeking, inter alia, an order
compelling the Debtors to assume or reject the 1997 MLA and the 1994 MLA
(together, the "MLA Leases") and payment of all past due and future
post-petition rental payments thereunder to GE Capital until the MLA Leases are
rejected (the "GE Capital Secured Claims"). On January 24, 2002, the Debtors
filed their opposition to the Motion to Compel as to the 1997 MLA, together with
a cross-motion for summary judgment, a supporting memorandum of law and
affidavit, and an adversary proceeding (the "Adversary Proceeding") seeking to
have the 1997 MLA recharacterized as a financing arrangement (or secured loan)
rather than a true lease (the "Cross-Motion").
To avoid the risk and expense associated with litigating the
characterization of the MLA Leases, to resolve the amount of GE Capital's claim
and to ensure continued use of the personal property necessary to the business
which was included in the 1997 MLA and 1994 MLA, the Debtors entered into a
settlement agreement with GE Capital to settle the disputes related to the
Motions to Compel, the Cross-Motion, the Adversary Proceeding, the 1994 MLA, the
1997 MLA, the Aircraft Lease, the Helicopter Lease, as well as other outstanding
issues between the Debtors and GE Capital (the "GE Capital Settlement
Agreement"). The GE Capital Settlement Agreement was approved by the Bankruptcy
Court on June 12, 2002. Pursuant to the GE Capital Settlement Agreement, GE
Capital was afforded a secured claim (the "GE Capital Secured Claim") with
respect to certain amounts due under the 1997 MLA in the amount of $15.2 million
(the "GE Settlement Amount"). The Debtors were afforded a credit against the GE
Settlement Amount equal to the sum of (i) all prior post-petition rental
payments in cash made by the Debtors to GE Capital on account of the 1997 MLA
and (ii) all actual net proceeds of sale of certain of the 1997 Equipment, which
net proceeds are actually received by GE Capital during the course of the Cases.
The Debtors are also obligated to pay GE Capital the sum of $550,000 per month
through the date of entry of an Order by the Bankruptcy Court in the Cases
confirming any plan of reorganization, and $750,000 per month thereafter, all
without interest, until the GE Settlement Amount is paid in full (collectively,
the "Secured Payments"). If any portion of any Secured Payment is not paid in
its entirety when due, the Debtors must pay to GE Capital interest at the rate
of 14% per annum on any portion of any Secured Payment not paid when due (the
"GE Interest"). The GE Interest is secured by GE Capital's security interest in
and to the 1997 Equipment. In addition, subject to such payment having been
made, the monthly Secured Payments are reduced by the percentage applicable to
the sale of such Business as set forth in the GE Capital Settlement Agreement.
Under the GE Capital Settlement Agreement, GE Capital is also afforded
an allowed general unsecured claim in both Warnaco Inc.'s and Group's Cases in
the amount of
51
$33,557,667.26 with respect to the 1997 MLA and a general unsecured claim in
both Warnaco Inc.'s and Group's Bankruptcy Cases in the amount of $2,394,037
with respect to the Helicopter Lease, minus any net rental payments and any net
sale proceeds received by GE Capital on account of GE Capital's lease or sale of
the helicopter. Also, pursuant to the GE Capital Settlement Agreement, the
Debtors have the right to sell any of their divisions or subsidiaries free and
clear of all liens and claims of GE Capital, and the 1994 Equipment with the
written consent of GE Capital and upon payment at the closing of the sale of any
Business, GE Capital is to be paid the percentage set forth in the chart set
forth in the GE Capital Settlement Agreement of the then-outstanding GE
Settlement Amount (i.e., the GE Settlement Amount less all amounts paid to GE
Capital to date). In addition, Warnaco Inc. assumed the 1994 MLA and has the
option to purchase the 1994 Equipment at the stipulated loss value. On or about
July 1, 2002, the Debtors paid $1.29 million under the 1994 MLA to purchase
certain of the 1994 Equipment and the only 1994 Equipment outstanding is that on
Schedule 11 to the 1994 MLA which runs through to October 2003 at which time
Warnaco Inc. will decide whether to purchase that equipment. The GE Capital
Settlement Agreement also provided for mutual releases between the Parties.
The Debtors are current with respect to their continuing obligations
under the GE Capital Settlement Agreement.
6. Current Executive Officers and Directors
(a) Antonio C. Alvarez II. Mr. Alvarez was elected President and Chief
Executive Officer of the Company on November 16, 2001 and was elected to the
Board of Directors on March 19, 2002. Mr. Alvarez is a member of the Board's
Restructuring Committee. Prior to his election to these positions, Mr. Alvarez
served the Company as Chief Restructuring Officer from June 11, 2001 to November
16, 2001 and as Chief Restructuring Advisor to the Company (while employed by
Alvarez & Marsal, Inc., a leading turnaround and crisis management consulting
firm, which Mr. Alvarez co-founded) from April 30, 2001 to June 11, 2001. Mr.
Alvarez serves as Non-Executive Chairman of the Board of Wherehouse
Entertainment, Inc. ("Wherehouse"). Mr. Alvarez served as Chairman of the Board
and Chief Executive Officer of Wherehouse from January 1997 until October 2001.
Over the last 18 years as a founding Managing Director of A&M, Mr. Alvarez has
served as restructuring officer, consultant or operating officer of numerous
troubled companies.
(b) James P. Fogarty. Mr. Fogarty was elected Senior Vice
President-Finance and Chief Financial Officer of the Company on December 20,
2001. Prior to his election to these positions, Mr. Fogarty served the Company
as Senior Vice President from June 11, 2001 to December 20, 2001, and served as
an advisor to the Company (while employed by A&M) from April 30, 2001 to June
11, 2001. Mr. Fogarty has been associated with A&M since August 1994. As part of
his work with A&M, Mr. Fogarty has held management positions with Bridge
Information Systems, DDS Partners LLC, AM Cosmetics, Inc. and Color Tile, Inc.
In addition, Mr. Fogarty provided restructuring advisory services to Fruehauf
Trailer and Homeland Stores, Inc. Mr. Fogarty was associated with the accounting
firm KPMG from June 1990 until July 1994. Mr. Fogarty holds a B.A. degree in
Economics and Computer Science from Williams College, a MS in Accounting from
the Leonard Stern School of Business at New York
52
University and a MBA in Finance and Accounting from the Leonard Stern School of
Business at New York University.
(c) Stanley P. Silverstein. Mr. Silverstein has served as Vice
President, General Counsel and Secretary of the Company since December 1990. Mr.
Silverstein was elected Chief Administrative Officer of the Company in December
2001. Mr. Silverstein served as Assistant Secretary of the Company from June
1986 until his appointment as Secretary in January 1987. Mr. Silverstein
received a B.A. from Yale College in 1974 and received a J.D. from Harvard Law
School in 1977.
(d) Stuart D. Buchalter. Mr. Buchalter currently serves as
Non-Executive Chairman of the Board of Directors for the Company and is a member
of the Board's Restructuring Committee. Mr. Buchalter joined the Company in
February 2000 as a Director. Mr. Buchalter is Of Counsel to the California law
firm of Buchalter, Nemer, Fields & Younger P.C. He served as Chairman of the
Board of Standard Brands Paint Company, which successfully reorganized under
chapter 11 of the Code, through June 15, 1993. He serves as director of City
National Corporation and Earl Scheib, Inc. He also serves as the Chairman of the
Board of Trustees of Otis College of Art & Design. Mr. Buchalter did his
undergraduate work at the University of California at Berkeley, receiving a B.A.
in 1959, and attended Harvard Law School, earning an L.L.B. in 1962.
(e) Joseph A. Califano, Jr. Mr. Califano has been a Director of the
Company since March 1992. Mr. Califano is Chairman and President of The National
Center on Addiction and Substance Abuse at Columbia University. He is a Director
of Automatic Data Processing, Inc. Mr. Califano is a Trustee of New
York-Presbyterian Hospital, The Century Foundation, The Urban Institute and The
American Ditchley Foundation, Trustee Emeritus of The John F. Kennedy Center for
the Performing Arts, and a member of the Advisory Council of the American
Foundation for AIDS Research and the Council on Foreign Relations. He is
Founding Chairman of the Board of the Institute for Social and Economic Policy
in the Middle East at the Kennedy School of Government at Harvard University.
Mr. Califano served as Secretary of the United States Department of Health,
Education, and Welfare from 1977 to 1979. He was Special Assistant for Domestic
Affairs to the President of the United States from 1965 to 1969. He is the
author of nine books.
(f) Donald G. Drapkin. Mr. Drapkin has been a Director of the Company
since July 1999. He has been a Director and Vice Chairman of MacAndrews and
Forbes Holdings, Inc. and several of its affiliates since 1987. Mr. Drapkin was
a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP for more
than five years prior to 1987. Mr. Drapkin is also a Director of the following
corporations which file periodic reports pursuant to the Exchange Act:
Anthracite Capital, Inc., Black Rock Asset Investors, The Molson Companies
Limited, Panavision, Inc, Playboy.com, Inc., Playboy Enterprises, Inc., Revlon
Consumer Products Corporation, Revlon, Inc. and SIGA Technologies, Inc.
(g) Richard Karl Goeltz. Richard Karl Goeltz has been a Director of
the Company since July 2002. Mr. Goeltz served as Vice Chairman and Chief
Financial Officer of the American Express Company from 1996 to 2000. Previously,
Mr. Goeltz was Group Chief Financial Officer and a member of the Board of
Directors of NatWest Group ("NatWest"), the
53
parent company of National Westminster Bank PLC. Prior to joining NatWest, Mr.
Goeltz served The Seagram Company for over 20 years in a variety of management
positions. Mr. Goeltz previously held various financial positions in the
treasurer's department of Exxon Corporation in New York and Central America. Mr.
Goeltz is a director of the New Germany Fund, a member of the Board of Overseers
of Columbia Business School, a director of Opera Orchestra of New York, a member
of the Council on Foreign Relations and a member of the Court of Governors of
the London School of Economics and Political Science. Mr. Goeltz received his
M.B.A. from Columbia Business School, his B.A. in economics from Brown
University and also studied at the London School of Economics and New York
University.
(h) Harvey Golub. Mr. Golub has been a Director of the Company since
January 2001. Mr. Golub is a member of the Board's Restructuring Committee. Mr.
Golub served as a member of the Board of Directors of American Express Company
from September 1990 until his retirement in April 2001, as Chairman of American
Express Company from August 1993 until April 2001 and as Chief Executive Officer
from January 1993 to January 2001. Mr. Golub serves as a Director of Campbell
Soup Company and Dow Jones & Co., and as the Chairman of Airclic Inc., Chairman
of ClientLogic and Chairman of TH Lee Putnam Ventures. Mr. Golub also serves on
the Boards of Lincoln Center for the Performing Arts, the American Enterprise
Institute and the New York-Presbyterian Hospital. Mr. Golub serves as a Senior
Advisor to Lazard Freres.
(i) Dr. Manuel T. Pacheco. Dr. Pacheco has been a Director of the
Company since August 1999. He has been President of the University of Missouri
since 1997. He served on the Board of Directors of ASARCO until its sale in
1999, and currently serves on the Boards of PNM Resources, Inc., Boy Scouts of
America, The Higher Education Center for Alcohol and Other Drug Prevention,
Nelson-Atkins Museum of Art, University of Arizona Science and Technology Park
and The National Center on Addiction and Substance Abuse. He has a Presidential
appointment to the National Security Education Program Board, serves on the
Provost's External Advisory Board on Teaching at Ohio State University and is a
Trustee of the University of Kansas City.
(j) Linda J. Wachner. Mrs. Wachner has been a Director of the Company
since March 1986. Mrs. Wachner served as President of the Company from March
1986 until November 2001, as Chief Executive Officer of the Company from August
1987 until November 2001 and as Chairman of the Board of Directors from August
1991 until November 2001. Mrs. Wachner held various positions, including
President and Chief Executive Officer, with Max Factor and Company from December
1978 to October 1984.
III. FUTURE BUSINESS OF THE REORGANIZED DEBTORS
A. Structure and Business of the Reorganized Debtors
Following the Effective Date, the Reorganized Debtors intend to
continue to conduct their business essentially as restructured and consolidated
during the pendency of the Cases except for the Debtors which have either merged
or liquidated pursuant to the Plan. See Section I.E., entitled "General
Structure of the Plan." In addition, the Reorganized Debtors will be subject to
fresh start accounting rules. See Section III.C., entitled "Projected Financial
54
Information." As more fully described in Section II.B.1. hereof, entitled
"Overview of Debtors' Operations and Business Plan," the Reorganized Debtors
will continue to manufacture, market and distribute products through existing
wholesale channels and through certain retail outlets. The Reorganized Debtors
also intend to continue with the licensing arrangements described in Section
II.A.1. hereof, entitled "Overview of History and Operations." In addition, as
set forth in Section 5.4. of the Plan, certain subsidiaries of the Debtors will
be merged under the Plan in order to simplify the corporate structure of the
Debtors, and the stock of Designer Holdings Ltd., Myrtle Avenue, Inc. and
Authentic Fitness Corporation will be transferred to Warnaco Inc., to clarify
organizational relationships among subsidiaries of the Reorganized Debtors.
B. Executive Officers and Directors of the Reorganized Debtors
As set forth in Section II.B.3., entitled "Operating Results During
Chapter 11 - Strengthening of the Organization," the Debtors' current President
and Chief Executive Officer, Antonio C. Alvarez II, and Chief Financial Officer,
James P. Fogarty, joined the Debtors from the turnaround and crisis management
consulting firm, Alvarez & Marsal, Inc. in April 2001. Messrs. Alvarez and
Fogarty will return to their practice at A&M. Mr. Alvarez has committed to
remain in place through the completion of the restructuring process and to
provide for a smooth and orderly transition to a new Chief Executive Officer. An
executive search firm has been engaged to identify internal and external
candidates for the Chief Executive Officer and Chief Financial Officer
positions. Separately, an executive search firm has been engaged to identify
candidates for the Board of Directors of Reorganized Warnaco.
Pursuant to Section 5.6. of the Plan, the Debtors will file Plan
Schedule 5.6 with the Bankruptcy Court on or before the Exhibit Filing Date
setting forth the offices, names and affiliations of, and the compensation
proposed to be paid to, the individuals intended to serve as directors and
officers of each Reorganized Debtor on and after the Effective Date. On and
after the Effective Date, each Reorganized Debtor will be governed in accordance
with the Amended Certificates of Incorporation and Bylaws.
C. Projected Financial Information
The Debtors have prepared the Projections for the years 2002 through
2005, which are attached hereto as Exhibit E and discussed in Section VI.C.3.
hereof, entitled "Feasibility of the Plan".
THE DEBTORS HAVE PREPARED THE PROJECTIONS ATTACHED AS EXHIBIT E TO
THIS DISCLOSURE STATEMENT IN CONNECTION WITH THE PLANNING AND DEVELOPMENT OF THE
PLAN. THE PROJECTIONS INCLUDE A PRO-FORMA REORGANIZED BALANCE SHEET AT JANUARY
6, 2003, INCLUDING ESTIMATED REORGANIZATION AND FRESH START ADJUSTMENTS. THE
PROJECTIONS ASSUME THAT THE PLAN SUCCESSFULLY WILL BE IMPLEMENTED ON THE TERMS
DESCRIBED IN THIS DISCLOSURE STATEMENT. THE PROJECTIONS, WHICH WERE PREPARED AS
DESCRIBED THEREIN, ARE SUBJECT TO BUSINESS, ECONOMIC AND OTHER UNCERTAINTIES
INHERENT IN DEVELOPING PROJECTIONS, AS DISCUSSED IN SECTION VI.C.3. HEREOF,
ENTITLED "FEASIBILITY OF THE PLAN".
55
The Projections have been made pursuant to the safe harbor provisions
of 11 U.S.C. 'SS' 1125 that reflect when made, expectations or beliefs
concerning future events that invoke risks and uncertainties. Any statements
contained herein (including, without limitation, statements to the effect that
the Debtors or their management or Board of Directors "believe", "anticipate",
"expect", "plan", "estimate", "project", "will be", "will continue", "will
likely result" and similar expressions) that are not statements of historical
fact should be considered forward-looking statements. Forward-looking statements
and the Debtors' plans and expectations are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Debtors, or their management or Board of Directors. As noted in Section VI.C.3.,
entitled "Feasibility of the Plan," the assumptions underlying the Projections
are subject to significant business, economic and competitive uncertainties and
contingencies, including those set forth in the Risk Factors set forth below,
many of which are beyond the Debtors' control. There generally will be a
difference between projections of future performance and actual results because
certain events and circumstances may not occur as expected. These differences
could be material.
1. Risk Factors
(a) Adverse Retail Industry Conditions. The Debtors sell their
products to a number of major retailers that have experienced financial
difficulties during past years. Some of these retailers have previously sought
protection under the Code. In addition, some of the Debtors' current retail
customers may seek protection under the Code or state insolvency laws in the
future. As a result of these financial difficulties and bankruptcy and
insolvency proceedings, the Debtors may be unable to collect some or all amounts
owed by these retail customers. In addition, all or part of the operations of a
retail customer that seeks bankruptcy or other debtor protection may be
discontinued, or sales of the Debtors' products to the customer may be curtailed
or terminated as a result of bankruptcy or insolvency proceedings. There can be
no assurance that the Debtors will not be adversely affected by retail industry
conditions in the future.
(b) Fluctuations in Price, Availability and Quality of Raw Materials.
The principal fabrics used in the Debtors' apparel consist of cotton, wool,
silk, synthetic and cotton-synthetic blends of fabrics and yarns. The price paid
for these fabrics is mostly dependent on the market prices for the raw materials
used to produce them, namely cotton, wool, silk, rayon and polyester. Depending
on a number factors, including crop yields and weather patterns, the market
price of these raw materials may fluctuate significantly. While raw materials
are available to the Debtors from various sources of supply, any disruption in
the Debtors ability to obtain raw materials of usable quality in sufficient
quantities could have a material adverse effect on the Debtors' businesses,
operating results, and financial condition.
(c) Relationships with Suppliers and Vendors. While the Debtors have
not experienced any significant disruption in their relationships with suppliers
or vendors, the Debtors may have difficulty maintaining existing or creating new
relationships with suppliers or vendors as a result of the Cases. The Debtors'
suppliers and vendors could stop providing supplies or services to the Debtors
or provide such supplies or services only on "cash on
56
delivery", "cash on order," or other terms that could have an adverse impact on
the Debtors' short-term cash flows.
(d) Relationships with Customers. The Debtors' financial success is
directly related to the success of their customers and the willingness of these
customers, in particular the Debtors' major customers, to continue buying the
Debtors' products. Sales to the Debtors' five largest customers represented
approximately 29.3%, 31.6% and 36.3% of net revenues during fiscal 2001, 2000
and 1999, respectively.
The Debtors do not have long-term contracts with any of their
customers. Sales to customers are generally on an order-by-order basis and are
subject to rights of cancellation and rescheduling by the customer or the
Debtors. Accordingly, the number of unfilled orders at any given time is not
indicative of the number that will eventually be shipped. If the Debtors cannot
fill customers' orders on time, relationships with customers may suffer, and
this could have an adverse effect on the Debtors, especially if the relationship
is with a major customer. Furthermore, if any of the Debtors' major customers
experiences a significant downturn in its business, or fails to remain committed
to the Debtors' program or brands, such customer(s) may reduce or discontinue
purchases from the Debtors. The loss of a major customer or reduction in the
amount of the Debtors' products purchased by several of the Debtors' major
customers could have a material adverse effect on the Debtors' businesses,
results of operations and financial condition.
(e) Substantial Competition. The Debtors' products compete with many
designer and non-designer product lines. The Debtors' products compete primarily
on the basis of price, quality, and the Debtors' ability to satisfy customer
orders in a timely manner. Failure to satisfy any one of these factors could
cause the Debtors' customers to purchase products from their competitors. Many
of the Debtors' competitors and potential competitors have greater financial,
manufacturing and distribution resources than the Debtors. If manufacturers or
retailers become more successful in competing with the Debtors, it could have a
material adverse effect on the Debtors' businesses, results of operations and
financial condition.
(f) Licensing Risks. The Debtors' use of their trademarks, together
with licenses to use trademarks of other third party entities, may subject the
Debtors to claims or challenge.
The Debtors use many trademarks and product designs in their
businesses, some of which have been registered with the United States Patent and
Trademark Office and others of which are used under license from third parties
or have been purchased from third parties. The Debtors believe these registered
and common law trademarks, designs and other proprietary rights are important to
their competitive position and success. The use and registration of the Debtors'
trademarks, patents and product designs may be challenged periodically.
Despite efforts to the contrary, the Debtors' trademarks, patents,
designs and proprietary rights may violate the proprietary rights of others. If
any of the Debtors' trademarks or other proprietary rights are found to violate
the proprietary rights of others, or are subjected to some other challenge,
there can be no assurance that the Debtors will be permitted to continue using
these particular trademarks or other proprietary rights. Furthermore, if the
Debtors are
57
sued for alleged infringement of another's proprietary rights, the party
claiming infringement might have greater resources than the Debtors to pursue
its claims and the Debtors could be forced to incur substantial costs to defend
the litigation. Moreover, if the party claiming infringement were to prevail,
the Debtors could be forced to discontinue the use of the related trademark,
patent or design and/or pay significant damages, or to enter into expensive
royalty or licensing arrangements with the prevailing party.
Pursuant to licensing agreements, the Debtors also have exclusive
rights to use trademarks owned by other companies in promoting, distributing and
selling their products. The Debtors have periodically been involved in disputes
or litigation regarding these licensing agreements. There can be no assurance
that these licensing agreements will remain in effect. In addition, any future
disputes concerning these licenses may cause the Debtors to incur significant
litigation costs or force the Debtors to suspend use of the trademarks.
Certain of the Debtors' licensing agreements with third parties will
expire by their terms over the next several years. There can be no assurance
that the Debtors will be able to negotiate and conclude extensions of such
agreements on economically favorable terms.
The Debtors expect to assume certain of their license agreements as
part of the Plan. The assumption of any executory contracts, including licenses,
is subject to the entry of the Confirmation Order by the Bankruptcy Court or by
other order of the Bankruptcy Court. There can be no assurance that the Debtors
will be successful in their efforts to assume these licenses.
(g) Changing Fashion Trends. The apparel industry is subject to
rapidly changing consumer demands and preferences. The Debtors believe that
their success depends on their ability to anticipate, gauge and respond in a
timely manner to changing consumer demands and fashion trends. There can be no
assurance that the Debtors will be successful in this regard. If fashion trends
shift away from the Debtors' products, or if the Debtors otherwise misjudge the
market for their product lines, resulting in a decline in sell-through rates at
the retail level, the Debtors may be faced with conditions that could have a
negative effect on the Debtors' financial condition and results of operations.
Changing consumer demands and fashion trends also require the Debtors
to continually design and deliver new products and new product lines. As is
typical with new products, demand for and market acceptance of new products
introduced by the Debtors are subject to uncertainty. There can be no assurance
that the Debtors' efforts will be successful. In addition, the failure of new
products or new product lines to gain sufficient market acceptance could
negatively affect consumer demand for the Debtors' other products.
(h) International Operations. The Debtors' ability successfully to
conduct assembly and production operations in facilities in foreign countries
depends on many factors beyond their control. The Debtors' maintain
manufacturing facilities in Mexico, Honduras, Costa Rica, Ireland and France. In
addition, the Debtors source products from contractors located in Mexico,
Central America, Morocco, Tunisia, China (including Hong Kong) and Asia.
Manufacturing in foreign countries requires the Debtors to order products
further in advance to account for transportation time. If the Debtors
overestimate customer demand, they may have to
58
hold goods in inventory, and may be unable to sell these goods at the same
margins as in the past. On the other hand, if the Debtors underestimate customer
demand, they may not be able to fill orders on time.
Other problems the Debtors may encounter by manufacturing in foreign
countries include, but are not limited to, work stoppages, transportation delays
and interruptions, delays and interruptions from natural disasters, political
instability, economic disruptions, expropriation, nationalization, imposition of
tariffs, imposition of import and export controls and changes in government
policies.
Because the Debtors own foreign facilities, they are subject to
additional risks associated with owning and operating manufacturing facilities
abroad. For example, a facility operated in a foreign country may become subject
to labor laws and government regulations in the foreign country. If the laws are
or become unfavorable to the Debtors' operations in any foreign country, the
Debtors could experience a loss in revenues, customer orders and customer
goodwill.
(i) Fluctuations in Foreign Exchange Rates. Fluctuations between the
U.S. dollar and the currencies of each of the countries in which the Debtors
operate have affected and will continue to affect the results of international
operations reported in U.S. dollars and the value of such operations' net assets
reported in U.S. dollars. The results of operations and financial condition of
the Debtors' businesses will be affected by the relative strength of the
currencies in countries where its products are currently sold. The Debtors'
results of operations and financial condition may be adversely affected by
fluctuations in foreign currencies and by translations of the financial
statements of the Debtors' foreign subsidiaries from local currencies into U.S.
dollars.
(j) Import Restrictions. The Debtors' import operations may be subject
to bilateral textile agreements between United States and a number of other
countries These agreements establish quotas for the amount and type of goods
that can be imported into the United States from these countries. These
agreements also allow the United States, in certain circumstances, to impose
restraints at any time on the importation of additional or new categories of
merchandise. Future bilateral textile agreements may also contain similar
restraints. Excluding the countries covered under Caribbean Basin Trade
Partnership Act and North American Free Trade Agreement, the Debtors' imported
products are also subject to U.S. customs duties. The United States and the
countries in which the Debtors manufacture their products may adjust quotas,
duties, tariffs or other restrictions currently in effect. There can be no
assurance that any adjustments would benefit the Debtors. These same countries
may also impose new quotas, duties, tariffs or other restrictions. Furthermore,
the United States may bar imports of products that are made by convicts or
forced or indentured labor. The United States may also withdraw the "most
favored nation" status of certain countries which could result in the imposition
of higher tariffs on products imported from these countries. Any of these
changes could result in the imposition of higher tariffs on products imported
from these countries. Any of these changes could have a material adverse effect
on the Debtors' businesses, results of operations and financial condition.
59
(k) Dependence on Key Personnel. The Debtors believe that future
success will be dependent upon their ability to attract and retain skilled
senior executives, managers and other personnel. Since the Petition Date, the
Debtors have been able to retain many of their key employees through retention
programs, and have attracted new employees to several key positions. However, no
assurance can be given that the Debtors will be able to continue to attract and
retain such personnel in the future. As discussed above in Section III.B.,
entitled "Executive Officers and Directors of the Reorganized Debtors," the
Debtors' current President and Chief Executive Officer, Antonio C. Alvarez II,
and current Chief Financial Officer, James P. Fogarty, will be returning to the
restructuring advisory firm, Alvarez & Marsal, Inc., upon the consummation of
the Debtors' reorganization in these Cases, and after a period in which they
ensure a smooth and orderly transition to new permanent senior management.
Professional search firms have been engaged to identify internal and external
candidates for such positions, as well as for directors of Reorganized Warnaco.
IV. SUMMARY OF THE PLAN OF REORGANIZATION
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE AND IMPLEMENTATION OF
THE PLAN, TOGETHER WITH THE CLASSIFICATION AND TREATMENT OF CLAIMS UNDER THE
PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN, WHICH
ACCOMPANIES THIS DISCLOSURE STATEMENT, AND TO THE EXHIBITS AND SCHEDULES
ATTACHED THERETO.
ALTHOUGH THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE
SUMMARIES OF THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED TO
THEREIN, THIS DISCLOSURE STATEMENT DOES NOT PURPORT TO BE A PRECISE OR COMPLETE
STATEMENT OF ALL THE TERMS AND PROVISIONS OF THE PLAN OR DOCUMENTS REFERRED TO
THEREIN, AND REFERENCE IS MADE TO THE PLAN AND TO SUCH DOCUMENTS FOR THE FULL
AND COMPLETE STATEMENTS OF SUCH TERMS AND PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN WILL CONTROL THE
TREATMENT OF CLAIMS AND INTERESTS OF CREDITORS AND EQUITY SECURITY HOLDERS UNDER
THE PLAN AND WILL, UPON THE EFFECTIVE DATE, BE BINDING UPON HOLDINGS OF CLAIMS
AGAINST, OR INTERESTS IN, THE DEBTORS, THE REORGANIZED DEBTORS, AND OTHER
PARTIES IN INTEREST.
A. Brief Explanation of Chapter 11 Plan of Reorganization
Chapter 11 is the principal business reorganization chapter of the
Code. Under chapter 11, a debtor is authorized to reorganize its business for
the benefit of its creditors and equity security holders. In addition to
facilitating the rehabilitation of the debtor, reorganization under chapter 11
is intended to promote equality of treatment of creditors and equity security
holders of equal rank with respect to the distribution of the debtor's assets.
In furtherance of these goals, upon filing of a petition for reorganization
under chapter 11, Section 362 of the Code generally provides for an automatic
stay of substantially all actions and proceedings against the
60
debtor and its properties, including attempts to collect debtors or enforce
liens that arose prior to the commencement of the debtor's case under chapter
11.
Consummation of a plan of reorganization is the principal objective of
a chapter 11 reorganization case. In general, a chapter 11 plan of
reorganization: (a) divides most claims and interests into classes; (b)
specifies the property, distribution or other treatment that each member of a
class is to receive under the plan on account of its claim or interest, if any;
and (c) contains other provisions necessary or appropriate to the reorganization
of the debtor. Confirmation of a plan of reorganization by a bankruptcy court
makes the plan binding upon the debtor, any issuer of securities under the plan,
any person acquiring property under the plan and any creditor or interest holder
of the debtor. Except as specifically provided in the plan of reorganization or
the order confirming the plan, the order confirming the plan discharges the
debtor from any debt that arose prior to the date that the plan becomes
effective to the fullest extent authorized or provided for by the Code or other
applicable law, and substitutes for such indebtedness the obligations specified
in the plan of reorganization.
B. Structure of the Plan
As noted above, Group is a publicly held holding company that is the
ultimate corporate parent of each of the Debtors. Group also is the ultimate
corporate parent of over 40 foreign corporations that are not subject to
insolvency proceedings.
The Plan, based on extensive analyses by the Debtors and discussions
among the Debtors, a Steering Committee for the Pre-Petition Secured Lenders,
and the Creditors' Committee, contemplates the substantive consolidation of all
of the Debtors. Substantive consolidation of the Debtors is appropriate for a
number of reasons. First, the Company historically has dealt with its creditors
as a single economic unit, and its creditors in general did not rely on the
creditworthiness of separate legal entities, as opposed to the Company as a
whole. By way of example, the Company did not issue or provide creditors with
separate financial statements for its various operating units or divisions, and
accordingly transactions between these units or divisions and creditors tended
to be effected based on the overall financial credit of the Company as a whole.
Second, the Company maintains a consolidated cash management system, pursuant to
which the domestic and foreign legal entities comprising the Company routinely
have engaged in extensive Intercompany loans and other Intercompany transactions
to fund and operate the Company's world-wide business. The effect of these
arrangements was to provide cash to those units or divisions that had cash
needs, and to obtain such cash from units or divisions with cash surpluses. The
Company also maintained a practice of consolidating all U.S. receivables, in
order to facilitate certain securitization finance transactions, under transfer
pricing arrangements. In addition, the Company's restructured financing
arrangements with its Pre-Petition Secured Lenders were completed in October
2000 on a Company-wide basis, with each of the Company's domestic, separate
legal entities, granting extensive security interests on substantially all their
assets to support the approximate $2.2 billion of outstanding debt utilized by
the Company as a whole. Similar overlapping of corporate formalities existed
with respect to the 1997 MLA with GE Capital, in which approximately $80 million
of equipment of Warnaco Inc., Authentic Fitness, and Calvin Klein Jeanswear was
financed under a purported sale-leaseback (which by stipulation and order dated
June 12, 2002, was effectively treated as a secured loan) to which Warnaco Inc.,
but not Authentic Fitness or Calvin Klein Jeanswear, was
61
party. Finally, although certain aspects of the business were conducted on a
divisional basis, the overall operations of the Company, including certain
arrangements for allocation of the significant corporate overheads and certain
other transactions between divisional units (such as Intercompany licensing
arrangements), were conducted as though all units were part of a single Company.
Accordingly, under all these circumstances, the Company believes that the
affairs of the Debtors are sufficiently entangled to justify their substantive
consolidation and represents the fairest treatment of the Debtors' creditors. It
was, in part, for this reason that the Debtors filed consolidated Schedules and
Statements of Financial Affairs in the Cases and that the DIP Financing in these
Cases was effected on the basis that obligations thereunder would constitute
joint and several obligations of each of the Debtors.
Moreover, the Debtors further believe that the substantive
consolidation treatment proposed in the Plan is in the interests of their
estates and their creditors, in that it will avoid the substantial cost, time
and uncertainty of litigating the complex series of issues associated with
development of separate plans for the Debtors' 38 separate entities or various
subsets thereof. Were the Debtors to seek to develop such separate plans, it
would be necessary to attempt to classify or reclassify hundreds of filed claims
asserted against one entity against an entity which might (with varying degrees
of certainty) more properly be regarded as the obligor on such claims. It
further would be necessary to evaluate how the overriding lien of the
Pre-Petition Secured Lenders in the assets of the Company (including its
subsidiaries) would affect the distribution to putative creditors of any
particular entity, particularly with respect to intercompany claims, which are
pledged for the benefit of the Pre-Petition Secured Lenders - if and to the
extent that those intercompany claims are not recharacterized or equitably
subordinated under applicable bankruptcy and other law. Any such effort would be
highly complex and dependant on numerous assumptions, almost all of which would
be subject to dispute and potentially protracted and costly litigation.
Moreover, any determination as to the appropriateness of substantially
consolidating all, some or none of the 38 Debtor entities would itself be
subject to extensive debate and litigation which would delay confirmation and,
as a consequence of such delays, damage the enterprise value of the Debtors'
estates to the detriment of creditors.
Accordingly, the Debtors, after discussion with their principal
constituencies, have concluded that the fairest and most efficient approach is
the substantive consolidation adopted in the Plan for all of the Debtors. The
proposed treatment of unsecured creditors under the Plan, moreover, reflects a
substantial compromise of the Claims of the Pre-Petition Secured Lenders,
including the contention that as a consequence of the Debtors' use of
Pre-Petition Collateral during the course of the Cases, the Pre-Petition Secured
Lenders are entitled to Replacement Liens (as defined in the DIP Approval
Orders) under the DIP Order which would encompass the value of all assets not
already pledged to the Pre-Petition Secured Lenders as collateral. Accordingly,
although the wide range of potential assumptions make it possible that a
particular creditor might receive a higher distribution under a different Plan
structure and under a different set of assumptions than are embodied in the
Plan, the Debtors believe that the treatment proposed for each creditor in the
Plan is fair and equitable, and most likely superior to the treatment that such
creditor would receive under other assumptions and theories that would be
expensive, time-consuming and uncertain to litigate and, instead, are being
settled and compromised as part of this consensual Plan.
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C. Classification and Treatment of Claims and Interests
1. General
Section 1123 of the Code requires a plan to classify certain claims
against and interests in a debtor. In accordance with Section 1123, Article II
of the Plan divides Claims and Interests into eight (8) Classes for the Debtors.
Pursuant to Section 1123(a)(1) of the Code, Administrative Claims, including the
DIP Facility Claim and Priority Tax Claims, are not classified in the Plan and
are treated separately under Article II of the Plan. Article II of the Plan also
sets forth the treatment that each Class will receive under the Plan, and
provides whether or not each Class is impaired under the Plan.
Section 1122 of the Code provides that, except for certain unsecured
claims that may be classified for administrative convenience, a plan may place a
claim or interest in a particular class only if the claim or interest is
substantially similar to the other claims or interests of that class. The Plan
designates (a) seven (7) classes of Claims for the Debtors and (b) one (1) class
of Interests. This classification scheme takes into account the differing nature
and priority of such Claims and Interests under the Code and other applicable
laws in light of their treatment under the Plan. The Debtors believe that they
have classified all Claims and Interests in compliance with the provisions of
Section 1122 of the Code. It is possible, however, that a holder of a Claim or
Interest may challenge these classifications, and the Bankruptcy Court may find
that a different classification is required for the Plan. In the event that the
Bankruptcy Court finds that a different classification is required for the Plan
to be confirmed, the Debtors may seek to: (a) modify the Plan pursuant to
Section 1127 of the Code to provide for whatever reasonable classification might
be required for Confirmation and (b) use the acceptances received from the
holder of any Claim or Interest pursuant to Solicitation for the purpose of
obtaining the approval of the Class or Classes of which such holder ultimately
is deemed to be a member. Such acceptances may be used for this purpose only if
such reclassification does not adversely affect the treatment of such holder.
There can be no assurance that the Bankruptcy Court, after finding that a
classification was inappropriate and requiring a reclassification, would approve
the Plan based upon such reclassification.
Section 1123(a)(4) of the Code provides that a plan must afford the
same treatment for all members of a particular class, unless the holder of a
particular claim or interest agrees to less favorable treatment. The Debtors
believe that the Plan complies with Section 1123(a)(4). In the event that the
Bankruptcy Court finds that the Plan violates Section 1123(a)(4) and the holders
of Claims or Interests affected do not consent to the Plan's treatment, the
Bankruptcy Court could deny Confirmation of the Plan or require modifications to
address the requirements of such Section.
A Claim or Interest will be deemed classified in a particular Class
only to the extent that the Claim or Interest qualifies within the description
of that Class and will be deemed classified in a different Class to the extent
that any remainder of the Claim or Interest qualifies within the description of
such different Class. A Claim is in a particular Class and entitled to a
distribution only to the extent that the Claim is an Allowed Claim in that
Class.
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Under the Plan, a Claim or any portion thereof without duplication is
"Allowed": (a) that has been allowed by a Final Order, or by the Plan; (b) as to
which, on or by the Effective Date, (i) no proof of claim has been filed with
the Bankruptcy Court and (ii) the liquidated and noncontingent amount of which
is listed in the Schedules at zero, in an unknown amount, or as disputed; or (c)
for which a proof of claim in a liquidated amount has been timely filed with the
Bankruptcy Court in accordance with Bankruptcy Rule 3003(c)(3) and pursuant to
the Code, any Final Order of the Bankruptcy Court or other applicable bankruptcy
law, and as to which either (i) no objection to its allowance has been filed
within the periods of limitation fixed by the Plan, the Code or by any order of
the Bankruptcy Court or (ii) any objection to its allowance has been settled,
abandoned, waived, withdrawn, or has been denied by a Final Order; (d) that is
expressly allowed in the Plan; or (e) arises from the recovery of property under
Sections 550 or 553 of the Code and is allowed in accordance with Section 502(h)
of the Code.
The treatment of, and consideration to be provided to, holders of
Allowed Claims and Interests will be in full settlement, release and discharge
of such Allowed Claims and Interests; provided, that such discharge will not
affect the liability of any other entity on, or the property of any other entity
encumbered to secure payment of, any such Claim or Interest, except as otherwise
provided in the Plan; and provided, further, that such discharge will not affect
the Reorganized Debtors' obligations under and pursuant to the Plan. The
treatment of and consideration to be provided to Allowed Claim and Interest
holders in each Class will apply to all of the Cases. No Claim will entitle the
holder thereof to a distribution of cash or securities or to other consideration
pursuant to the Plan unless, and only to the extent that, such Claim is an
Allowed Claim. Finally, Claims against more than one Debtor with respect to a
single obligation, by reason of guaranty, joint or "control group" liability, or
otherwise, will be deemed to be a single Claim in the Allowed amount of such
obligation for purposes of voting, allowance, distribution and all other
purposes under the Plan.
2. Treatment of Unclassified Claims
Pursuant to Section 1123(a)(1) of the Code, the Plan does not classify
certain priority Claims. These unclassified Claims will be treated as follows:
(a) Administrative Claims. Generally, Administrative Claims consist of
the costs and expenses of administration of the Cases. Such costs and expenses
include, but are not limited to, the cost of operating the business since the
Petition Date, the outstanding unpaid fees and expenses of the Case
Professionals and the payments necessary to cure pre-petition defaults or
unexpired leases and executory contracts that will be assumed by the Debtors
under the Plan. Additionally, the Plan contemplates the satisfaction in full of
Administrative Claims, including (i) $1.9 million for certain estimated
liabilities arising in the ordinary course of business and (ii) payments and
distributions having a total estimated value of $5.7 million to Antonio C.
Alvarez II, the Company's current President and Chief Executive Officer on
account of the Alvarez Incentive Bonus comprised of $1.95 million in Cash, New
Warnaco Second Lien Notes in the principal amount of $0.94 million and 0.592% of
the New Warnaco Common Shares (valued at $2.81 million), subject to Dilution.
See Section II.B.4.(h)(iv), entitled "Summary of Significant Orders Entered and
Other Actions Taken During the Cases - Orders Relating to the Debtors' Employees
and Executives - Antonio C. Alvarez II Employment Agreement."
64
Pursuant to Section 6.6.(A) of the Plan, all applications for final
compensation of professional persons employed by the Debtors or the Creditors'
Committee pursuant to orders entered by the Bankruptcy Court and on account of
services rendered prior to the Effective Date, and all other requests for
payment of Administrative Claims (except for the Alvarez Incentive Bonus, claims
of the Debt Coordinators and the Pre-Petition Collateral Trustee payable under
paragraph 22 of the DIP Approval Orders, the Designated Post-Petition Loans,
claims for taxes pursuant to Section 507(a)(8) of the Code, the GE Capital
Secured Claims, ordinary course trade debt and customer deposit and credits
incurred in the ordinary course of business after the Petition Date) must be
served on the Reorganized Debtors in accordance with the notice provisions of
Section 8.10. of the Plan and filed with the Bankruptcy Court no later than 25
days after the Effective Date. Any such Claim that is not timely filed and
served will be forever barred. Objections to any such application must be filed
within 15 days after receipt thereof. The Debtors will review all filed
Administrative Claims, and object to such Claims, as they deem appropriate.
Subject to the foregoing, and unless otherwise agreed by the holder of an
Allowed Administrative Claim, each holder of an Allowed Administrative Claim,
except the Alvarez Incentive Bonus, will be paid in full in Cash: (a) at the
sole option of the Debtors (before the Effective Date) or the Reorganized
Debtors (on or after the Effective Date), (i) in the ordinary course of business
as the Claim becomes due and owing, or (ii) on the Initial Distribution Date; or
(b) on such other date as the Bankruptcy Court may order.
(b) Priority Tax Claims. A Priority Tax Claim is any Claim of the kind
described in, and entitled to priority in payment under, Section 507(a)(8) of
the Code, which, in general, includes unsecured claims of governmental units to
the extent such claims are for income tax, property tax, withholding tax,
certain kinds of employment tax, excise tax, customs duties arising from the
importation of merchandise or a penalty related to the above types of claims and
in compensation for actual loss. The aggregate estimated amount of Priority Tax
Claims as of January 6, 2003 is $2.5 million.
Section 2.2. of the Plan provides that, unless otherwise agreed by the
holder of an Allowed Priority Tax Claim (in which event such other agreement
will govern), each holder of an Allowed Priority Tax Claim will receive, at the
sole option of the Debtors, on the Initial Distribution Date either: (i) Cash
equal to the amount of such Allowed Priority Tax Claim; or (ii) Cash in six
equal annual installments, together with interest thereon at the legal rate
required for such claims in chapter 11 cases, which interest will be paid
annually in arrears pursuant to Section 1129(a)(9)(C) of the Code.
(c) DIP Facility Claim. As more fully described in Section II.B.4.(b)
hereof, entitled "Summary of Significant Orders Entered and Other Actions Taken
During the Cases - Debtor-in-Possession Financing," on July 9, 2001, the
Bankruptcy Court granted final approval of the DIP Facility provided by the DIP
Lenders. Pursuant to Section 2.3. of the Plan, all amounts outstanding under the
DIP Facility will be paid in full in Cash on the Effective Date, or otherwise
satisfied in a manner acceptable to the DIP Lenders, provided, however, that all
letters of credit under the DIP Facility as of the Effective Date will remain
outstanding as of the Effective Date and will be paid, in the event drawn,
through a borrowing by the Reorganized Debtors under the Exit Financing
Facility. The Debtors estimate that, as of the Effective Date projected for
January 2003, no borrowed indebtedness will be outstanding under the DIP
Facility, and letters of credit aggregating approximately $66.6 million will be
outstanding.
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3. Treatment of Classified Claims and Interests.
The following is a summary of the manner in which Claims and Interests
are classified and treated under the Plan, together with a description of the
estimated amounts of Allowed Claims and Interests included in each such Class as
of January 6, 2003. The Allowed Claims in Class 1, Class 3 and Class 4 are
unimpaired under the Plan and Claims and Interests in Class 2, Class 5, Class 6,
Class 7 and Class 8 are impaired under the Plan. The Debtors believe that the
treatment afforded all Classes of Claims and Interests under the Plan fully
comports with the requirements of the Code and case law.
(a) Class 1 - Priority Non-Tax Claims.
o Description of Priority Non-Tax Claims. Allowed Claims, if any,
entitled to priority pursuant to Sections 507(a)(3), 507(a)(4) or
507(a)(6) of the Code are Priority Non-Tax Claims. Such Claims
include claims for (a) wages, salaries or commissions earned
within 90 days before the Petition Date up to $4,650 per
individual or corporation and (b) contributions to employee
benefit plans, such as pension or health or life insurance plans,
arising from services rendered within 180 days prior to the
Petition Date, subject to certain limits.
o Classification Scheme. Allowed Priority Non-Tax Claims are
classified in Class 1. The Debtors believe that all liquidated
Class 1 Claims already have been paid pursuant to orders entered
by the Bankruptcy Court. See Section II B.4.(a)(iii), entitled
"Summary of Significant Orders Entered and Other Actions Taken
During the Cases - Significant `First Day' Orders - Employee
Matters." Therefore, the aggregate estimated amount of Allowed
Class 1 Claims as of the Petition Date is $0.
o Treatment. Unless otherwise agreed by the holder of an Allowed
Priority Non-Tax Claim (in which event such agreement will
govern), each Allowed Class 1 Claim will be paid in full in Cash
on the later of the Initial Distribution Date and a date that is
soon as practicable after the date upon which such Claim becomes
an Allowed Priority Non-Tax Claim.
(b) Class 2 - Senior Secured Bank Claims.
o Description of Senior Secured Bank Claims. Claims against the
Debtors Allowed pursuant to the Plan held by the Pre-Petition
Secured Lenders arising under or relating to the Pre-Petition
Facility and Intercreditor Agreements, the Original Domestic
Facilities, the Original Foreign Facilities and related
agreements, and the DIP Approval Orders, including, without
limitation, the Designated Post-Petition Loans, but excluding any
claims against any Warnaco Non-Debtor Subsidiary under or
relating to the Pre-Petition Facility and Intercreditor
Agreements and the Original Foreign Facilities, are Class 2
Senior Secured Bank Claims.
o Classification Scheme and Allowance. The Senior Secured Bank
Claims are classified in Class 2.
66
o Treatment. On the Effective Date, each holder of a Senior Secured
Bank Claim will receive in full satisfaction of its Senior
Secured Bank Claims its pro rata share of the following, to be
distributed by the Administrative Agent in accordance with the
Pre-Petition Facility and Intercreditor Agreements: (i) Cash in
the estimated amount of $90.1 million on account of the Original
Foreign Facilities Guaranty Claims, which will be applied to
repay all amounts outstanding under the Original Foreign
Facilities as of the Petition Date, in full; (ii) New Warnaco
Second Lien Notes in the aggregate principal amount of $200
million; and (iii) 96.263% of the New Warnaco Common Shares,
subject to Dilution. In the event that holders of Class 6 Claims
are not entitled to receive a distribution as provided in Section
2.9.(C) of the Plan, on the Effective Date each holder of a Class
2 Senior Secured Bank Claim will receive its pro rata share of an
additional 0.581% of the New Warnaco Common Shares, subject to
Dilution. In addition to the $90.1 million distribution to be
made by the Debtors on account of the Original Foreign Facilities
Guaranty Claims, on the Effective Date, the Warnaco Non-Debtor
Subsidiaries will deliver to the Administrative Agent for
distribution to holders of Senior Secured Bank Claims in
accordance with the Pre-Petition Facility and Intercreditor
Agreements all remaining amounts due and owing under the Original
Foreign Facilities, including accrued and unpaid interest and
fees, in an amount estimated at $10.7 million as of January 6,
2003. As a result, all obligations under the Original Foreign
Facilities will be satisfied in full and the Original Foreign
Facilities will be terminated.
(c) Class 3 - GE Capital Secured Claim Under the 1997 MLA.
o Description of GE Capital Secured Claim. The GE Capital Secured
Claim is a Secured Claim held by GE Capital pursuant to the GE
Capital Settlement Agreement dated June 12, 2002, approved by the
Bankruptcy Court on June 12, 2002, in satisfaction of obligations
with respect to the 1997 MLA.(11)
o Classification Scheme. Allowed GE Capital Secured Claims are
classified in Class 3 and Allowed under the Plan in an amount
equal to $15.2 million, less all amounts paid by the Debtors to
GE Capital with respect to the 1997 MLA from the Petition Date
through the Effective Date, estimated to be $5.4 million.
o Treatment. The GE Capital Settlement Agreement and the GE
Settlement Order and each of their provisions will be deemed part
of the Plan and the Confirmation Order. As provided in the GE
Capital Settlement Agreement, in satisfaction of obligations
arising under the 1997 MLA, GE Capital will receive the GE
Settlement Amount, less all amounts paid by
- ----------
(11) Under the GE Capital Settlement Agreement, GE Capital was also granted an
Allowed Unsecured Claim in the amount of $33.5 million against each of
Warnaco Inc. and Group. These Unsecured Claims are treated as a single
$33.5 Allowed Unsecured Claim in Class 5.
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the Debtors to GE Capital with respect to the 1997 MLA from the
Petition Date through and including the Effective Date, which
amount will be payable without interest at the rate of $750,000
per month from and after the Effective Date until the GE
Settlement Amount is satisfied in full. The other provisions of
the GE Capital Settlement Agreement will apply to the GE Capital
Secured Claim under the 1997 MLA. GE Capital will retain its
first priority perfected security interest in and to all of the
1997 Equipment (as that term is defined in the GE Capital
Settlement Agreement) all as more particularly set forth in the
GE Capital Settlement Agreement. To the extent of a conflict
between the GE Capital Settlement Agreement and/or the GE
Settlement Order on the one hand, and the Plan and/or the
Confirmation Order on the other hand, the terms of the GE Capital
Settlement Agreement and the GE Settlement Order will govern and
control.
(d) Class 4 - Other Secured Claims.
o Description of Other Secured Claims. Other Secured Claims are
Secured Claims not classified in other Classes under the Plan,
and might include, for example, claims for the delivery of goods
or services to the Debtors to the extent of any cash deposit made
by the Debtors before, and remaining unapplied on, the Petition
Date.
o Classification Scheme. Allowed Other Secured Claims are
classified in Class 4.
o Treatment. At the Debtors' sole option, Other Secured Claims (if
any) will be: (a) paid in Cash on the Initial Distribution Date;
(b) reinstated according to the terms of the relevant instrument;
(c) paid on such other terms as the Debtors and the holder of
such Claim may agree; or (d) satisfied through the surrender by
the applicable Debtors of the collateral securing the Claim to
the Holder thereof.
(e) Class 5 - Unsecured Claims.
o Description of Unsecured Claims. All Unsecured Claims, including,
without limitation, trade claims and claims arising from
rejection of executory contracts and leases of nonresidential
real property, constitute the Unsecured Claims.
o Classification Scheme. All Allowed Unsecured Claims are
classified in Class 5. The aggregate estimated amount of the
Allowed Class 5 Claims is $169.2 million.
o Treatment. Each holder of an Allowed Unsecured Claim will receive
its pro rata share of 2.549% of the New Warnaco Common Shares,
subject to Dilution. In the event that holders of Class 6 Claims
are not entitled to receive a distribution as provided in Section
2.9.(C) of the Plan, each holder of an Allowed Unsecured Claim
will receive its pro rata share of an
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additional 0.015% of the New Warnaco Common Shares, subject to
Dilution.
(g) Class 6 - TOPrS Claims.
o Description of Class 6 TOPrS Claims. All TOPrS Claims, including,
without limitation, Claims under the TOPrS Indenture, under the
TOPrS Supplemental Indenture, the TOPrS Guarantee or any
documents executed in connection with or related to the issuance
of the TOPrS.
o Classification Scheme. TOPrS Claims are classified in Class 6 and
Allowed under the Plan in an aggregate amount of $125.2 million.
o Treatment. In the event that holders of the TOPrS Claims vote to
reject the Plan, the holders of TOPrS Claims will not receive or
retain any interest or property under the Plan, and no
distribution will be made on account of the TOPrS Claims, and the
New Warnaco Common Shares to be distributed on account of the
TOPrS Claims as set forth in the next sentence will instead be
distributed on a pro rata basis to holders of Allowed Class 2 and
Allowed Class 5 Claims in the following percentages: 0.581% to
the holders of Allowed Class 2 Claims and 0.015% to the holders
of Allowed Class 5 Claims, subject to Dilution. Otherwise, in
full satisfaction of the TOPrS Claims, on the Initial
Distribution Date, the Reorganized Debtors will distribute to the
TOPrS Trustee, subject to the right of the TOPrS Trustee to
assert its TOPrS Trustee Charging Lien against the distributions
to the holders of the TOPrS to the extent the TOPrS Trustee Fee
remains unpaid, or such persons as the TOPrS Trustee will
designate at least ten days prior to the Confirmation Hearing,
for redelivery to the holder(s) of the TOPrS Claims, a stock
certificate evidencing ownership of 0.596% of the New Warnaco
Common Shares, subject to Dilution, and in addition will pay the
amount of up to $300,000 to the TOPrS Trustee on account of the
TOPrS Trustee Fee, subject to receipt and review by the Debtors
of invoices detailing such fees and expenses.
(h) Class 7 - Intercompany Claims.
o Description of Intercompany Claims. Intercompany Claims consist
of Claims by a Debtor or an affiliate of a Debtor against a
Debtor or an affiliate of a Debtor.
o Classification Scheme. Intercompany Claims against any Debtor are
classified in Class 7.
o Treatment. Subject to 5.10. of the Plan, Intercompany Claims will
be discharged, and the holders of Intercompany Claims will not be
entitled to receive or retain any property on account of such
Claims. Section 5.10. of the Plan provides that prior to the
discharge of Intercompany Claims, the Debtors have the right to
retain, or effect such transfers and setoffs with
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respect to, Intercompany Claims as they may deem appropriate for
accounting, tax and commercial business purposes, to the fullest
extent permitted by applicable law.
(i) Class 8 - Common Stock Claims and Interests.
o Description of Common Stock Claims and Interests. Class 8 Common
Stock Claims and Interests include: (i) all rights (including
Claims, see Section II.B.4.(k)(ii), entitled "Summary of
Significant Orders Entered and Other Actions Taken During The
Cases - Other Legal Proceedings - Shareholder Class Action")
arising from the ownership of the common stock of Group and its
subsidiaries, (ii) all options, warrants, conversion, privilege
or other legal or contractual rights to purchase the common stock
of Group, (iii) all rights associated with the common stock under
that certain Rights Agreement adopted by the Board of Directors
of Group in August 1999, (iv) any rights associated with the
common stock of any predecessor or Group or any predecessor of
Group's subsidiaries and (v) any Claims asserted by an officer,
director, or underwriter for contribution, reimbursement or
indemnification.
o Classification Scheme. Common Stock Claims and Interests are
classified in Class 8.
o Treatment. Common Stock Interests in Class 8 will be canceled,
and the holders of Claims and Interests in Class 8 will not be
entitled to receive or retain any property on account of their
Claims and Interests.
D. Conditions to Effective Date
Pursuant to Article IV of the Plan, the following are conditions to
the occurrence of the Effective Date, each of which may be satisfied or waived
in accordance with Section 4.2. of the Plan: (i) the Reorganized Debtors have
entered into definitive documentation with respect to the Exit Financing
Facility and the New Warnaco Second Lien Notes, and all conditions precedent
under such Facility and Notes will have been satisfied (but for the occurrence
of the Effective Date); (ii) the Reorganized Debtors have entered into the
Registration Rights Agreement; (iii) the Confirmation Order has been entered by
the Bankruptcy Court; (iv) more than ten (10) days have elapsed since the
Confirmation Date; (v) no stay of the Confirmation Order is in effect; and (vi)
the Confirmation Order has not been reversed, modified or vacated.
E. Executory Contracts and Unexpired Leases
1. General. The Code gives a debtor the power, subject to the approval of
the bankruptcy court, to assume or reject executory contracts and unexpired
leases. Generally, an "executory contract" is a contract under which material
performance (other than the payment of money) still is due by each party.
Rejection or assumption of executory contracts and unexpired leases may be
effected pursuant to a plan of reorganization or with approval of the bankruptcy
court after notice and a hearing. If an executory contract or unexpired lease is
rejected, the other party to the agreement may file a claim for damages incurred
as a result of the rejection within the time provided in the plan or otherwise
by the Federal Rules of Bankruptcy Procedure (the
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"Bankruptcy Rules") or the bankruptcy court. Damages arising from the rejection
of certain employment agreements and leases or real property may be limited
under the Code. In general, in the case of assumption of an executory contract
or unexpired lease, the Code requires that the debtor promptly cure or provide
adequate assurance that it promptly will cure any existing defaults (other than
certain types of nonmonetary defaults, such as defaults based on bankruptcy or
the debtor's financial condition) and provide adequate assurance of future
performance.
As more fully described in Section II.B.4.(m), entitled "Summary of
Significant Orders Entered and Other Actions Taken During the Cases - Property
Leases," pursuant to various court orders the Debtors negotiated and rejected
134 of their unexpired retail store leases. Additionally, during the pendency of
the Cases, the Bankruptcy Court has authorized the Debtors' rejection of certain
other executory contracts and unexpired leases.
2. Assumption and Rejection of Executory Contracts and Unexpired Leases.
Pursuant to Section 3.1. of the Plan, each executory contract and unexpired
lease to which any of the Debtors is a party will be deemed automatically
rejected as of the Effective Date, except with respect to Intellectual Property
Contracts which will be deemed automatically assumed as of the Effective Date,
unless such executory contract or unexpired lease (a) has been previously
rejected or assumed by order of the Bankruptcy Court, (b) is the subject of a
motion to assume or reject filed on or before the Confirmation Date, or (c) is
listed on the schedule of contracts and leases to be rejected or assumed
pursuant to the Plan, annexed as Plan Schedules 3.1 and 3.2, respectively, and
to be filed concurrently with the Plan and modified or supplemented, if at all,
pursuant to Section 3.3.(B) of the Plan. The Confirmation Order will constitute
an order of the Bankruptcy Court approving such rejection as of the Effective
Date. All executory contracts and unexpired leases specifically listed on the
schedule of rejected executory contracts and unexpired leases, annexed as Plan
Schedule 3.1, will be deemed automatically rejected pursuant to the Plan by the
applicable Debtor as of the Effective Date.
All executory contracts and unexpired leases specifically listed on
the schedule of assumed executory contracts and unexpired leases, annexed as
Plan Schedule 3.2 and to be filed concurrently with the Plan and modified or
supplemented, if at all, pursuant to Section 3.3.(B) of the Plan, will be deemed
automatically assumed pursuant to the Plan by the applicable Debtor as of the
Effective Date. Each executory contract and unexpired lease that is assumed and
relates to the use, ability to acquire or occupancy of real property includes
(a) all modifications, amendments, supplements, restatements or other agreements
made directly or indirectly by any agreement, instrument or other document that
in any manner affect such executory contract or unexpired lease and (b) all
executory contracts or unexpired leases appurtenant to the premises, including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, reciprocal easement agreements and any
other interests in real estate or rights in rem related to such premises, unless
any of the foregoing agreements has been rejected pursuant to a Final Order of
the Bankruptcy Court or is otherwise rejected as part of the Plan.
Pursuant to Section 3.3. of the Plan, the Debtors reserve the right to
file a motion on or before the Confirmation Date to assume or reject any
executory contract or unexpired lease. Notwithstanding any other provision of
the Plan, each of the Debtors retains the right to, at any time prior to the
Confirmation Hearing, modify or supplement Plan Schedule 3.1 and Plan Schedule
3.2, including, without limitation, the right to add any executory contract or
unexpired
71
lease to, or delete any executory contract or unexpired lease from, Plan
Schedule 3.1 or Plan Schedule 3.2. Listing an executory contract or unexpired
lease on Plan Schedule 3.1 or Plan Schedule 3.2 does not constitute an admission
by any of the Debtors or the Reorganized Debtors that such contract or lease
(including any related agreements that may exist) is an executory contract or
unexpired lease or that the applicable Debtor or Reorganized Debtor has any
liability thereunder.
3. Payments Related to Assumption of Executory Contracts and Unexpired
Leases. Section 3.4. of the Plan provides that any monetary amounts by which
each executory contract and unexpired lease to be assumed under the Plan may be
in default will be satisfied by Cure in the amount, if any, set forth in Plan
Schedule 3.2, or, in the event of an objection to such Cure amount or if no such
Cure amount is listed, in the amount agreed between the parties or as ordered by
the Bankruptcy Court or another court of competent jurisdiction. To the extent
the non-Debtor party to the unexpired lease or executory contract does not
object to the amount of Cure set forth in Plan Schedule 3.2 on or before the
Voting Deadline, such non-Debtor party will be deemed to accept such Cure
amount. In the event of a dispute regarding (a) the nature or the amount of any
Cure, (b) the ability of the applicable Reorganized Debtor or any assignee to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Code) under the contract or lease to be assumed, or (c) any
other matter pertaining to assumption, such dispute will be determined by the
Bankruptcy Court or another court of competent jurisdiction or as the parties
may otherwise agree. To the extent the Debtor who is a party to the unexpired
lease or executory contract is to be merged pursuant to Section 5.4. of the
Plan, upon assumption as contemplated herein, the Reorganized Debtor that is the
surviving entity after such merger will be the party to the unexpired lease or
executory contract.
4. Post-Petition Contracts and Leases. Pursuant to Section 3.5. of the
Plan, all contracts, agreements and leases that were entered into by the Debtors
or assumed by the Debtors after the Petition Date will be deemed assigned by the
Debtors to the Reorganized Debtors on the Effective Date.
5. Rejection Damages Bar Date. Section 3.6. of the Plan provides that if
the rejection by a Debtor, pursuant to the Plan or otherwise, of an executory
contract or unexpired lease results in a Claim, then such Claim will be forever
barred and will not be enforceable against any Debtor or Reorganized Debtor or
the properties of any of them unless a proof of claim is filed with the clerk of
the Bankruptcy Court and served upon counsel to the Debtors within thirty (30)
days after service of the earlier of (a) notice of the Confirmation Date or (b)
other notice that the executory contract or unexpired lease has been rejected
pursuant to an order of the Bankruptcy Court.
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F. Implementation of the Plan
1. Pre-Effective Date Management and Operation of Debtors. Pursuant to
Section 5.1. of the Plan, after the Confirmation Date and until the Effective
Date, the current directors and officers of each Debtor will continue to serve
in such capacities, subject to such changes as may be determined by the Board of
Directors of a Debtor in accordance with the current Bylaws and Certificate of
Incorporation of such Debtor.
2. Post-Effective Date Committee; Dissolution of Committee. Pursuant to
Section 5.2. of the Plan, the Creditors' Committee will continue to exist after
the Confirmation Date until the Effective Date with the same power and
authority, and the same ability to retain and compensate professionals, as it
had prior to the Confirmation Date. On and as of the Effective Date, the
Creditors' Committee will be reconstituted and will be comprised of no more than
seven (7) members of the Creditors' Committee prior to the Effective Date (the
"Post-Effective Date Committee"). The members of the Creditors' Committee who
are not members of the Post-Effective Date Committee will be released and
discharged of and from all further authority, duties, responsibilities, and
obligations related to and arising from and in connection with the Cases. In the
event of the death or resignation of any member of the Post-Effective Date
Committee after the Effective Date, the remaining members of the Post-Effective
Date Committee will have the right to designate a successor from among the
holders of Allowed Class 5 Claims. If a Post-Effective Date Committee member
assigns its Claim or releases the Debtors from payment of all or the balance of
its Claim, such act will constitute a resignation from the Post-Effective Date
Committee. Until a vacancy on the Post-Effective Date Committee is filled, the
Post-Effective Date Committee will function in its reduced number. The
Reorganized Debtors will consult with the Post-Effective Date Committee on a
regular basis concerning the Reorganized Debtors' investigation, prosecution and
proposed settlement of Class 5 Claims and will provide written reports to the
Post-Effective Date Committee on a monthly basis regarding the status of the
Claims resolution process. The Reorganized Debtors will not settle or compromise
any Class 5 Claim in excess of the Allowed amount of $25,000 without either the
approval of the Post-Effective Date Committee (which will act by majority vote)
or an order of the Bankruptcy Court. Subject to the approval of the
Post-Effective Date Committee, the Reorganized Debtors may settle or compromise
any Class 5 Claim in excess of the Allowed amount of $25,000 without an order of
the Bankruptcy Court. The Reorganized Debtors may settle or compromise any Class
5 Claim for less than the Allowed amount of $25,000 and without an order of the
Bankruptcy Court and without the approval of the Post-Effective Date Committee.
The duties of the Post-Effective Date Committee will also include services
related to any applications for allowance of compensation or reimbursement of
expenses pending on the Effective Date or filed after the Effective Date
(collectively, the "Filed Fee Applications"). The Reorganized Debtors will pay
(a) the reasonable expenses of the members of the Creditors' Committee between
the Confirmation Date and the Effective Date and the Post-Effective Date
Committee (the "Post-Effective Date Committee Expenses") and (b) the fees of the
professional persons employed by the Post-Effective Date Committee in connection
with its duties and responsibilities as set forth in the Plan (the
"Post-Effective Date Committee Fees"); provided, however, that the total
aggregate amount of the Post-Effective Date Committee Expenses and the
Post-Effective Date Committee Fees will not exceed $100,000.00 (exclusive of
services related to Filed Fee Applications). The Post-Effective Date Committee
Fees and the Post-Effective Date Committee Expenses will be paid within fifteen
(15) Business Days after
73
submission of a detailed invoice to the Reorganized Debtors. If the Reorganized
Debtors dispute the reasonableness of any such invoice, the Reorganized Debtors,
the Post-Effective Date Committee or the affected professional may submit such
dispute to the Bankruptcy Court for a determination of the reasonableness of
such invoice, and the disputed portion of such invoice will not be paid until
the dispute is resolved. The undisputed portion of such fees and expenses will
be paid as provided herein. The Post-Effective Date Committee will be dissolved
and the members thereof will be released and discharged of and from further
authority, duties, responsibilities and obligations relating to and arising from
and in connection with the Cases on the later of (i) the Final Distribution Date
and (ii) the date all services related to Filed Fee Applications are completed
and the retention or employment of the Post-Effective Date Committee's
attorneys, accountants and other agents, will terminate.
3. Merger of Certain Debtors. Pursuant to Section 5.4. of the Plan,
effective as of the Effective Date but immediately prior to the discharge of the
Debtors described in Section 7.2. of the Plan, the following transactions will
occur in the following order: (i) each of Warnaco Men's Sportswear Inc., Warnaco
Ventures Ltd., Ventures Ltd. and Blanche Inc. will be merged into Warnaco Inc.
and Warnaco Inc. will be the surviving corporation in such merger; (ii) AEI
Management Corporation will be merged into Rio Sportswear Inc. and Rio
Sportswear Inc. will be the surviving corporation in such merger; (iii) CCC
Acquisition Realty Corp. will be merged into Authentic Fitness Products Inc. and
Authentic Fitness Products Inc. will be the surviving corporation in such
merger; (iv) CKJ Sourcing Inc. will be merged into Calvin Klein Jeanswear
Company and Calvin Klein Jeanswear Company will be the surviving entity in such
merger; and (iv) Group will transfer 100% of the shares held by Group in each of
Myrtle Avenue, Inc., Authentic Fitness Corporation and Designer Holdings Ltd. to
Warnaco Inc. Except as otherwise set forth in the Plan, or as modified by
appropriate corporate action after the Effective Date, the corporate structure
and equity ownership of the Debtors and their subsidiaries will be unchanged.
4. Amended Certificates of Incorporation and Bylaws. Pursuant to Section
5.5. of the Plan, as of the Effective Date, the certificates of incorporation
and bylaws of each of the Debtors will be amended as necessary to satisfy the
provisions of the Plan and the Code, including, without limitation, the
prohibition against the issuance of non-voting equity securities set forth in
Section 1123(a)(6) of the Code (the "Amended Certificates of Incorporation and
Bylaws"). The forms of Amended Certificates of Incorporation and Bylaws, to be
filed on or before the Exhibit Filing Date as Exhibits 1 and 2 to the Plan, will
become effective on the Effective Date. After the Effective Date, the Amended
Certificates of Incorporation and Bylaws will be subject to such further
amendments or modifications as may be made by law, or pursuant to such Amended
Certificates of Incorporation and Bylaws.
5. Post-Effective Date Management and Operation of Reorganized Debtors.
Pursuant to Section 5.6. of the Plan, as of the Effective Date, the directors
and officers of each Debtor that is not a Reorganized Debtor will be terminated.
The Debtors will file Plan Schedule 5.6 with the Bankruptcy Court on or before
the Exhibit Filing Date setting forth the offices, the names and affiliations
of, and the compensation proposed to be paid to, the individuals intended to
serve as directors and officers of each Reorganized Debtor on and after the
Effective Date. On and after the Effective Date, each Reorganized Debtor will be
governed in accordance with the Amended Certificates of Incorporation and
Bylaws.
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6. Repayment of DIP Facility/Exit Financing. In order to consummate the
Plan, Reorganized Warnaco and its Debtor and non-Debtor subsidiaries will enter
into one or more credit facilities (collectively, the "Exit Financing Facility")
which will be used, together with such Cash as the Debtors may have on hand, to
repay the outstanding balance, if any, under the DIP Facility, to repay all
amounts outstanding under the Original Foreign Facilities, to fund working
capital requirements and to provide for trade letters of credit and standby
letters of credit. The Company currently is negotiating an Exit Financing
Facility that is anticipated to be secured by substantially all of the Debtors'
unencumbered U.S. assets with a mandatory paydown on asset sales feature. The
Exit Financing Facility will contain customary affirmative and negative
covenants, financial covenants and events of default, and in any event is
anticipated to be on no less favorable terms to the Company than the DIP
Facility. It is expected that the Exit Financing Facility will consist of a
revolving credit loan of $275 million on the following terms:
Revolving Loan Facility
Principal: $275 million (with an option to increase at the
Company's election for an additional $50 million)
Maturity: 4 Years
Interest Rate: LIBOR plus 250 basis points
The foregoing is based upon discussions to date with prospective
lenders. Final rates, fees and other terms will be determined through
negotiations with the proposed lenders and are expected to be customary for
facilities of that type. The Reorganized Debtors will enter into all documents
in connection with the Exit Financing Facility as previously agreed upon by the
Debtors and the respective lenders thereunder. The principal terms and
conditions with respect to such financing arrangements will be filed by the
Debtors with the Bankruptcy Court as Plan Schedule 5.7 no later than the Exhibit
Filing Date. Pursuant to Section 5.7. of the Plan, on the Effective Date the
Reorganized Debtors will enter into definitive documentation with respect to the
Exit Financing Facility with the respective lenders thereunder. On or about the
Effective Date, the Debtors will borrow funds under the Exit Financing Facility
in amounts which, together with such other Cash as is available to the Debtors,
will be sufficient to pay all Cash distributions to be made under the Plan.
7. Issuance of New Warnaco Second Lien Notes. The Plan provides for the
issuance of New Warnaco Second Lien Notes to (a) holders of Senior Secured Bank
Claims in the principal amount of $200 million and (b) Antonio C. Alvarez II on
account of the Alvarez Incentive Bonus in the principal amount of $0.94 million,
secured by a second priority security interest to the Exit Financing Facility on
substantially all of the Company's U.S. assets and guaranteed by Group and its
domestic subsidiaries that guaranty the Exit Financing Facility. The following
is a description of the principal terms of the New Warnaco Second Lien Notes:
Principal: $200.94 million
Maturity: 5 Years
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Amortization: $40.188 million per year, so long as certain specified
parameters are satisfied (including no Event of Default
under the Exit Financing Facility, availability of $75
million post-amortization under the Exit Financing
Facility, and maintenance of fixed charge coverage ratio
of 1.25x).
Security: Second lien to Exit Financing Facility
Interest Rate: Greater of (i) 9.5% per annum and (ii) LIBOR plus 500
basis points, subject in each case to an increase of 50
basis points per annum at the end of the six month period
following the Effective Date and an increase of an
additional 0.5% per annum at the end of each six month
period thereafter, until the Notes are paid in full. Cash
interest cap of 12% per annum; interest in excess of 12%
is to be capitalized, as is interest not paid because of
any existing Default under the Exit Financing Facility.
Mandatory
Repayment: Notes to be repaid with net cash proceeds of (i) certain
subordinated debt or equity securities issued after the
Effective Date and (ii) asset sales and other debt
incurred, subject to standard exceptions to be determined
(including payments under the Exit Financing Facility).
The New Warnaco Second Lien Notes will contain customary affirmative and
negative covenants and events of default, but no financial covenants. Final
terms in the definitive documentation are expected to be customary for
facilities of this type.
Pursuant to Section 5.8. of the Plan, on the Effective Date,
Reorganized Warnaco will enter into definitive documentation with respect to,
and will issue, the New Warnaco Second Lien Notes for distribution in accordance
with the Plan. The issuance of the New Warnaco Second Lien Notes and the
distribution, transfer or exchange thereof in accordance with the Plan will be
exempt from registration under applicable securities laws (including without
limitation, Section 5 of the Exchange Act or any similar state or local law
requiring the registration for offer or sale of a security or registration or
licensing of an issuer or a security) pursuant to Section 1145(a) of the Code,
and may be sold without registration to the extent permitted under Section 1145
of the Code.
8. Issuance of New Warnaco Common Shares. Section 5.9. of the Plan provides
that, on the Effective Date, Reorganized Warnaco will issue the New Warnaco
Common Shares for distribution in accordance with the Plan. The issuance of the
New Warnaco Common Shares and the distribution, transfer or exchange thereof in
accordance with the Plan will be exempt from registration under applicable
securities laws (including without limitation, Section 5 of the Exchange Act or
any similar state or local law requiring the registration for offer or sale of a
security or registration or licensing of an issuer of a security) pursuant to
Section 1145(a) of the Code, and may be sold without registration to the extent
permitted under Section 1145 of the Code.
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9. Adoption of Rights Plan. Section 5.12. of the Plan provides that
Reorganized Warnaco will implement a stockholder rights plan (the "Rights Plan")
and distribute to the holders of New Warnaco Common Shares one preferred share
purchase right for each New Warnaco Common Share then outstanding (the
"Rights"). The Rights are not exercisable until the earlier to occur of the
tenth day after a public announcement is made that a person has acquired
beneficial ownership of 15% or more of New Warnaco Common Shares or the tenth
business day after the date of commencement of a tender or exchange offer by any
person to acquire 15% or more of New Warnaco Common Shares. Until the Rights
become exercisable, the Rights are transferable only in connection with the
transfer of New Warnaco Common Shares. Upon the Rights becoming exercisable,
separate certificates evidencing the Rights will be distributed and the Rights
will trade independently from the New Warnaco Common Shares. The Rights, which
do not have voting rights, expire three years after their date of issue, subject
to earlier redemption upon approval by holders of at least 55% of the
outstanding New Warnaco Common Shares at any time prior to a person acquiring
beneficial ownership of 15% or more of the New Warnaco Common Shares. At any
meeting called to consider the redemption of the Rights, the outstanding New
Warnaco Common Shares will not include New Warnaco Common Shares held by any
person who has made an offer to acquire New Warnaco Common Shares.
If a person acquires beneficial ownership of 15% or more of the
outstanding New Warnaco Common Shares, other than pursuant to a Qualifying Offer
or a person who beneficially owns 15% of the New Warnaco Common Shares
implements a reverse merger in which Reorganized Warnaco survives or engages in
a self-dealing transaction with Reorganized Warnaco, then each Right not owned
by such person entitles the holder to buy for the exercise price preferred stock
in Reorganized Warnaco equal to twice the exercise price. A "Qualifying Offer"
is a tender or exchange offer for all outstanding New Warnaco Common Shares that
(a) to the extent the offer includes cash consideration, is fully financed (with
firm written commitments evidencing such financing), (b) remains open for a
period of at least 30 business days, (c) results in the offeror owning at least
55% of the New Warnaco Common Shares after consummation of the offer (excluding
New Warnaco Common Shares owned by certain employees of Reorganized Warnaco) and
(d) includes an irrevocable written commitment to consummate a second-step
acquisition of New Warnaco Common Shares not purchased in the initial offer at
the same price and on the same terms as the initial offer.
Reorganized Warnaco may amend the Rights Plan to the extent such
amendments do not adversely affect the interests of Rights holders, provided
that Reorganized Warnaco may not amend the definition of "Qualifying Offer", the
length of the Rights Plan or the right of redemption. Any amendment that
adversely affects the interests of Rights holders or amends the definition of
"Qualifying Offer", the length of the Rights Plan or the right of redemption
requires the approval of the holders of at least 55% of the outstanding New
Warnaco Common Shares (not including New Warnaco Common Shares held by any
person who has acquired beneficial ownership of 15% or more of the New Warnaco
Common Shares or any person who has made an offer to acquire New Warnaco Common
Shares). Reorganized Warnaco may not replace the Rights Plan or enter into any
new shareholder rights plan.
10. Registration Rights Agreement. Section 5.13. of the Plan provides that
Reorganized Warnaco will enter into a registration rights agreement (the
"Registration Rights Agreement") with all creditors who agree to become parties
to the agreement and with Antonio
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C. Alvarez II. The Registration Rights Agreement will become effective only if
creditors that hold at least 70% of the New Warnaco Common Shares agree to
participate, but certain provisions (as described below) are expected to be
effective in any event. Creditors will become parties to the Registration Rights
Agreement by checking the box provided on the Ballots or in the case of the
Coordinating Committee by signing the Registration Rights Agreement.
The agreement will provide that Eligible Creditors (as defined below)
will, through the coordinating committee identified below (the "Coordinating
Committee"), have the right to exercise three demand registrations that will
allow them to complete three separate underwritten secondary offerings of their
New Warnaco Common Shares. The first demand registration will not be exercisable
by the Coordinating Committee until the later of four months after the Effective
Date and May 4, 2003 (which is the date one month after Reorganized Warnaco will
be required to file with the Securities and Exchange Commission ("SEC") its Form
10-K for 2002). Each successive demand may not be exercised until six months
after the closing of the previous offering.
Within 60 days after its receipt of a demand notice from the
Coordinating Committee, Reorganized Warnaco will be obligated to file a
registration statement with the SEC covering the underwritten offering of the
New Warnaco Common Shares (subject to Reorganized Warnaco's right to delay this
filing for up to 30 days in case it possesses certain material non-public
information). Reorganized Warnaco will be required to use its reasonable efforts
to cause the registration statement to become effective within 150 days after
its receipt of this demand notice (or 180 days if it is the first registration
statement filed by Reorganized Warnaco after the Effective Date). Reorganized
Warnaco will not be obligated to effect an offering of less than $25 million in
value. "Value" means, until completion of the first demand offering, the value
of the New Warnaco Common Shares based on the equity value of Reorganized
Warnaco as determined in the Plan and, thereafter, will be the value of the New
Warnaco Common Shares as quoted on the NASDAQ National Market or, if other than
NASDAQ on the principal securities exchange on which the New Warnaco Common
Shares are listed on any date of determination.
The Coordinating Committee will consist of the following creditors:
Bank of America, N.A.
The Bank of Nova Scotia
Citibank, N.A.
Commerzbank A.G.
GE Capital Commercial Finance, Inc.
JPMorgan Chase
Societe Generale
Antonio C. Alvarez II
Any of the foregoing creditors that is no longer an Eligible Creditor
will cease to be a member of the Coordinating Committee and Mr. Alvarez may not
serve on the Coordinating Committee if he serves as a member of Reorganized
Warnaco's Board of Directors.
The Coordinating Committee may replace any member who has resigned or
ceased to be an Eligible Creditor with another Eligible Creditor and will
replace one or more
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departed member if the number of members is less than five. The Coordinating
Committee will act by majority vote, with the majority to be determined by the
number of New Warnaco Common Shares owned by each Coordinating Committee member
at the time of the relevant vote.
To be eligible to participate in an offering (an "Eligible Creditor"),
a creditor must be a party to the Registration Rights Agreement and, as of any
date of determination, may not have sold, disposed, assigned, pledged or
monetized, in the aggregate, more than the following percentage of the number of
New Warnaco Common Shares owned by it on the Effective Date or in the case of a
person who becomes a party to the Registration Rights Agreement after the
Effective Date, any New Warnaco Common Shares owned by such person on the date
it becomes a party to the Registration Rights Agreement plus any additional New
Warnaco Common Shares thereafter acquired by it from another party to the
Registration Rights Agreement (its "Covered Shares"):
o 10% of its Covered Shares, if the date of determination is on or
prior to December 31, 2003;
o 20% of its Covered Shares if this date is during 2004; and
o 30% of its Covered Shares if this date is during 2005 or later.
Any sale of New Warnaco Common Shares to a person (including an
affiliate of the seller) that becomes, or already is, a party to the
Registration Rights Agreement and sales of New Warnaco Common Shares pursuant to
an offering under the Registration Rights Agreement, will not be taken into
account in determining whether a creditor is an Eligible Creditor.
In connection with each offering, each creditor that becomes a party
to the Registration Rights Agreement (whether or not it elects to sell in that
offering) will agree that it will not sell, assign, transfer, pledge, convey,
monetize or otherwise dispose of or grant any options or other rights to acquire
(subject to customary exceptions) any of the New Warnaco Common Shares then
owned by it, without the consent of the managing underwriter(s) in the offering:
o from the time the preliminary prospectus is printed until the
date of the prospectus used in the offering (the "final
prospectus"); and
o for a period of 90 days following the date of the final
prospectus (unless the managing underwriter(s) agree to a shorter
period).
The Coordinating Committee will be entitled to select the book-running
lead underwriter(s) and Reorganized Warnaco will be entitled to select the
co-manager(s) for each offering, subject in each case to the other's consent
(such consent not to be unreasonably withheld).
The Coordinating Committee will give each participating creditor at
least 30 days written notice of the proposed offering and each creditor will be
given an opportunity to establish
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that it is an Eligible Creditor and to specify the number of New Warnaco Common
Shares it wishes to sell in the offering. Unless otherwise agreed among the
Eligible Creditors and/or by Reorganized Warnaco, each participating creditor
must give the underwriters an option on additional New Warnaco Common Shares
owned by it, so that the underwriters receive a customary 15% over-allotment or
green shoe option on the number of New Warnaco Common Shares to be offered by
that creditor. The Registration Rights Agreement will contain a procedure under
which an Eligible Creditor that wishes to provide New Warnaco Common Shares for
the green shoe option will be permitted to do so for another Eligible Creditor
that does not wish to do so. Any cut-back required in the number of shares
proposed to be offered (or any partial exercise of the green shoe option) will
be effected pro-rata among the participating creditors.
Reorganized Warnaco will bear all reasonable fees and expenses
incurred in connection with each registration of the New Warnaco Common Shares
(other than all underwriting discounts and selling commission and certain
transfer taxes). Each Eligible Creditor will be required to pay $5,000 to the
Coordinating Committee in connection with each offering in which it
participates. The $5,000 payments will be used (i) first, to pay out-of-pocket
expenses incurred or reasonably anticipated to be incurred by the Coordinating
Committee; (ii) second, to cover registration expenses otherwise payable by
Reorganized Warnaco in connection with the second demand offering; (iii) third,
to cover registration expenses otherwise payable by Reorganized Warnaco in
connection with the third demand offering; and (iv) fourth, the balance, if any,
remaining at the time of the expiration of the Registration Rights Agreement
shall be paid over to Reorganized Warnaco.
In the Registration Rights Agreement, Reorganized Warnaco will agree
to:
o cooperate fully in each offering;
o make members of its senior management available for customary
"road shows";
o a provision prohibiting it, without the prior written consent of
a majority of the Coordinating Committee, from doing a registered
or unregistered offering of shares of its common stock or
securities convertible into such shares (including shares issued
in mergers, acquisitions and other business combinations, but
excluding employee stock options and securities issued under
other employee benefit plans), for (i) a period of three years
after the Effective Date; (ii) until the Coordinating Committee
has exercised its three demand rights or (iii) such time as no
New Warnaco Common Shares qualify as Covered Shares whichever is
earlier; provided, however, Reorganized Warnaco will be permitted
to issue common stock or securities convertible into shares of
its common stock in acquisitions after completion of the first
offering under the Registration Rights Agreement; and
o use its reasonable best efforts to list the New Warnaco Common
Shares on the NASDAQ National Market within 60 days after the
Effective Date.
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The Registration Rights Agreement will require Reorganized Warnaco and
the Eligible Creditors to enter into a customary underwriting agreement with the
underwriters, containing customary representations and warranties, covenants,
company lock-up, closing conditions and indemnification and contribution
provisions. Reorganized Warnaco will agree in the underwriting agreement to
indemnify the Eligible Creditors to the same extent that it indemnifies the
underwriters. Each Eligible Creditor will, in the Underwriting Agreement, give
representations and warranties in the underwriting agreement, on a several
basis, limited to its title to its New Warnaco Common Shares, its power and
authority to do the transaction, its status as an Eligible Creditor, that it is
subject to the Creditor lock-up, absence of manipulation by it of the market for
the New Warnaco Common Shares and the accuracy of the information furnished by
it in writing for inclusion in the prospectus.
The Registration Rights Agreement will contain customary
indemnification by Reorganized Warnaco, holding the Eligible Creditors harmless
from all losses, claims, damages and liabilities caused by an untrue statement
of material fact, or the omission of a material fact, in the prospectus unless
the information was specifically provided in writing by the Eligible Creditors
for inclusion in the prospectus. Each Eligible Creditor will severally indemnify
Reorganized Warnaco solely as to the information furnished by it in writing for
use in the prospectus.
Under the terms of the Plan, if creditors holding at least 70% of the
New Warnaco Common Shares issued to all creditors do not agree to become parties
to the Registration Rights Agreement, the majority of the provisions in the
Registration Rights Agreement will not become effective and will have no force
and effect. However, if on or prior to the Effective Date, Reorganized Warnaco,
Antonio C. Alvarez II and at least four other members of the Coordinating
Committee shall execute the Registration Rights Agreement, then certain
provisions of the Registration Rights Agreement will become effective and
Reorganized Warnaco will: (i) be obligated to use its reasonable best efforts to
list the New Warnaco common shares on the NASDAQ within 60 days after the
Effective Date and (ii) agree that, without the prior written consent of a
majority of the Coordinating Committee, it will not issue or sell any shares of
its common stock or securities convertible into such shares (including shares
issued in mergers, acquisitions and other business combinations, but excluding
the grant or exercise of employee stock options and the issuance of Reorganized
Warnaco securities under other employee benefit plans), whether or not the
transaction is registered under the Securities Act, for a period of two years
starting on the Effective Date. The provisions in the Registration Rights
Agreement dealing with the formation and governance of the Coordinating
Committee as well as the definitions and miscellaneous provisions will also
apply.
11. Management Stock Incentive Program and Confirmation Bonuses. Pursuant
to Section 5.11. of the Plan, on or as soon as practicable after the Effective
Date, the Management Stock Incentive Program will be adopted by Reorganized
Warnaco pursuant to its terms. The Management Stock Incentive Program is a stock
incentive plan, pursuant to which, among other provisions, the Reorganized
Debtors will reserve 10.0% of the New Warnaco Common Shares for award to certain
members of management of the Reorganized Debtors on a date and in a manner to be
determined in the sole discretion of the Board of Directors of Reorganized
Warnaco.
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Pursuant to Section 5.11. of the Plan, on the Effective Date, the
Confirmation Bonus Plan will be implemented. The Confirmation Bonus Plan is a
plan awarding certain bonus payments totaling $1 million to selected employees
of the Debtors in recognition of their contribution to the Debtors'
reorganization in the Cases, 50% of which will be payable on or as soon as
practicable after April 30, 2003 and the remainder of which will be payable on
or as soon as practicable after August 31, 2003, provided such employee remains
in the active employ of the Reorganized Debtors as of the applicable payment
date.
Finally, pursuant to Section 5.11. of the Plan, Stuart D. Buchalter,
the Non-Executive Chairman of the Board, will receive a bonus, on or as soon as
practicable after the Effective Date. On November 16, 2001, Mr. Buchalter was
elected Non-Executive Chairman of the Board to replace Linda J. Wachner. In
recognition of his contribution to the Debtors' reorganization in these Cases
and his undertaking to serve on the board of directors of Reorganized Warnaco,
Mr. Buchalter will receive a bonus in the aggregate amount of $350,000,
comprised of $210,000 in Cash and an amount of New Warnaco Common Shares equal
in value to $140,000 which will be distributed from the New Warnaco Common
Shares reserved under the Management Stock Incentive Program.
12. Continuation of Pension Plan. Warnaco Inc. (the "Plan Sponsor"), one of
the Debtors, maintains the Employee Retirement Plan of Warnaco Inc. (the
"Pension Plan") for the employees of Warnaco Inc. and its domestic subsidiaries
(the "Participants"). The Pension Plan is a defined benefit pension plan that is
funded by the Plan Sponsor. The Pension Plan is subject to ERISA and is intended
to be a qualified plan described in Section 401(a) of the Internal Revenue Code.
The insurance program for pension plans covered by Title IV of ERISA is
administered by The Pension Benefit Guaranty Corporation (the "PBGC"), a wholly
owned United States government corporation. Participants vest in their accrued
Pension Plan benefits upon five years of employment. The annual pension benefit
for each Participant is based on the Participant's number of years of service
and average annual salary. As of January 1, 2000, the Pension Plan had 7,841
Participants, of which 3,851 were active employees, 1,796 were terminated
employees who had vested benefits payable upon retirement age, and 2,194 were
retirees currently receiving benefits. The Pension Plan is covered by Title IV
of ERISA. The PBGC has taken the position that when a pension plan terminates
under 29 U.S.C. 'SS' 1341(c) or 1342, the PBGC becomes statutory trustee of
the plan and guarantees the payment of certain benefits to the plan participants
and beneficiaries. The PBGC also has taken the position that the Pension Plan
may be terminated voluntarily if the requirements of 29 U.S.C. 'SS' 1341(c)
are met, or the PBGC may terminate the Pension Plan involuntarily under 29
U.S.C. 'SS' 1342(a). The PBGC has filed contingent claims against Warnaco
Inc. and certain of its domestic and foreign subsidiaries, based on, inter alia,
termination of the Pension Plan.
Section 5.16. of the Plan provides that, upon the occurrence of the
Effective Date, the Reorganized Debtors will continue the Pension Plan,
including meeting the minimum funding standards under ERISA and the Internal
Revenue Code, paying all PBGC insurance premiums, and administering and
operating the Pension Plan in accordance with its terms and ERISA. Nothing in
the Plan will be deemed to discharge, release, or relieve the Debtors, the
Reorganized Debtors, any member of the Debtors' controlled groups (as defined in
29 U.S.C. 'SS''SS' 1301(a)(14)), or any other party, in any capacity, from any
current or future liability with respect to the Pension Plan, and PBGC and the
Pension Plan will not be enjoined or precluded
82
from enforcing such liability as a result of the Plan's provisions or
confirmation. Upon the Effective Date, PBGC will be deemed to have withdrawn the
Single-Employer Pension Plan Claims with prejudice. After the Effective Date,
the Reorganized Debtors will have the authority to terminate, amend or freeze
the Pension Plan in accordance with the terms of the Pension Plan, ERISA and the
Internal Revenue Code.
13. Employment, Retirement, and Incentive Compensation Plans and Programs.
Section 5.17. of the Plan provides that, except as otherwise set forth in the
Plan, to the extent that any of the Debtors have in place as of the Effective
Date retirement income plans, welfare benefit plans and other employee-related
plans and programs, such plans and programs will be deemed terminated as of the
Effective Date; provided that, the plans and programs set forth in Plan Schedule
5.17 to be filed on or before the Exhibit Filing Date will be deemed in effect.
After the Effective Date, the Reorganized Debtors will have the sole authority
to terminate, amend or implement retirement income plans, welfare benefit plans
and other plans and programs for employees in accordance with the terms of such
plans and applicable law.
G. Distributions Under the Plan
1. Distributions
(a) Distributions to Holders of Senior Secured Bank Claims. Section
6.2. of the Plan provides that on the Effective Date, Reorganized Warnaco will
deliver to the Administrative Agent for distribution on behalf of the Debtors to
holders of Senior Secured Bank Claims in Class 2: (a) Cash equal to the amount
of the balance due on the Original Foreign Facilities Guaranty Claims, which
will be applied to repay in full satisfaction of any outstanding amounts owing
by the Debtors under the Original Foreign Facilities as of the Petition Date;
(b) New Warnaco Second Lien Notes in the aggregate principal amount of $200
million; and (c) share certificates for the aggregate amount of either (i)
96.263% of the New Warnaco Common Shares, subject to Dilution, if the holders of
Class 6 Claims receive a distribution as provided in Section 2.9.(C) of the
Plan, or (ii) 96.844% of the New Warnaco Common Shares, subject to Dilution, if
the holders of Class 6 Claims are not entitled to receive a distribution as
provided in Section 2.9.(C) of the Plan. Notwithstanding any other provision of
the Plan, all distributions and issuances of such Cash, New Warnaco Second Lien
Notes and New Warnaco Common Shares to holders of Class 2 Claims will be made as
applicable, (i) based on the amount of Class 2 Claims held by such holders as
set forth in the books and records of the Administrative Agent as of the close
of business on the Confirmation Date, and (ii) in accordance with the
Pre-Petition Facility and Intercreditor Agreements. Such Cash will be
distributed to the holders of Class 2 Claims by the Administrative Agent, and
the New Warnaco Second Lien Notes and New Warnaco Common Shares will be issued
by Reorganized Warnaco as directed by the Administrative Agent, in the names of
the respective holders of Class 2 Claims, in each case in accordance with the
foregoing.
(b) Distributions to Holders of Allowed Class 5 Claims. Section 6.3.
of the Plan provides that on the Effective Date, Reorganized Warnaco will
deliver to the Disbursing Agent for distribution on behalf of the Debtors to
holders of Allowed Class 5 Claims, share certificates for the aggregate amount
of either (i) 2.549% of the New Warnaco Common Shares, subject to Dilution, if
the holders of Class 6 Claims receive a distribution as provided in Section
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2.9. of the Plan or (ii) 2.564% of the New Warnaco Common Shares, subject to
Dilution, if the holders of Class 6 Claims are not entitled to receive a
distribution as provided in Section 2.9. of the Plan. The Disbursing Agent will
make distributions of New Warnaco Common Shares to holders of Allowed Class 5
Claims as of the Distribution Record Date as follows: (A) on the Initial
Distribution Date, the Disbursing Agent will distribute the New Warnaco Common
Shares allocable to Allowed Claims held by holders of Class 5 Claims as of the
Distribution Record Date. For the purpose of calculating the amount of New
Warnaco Common Shares to be distributed to holders of Allowed Class 5 Claims on
the Initial Distribution Date, all Disputed Claims in Class 5 will be treated as
though such Claims will be Allowed Claims in the Face Amount of such Claims; (B)
on any Interim Distribution Date, the Disbursing Agent will make interim
distributions of New Warnaco Common Shares to holders of Allowed Class 5 Claims
pursuant to and consistent with resolutions of Disputed Claims since the Initial
Distribution Date; (C) on the Final Distribution Date the Disbursing Agent will
make the balance of all distributions to holders of Allowed Class 5 Claims as
required under the Plan.
(c) Distributions to Holders of TOPrS Claims, if Any. Section 6.4. of
the Plan provides that in the event that holders of Class 6 Claims are entitled
to receive a distribution as provided in Section 2.9.(C) of the Plan, on the
Initial Distribution Date, the Reorganized Debtors will distribute to the TOPrS
Trustee, subject to the rights of the TOPrS Trustee to assert its TOPrS Trustee
Charging Lien against the distributions to the holders of the TOPrS to the
extent the TOPrS Trustee Fee remains unpaid, or such persons as the TOPrS
Trustee will designate at least ten (10) days prior to the Confirmation Hearing,
for redelivery to the holder(s) of the TOPrS Claims, a stock certificate
evidencing ownership of 0.596% of the New Warnaco Common Shares, subject to
Dilution, and in addition will pay in Cash the amount of up to $300,000 to the
TOPrS Trustee on account of its actual and reasonable fees and expenses incurred
under the TOPrS Indenture, subject to receipt and review by the Reorganized
Debtors of invoices detailing such fees and expenses. All New Warnaco Common
Shares to be distributed to holders of Class 6 Claims will be distributed by the
TOPrS Trustee and the Reorganized Debtors will pay the reasonable fees and
expenses of the TOPrS Trustee in connection with such distribution, subject to
receipt and review by the Reorganized Debtors of invoices detailing such fees
and expenses.
On the Effective Date, all TOPrS, the TOPrS Indenture, the TOPrS
Supplemental Indenture, the TOPrS Guarantees, the TOPrS Trust Agreement, and the
6% Convertible Subordinated Debentures due 2016 will be deemed automatically
canceled and discharged. However, the TOPrS, the TOPrS Indenture, the TOPrS
Supplemental Indenture, the TOPrS Guarantees, the TOPrS Trust Agreement, and the
6% Convertible Subordinated Debentures due 2016 will continue in effect solely
for the purposes of (i) allowing the holders of the TOPrS Claims to receive
their distributions hereunder, (ii) allowing the TOPrS Trustee to make the
distributions, if any, to be made on account of the TOPrS, and (iii) permitting
the TOPrS Trustee to assert its TOPrS Trustee Charging Lien against such
distributions to the holders of the TOPrS for payment of the TOPrS Trustee Fee
to the extent that the TOPrS Trustee Fee remains unpaid.
Section 6.4.(C) of the Plan provides that, as soon as practicable
after the Effective Date, the Debtors with the cooperation of the TOPrS Trustee
will send a letter of transmittal to each holder of a TOPrS, advising such
holder of the effectiveness of the Plan and
84
providing instructions to such holder to deliver to the TOPrS Trustee its TOPrS
in exchange for the distributions, if any, to be made pursuant to the Plan.
Delivery of any TOPrS will be effected, and risk of loss and title thereto will
pass, only upon delivery of such TOPrS to the TOPrS Trustee in accordance with
the terms and conditions of such letter of transmittal, such letter of
transmittal to be in such form and have such other provisions as the Debtors (or
the Disbursing Agent) may reasonably request.
Pursuant to Section 6.4.(D) of the Plan, no distribution will be
made to or on behalf of any holder of TOPrS unless and until such TOPrS is
received by the TOPrS Trustee, or the loss, theft or destruction of such TOPrS
is established to the satisfaction of the TOPrS Trustee, including requiring
such holder (i) to submit a lost instrument affidavit and an indemnity bond, and
(ii) to hold the Debtors and the TOPrS Trustee harmless in respect of such TOPrS
and any distributions made in respect thereof. Upon compliance with Section
6.4.(D) by a holder of TOPrS, such holder will, for all purposes under the Plan,
be deemed to have surrendered such TOPrS. Any such holder that fails to
surrender such TOPrS or satisfactorily explain its non-availability to the TOPrS
Trustee within eighteen months of the Effective Date will be deemed to have no
TOPrS Claim against the Debtors, or their property or the TOPrS Trustee in
respect of such TOPrS Claim and will not participate in any distribution
hereunder, and the distribution that would otherwise have been made to such
holder will be distributed to all holders who have surrendered their TOPrS or
satisfactorily explained their non-availability to the TOPrS Trustee within
eighteen months of the Effective Date.
As of the close of business on the Distribution Record Date, (i)
the claims register will be closed, (ii) the transfer books and records of the
TOPrS as maintained by the TOPrS Trustee or its agent will be closed and (iii)
any transfer of any TOPrS Claim or any interest therein will be prohibited. The
Debtors, the Reorganized Debtors, and the TOPrS Trustee will have no obligation
to recognize any transfer of any TOPrS Claims occurring after the close of
business on the Distribution Record Date, and will instead be entitled to
recognize and deal for all purposes under the Plan with only those holders of
record as of the close of business on the Distribution Record Date.
(d) Fractional Interests. Section 6.5.(A) of the Plan provides that
notwithstanding any other provision of the Plan, only whole numbers of shares of
New Warnaco Common Shares will be issued. When any distribution on account of an
Allowed Claim would otherwise result in the issuance of a number of shares of
New Warnaco Common Shares that are not a whole number, the actual distribution
of such Shares only will include the next lower whole number of Shares. When any
distribution on the Final Distribution Date would otherwise result in the
issuance of a number of shares of New Warnaco Common Shares that is not a whole
number, the actual distribution of such Shares will be rounded to the next
higher or lower whole number of Shares as follows: (i) fractions equal to or
greater than 1/2 will be rounded to the next higher whole number; and (ii)
fractions less than 1/2 will be rounded to the next lower number. The total
number of shares of New Warnaco Common Shares specified to be distributed to
holders of Allowed Claims pursuant to the Plan will be adjusted as necessary to
account for the rounding provided for herein. No consideration will be provided
in lieu of fractional shares that are rounded down, except that with respect to
distributions made to holders of Allowed Class 5 and Class 6 Claims on the
Initial Distribution Date, such fractional shares will, with respect to each
Allowed Claim, be deemed held by the Reorganized Debtors,
85
for the benefit of the holder of such Allowed Claim, to be aggregated with the
remaining distribution to be made to such holder, if any, on the Final
Distribution Date.
(e) Disputed Claims and Payments. Pursuant to Section 6.5.(D) of the
Plan, notwithstanding anything to the contrary in the Plan, if any portion of a
Claim is a Disputed Claim, no payment or distribution provided in the Plan will
be made on account of the portion of such Claim that is a Disputed Claim unless
and until such Disputed Claim becomes an Allowed Claim. However, payment or
distribution provided in the Plan will be made on account of the portion of such
Claim that is an Allowed Claim. No Claim will be allowed under the Plan or
otherwise to the extent that it is for post-petition fees or interest.
If any dispute arises as to the identity of the holder of an Allowed
Claim entitled to receive any distribution under the Plan, then pursuant to
Section 6.5.(E) of the Plan, the Reorganized Debtors may retain such
distribution until its disposition is determined by a Final Order or written
agreement among the interested parties to such dispute
(f) Unclaimed Property. Pursuant to Section 6.5.(G) of the Plan, if
there is a distribution on account of an Allowed Claim under the Plan and such
distribution remains unclaimed by the holder of such Allowed Claim for ninety
(90) days, the holder of such Allowed Claim will cease to be entitled to such
distribution and the distribution will be delivered to the Disbursing Agent by
Reorganized Warnaco in accordance with Section 6.3. of the Plan for distribution
to holders of Allowed Class 5 Claims.
H. Procedure For Determination of Claims and Interests
1. Bar Date For Certain Administrative Claims. Pursuant to Section 6.6.(A)
of the Plan, all applications for final compensation of Case Professionals and
on account of services rendered prior to the Effective Date, and all other
requests for payment of Administrative Claims (except for the Alvarez Incentive
Bonus, the Designated Post-Petition Loans, claims of the Debt Coordinators and
the Pre-Petition Collateral Trustee payable under paragraph 22 of the DIP
Approval Orders, claims for taxes pursuant to Section 507(a)(8) of the Code,
ordinary course trade debt and customer deposits and credits incurred in the
ordinary course of business after the Petition Date) will be served on the
Reorganized Debtors in accordance with Section 8.10. of the Plan and filed with
the Bankruptcy Court, no later than 25 days after the Effective Date. Any such
claim that is not served and filed within this time period will be forever
barred. Objections to any such application must be filed within 15 days after
receipt thereof.
2. Objections To Claims. Section 6.6.(B) of the Plan provides that
objections to any Claim filed by any party other than the Debtors (other than
Administrative Claims governed by Section 6.6.(A) of the Plan) must be filed no
later than twenty (20) days before the Effective Date; provided, however, that
the Reorganized Debtors may file objections to Claims through and including
forty-five (45) days after the Effective Date. In accordance with Section
6.5.(D) of the Plan, payment or distribution will be made on account of all or
any portion of such Claim that is an Allowed Claim. To the extent any property
is distributed to an entity on account of a Claim that is not an Allowed Claim,
such property will be held in trust for and will promptly be returned to the
Reorganized Debtors. On and after the Effective Date, the Reorganized Debtors
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will have authority to continue to prosecute, settle or withdraw objections to
Claims and will be entitled to compromise or settle any Disputed Claim in
accordance with Section 5.2. of the Plan.
I. Effect of the Plan on Claims and Interests
1. Revesting of Assets. Pursuant to Section 7.1. of the Plan and except as
otherwise provided in the Plan (including, without limitation, Sections 7.4. and
7.5. of the Plan), on the Effective Date, all property of the Estate, to the
full extent of Section 541 of the Code, and any and all other rights and assets
of the Debtors of every kind and nature will revest in the Reorganized Debtors
free and clear of all Liens, Claims and Interests other than (i) those Liens,
Claims and Interests retained or created pursuant to the Plan or any document
entered into in connection with the transactions described in the Plan and (ii)
Liens that have arisen subsequent to the Petition Date on account of taxes that
arose subsequent to the Petition Date.
2. Discharge of Claims and Termination of Interests. Section 7.2. of the
Plan provides that as of the Effective Date, except as provided in the
Confirmation Order, the rights afforded under the Plan and the treatment of
Claims and Interests under the Plan will be in exchange for and in complete
satisfaction, discharge and release of all Claims and satisfaction or
termination of all Interests, including any interest accrued on Claims from and
after the Petition Date. Except as provided in the Plan or the Confirmation
Order, Confirmation will, as of the Effective Date: (i) discharge the Debtors
from all Claims or other debts that arose before the Effective Date, and all
debts of the kind specified in Sections 502(g), 502(h) or 502(i) of the Code,
whether or not (x) a proof of claim based on such debt is filed or deemed filed
pursuant to Section 501 of the Code, (y) a Claim based on such debt is Allowed
pursuant to Section 502 of the Code, or (z) the holder of a Claim based on such
debt has accepted the Plan; and (ii) satisfy, terminate or cancel all Interests
and other rights of equity security holders in the Debtors.
As of the Effective Date, except as provided in the Plan or the
Confirmation Order, all Persons will be precluded from asserting against the
Debtors or the Reorganized Debtors, or their respective successors or property,
any other or further Claims, demands, debts, rights, causes of action,
liabilities or equity interests based upon any act, omission, transaction or
other activity of any kind or nature that occurred prior to the Effective Date.
In accordance with the foregoing, except as provided in the Plan or the
Confirmation Order, the Confirmation Order will be a judicial determination, as
of the Effective Date, of discharge of all such Claims and other debts and
liabilities against the Debtors and satisfaction, termination or cancellation of
all Interests and other rights of equity security holders in the Debtors,
pursuant to Sections 524 and 1141 of the Code, and such discharge will void any
judgment obtained against the Debtors or the Reorganized Debtors at any time, to
the extent that such judgment relates to a discharged Claim.
3. Injunctions. Pursuant to Section 7.3. of the Plan, except as provided in
the Plan or the Confirmation Order, as of the Effective Date, all Persons that
have held, currently hold or may hold a Claim or other debt or liability that is
discharged or an Interest or other right of an equity security holder that is
terminated pursuant to the terms of the Plan are permanently enjoined from
taking any of the following actions on account of any such discharged Claims,
debts or liabilities or terminated Interests or rights: (i) commencing or
continuing in any manner any action or other proceeding against the Debtors or
the Reorganized Debtors or their respective property; (ii) enforcing, attaching,
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collecting or recovering in any manner any judgment, award, decree or order
against the Debtors or the Reorganized Debtors or their respective property;
(iii) creating, perfecting or enforcing any lien or encumbrance against the
Debtors or the Reorganized Debtors or their respective property; (iv) asserting
a setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to the Debtors or the Reorganized Debtors or their
respective property; and (v) commencing or continuing any action, in any manner,
in any place that does not comply with or is inconsistent with the provisions of
the Plan.
Additionally, as of the Effective Date, all Persons that have held,
currently hold or may hold a Claim, demand, debt, right, cause of action or
liability that is released pursuant to the Plan are permanently enjoined from
taking any of the following actions on account of such released Claims, demands,
debts, rights, causes of action or liabilities: (i) commencing or continuing in
any manner any action or other proceeding; (ii) enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order; (iii)
creating, perfecting or enforcing any lien or encumbrance; (iv) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to any released entity; and (v) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
In exchange for the distributions pursuant to the Plan, each holder of
an Allowed Claim receiving such distribution pursuant to the Plan will be deemed
to have specifically consented to the injunctions set forth in Section 7.3. of
the Plan.
4. Limitation of Liability. Pursuant to Section 7.4. of the Plan, none of
the Debtors, the Reorganized Debtors, the Creditors' Committee, the DIP Lenders,
the Pre-Petition Secured Lenders, the TOPrS Trustee, nor any of their respective
directors, employees employed by the Debtors as of the Effective Date, members,
attorneys, investment bankers, restructuring consultants and financial advisors,
nor any other professional Persons employed by any of them (collectively, the
"Exculpated Persons"), will have or incur any liability to any Person for any
act taken or omission from and after the Petition Date in connection with,
relating to or arising out of the Cases, the management and operation of the
Debtors, the formulation, negotiation, implementation, confirmation or
consummation of the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with the Plan. The
Exculpated Persons will have no liability to any Debtor, holder of a Claim,
holder of an Interest, other party in interest in the Cases or any other Person
for actions taken or not taken in connection with, relating to or arising out of
the Cases, the management and operation of the Debtors, the Plan or the property
to be distributed under the Plan, including, without limitation, failure to
obtain Confirmation of the Plan or to satisfy any condition or conditions, or
refusal to waive any condition or conditions, to the occurrence of the Effective
Date, and in all respects such Exculpated Persons will be entitled to rely upon
the advice of counsel with respect to their duties and responsibilities in the
Cases, the management and operation of the Debtors and under the Plan.
5. Releases. Pursuant to Section 7.5. of the Plan, on the Effective Date,
the Reorganized Debtors on their own behalf and as representatives of the
Estates, release unconditionally, and will be deemed to have released
unconditionally, (i) each of the
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Debtors' directors who served at any time during the Cases, (ii) each of the
Debtors' officers employed as of the Effective Date, (iii) the members of the
Creditors' Committee, (iv) the DIP Lenders, (v) the Pre-Petition Secured
Lenders, (vi) the TOPrS Trustee and (vii) the attorneys, investment bankers,
restructuring consultants and financial advisors of the foregoing, from any and
all claims, obligations, suits, judgments, damages, rights, causes of action and
liabilities whatsoever (including, without limitation, those arising under the
Code), whether known or unknown, foreseen or unforeseen, existing or hereafter
arising, in law, equity or otherwise, based in whole or in part on any act,
omission, transaction, event or other occurrence taking place on or after the
Petition Date through and including the Effective Date in connection with,
relating to or arising out of the Cases, the management and operation of the
Debtors, the formulation, negotiation, implementation, confirmation or
consummation of the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with the Plan.
Section 7.5. of the Plan further provides that, on the Effective Date,
the Reorganized Debtors on their own behalf and as representatives of the
Estates, release unconditionally, and will be deemed to have released
unconditionally, (i) each of the Debtors' former and present officers and
directors, (ii) the Pre-Petition Secured Lenders, (iii) the TOPrS Trustee and
(iv) the attorneys, investment bankers, restructuring consultants and financial
advisors of the foregoing (collectively, the "Pre-Petition Releasees") from any
and all claims, obligations, suits, judgments, damages, rights, causes of action
and liabilities whatsoever (including, without limitation, those arising under
the Code), whether known or unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise, based in whole or in part on any
act, omission, transaction, event or other occurrence taking place before the
Petition Date in connection with or relating to The Warnaco Group, Inc. or any
of its direct or indirect subsidiaries (the "Pre-Petition Released Matters");
provided, however, that the foregoing release will not apply to any current or
former officers or directors of any of the Debtors who, as of November 13, 2002,
has been invited by the SEC to make a Wells Submission describing the reasons
why no enforcement proceedings should be brought against them with respect to
potential violations of the Securities and Exchange Act of 1934 in connection
with the preparation and publication of various financial statements and other
public statements of Group (each, a "Wells Recipient"); and provided, further,
that notwithstanding the foregoing proviso, the release set forth in Section
7.5.(B) of the Plan will apply to a Wells Recipient in the event that either (i)
the SEC has determined not to commence an enforcement proceeding against such
Wells Recipient, or (ii) the SEC has commenced an enforcement proceeding and
such proceeding has been concluded with no finding against, or concession by,
such Wells Recipient that he or she (a) committed fraud, intentional or
negligent misrepresentation, or gross negligence in connection with the matters
investigated, or (b) may not serve in the future as an officer or director of
any public company.
On the Effective Date, each holder of a Claim that is entitled to vote
on the Plan will be deemed to have unconditionally released the Pre-Petition
Releasees from the Pre-Petition Released Matters; provided, however, that the
foregoing release will not apply to any Wells Recipient; provided, further, that
notwithstanding the foregoing proviso, the release set forth in Section 7.5.(C)
of the Plan will apply to a Wells Recipient in the event
89
that either (i) the SEC has determined not to commence an enforcement proceeding
against such Wells Recipient, or (ii) the SEC has commenced an enforcement
proceeding and such proceeding has been concluded with no finding against, or
concession by, such Wells Recipient that he or she (a) committed fraud,
intentional or negligent misrepresentation, or gross negligence in connection
with the matters investigated, or (b) may not serve in the future as an officer
or director of any public company. A holder of a Claim entitled to vote on the
Plan may elect, by checking the box provided on the Ballot, not to grant the
releases, set forth in this Section 7.5.(C).
The Confirmation Order will contain a permanent injunction to
effectuate the releases granted in Section 7.5. of the Plan.
J. Miscellaneous Provisions
1. Retention of Jurisdiction. Pursuant to Section 8.1. of the Plan,
following the Effective Date, the Bankruptcy Court will retain jurisdiction over
matters to the fullest extent available under applicable law, including, without
limitation:
(a) To determine the allowability, classification and priority of
Claims and Interests upon objection, or to estimate, pursuant to Section 502(c)
of the Code, the amount of any Claim that is or is anticipated to be contingent
or unliquidated as of the Effective Date;
(b) To construe and to take any action authorized by the Code and
requested by the Reorganized Debtors or any other party in interest to enforce
the Plan and the documents and agreements filed in connection with the Plan,
issue such orders as may be necessary for the implementation, execution and
consummation of the Plan, including, without limiting the generality of the
foregoing, orders to expedite regulatory decisions for the implementation of the
Plan and to ensure conformity with the terms and conditions of the Plan, such
documents and agreements and other orders of the Bankruptcy Court,
notwithstanding any otherwise applicable non-bankruptcy law;
(c) To determine any and all applications for allowance of
compensation and expense reimbursement of professionals retained by the Debtors,
the Reorganized Debtors or the Creditors' Committee, and for members of the
Creditors' Committee, for periods on or before the Effective Date, and to
determine any other request for payment of administrative expenses;
(d) To determine all matters that may be pending before the Bankruptcy
Court on or before the Effective Date;
(e) To resolve any dispute regarding the implementation or
interpretation of the Plan, or any related agreement or document that arises at
any time before the Cases are closed, including determination, to the extent a
dispute arises, of the entities entitled to a distribution within any particular
Class of Claims and of the scope and nature of the Reorganized Debtors'
obligations to cure defaults under assumed contracts, leases, franchises and
permits;
(f) To determine any and all matters relating to the rejection,
assumption or assignment of executory contracts or unexpired leases entered into
prior to the Petition Date, the
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nature and amount of any Cure required for the assumption of any executory
contract or unexpired lease, and the allowance of any Claim resulting therefrom;
(g) To determine all applications, adversary proceedings, contested
matters and other litigated matters that were brought or that could have been
brought in the Bankruptcy Court on or before the Effective Date;
(h) To determine matters concerning local, state and federal taxes in
accordance with Sections 346, 505 and 1146 of the Code, and to determine any tax
claims that may arise against the Debtors or the Reorganized Debtors as a result
of the transactions contemplated by the Plan; and
(i) To modify the Plan pursuant to Section 1127 of the Code or to
remedy any apparent nonmaterial defect or omission in the Plan, or to reconcile
any nonmaterial inconsistency in the Plan so as to carry out its intent and
purposes.
From the Confirmation Date through the Effective Date, the
Bankruptcy Court will retain jurisdiction with respect to each of the foregoing
items and all other matters that were subject to its jurisdiction prior to the
Confirmation Date.
2. Retention and Enforcement Of Causes Of Action. Except as otherwise set
forth in the Plan, pursuant to Section 1123(b)(3)(B) of the Code, and subject to
Sections 7.5. and 7.6. of the Plan, on the Effective Date, all Causes of Action
including, without limitation, the Causes of Action identified on Plan Schedule
7.6, will become the property of the Reorganized Debtors' estates and the
Reorganized Debtors will retain all Causes of Action that the Debtors had or had
power to assert immediately prior to the Effective Date, whether or not such
Causes of Action are listed on Plan Schedule 7.6, and may commence or continue
in any appropriate court or tribunal any suit or other proceeding for the
enforcement of such Causes of Action. However, all of the Debtors' claims and
causes of action arising under Section 547 of the Code (collectively, the
"Preference Actions") that are not the subject of pending litigation as of the
Effective Date will be waived, abandoned, discharged and released pursuant to
the Plan. To date, the Debtors have commenced a single adversary proceeding
entitled Authentic Fitness Corporation v. Dobbs Temporary Help Services, Inc.
d/b/a ProStaff Personnel Services, Inc., Adversary Proceeding No. 01-03628
(RLB), seeking relief pursuant to, inter alia, Section 547 of the Code. With the
exception of that action, the Debtors do not intend to commence any Preference
Actions through the Effective Date. Except with respect to Preference Actions,
nothing contained in the Plan will constitute a release, satisfaction or
settlement of the Causes of Action or will constitute waiver of the rights, if
any, of the Debtors or the Reorganized Debtors to a jury trial with respect to
any Cause of Action or objection to any Claim or Interest and nothing in the
Plan or the Confirmation Order will constitute a waiver or release of claims
under the doctrine of res judicata nor will such claims be barred or limited by
any estoppel, whether judicial, equitable or otherwise
3. Confirmation Order and Plan Control. Section 8.4. of the Plan provides
that, except as otherwise provided in the Plan, in the event that there is any
inconsistency between the Plan and this Disclosure Statement, any exhibit to the
Plan or any other instrument or document
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created or executed pursuant to the Plan, the Plan will control. In the event
there is any inconsistency between the Plan and the Confirmation Order, the
Confirmation Order will control.
4. Severability. Section 8.6. of the Plan provides that if the Bankruptcy
Court determines at the Confirmation Hearing that any material provision of the
Plan is invalid or unenforceable, such provision, subject to Section 1127 of the
Code, will be severable from the Plan and will be null and void, and, in such
event, such determination will in no way limit or affect the enforceability or
operative effect of any or all other portions of the Plan.
5. Modifications to the Plan. Pursuant to Section 8.8. of the Plan, upon
the mutual consent of the Debtors, the Debt Coordinators and the Creditors'
Committee, the Plan, and any Exhibit or Schedule to the Plan, may be amended or
modified at any time prior to the Confirmation Date in accordance with the Code
and Bankruptcy Rules.
6. Revocation, Withdrawal or Non-Consummation. Section 8.9. of the Plan
provides that the Debtors have the right to revoke or withdraw the Plan at any
time prior to the Effective Date. If the Debtors revoke or withdraw the Plan
prior to the Effective Date, or if the Confirmation Date or the Effective Date
does not occur, then the Plan, any settlement or compromise embodied in the Plan
(including the fixing or limiting to an amount certain any Claim or Class of
Claims), the assumption or rejection of executory contracts or leases effected
by the Plan, and any document or agreement executed pursuant to the Plan will be
null and void; provided, however, that all orders of the Bankruptcy Court and
all documents executed pursuant thereto will remain in full force and effect. In
such event, nothing contained herein, and no acts taken in preparation for
consummation of the Plan, will be deemed to constitute a waiver or release of
any Claims by or against any of the Debtors or any other Person, to prejudice in
any manner the rights of any of the Debtors or any Person in any further
proceedings or to constitute an admission of any sort by any of the Debtors or
any other Person.
K. Exemption From Securities Laws
Holders of Allowed Claims in Class 2, Class 5 and Class 6 will receive
their pro rata share of New Warnaco Common Shares under the Plan. In addition,
holders of Allowed Claims in Class 2 will receive their pro rata share of New
Warnaco Second Lien Notes under the Plan. The Debtors believe that the
provisions of Section 1145(a)(1) of the Code exempt the offer and distribution
of the New Warnaco Common Shares and the New Warnaco Second Lien Notes from
federal, state and local securities registration requirements (including,
without limitation, Section 5 of the Exchange Act or any similar state or local
law requiring the registration for offer or sale of a security of registration
of licensing of an issuer or a security).
1. Code Exemption From Registration Requirements.
(a) Initial Offer and Sale of Securities. Section 1145(a)(1) of the
Code exempts the offer and sale of securities under a plan of reorganization
from registration under the Exchange Act and state laws if three principal
requirements are satisfied: (i) the securities must be offered and sold under a
plan of reorganization and must be securities of the debtor, of an affiliate
participating in a joint plan with the debtor or of a successor to the debtor
under the plan; (ii) the recipient of the securities must hold a pre-petition or
administrative claim against, or an
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interest in, the debtor; and (iii) the securities must be issued entirely in
exchange for the recipient's claim against or interest in the debtor, or
principally in such exchange and partly for cash or property.
(b) Subsequent Transfers of Securities. In general, all resales and
subsequent transactions in such common shares will be exempt from registration
under the Exchange Act pursuant to Section 4(1) of the Exchange Act, unless the
holder thereof is deemed to be an "underwriter" with respect to such securities
or a "dealer". Section 1145(b)(1) of the Code defines four types of
"underwriters":
(i) persons who purchase a claim against, an interest in or a claim
for administrative expense against the debtor with a view to
distributing any security received in exchange for such a claim or
interest ("accumulators");
(ii) persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) persons who offer to buy securities offered under a plan from
the holders of such securities, if the offer to buy is (x) with a view
to distributing such securities and (y) made under a distribution
agreement (together with the persons described in clause (ii) above,
"distributors"); or
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Exchange Act.
Under Section 2(11) of the Exchange Act, an "issuer" includes any
"affiliate" of the issuer, which means any person directly or indirectly through
one or more intermediaries controlling, controlled by or under common control
with the issuer. Under Section 2(12) of the Exchange Act, a "dealer" is any
person who engages either for all or part of his or her time, directly or
indirectly, as agent, broker or principal, in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person.
Whether any particular person would be deemed to be an "underwriter" with
respect to the common shares or a "dealer" would depend upon various facts and
circumstances applicable to that person. Accordingly, the Debtors express no
view as to whether any person would be an "underwriter" or a "dealer".
Resales by accumulators and distributors of securities distributed
under a plan of reorganization who are not affiliates of the issuer of such
securities are exempt from registration under the Exchange Act if effected in
"ordinary trading transactions". The staff of the SEC has indicated in this
context that a transaction by such non-affiliates may be considered an "ordinary
trading transaction" if it is made on an exchange or in the over-the-counter
market and does not involve any of the following factors:
(i) (x) concerted action by the recipients of securities issued under
a plan in connection with the sale of such securities or (y) concerted
action by distributors on behalf of one or more such recipients in
connection with such sales;
93
(v) the use of informational documents concerning the offering of the
securities prepared or used to assist in the resale of such
securities, other than a bankruptcy court-approved disclosure
statement and supplements thereto, and documents filed with the SEC
pursuant to the Exchange Act; or
(vi) the payment of special compensation to brokers and dealers in
connection with the sale of such securities designed as a special
incentive to the resale of such securities (other than the
compensation that would be paid pursuant to arm's-length negotiations
between a seller and a broker or dealer, each acting unilaterally, not
greater than the compensation that would be paid for a routine
similar-sized sale of similar securities of a similar issuer).
The views of the SEC on the matter have not, however, been sought by
the Debtors and, therefore, no assurance can be given regarding the proper
application of the "ordinary trading transaction" exemption described above. Any
person intending to rely on such exemption is urged to consult his or her own
counsel as to the applicability thereof to his or her circumstances.
Exchange Act Rule 144 provides an exemption from registration under
the Exchange Act for certain limited public resales of unrestricted securities
by "affiliates" of the issuer of such securities. Rule 144 allows a holder of
unrestricted securities that is an affiliate of the issuer of such securities to
sell, without registration, within any three-month period a number of shares of
such unrestricted securities that does not exceed the greater of one percent
(1%) of the number of outstanding securities in question or the average weekly
trading volume in the securities in question during the four calendar weeks
preceding the date on which notice of such sale was filed pursuant to Rule 144,
subject to the satisfaction of certain other requirements of Rule 144 regarding
the manner of sale, notice requirements and the availability of current public
information regarding the issuer. The Debtors believe that, pursuant to Section
1145(c) of the Code, the unregistered securities being distributed under and in
connection with the Plan will be unrestricted securities for purposes of Rule
144.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE
RIGHT OF ANY PERSON TO TRADE IN THE SHARES ISSUED UNDER THE PLAN. THE DEBTORS
RECOMMEND THAT HOLDERS OF CLAIMS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER
THEY MAY FREELY TRADE SUCH SECURITIES.
(c) Certain Transactions by Stockbrokers. Under Section 1145(a)(4) of
the Code, stockbrokers effecting transactions in the New Warnaco Common Shares
issued under the Plan prior to the expiration of 40 days after the Effective
Date are required to deliver to the purchaser of such securities a copy of this
Disclosure Statement (and supplements hereto, if any, if ordered by the
Bankruptcy Court) at or before the time of delivery of such securities to such
purchaser.
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THE DEBTORS DO NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR
INTERPRETATIVE REQUESTS TO THE SEC WITH RESPECT TO ANY SECURITIES LAWS MATTERS.
V. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. General Tax Considerations
The following discussion summarizes the material federal income tax
consequences of the implementation of the Plan to the Debtors and the United
States holders of certain Claims. This summary does not discuss all aspects of
federal income taxation that may be relevant to a particular holder of a Claim
subject to special treatment under the federal income tax laws (such as foreign
taxpayers, broker-dealers, banks, thrifts, insurance companies, financial
institutions, regulated investment companies, real estate investment trusts and
pension plans and other tax-exempt investors), and does not discuss any aspects
of state, local or foreign tax laws.
This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Tax Code"), Treasury Regulations promulgated and proposed
thereunder, judicial decisions and published administrative rules and
pronouncements of the Internal Revenue Service ("IRS") in effect on the date
hereof, all of which are subject to change (possibly with retroactive effect).
The Debtors have not received an opinion of counsel as to the federal income tax
consequences of the Plan and do not intend to seek a ruling from the IRS as to
any aspect of the 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. EACH HOLDER OF A CLAIM IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND OTHER
TAX CONSEQUENCES OF THE PLAN.
B. Tax Consequences of the Plan on the Debtors
The Debtors reported a consolidated U.S. net operating loss ("NOL")
carryforward of approximately $1.1 billion for their 2001 tax year
(substantially all of which is allocable to Warnaco Inc.). The amount of such
NOLs remains subject to adjustment by the IRS.
As discussed below, the amount of such NOLs (and possibly certain
other tax attributes of the Debtors), is likely to be significantly reduced or
eliminated upon the implementation of the Plan. In addition, the subsequent
utilization of any remaining NOLs (and possibly certain other tax attributes)
may be restricted upon the implementation of the Plan.
1. Cancellation of Indebtedness Income
In general, cancellation of indebtedness ("COD") income is the amount
by which indebtedness discharged exceeds any consideration given in exchange.
Under Section 108 of the Tax Code, a taxpayer may exclude COD income from gross
income if the discharge occurs in a case brought under chapter 11 of the Code,
provided the taxpayer is under the jurisdiction of a
95
court in such case and the cancellation of indebtedness is granted by the court
or is pursuant to a plan approved by the court (the "Bankruptcy Exception").
Generally, any COD income excluded from a debtor's gross income under
Section 108 of the Tax Code must be applied against and reduce certain tax
attributes of the taxpayer. Such reduction is applied in the following order:
net operating losses, general business credit carryovers (at 33 1/3 cents on the
dollar), capital loss carryovers, tax basis of the debtor's property (but not
below an amount equal to the aggregate of the debtor's liabilities immediately
after the discharge) and foreign tax credit carryovers (33 1/3 cents on the
dollar). A debtor may elect to reduce the basis of depreciable property that it
owns first, reducing NOLs and other attributes in the order prescribed. It is
unclear whether this reduction in tax attributes (e.g., NOLs and credits) should
occur on a separate company basis or a consolidated return basis. The IRS has,
in certain cases, asserted that such reduction generally should occur on a
consolidated basis.
The Debtors believe they will realize COD income of approximately $1.6
billion as a result of the implementation of the Plan. Pursuant to the
Bankruptcy Exception, this COD income will not be recognized, but the Debtor
that realizes COD income will have to reduce its tax attributes. The Debtors
believe that, other than their NOLs and the tax basis of their property, they
have no significant tax attributes to which the attribute reduction rules would
apply. Based on a preliminary analysis, the Debtors expect they will not make
the election described above to first reduce the tax bases of depreciable
property.
It is expected that Warnaco Inc. will incur almost all of the COD
income. Based on preliminary estimates, it is anticipated that the COD income
that Warnaco Inc. will incur will significantly exceed the NOLs that would be
apportioned to it. Consequently, the NOLs of Warnaco Inc. are expected to be
wholly eliminated. Further, Warnaco Inc. likely will have to reduce the tax
basis of its assets. It is expected that a significant portion of the reduction
in the tax basis will be with respect to nondepreciable assets, such as
subsidiary stock.
Cancellation of intercompany claims is not expected to materially
affect the discussion above. Intercompany balances will be resolved in the most
effective business and tax manner.
2. Effect of Section 382 of the Tax Code
As discussed above, the Debtors believe that all of the NOLs
apportioned to Warnaco Inc. will be eliminated pursuant to the Bankruptcy
Exception. Further, because of the uncertainty as to whether attribute reduction
occurs on a separate company basis or a consolidated basis, the Projections
assume a consolidated reduction that eliminates all of the Debtors' NOLs. It is
possible, however, that a separate company approach would result in some of the
Debtors' NOLs remaining after attribute reduction. Any such NOLs and certain
other tax attributes of the Debtors 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 with NOLs (a "loss corporation")
undergoes an "ownership change," the amount of its pre-change NOLs that may be
utilized to offset future
96
taxable income is, in general, subject to an annual limitation (the "Section 382
Limitation") equal to the product of the applicable long-term-tax-exempt rate
(which rate is 4.78% for October 2002 and the value of the loss corporation. In
general, for the purpose of calculating the Section 382 Limitation, the value of
the loss corporation is the value of the stock of the loss corporation
immediately before the ownership change (with certain adjustments). Generally,
Section 382 and the Section 382 Limitation are applied to a consolidated group
as though the group were a single corporation. The Section 382 Limitation does
not limit the use of NOLs to offset taxable income allocable to the
pre-ownership change portion of the taxable year in which the ownership change
occurs. Generally, if a loss corporation does not continue its historic business
or use a significant portion of its business assets in a new business for two
years after the ownership change, the annual limitation would be zero.
The Section 382 Limitation may also apply to certain losses or
deductions which are "built-in" (i.e., economically accrued but unrecognized) as
of the date of the ownership change and that are subsequently recognized. If a
loss corporation has a net unrealized built-in loss at the time of an ownership
change (taking into account most assets and all items of "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 a pre-change loss and similarly will be subject to the Section 382
Limitation. Conversely, if the loss corporation 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 Section 382 Limitation in the year recognized, such
that the loss corporation would be permitted to use its pre-change losses
against such built-in gain income in addition to its regular annual allowance.
The Debtors anticipate that, immediately before the ownership change, they will
have a net unrealized built-in gain in their assets rather than a net unrealized
built-in loss; however, there can be no assurance as to the fair market value of
the Debtors' assets at that time. In the case that a net unrealized built-in
gain exists, any built-in losses and deductions recognized after the ownership
change will not be subject to the Section 382 Limitation.
The Debtors believe that Group will undergo an ownership change as a
result of the implementation of the Plan. If that occurs, the ability of the
Debtors to utilize any NOLs that remain after the implementation of the Plan,
and their ability to utilize certain subsequently recognized built-in losses and
deductions (if any) may be subject to the Section 382 Limitation, as described
above. However, Section 382 provides an exception to the application of the
Section 382 Limitation for corporations under the jurisdiction of a court in a
bankruptcy case (the "Section 382 Bankruptcy Exception"). The Section 382
Bankruptcy Exception applies if the historic shareholders and creditors that
held certain "qualified indebtedness" (as defined by regulation) prior to
implementation of the Plan own at least 50 percent of the total voting power and
total value of the Debtors' stock after such implementation. If the Section 382
Bankruptcy Exception applies, the Debtors' ability to utilize its NOLs arising
prior to the Effective Date and built-in losses and deductions (if any)
recognized after the Effective Date will not be limited as described above. The
Section 382 Bankruptcy Exception would, however, reduce the Debtors' and its
subsidiaries' pre-change NOLs that may be carried over to a post-change year for
any interest paid or accrued on notes in respect of which stock is issued. The
Section 382 Bankruptcy Exception also provides that a second ownership change
occurring during the two-year period immediately following the first ownership
change would reduce the Section 382
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Limitation to zero. There is no clear interpretation as to whether and how the
Section 382 Bankruptcy Exception applies to a consolidated group.
Section 382 provides that a corporation under the jurisdiction of a
Bankruptcy Court may elect out of the Section 382 Bankruptcy Exception even if
the corporation meets all of the requirements thereof. The Debtors believe they
may qualify for such exception; however, at this time, they have not determined
whether it would be advantageous to elect out of this exception. The Debtors
will make a timely decision regarding whether they qualify for the Section 382
Bankruptcy Exception and, if so, whether to elect out of this exception.
If the Debtors do not qualify for the Section 382 Bankruptcy Exception
or elect out of the Section 382 Bankruptcy Exception as discussed above, a
special rule under Section 382 applicable to corporations under the jurisdiction
of a Bankruptcy Court that are not subject to the Section 382 Bankruptcy
Exception will apply in calculating the Debtors' Section 382 Limitation. Under
this special rule, the limitation will be calculated by reference to the lesser
of (a) the value of Group stock (with certain adjustments) immediately after the
ownership change, (as opposed to immediately before the ownership change as
discussed above), or (b) the value of the Debtors' assets determined without
regard to liabilities immediately before the ownership change. Although such
calculation may substantially increase the Section 382 Limitation, the Debtors'
use of any NOLs and built-in losses and deductions (if applicable) remaining
after the implementation of the Plan still may be substantially limited after
the ownership change.
The Section 382 Limitation will serve to limit the use of all of the
Debtor's NOLs in the taxable year in which the bankruptcy reorganization is
effective. The Debtor's NOLs will not be reduced pursuant to the Bankruptcy
Exception until the end of that tax year. In subsequent taxable years, the only
NOLs that may be subject to the Section 382 Limitation are the NOLs of the
Warnaco U.S. Debtor Subsidiaries other than Warnaco Inc. Assuming a
post-reorganization equity value for Group of approximately $485.6 million and a
long-term tax-exempt rate of approximately 5.00%, the Section 382 Limitation
would be approximately $24.3 million per year, subject to an increase for the
amount of recognized built-in gains, if any. The Section 382 Limitation for the
taxable year in which the plan is executed would be pro-rated (i.e. the
limitation for that particular year would be equal to the product of the Section
382 Limitation and the fraction of the remaining portion of the year over the
full year).
C. Federal Income Tax Consequences to U.S. Holders of Certain Claims
1. Senior Secured Bank Claims
Holders of Senior Secured Bank Claims will receive, in exchange for
their Claim, (i) Cash in satisfaction of the Original Foreign Facilities
Guaranty Claims, (ii) New Warnaco Second Lien Notes and (iii) New Warnaco Common
Shares. All distributions in respect of Senior Secured Bank Claims will be made
by the Administrative Agent to the holders of such Claims in accordance with the
pro rata sharing arrangement contained in the Pre-Petition Facility and
Intercreditor Agreements. Except in the limited circumstance described below,
such exchange is expected to be a fully taxable transaction. A holder of a
Senior Secured Bank Claim will recognize gain or loss equal to the difference
between (a) its tax basis in the Claim and (b) the sum of (i) the Cash, (ii) the
"issue price" of the New Warnaco Second Lien Notes (as
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described below) and (iii) the fair market value of the New Warnaco Common
Shares it receives. The character of such gain or loss as ordinary or capital
will depend on a number of factors, including, without limitation, the tax
status of the holder of the Senior Secured Bank Claim, whether the Claim is a
capital asset in the hands of the holder, and the extent to which the holder
previously claimed a loss, bad debt deduction or charge to a reserve for bad
debts with respect to the Claim. If gain or loss recognized by a holder of a
Senior Secured Bank Claim is capital gain or loss, it will be long-term if the
holder held it for more than one year. A holder will have an initial tax basis
in the New Warnaco Second Lien Notes and New Warnaco Common Shares received in
the exchange equal to the amounts used in determining gain or loss and will have
a holding period in such property beginning on the day following the exchange.
Notwithstanding the foregoing, to the extent a Senior Secured Bank
Claim constitutes a "security" of Group for federal income tax purposes, the
exchange would constitute a recapitalization for federal income tax purposes and
the tax consequences to a holder would differ from those described above. The
determination of whether a debt obligation constitutes a security for such
purposes is complex and depends on the facts and circumstances surrounding the
origin and nature of the claim. Generally, obligations arising out of the
extension of trade credit have been held not to be tax securities, while
corporate debt obligations evidenced by written instruments with original
maturities of ten years or more have been held to be tax securities. It is
uncertain whether the Senior Secured Bank Claims will be considered securities
for federal tax purposes and holders are advised to consult their tax advisors
with respect to this issue. Unless otherwise indicated, the remainder of this
discussion assumes that none of the Senior Secured Bank Claims constitutes
securities.
A holder of a Senior Secured Bank Claim will recognize ordinary income
to the extent it receives cash or property in respect of interest (including
original issue discount that has accrued during the time that the holder has
held such Claim) that has not already been included by the holder in income for
federal income tax purposes under its method of accounting. If the cash and
other property allocable to interest is less than the amount previously included
as interest in the holder's federal income tax return, the discharged portion of
interest may be deducted in the taxable year in which the Effective Date occurs.
The extent to which consideration distributed under the Plan is allocable to
interest is uncertain, and holders of Senior Secured Bank Claims are urged to
consult their own tax advisors concerning that subject.
The "issue price" of a New Warnaco Second Lien Note should be equal to
its stated principal amount if neither the Note nor the Claim for which it is
exchanged is considered to be "publicly traded" within the meaning of the
original issue discount ("OID") rules of the Tax Code within a short period
before or after the Effective Date of the Plan. Otherwise, such issue price will
be its actual fair market value, as determined by such public trading. The OID
rules of the Tax Code define "publicly traded" to include appearance on a
"quotation medium" that provides a reasonable basis to determine fair market
value by disseminating either recent price quotations of identified brokers,
dealers or traders, or actual prices of recent sales transactions. As no
transfer restrictions are contemplated for the New Warnaco Second Lien Notes, no
assurance can be given that they will not be considered "publicly traded." If
the New Warnaco Second Lien Notes or the Senior Secured Bank Claims were
considered publicly traded within the meaning of the OID rules, the difference
between their "stated redemption price at maturity" (which would include, at a
minimum, the stated principal amount of the Notes) and
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their issue price would constitute OID. In general, a holder of a debt
instrument with OID must include such OID in income on a constant yield to
maturity basis over the term of the instrument, regardless of whether such
holder is on a cash or accrual method of accounting.
The New Warnaco Second Lien Notes provide for a rate increase of 50
basis points per annum at the end of the six month period following the
Effective Date and an increase of an additional 0.5% per annum at the end of
each six month period thereafter, until the Notes are paid in full. Under the
OID rules, the possibility of such rate increase may cause all or a portion of
the interest on the New Warnaco Second Lien Notes to constitute OID. However,
the OID rules contain certain presumptions for debt instruments that provide for
"alternative payment schedules" applicable upon the occurrence of contingencies.
Under such rules, an issuer is presumed to exercise any call rights in such a
way as to minimize the yield on the debt instrument. Assuming these rules
applied, it would be presumed that Reorganized Warnaco would exercise its call
rights prior to a rate increase, with the effect that the semi-annual rate
increases would not be includable in a holder's income prior to such date.
Further, stated interest on the New Warnaco Second Lien Notes generally would be
taken into account in accordance with a holder's regular method of accounting.
The alternative payment schedule rules require the timing and amount of the
payments that comprise each payment schedule to be known as of the issue date.
Because the New Warnaco Second Lien Notes have a floating rate component (and,
by reason of the increasing interest rate, may not qualify for certain
simplifying assumptions applicable to "variable rate debt instruments"), it is
unclear whether the New Warnaco Second Lien Notes may in fact rely upon the
alternative payment schedule rules. However, based in part on the preamble to
the Treasury Department decision finalizing such rules, Reorganized Warnaco
intends to take the position that such rules do apply.
If, contrary to the position outlined above, the alternative payment
schedule rules did not apply, the possibility of the semi-annual rate increases
could cause the New Warnaco Second Lien Notes to constitute contingent payment
debt instruments, unless such payments were considered "remote" or "incidental."
Although Reorganized Warnaco will use reasonably best efforts to pre-pay the New
Warnaco Second Lien Notes following the Effective Date, no assurance can be
given that the possibility of such payments can be considered remote or
incidental within the meaning of the OID regulations. Accordingly, if the
alternative payment schedule rules do not apply, the New Warnaco Second Lien
Notes may be treated as contingent payment debt instruments. Among other things,
such treatment would affect the determination of issue price described above and
the timing of inclusion of interest and other payments. The rules governing
contingent payment debt instruments are complex and would in turn depend on
whether the New Warnaco Second Lien Notes are publicly traded as described
above. Holders of New Warnaco Second Lien Notes are strongly urged to consult
their own tax advisors concerning this subject.
2. Allowed Class 5 Claims and TOPrS Claims
Each holder of an Allowed Class 5 Claim or a TOPrS Claim may receive
New Warnaco Common Shares in exchange for its Claim. Except in the limited
circumstances described below, such exchange is expected to be a fully taxable
transaction. A holder of an Allowed Class 5 Claim or a TOPrS Claim will
recognize gain or loss equal to the difference between its tax basis in the
Claim and the fair market value of the New Warnaco Common
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Shares it receives. The character of such gain or loss as ordinary or capital
will depend on a number of factors, including, without limitation, the origin
and nature of the Claim, the tax status of the holder of the Claim, whether the
Claim is a capital asset in the hands of the holder, and the extent to which the
holder previously claimed a loss, bad debt deduction or charge to a reserve for
bad debts with respect to the Claim. If gain or loss recognized by a holder of
an Allowed Class 5 Claim is capital gain or loss, it will be long-term if the
holder held it for more than one year. A holder will have an initial tax basis
in the New Warnaco Common Shares received in the exchange equal to the fair
market value used in determining gain or loss and will have a holding period in
such New Warnaco Common Shares beginning on the day following the exchange.
Notwithstanding the foregoing, to the extent an Allowed Class 5 Claim,
or a TOPrS Claim, constitutes a "security" of Group (as opposed to a security of
Warnaco Inc. or another Debtor other than Group) for federal income tax purposes
as described above under "Senior Secured Bank Claims," the exchange would
constitute a recapitalization for federal income tax purposes and the tax
consequences to holders would differ from those described above. The TOPrS
Claims generally would constitute securities for such purposes. Although none of
the Allowed Class 5 Claims are expected to constitute securities, holders of
such Claims are advised to consult their tax advisors with respect to this
issue.
A holder of an Allowed Class 5 Claim or a TOPrS Claim will recognize
ordinary income to the extent it receives cash or property in respect of
interest (including original issue discount that has accrued during the time
that the holder has held such Claim) that has not already been included by the
holder in income for federal income tax purposes under its method of accounting.
If the cash and other property allocable to interest is less than the amount
previously included as interest in the holder's federal income tax return, the
discharged portion of interest may be deducted in the taxable year in which the
Effective Date occurs. The extent to which consideration distributed under the
Plan is allocable to interest is uncertain, and holders of Allowed Class 5
Claims and TOPrS Claims are urged to consult their own tax advisors concerning
that subject.
3. Withholding
All distributions to holders of Claims under the Plan are subject to
any applicable withholding. Under federal income tax law, interest, dividends
and other reportable payments may, under certain circumstances, be subject to
"backup withholding" at a 30% rate (which rate is scheduled to be reduced in
increments to 28% by 2006). Backup withholding generally applies if the holder
(i) fails to furnish his or her social security number or other taxpayer
identification number ("TIN"), (ii) furnishes an incorrect TIN and the payor is
so notified by the IRS, (iii) fails to report properly interest or dividends or
(iv) 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. Rather, any amounts withheld from a payment to a holder under the backup
withholding rules are allowed as a refund or a credit against such holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain persons are exempt from backup withholding, including, in certain
circumstances, corporations and financial institutions. Holders should consult
their tax advisors regarding the application of backup withholding to their
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particular situations, the availability of an exemption therefrom and the
procedure for obtaining such an exemption, if available.
VI. CONFIRMATION OF THE PLAN UNDER THE CODE
A. The Confirmation Hearing and Objections
In order for the Plan to be consummated, the Bankruptcy Court must
confirm the Plan in accordance with Section 1129 of the Code. The Bankruptcy
Court has scheduled a hearing on confirmation of the Plan (the "Confirmation
Hearing") at [____] p.m., Prevailing Eastern Time, on [______, 2002], before the
Honorable Richard L. Bohanon, United States Bankruptcy Judge, Alexander Hamilton
Custom House, One Bowling Green, New York, New York 10004-1408. The Confirmation
Hearing may be adjourned from time to time without further notice except for the
announcement of such adjournment by the Bankruptcy Court at such hearing.
Section 1128(b) of the Code provides that any party in interest may
object to confirmation of a plan. Pursuant to the Disclosure Statement Approval
Order attached hereto as Exhibit B, any objections to confirmation of the Plan,
including, without limitation, any objections to the assumption or rejection of
executory contracts or unexpired leases under the Plan, must be in writing, must
set forth the objecting party's standing to assert such objection and the basis
of such objection and must be filed with the Bankruptcy Court and served upon
the United States Trustee for the Southern District of New York, counsel for the
Debtors, counsel for the Debt Coordinators for the Pre-Petition Secured Lenders,
counsel for the Creditors' Committee, and counsel for the DIP Agent, together
with proof of such service, so as to be ACTUALLY RECEIVED on or before [____]
p.m., Prevailing Eastern Time, on [_______, 2002].
Objections to confirmation are governed by Bankruptcy Rule 9014 and
the Disclosure Statement Approval Order. PURSUANT TO ORDER OF THE BANKRUPTCY
COURT, UNLESS A WRITTEN OBJECTION TO CONFIRMATION IS DULY AND TIMELY FILED AND
SERVED, THE BANKRUPTCY COURT IS NOT REQUIRED TO CONSIDER SUCH OBJECTION.
B. Confirmation Requirements Under the Code
In order for a plan of reorganization to be confirmed, the Code
requires, among other things, that such plan be proposed in good faith, that the
proponent of such plan disclose specified information concerning payments made
or promised to insiders and that such plan comply with the applicable provisions
of chapter 11 of the Code. Section 1129(a) of the Code also imposes requirements
that each dissenting member of a class receive at least as much under the plan
as it would receive in a chapter 7 liquidation of the debtor, that at least one
class of impaired claims has accepted the plan, that confirmation of the plan is
not likely to be followed by the need for further financial reorganization and
that the plan is "fair and equitable" with respect to each class of claims or
interests that is impaired under the plan and fails to accept the Plan by the
required majorities. The bankruptcy court will confirm a plan only if it finds
that all of the applicable requirements enumerated in Section 1129(a) of the
Code have been met or, if
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all of the requirements of Section 1129(a) other than the requirements of
Section 1129(a)(8) have been met (i.e., that all impaired classes have accepted
the plan), that all of the applicable requirements enumerated in Section 1129(b)
of the Code have been met.
In particular, Section 1129(a) of the Code provides that:
1. The plan must comply with the applicable provisions of the Code.
2. The proponent of the plan must comply with the applicable
provisions of the Code.
3. The plan must be proposed in good faith and not by any means
forbidden by law.
4. Any payment made or to be made by the proponent, by the debtor or
by a person issuing securities or acquiring property under the plan,
for services or for costs and expenses in or in connection with the
case, or in connection with the plan and incident to the case, must
have been approved by, or be subject to the approval of, the court as
reasonable.
5. The proponent of the plan must disclose the identity and
affiliations of any individual proposed to serve, after confirmation
of the plan, as a director, officer or voting trustee of the debtor,
an affiliate of the debtor participating in a joint plan with the
debtor or a successor to the debtor under the plan; and
(a) the appointment to, or continuance in, such office of such
individual must be consistent with the interests of
creditors and equity security holders and with public
policy; and
(b) the proponent of the plan must disclose the identity of any
insider that will be employed or retained by the reorganized
debtor, and the nature of any compensation for such insider.
6. Any governmental regulatory commission with jurisdiction, after
confirmation of the plan, over the rates of the debtor must have
approved any rate change provided for in the plan, or such rate change
must be expressly conditioned on such approval.
7. With respect to each impaired class of claims or interests
(a) each holder of a claim or interest of such class
(i) must have accepted the plan; or
(ii) must receive or retain under the plan on account of
such claim or interest property of a value, as of the effective date
of the plan, that is not less than the amount that such holder would
receive or retain if the debtor were liquidated under chapter 7 of the
Code on such date; or
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(b) if Section 1111(b)(2) of the Code applies to the claims of
such class, each holder of a claim of such class must
receive or retain under the plan on account of such claim
property of a value, as of the effective date of the plan,
that is not less than the value of such holder's interest in
the estate's interest in the property that secures such
claim.
8. With respect to each class of claims or interests
(a) such class must have accepted the plan; or
(b) such class must not be impaired under the plan.
9. Except to the extent that the holder of a particular claim has
agreed to a different treatment of such claim, the plan must provide
that
(a) with respect to a claim of a kind specified in Section
507(a)(1) or 507(a)(2) of the Code, on the effective date of
the plan, the holder of such claim will receive on account
of such claim cash equal to the allowed amount of such
claim;
(b) with respect to a class of claims of a kind specified in
Section 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6) and
507(a)(7) of the Code, each holder of a claim of such class
will receive
(i) if such class has accepted the plan, deferred cash
payments of a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or
(ii) if such class has not accepted the plan, cash on the
effective date of the plan equal to the allowed amount
of such claim; and
(c) with respect to a claim of a kind specified in Section
507(a)(8) of the Code, the holder of such claim must receive
on account of such claim deferred cash payments, over a
period not exceeding six years after the date of assessment
of such claim, of a value, as of the effective date of the
plan, equal to the allowed amount of such claim.
10. If a class of claims is impaired under the plan, at least one
class of claims that is impaired under the plan must have accepted the
plan, determined without including any acceptance of the plan by any
insider.
11. Confirmation of the plan must not be likely to be followed by the
liquidation, or the need for further financial reorganization, of the
debtor or any successor to the debtor under the plan, unless such
liquidation or reorganization is proposed in the plan.
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12. All fees payable under Section 1930 of Title 28, as determined by
the court at the hearing on confirmation of the plan, must have been
paid or the plan must provide for the payment of all such fees on the
effective date of the plan.
13. The plan must provide for the continuation after its effective
date of payment of all retiree benefits, as that term is defined in
Section 1114 of the Code, at the level established pursuant to
subsection (e)(1)(B) or (g) of Section 1114 of the Code, at any time
prior to confirmation of the plan, for the duration of the period the
debtor has obligated itself to provide such benefits.
THE DEBTORS BELIEVE THAT THE PLAN SATISFIES OR WILL SATISFY, AS OF THE
CONFIRMATION DATE, ALL OF THE REQUIREMENTS FOR CONFIRMATION.
C. Satisfaction of Conditions Precedent to Confirmation Under the Code
1. Acceptance by Impaired Classes
By this Disclosure Statement, the Debtors are seeking the affirmative
vote of each impaired Class of Claims under the Plan that is proposed to receive
a distribution under the Plan. Pursuant to Section 1126(f) of the Code, a class
that is not "impaired" under a plan will be conclusively presumed to have
accepted such plan; solicitation of acceptances with respect to any such class
is not required. Pursuant to Section 1126(g) of the Code, a class of claims or
interests that does not receive or retain any property under a plan of
reorganization is deemed not to have accepted the plan, although members of that
class are permitted to consent, or waive object, to its confirmation.
Pursuant to Section 1124 of the Code, a class is "impaired" unless the
plan (a) leaves unaltered the legal, equitable and contractual rights to which
the claim or interest entitles the holder thereof, or (b) (i) cures any default
(other than defaults resulting from the breach of an insolvency or financial
condition provision), (ii) reinstates the maturity of such claim or interest,
(iii) compensates the holder of such claim or interest for any damages incurred
as a result of any reasonable reliance by such holder on any contractual
provision or applicable law entitling such holder to demand or receive
accelerated payments after the occurrence of a default and (iv) does not
otherwise alter the legal, equitable or contractual rights to which the holder
of such claim or interest is entitled.
Pursuant to Section 1126(c) of the Code, a class of impaired claims
has accepted a plan of reorganization when such plan has been accepted by
creditors (other than an entity designated under Section 1126(e) of the Code)
that hold at least two-thirds in dollar amount and more than one-half in number
of the allowed claims of such class held by creditors (other than any entity
designated under Section 1126(e) of the Code) that have actually voted to accept
or reject the plan. A class of interests has accepted a plan if the plan has
been accepted by holders of interests (other than any entity designated under
Section 1126(e) of the Code) that hold at least two-thirds in amount of the
allowed interests of such class held by interest holders (other than any entity
designated under Section 1126(e) of the Code) that have actually voted to accept
or reject the plan. Section 1126(e) of the Code allows the bankruptcy court to
designate the votes
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of any party that did not vote in good faith or whose vote was not solicited or
procured in good faith or in accordance with the Code. Holders of claims or
interests who fail to vote are not counted as either accepting or rejecting the
plan.
2. Best Interests of Claim Holders
(a) Generally. Even if a plan is accepted by each class of Claim
holders and Interest holders, the Code requires a bankruptcy court to determine
that the plan is in the best interests of all Claim holders and Interest holders
that are impaired by the Plan and have not accepted the Plan. Specifically,
Section 1129(a)(7) of the Code requires, with respect to each impaired class,
that each holder of an allowed claim or interest in such class either (a) has
accepted the plan or (b) will receive or retain under the plan on account of
such claim or interest property of a value, as of the effective date of such
plan, that is not less than the amount that such person would receive or retain
if the debtor were liquidated under chapter 7 of the Code on the effective date.
This is the so-called "best interests test." This test considers,
hypothetically, the fair salable value of a debtor's assets through liquidation
in a chapter 7 bankruptcy proceeding and the costs that would be incurred and
the additional liabilities that would arise in such proceeding. The hypothetical
chapter 7 return to creditors is then calculated, giving effect to secured
claims, distribution priorities established by the Code that apply in a chapter
7 proceeding and subordination agreements.
The first step in meeting this test is to determine the dollar amount
that would be generated from the liquidation of the Debtors' assets and
properties in the context of a chapter 7 liquidation case. The total cash
available would be the sum of the proceeds (net of transaction costs) from the
disposition of the Debtors' assets and the cash held by the Debtors at the time
of the commencement of the chapter 7 case. The next step would be to reduce that
total by the amount of any claims secured by such assets, the costs and expenses
of the liquidation and such additional administrative expenses and priority
claims that may result from the termination of the Debtors' business and the use
of chapter 7 for the purposes of liquidation. Next, any remaining cash would be
allocated to creditors and shareholders in strict priority in accordance with
Section 726 of the Code. Finally, the present value of such allocations (taking
into account the time necessary to accomplish the liquidation) would be compared
to the value of the property that is proposed to be distributed under the Plan
on the Effective Date.
The Debtors' costs of liquidation under chapter 7 would include the
fees payable to a trustee in bankruptcy, as well as those that would be payable
to attorneys and other professionals that such a trustee would engage, plus any
unpaid expenses incurred by the Debtors during their chapter 11 cases and
allowed in the chapter 7 case. These expenses could include compensation for
attorneys, financial advisors, appraisers, accountants and other professionals,
and costs and expenses of members of the statutory committee of unsecured
creditors appointed by the United States Trustee pursuant to Section 1102 of the
Code and any other committee so appointed. In addition, claims would arise by
reason of the breach or rejection of obligations incurred and executory
contracts entered into by the Debtors both prior to, and during the pendency of,
the chapter 11 cases, which would either take precedence (in the case of
post-petition obligations) or dilute the recoveries available for unsecured
creditors.
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The foregoing types of claims, costs, expenses and fees and such other
claims that may arise in a liquidation case or result from the pending chapter
11 cases would be paid in full from the liquidation proceeds before the balance
of those proceeds would be made available to pay pre-chapter 11 priority and
unsecured claims.
As more fully described in Section IV.C.3. hereof, entitled "Treatment
of Classified Claims and Interests," Claims and Interests in Classes 2, 5, 6, 7
and 8 of the Plan are impaired and either (i) the holders of such Claims will
receive partial or no distributions under the Plan and/or (ii) the legal,
equitable and contractual rights to which such Claims entitle the holders of
such Claims will be altered. Therefore, if any holder of a Claim or Interest in
Classes 2, 5 or 6 does not accept the Plan, the "best interests test" must be
satisfied with respect to such Class(es). In addition, because the holders of
Class 8 Claims and Interests are deemed not to have accepted the Plan, the "best
interests test" must be satisfied with respect to Class 8. To determine if the
Plan is in the best interests of holders of such Claims or Interests, it is
necessary to compare the value of distributions offered to such holders of
Claims or Interests under the Plan with the value of distributions to such
holders from proceeds of a hypothetical chapter 7 liquidation, less the
estimated costs and expenses attributable thereto. THE DEBTORS BELIEVE THAT THE
MEMBERS OF EACH CLASS OF IMPAIRED CLAIMS AND INTERESTS WILL RECEIVE MORE UNDER
THE PLAN THAN THEY WOULD RECEIVE IF THE DEBTORS WERE LIQUIDATED UNDER CHAPTER 7.
(b) Enterprise Valuation of the Reorganized Debtors. For purposes of
evaluating whether the Plan satisfies the "best interests test," the Debtors
engaged BDO Seidman to prepare a valuation analysis of the Reorganized Debtors.
In preparing the analysis, BDO Seidman (1) received certain publicly available
historical information and financial statements of the Debtors, (2) reviewed and
discussed with corporate, group and divisional senior management the Debtors'
overall business plan for the Reorganized Debtors, including the longer term
risks and opportunities of the businesses, (3) evaluated the Debtors'
Projections attached hereto as Exhibit E, and the Debtors' assumptions
underlying the Projections, (4) considered the market values of publicly traded
companies that BDO Seidman and the Debtors believe are in businesses reasonably
comparable to the Reorganized Debtors' operating business, (5) considered the
purchase price paid in mergers and acquisitions transactions of comparable
companies, (6) considered certain economic and industry information relevant to
the operating business of the Reorganized Debtors, and (7) made such other
analyses as BDO Seidman deemed necessary or appropriate for the purposes of its
valuation.
In preparing its analysis, BDO Seidman assumed and relied upon the
accuracy and completeness of all of the financial and other information
available to it from public sources and that was provided by the Debtors or
their representatives, and has not assumed any responsibility for the
independent verification of any such information. With respect to the financial
Projections prepared by the Debtors, BDO Seidman assumed the accuracy thereof
and that such Projections have been prepared in good faith and on a basis
reflecting the best currently available estimates and judgments of the Debtors
as to the future operating and financial performance of the Reorganized Debtors.
BDO Seidman undertook certain expanded valuation procedures to evaluate key
underlying assumptions to the Projections relating to revenues, profit margins
and EBITDAR. This included interviews of financial and operating officers and
review of documents prepared by Warnaco's operating divisions and groups and
corporate management.
107
BDO Seidman did not make or obtain any independent evaluation of the Reorganized
Debtors' assets, nor did BDO Seidman independently verify any of the information
it reviewed and relied upon in preparing its analyses.
In determining an enterprise valuation for the Reorganized Debtors,
BDO Seidman made the following assumptions:
o The Reorganized Debtors' enterprise valuation consists of the
aggregate enterprise value of all of Warnaco's direct and
indirect subsidiaries upon emergence from chapter 11, including
the numerous non-Debtor operating subsidiaries doing business
worldwide.
o The enterprise valuation range assumes certain pro forma debt
levels (as set forth in the Projections attached hereto as
Exhibit E).
o The Debtors will emerge from chapter 11 on or about January 6,
2003.
o The Projections for the Reorganized Debtors are predicated upon
the assumption that the Debtors will be able to obtain the
necessary financing to emerge from chapter 11, and that no
substantial asset sales are consummated by the Debtors prior to
the Effective Date.
o The general financial and market conditions as of the assumed
Effective Date - January 6, 2003 - will not differ materially
from those conditions prevailing as of the date of this
Disclosure Statement.
Based upon the foregoing analyses, reviews, discussions, considerations and
assumptions, BDO Seidman estimates that the enterprise value of the Reorganized
Debtors is in the range of $780 million to $820 million, and that the equity
value of Reorganized Warnaco is in the range of $466 million to $506 million.
THESE ESTIMATED VALUES ARE PREMISED UPON MANY FACTORS THAT ARE SUBJECT TO
CHANGE, INCLUDING, WITHOUT LIMITATION, CONDITIONS IN THE CAPITAL MARKETS AND THE
DEBTORS' PROJECTIONS. TO THE EXTENT THAT ANY OR ALL OF THE FACTORS CONSIDERED BY
BDO SEIDMAN MATERIALLY CHANGE, THE ESTIMATED VALUES MAY CHANGE SUBSTANTIALLY.
(c) Liquidation Value of the Debtors. Attached hereto as Exhibit H is
a liquidation analysis of the Debtors (the "Liquidation Analysis") that has been
prepared using information as of the date of this Disclosure Statement, and
indicates the net present value that would be allocated to creditors of the
Debtors in strict priority in accordance with Section 726 of the Code. The
following is a summary of the sources and application of proceeds of a
hypothetical chapter 7 liquidation of the Debtors:
108
$ Millions
----------
Gross Proceeds from Liquidation of Assets $546.7
Less Administrative Expenses of Liquidation ($122.5)
Adjusted Gross Proceeds from Liquidation $424.2
Less Repayment of DIP Facility ($0)
--------
Net Proceeds Available to Creditors $424.2
========
As indicated in the Liquidation Analysis, the Debtors believe that the
net cash proceeds that would be available in a hypothetical chapter 7
liquidation would total approximately $424.2 million. Underlying the Liquidation
Analysis are a number of estimates and assumptions that are inherently subject
to significant uncertainties. There can be no assurance that the recoveries
shown, and Liquidation Value indicated, in this analysis would be realized if
the Debtors were, in fact, to undergo such a liquidation.
The Debtors' Liquidation Analysis assumes that their assets would be
broken up and sold by a chapter 7 trustee or its duly appointed advisors,
brokers or liquidators, irrespective of their current use. Some of the Debtors'
assets when broken up may not be able to be sold or may realize minimal
proceeds. The estimated liquidation value of the Debtors' assets, net of
transaction costs and discounted to take account of the estimated time it might
take to dispose of such assets, are set forth in the Liquidation Analysis.
The costs associated with a chapter 7 liquidation of the Debtors,
including the fees that would be associated with a chapter 7 trustee, are
anticipated to be significant. Estimates of the major elements of such costs are
set forth in the Liquidation Analysis.
(d) Application of the Best Interests Test. As indicated above, to
determine if the Plan is in the best interests of the holders of impaired Claims
and Interests, i.e. holders of Senior Secured Bank Claims in Class 2, holders of
Allowed Unsecured Claims in Class 5, the holder(s) of the TOPrS Claims in Class
6 and the holders of Common Stock Claims and Interests in Class 8, it is
necessary to compare the value of distributions offered to such holders of
Claims and Interests under the Plan with the value of distributions to such
holders from the net proceeds of a hypothetical chapter 7 liquidation.
(i) Class 2 Senior Secured Bank Claims. Pursuant to Section 2.5. of
the Plan, Class 2 consists of holders of the Senior Secured Bank
Claims. As set forth in Section II.A.2. hereof, entitled "Pre-Petition
Capital Structure," in October 2000, the Debtors granted security
interests in substantially all of their assets to the Pre-Petition
Secured Lenders, along with certain pledges of some or all of the
stock of Warnaco's U.S. and foreign subsidiaries and guaranties by
certain Warnaco entities, to secure the pre-petition indebtedness
owing to the Pre-Petition Secured Lenders.
109
Under the Plan, holders of Senior Secured Banks Claims are to
receive their pro rata share of the following on the Effective Date:
(i) Cash equal to the amount of the Original Foreign Facilities
Guaranty Claims, estimated at approximately $90.1 million; (12)
(ii) New Warnaco Second Lien Notes in the principal amount of
$200 million; and (iii) 96.263% of the New Warnaco Common Shares,
subject to Dilution, plus, in the event that holders of Class 6
Claims receive no distribution pursuant to Section 2.9.(C) of the
Plan, an additional 0.581% of the New Warnaco Common Shares, subject
to Dilution. Based upon the mid-point value of BDO Seidman's
estimated equity value of Reorganized Warnaco at $485.6 million, the
estimated value of the distributions to holders of Senior Secured Bank
Claims under the Plan is $747.9 million, calculated as follows:
TYPE $ MILLIONS
---- ----------
Cash (payment of Original Foreign Facilities
Guaranty Claims) $ 90.1
New Warnaco Second Lien Notes $200.0
New Warnaco Common Shares
(assuming TOPrS Claims accept Plan) $457.8
------
Total Distributions to Senior Secured
Bank Claims Under the Plan $747.9
======
In contrast to the $747.9 million estimated aggregate recovery by
holders of Senior Secured Bank Claims under the Plan, the Liquidation
Analysis indicates that such holders would receive no more than the
entire aggregate amount of $424.2 million in a hypothetical chapter 7
liquidation proceeding. As set forth in Section II.A.2.(a) above,
entitled "Pre-Petition Capital Structure - Pre-Petition Secured
Indebtedness," pursuant to the Bank Collateral Stipulation, the
parties identified certain of the Debtors' personal property and other
assets that do not constitute the Pre-Petition Collateral of the
Pre-Petition Secured Lenders. Therefore, in a chapter 7 proceeding,
holders of Unsecured Claims (other than the substantial deficiency
claims of the Pre-Petition Secured Lenders) could be entitled to a de
minimus recovery. In any event, the Pre-Petition Secured Lenders'
estimated 34.2% recovery on their Senior Secured Bank Claims under the
Plan is considerably greater than the estimated maximum 19.4% recovery
in a chapter 7 liquidation.
- ----------
(12) On the Effective Date, in addition to the estimated $90.1 million
distribution to be made by the Debtors on account of the Original Foreign
Facilities Guaranty Claims, the Warnaco Non-Debtor Subsidiaries will pay to
the Administrative Agent for distribution to the Pre-Petition Secured
Lenders in accordance with the Pre-Petition Facility and Intercreditor
Agreements all remaining amounts due and owing under the Original Foreign
Facilities, including accrued and unpaid interest and fees, in an amount
estimated at $10.7 million as of January 6, 2003. As a result, all
obligations under the Original Foreign Facilities will be satisfied in full
and the Original Foreign Facilities will be terminated.
110
(ii) Class 5 Allowed Unsecured Claims. Pursuant to Section 2.8. of the
Plan, Class 5 consists of holders of Unsecured Claims, the Allowed
amount of which is estimated by the Debtors to be approximately $169.2
million. Under the Plan, each holder of an Allowed Class 5 Claim is to
receive its pro rata share of 2.549% of the New Warnaco Common Shares,
subject to Dilution, plus, in the event that the holders of Class 6
claims receive no distribution pursuant to Section 2.9.(C) of the
Plan, an additional 0.015% of the New Warnaco Common Shares, subject
to Dilution. The estimated aggregate value of this distribution to
holders of Allowed Class 5 Claims under the Plan is $12.1 million.
Thus, assuming that the TOPrS Claims receive distributions under the
Plan, the Debtors estimate a 7.2% recovery by holders of Allowed Class
5 Claims. By contrast, as set forth above, in view of the amount and
priority of the Senior Secured Claims (including the substantial
deficiency claims of the Pre-Petition Secured Lenders in a chapter 7
proceeding), holders of Allowed Class 5 Claims likely would receive no
more than a de minimus recovery in a chapter 7 liquidation.
(iii) Class 6 TOPrS Claims. Pursuant to Section 2.9.(C) of the Plan,
if the holders of Class 6 TOPrS Claims vote as a class to accept the
Plan, holders of Class 6 TOPrS Claims will receive their pro rata
share of 0.596% of the New Warnaco Common Shares, subject to Dilution.
The estimated aggregate value of this distribution to holders of TOPrS
Claims under the Plan is $2.8 million, or a 2.3% recovery on such
Claims (subject to any applicable rights of the TOPrS Trustee to
assert the TOPrS Trustee Charging Lien). By contrast, the Debtors
believe that, in a chapter 7 proceeding, the holders of TOPrS Claims
would receive no distributions in view of the subordination provisions
in the TOPrS Indenture, as well as the priority and amount of the
Senior Secured Bank Claims.
(iv) Class 8 Common Stock Claims and Interests. Pursuant to Section
2.11.(B) of the Plan, holders of Common Stock Claims and Interests are
not entitled to receive or retain any property on account of such
Claims and Interests under the Plan. Likewise, in view of the priority
and amount of the Claims in Classes 2, 5 and 6, Common Stock Claims
and Interests in Class 8 would receive no distributions in a chapter 7
proceeding.
(v) Best Interests Test Conclusion. After consideration of the effects
that a chapter 7 liquidation would have on the ultimate proceeds
available for distribution to creditors in the Cases, including (a)
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, (b) the erosion in value of the Debtors'
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, (c) the adverse effects on the saleability of the
Debtors' assets resulting from the departure of key employees an the
loss of major customers and suppliers, (d) substantial increases in
claims that would be satisfied on a priority basis or on a priority
with creditors in the Cases and (e) the substantial time that would
elapse to complete the liquidation process and, therefore, before
which creditors would
111
receive any distributions with respect to their Claims, the Debtors
believe that confirmation of the Plan will provide each creditor with
a recovery that is not less, and, in some cases, most likely
considerably greater, than the distribution received in a chapter 7
liquidation proceeding, as summarized below:
Estimated Recovery Estimated Recovery
Impaired Class Under the Plan in a Liquidation
-------------- ------------------ ------------------
Class 2 34.2% 19.4%
Class 5 7.2% de minimus
Class 6 2.3% 0%
Class 8 0% 0%
Therefore, the Debtors believe that confirmation of the Plan is
in the best interests of their creditors and equity security holders,
satisfying the requirements of Section 1129(a)(7) of the Code.
3. Feasibility of the Plan
Pursuant to Section 1129(a)(11) of the Code, among other things, the
Bankruptcy Court must determine that confirmation of a plan of reorganization is
not likely to be followed by the liquidation or need for further financial
reorganization of the Debtors or any successors to the Debtors under the Plan.
The Debtors believe that the Plan satisfies this requirement.
To demonstrate the feasibility of the Plan, the Debtors have prepared
the Projections comprised of pro forma projected results of operations, balance
sheets and statements of cash flow for the fiscal years 2002-2005, which are
attached hereto as Exhibit E. The Projections indicate that the Reorganized
Debtors should have more than sufficient cash flow to pay and service their debt
obligations, including the $275 million Exit Financing Facility and the $200.942
million New Warnaco Second Lien Notes, and to fund their ongoing operations as
contemplated by their business plan. Thus, the Projections demonstrate that
confirmation of the Plan will not likely be followed by the need to further
reorganize or liquidate the Reorganized Debtors. However, the assumptions used
in preparing the Projections are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Debtors' control. There generally will be a difference between projections of
future performance and actual results because certain events and circumstances
may not occur as expected. These differences could be material. While the
Debtors believe the Projections presented in Exhibit E are reasonable, there can
be no assurance that such Projections will be realized. Consequently, the
Projections included therein should not be regarded as a representation by the
Debtors or their advisors or any other person that the projected results will be
achieved. In considering the Projections attached hereto and contained herein,
holders of Claims and Interests should be mindful of the inherent risk in
developing projections for the future, particularly given the competitive
industry in which the Reorganized Debtors will conduct their business.
THE PROJECTIONS WERE NOT PREPARED IN COMPLIANCE WITH (I) PUBLISHED
GUIDELINES OF THE SEC, (II) THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
112
PROJECTIONS OR (III) GAAP. NEITHER DELOITTE & TOUCHE, THE INDEPENDENT AUDITORS
FOR THE DEBTORS, NOR BDO SEIDMAN, BANKRUPTCY CONSULTANTS AND FINANCIAL ADVISORS
TO THE DEBTORS, HAS PARTICIPATED IN THE PREPARATION OF OR COMPILED SUCH
PROJECTIONS AND, ACCORDINGLY, DO NOT EXPRESS ANY VIEW, OPINION OR ANY OTHER FORM
OF ASSURANCE WITH RESPECT TO, ASSUME NO RESPONSIBILITY FOR AND DISCLAIM ANY
ASSOCIATION WITH, SUCH PROJECTIONS. IN CONNECTION WITH ITS ENTERPRISE VALUATION
OF THE REORGANIZED DEBTORS, BDO SEIDMAN, DID, HOWEVER, PERFORM CERTAIN
PROCEDURES THAT INCLUDED EVALUATING SELECTED ASSUMPTIONS UNDERLYING THE
PROJECTIONS RELATING TO REVENUES AND EBITDAR. SEE SECTION VI.C.2.(b), ENTITLED
"BEST INTERESTS OF CLAIM HOLDERS - ENTERPRISE VALUATION OF THE REORGANIZED
DEBTORS." WHILE PRESENTED WITH NUMERICAL SPECIFICITY , SUCH PROJECTIONS ARE
BASED UPON A VARIETY OF ASSUMPTIONS, WHICH MAY NOT BE REALIZED, RELATING TO THE
FUTURE BUSINESS AND OPERATIONS OF THE DEBTORS AND ARE SUBJECT TO SIGNIFICANT
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE CONTROL OF THE DEBTORS. THE DEBTORS DO NOT MAKE ANY
EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY AS TO THE ATTAINABILITY OF THE
PROJECTED FINANCIAL INFORMATION SET FORTH IN THE PROJECTIONS OR AS TO THE
ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED
INFORMATION IS DERIVED.
4. Confirmation Without Acceptance by All Impaired Classes ("Cramdown")
Section 4.3. of the Plan provides that because Class 7 and Class 8 are
deemed not to have accepted the Plan pursuant to Section 1126(g) of the Code, as
to such Classes, as well as to any other Class that votes to reject the Plan,
the Debtors are seeking confirmation of the Plan pursuant to Section 1129(b) of
the Code. Section 1129(b) of the Code, referred to as the "cramdown" provision,
provides that the Bankruptcy Court may still confirm a plan at the request of
the debtor if, as to each impaired class that has not accepted the plan, the
plan "does not discriminate unfairly" and is "fair and equitable." In general, a
plan does not discriminate unfairly within the meaning of the Code if a
dissenting class is treated equally with respect to other classes of equal rank
and is not treated less favorably than classes of junior rank.
Section 1129(b)(2)(A) of the Code provides that with respect to a
non-accepting class of impaired secured claims, "fair and equitable" includes
the requirement that the plan provides: (a) that each holder of a claim in such
class (i) retains the liens securing its claim to the extent of the allowed
amount of such claim and (ii) receives deferred cash payments at least equal to
the allowed amount of its claim with a present value as of the effective date of
such plan at least equal to the value of such creditor's interest in the
debtor's interest in the property securing the creditor's claim; (b) for the
sale, subject to Section 363(k) of the Code, of the property securing the
creditor's claim, free and clear of the creditor's liens, with those liens
attaching to the proceeds of the sale, and such liens on the proceeds will be
treated in accordance with clauses (a) or (c) hereof; or (c) for the realization
by the creditor of the "indubitable equivalent" of its claim.
113
Section 1129(b)(2)(B) of the Code provides that with respect to a
non-accepting class of impaired unsecured claims, "fair and equitable" includes
the requirement that: (a) the plan provide that each holder of a claim in such
class receives or retains property of a value as of the effective date equal to
the allowed amount of its claim; or (b) the holders of claims or interests in
classes that are junior to the claims of the dissenting class will not receive
or retain any property under the plan on account of such junior claim or
interest.
Section 1129(b)(2)(C) of the Code provides that with respect to a
non-accepting class of impaired equity interests, "fair and equitable" includes
the requirement that (a) the plan provides that each holder of an impaired
interest in such class receives or retains property of a value as of the
effective date equal to the greatest of (i) the allowed amount of any fixed
liquidation preference to which such holder is entitled, (ii) any fixed
redemption price to which such holder is entitled and (iii) the value of such
interest or (b) the holders of all interests that are junior to the interests of
the dissenting class will not receive or retain any property under the plan on
account of such junior interest.
The Debtors believe that the Plan does not discriminate unfairly
against, and is fair and equitable as to, each impaired Class under the Plan
because the creditors and interest holders in each such Class are treated
equally with respect to other classes of equal rank and are not treated less
favorably than junior classes.
VII. ALTERNATIVES TO THE PLAN
The Debtors believe that the Plan is the optimal means of providing
maximum recoveries to their creditors. THE CREDITORS' COMMITTEE SUPPORTS THE
PLAN AND WILL RECOMMEND TO ALL HOLDERS OF CLAIMS THAT THEY VOTE TO ACCEPT THE
PLAN. Alternatives to the Plan include: (a) liquidation of the Debtors' assets
under chapter 7 of the Code; and (b) an alternative chapter 11 plan providing
for (i) a sale of some or all of the Debtors' assets, or (ii) an internal
reorganization different than the Plan.
As more fully described herein in Section VI.C.2. hereof, entitled
"Best Interests of Claim Holders," the Debtors have determined that confirmation
of the Plan will provide each creditor and equity security holder with a
recovery that is greater than or equal to that which it would receive pursuant
to a liquidation of the Debtors under chapter 7 of the Code. Therefore, the
Debtors have concluded that confirmation of the Plan, rather than a chapter 7
liquidation of the Debtors, is in the best interests of their creditors.
As described herein in Section II.B.1., entitled "Overview of the
Debtors' Operations and Business Plan," during the pendency of the Cases, the
Debtors have engaged in a sale process to explore the possible values they might
realize from a sale of some or all of their core businesses, compared with
stand-alone values. The Debtors received certain indications of interest with
respect to a sale of all or a portion of the Debtors' business. The Debtors have
responded as appropriate to such inquiries, which have not produced any
acceptable merger or sale offers. Based upon consultation with the Debtors'
professionals and the evaluation and business judgment of the Debtors'
management and Board of Directors, the Debtors believe that no merger or sale
opportunities for some or all of the Debtors' assets are available that would
114
result in greater recoveries for the Debtors' creditors than the distributions
provided for in the Plan.
Similarly, the Debtors believe that confirmation of the Plan, as
opposed to some other plan of reorganization formulated over time, provides the
greatest and most certain recoveries to the Debtors' creditors within a
reasonable time period. If the Plan is not confirmed, the Debtors (or other
parties-in-interest) could attempt to formulate an alternative chapter 11 plan.
Any attempt to formulate an alternative chapter 11 plan will necessarily delay
creditors' receipt of any distributions from the Debtors, will result in the
incurrence of ongoing substantial administrative expenses during the period of
delay, and could result in the deterioration of the Debtors' business caused by
a prolonged stay in chapter 11. Accordingly, the Debtors believe that the Plan
will enable creditors to realize the greatest possible recovery on their Claims
with the least delay and expense.
In general, following careful and thorough consideration and
evaluation of the alternatives, the Debtors have concluded that the Plan
provides the greatest and most certain recoveries to creditors on a more
expeditious timetable, and in a manner that minimizes certain risks in any other
course of action available in these Cases.
VIII. RECOMMENDATION
The Debtors believe that confirmation of the Plan is preferable to the
available alternatives because it provides a greater and more timely
distribution to Creditors than would otherwise result. In addition, any
alternative to confirmation of the Plan could result in extensive delays and
increased administrative expenses resulting most likely in smaller
distributions, or no distributions, to the holders of Claims in the Cases. THE
CREDITORS' COMMITTEE SUPPORTS THE PLAN AND WILL RECOMMEND TO ALL HOLDERS OF
CLAIMS THAT THEY VOTE TO ACCEPT THE PLAN.
IX. CONCLUSION
The Debtors urge all holders of Claims that are or may be impaired
under the Plan to vote to accept the Plan and to evidence such acceptance by
returning their Ballots so that they will be timely received.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
115
Respectfully submitted this 8th day of November, 2002.
THE WARNACO GROUP, INC.
184 BENTON STREET INC.
CLOTHING COLLECTION, INC.
ABBEVILLE MANUFACTURING COMPANY
AEI MANAGEMENT CORPORATION
AUTHENTIC FITNESS CORPORATION
AUTHENTIC FITNESS ON-LINE, INC.
AUTHENTIC FITNESS PRODUCTS INC.
AUTHENTIC FITNESS RETAIL INC.
BLANCHE, INC.
CCC ACQUISITION CORP.
CCC ACQUISITION REALTY CORP.
C.F. HATHAWAY COMPANY
CALVIN KLEIN JEANSWEAR COMPANY
CKJ HOLDINGS, INC.
CKJ SOURCING, INC.
DESIGNER HOLDINGS LTD.
GREGORY STREET, INC.
JEANSWEAR HOLDINGS, INC.
KAI JAY MANUFACTURING COMPANY
MYRTLE AVENUE, INC.
OUTLET HOLDINGS, INC.
OUTLET STORES, INC.
PENHALIGON'S BY REQUEST, INC.
RIO SPORTSWEAR, INC.
UBERTECH PRODUCTS, INC.
VENTURES LTD.
WARMANA LIMITED
WARNACO INC.
WARNACO INTERNATIONAL, INC.
WARNACO INTERNATIONAL, LLC
WARNACO MEN'S SPORTSWEAR INC.
WARNACO OF CANADA COMPANY
WARNACO PUERTO RICO, INC.
WARNACO SOURCING INC.
WARNACO U.S. INC.
WARNACO VENTURES LTD.
WARNER'S DE COSTA RICA INC.
Debtors and Debtors-in-Possession
By: /s/ Antonio C. Alvarez II
------------------------------------------------
Antonio C. Alvarez II
President and Chief Executive Officer of
The Warnaco Group, Inc. and Authorized Signatory
116
EXHIBIT A
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
SIDLEY AUSTIN BROWN & WOOD LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Counsel for Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - x
: Chapter 11
:
In re : Case Nos. 01-41643 (RLB)
: through 01-41680 (RLB)
THE WARNACO GROUP, INC., et al., :
Debtors. : (Jointly Administered)
x
- - - - - - - - - - - - - - - - - - - - - - -
FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF THE WARNACO GROUP, INC. AND ITS AFFILIATED DEBTORS AND
DEBTORS IN POSSESSION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Dated: November 8, 2002
TABLE OF CONTENTS
Page
----
INTRODUCTION.............................................................................2
ARTICLE I 3
DEFINITIONS AND INTERPRETATION...........................................................3
ARTICLE II 14
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS....................................14
2.1. Administrative Claims........................................................15
2.2. Priority Tax Claims..........................................................15
2.3. DIP Facility Claim...........................................................16
2.4. Class 1 -- Priority Non-Tax Claims...........................................16
2.5. Class 2 -- Senior Secured Bank Claims........................................16
2.6. Class 3 -- GE Capital Secured Claims Under the 1997 MLA......................17
2.7. Class 4 -- Other Secured Claims..............................................17
2.8. Class 5 -- Unsecured Claims..................................................18
2.9. Class 6 -- TOPrS Claims......................................................18
2.10. Class 7 -- Intercompany Claims...............................................19
2.11. Class 8 -- Common Stock Claims and Interests.................................19
ARTICLE III 19
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES...................................19
3.1. Rejected Contracts and Leases................................................19
3.2. Assumed Contracts and Leases.................................................19
3.3. Miscellaneous................................................................20
3.4. Payments Related to Assumption of Executory Contracts and Unexpired Leases...20
3.5. Post-Petition Contracts and Leases...........................................21
3.6. Rejection Damages Bar Date...................................................21
ARTICLE IV 21
CONDITIONS PRECEDENT....................................................................21
4.1. Conditions to Occurrence of Effective Date...................................21
4.2. Waiver of Conditions to Consummation.........................................21
4.3. Non-Consensual Confirmation..................................................21
i
ARTICLE V 22
IMPLEMENTATION OF PLAN..................................................................22
5.1. Pre-Effective Date Management and Operation of Debtors.......................22
5.2. Post-Effective Date Committee; Dissolution of Committee......................22
5.3. Pre-Effective Date Injunctions or Stays......................................23
5.4. Merger of Certain Debtors....................................................23
5.5. Amended Certificates of Incorporation and Bylaws.............................23
5.6. Post-Effective Date Management and Operation of Reorganized Debtors..........24
5.7. Exit Financing Facility......................................................24
5.8. Issuance of New Warnaco Second Lien Notes....................................24
5.9. Issuance of New Warnaco Common Shares........................................24
5.10. Transfer of Intercompany Claims..............................................24
5.11. Management Stock Incentive Program and Confirmation Bonuses..................24
5.12. Rights Plan..................................................................25
5.13. Registration Rights Agreement................................................25
5.14. Effectuating Documents; Further Transactions.................................25
5.15. Exemption From Certain Transfer Taxes........................................25
5.16. Continuation of Warnaco Pension Plan.........................................26
5.17. Employment, Retirement, and Incentive Compensation Plans and Programs........26
ARTICLE VI 26
DISTRIBUTIONS AND CLAIMS ALLOWANCE......................................................26
6.1. Cash Distributions...........................................................26
6.2. Distributions to Holders of Senior Secured Bank Claims.......................26
6.3. Distributions to Holders of Allowed Unsecured Claims.........................27
6.4. Distributions to Holders of TOPrS Claims, If Any.............................27
6.5. Miscellaneous Distribution Provisions........................................29
6.6. Procedure For Determination of Claims and Interests..........................30
ARTICLE VII 31
EFFECT OF THIS PLAN ON CLAIMS AND INTERESTS.............................................31
7.1. Revesting of Assets..........................................................31
7.2. Discharge of Claims and Termination of Interests.............................31
7.3. Injunctions..................................................................32
7.4. Limitation of Liability......................................................33
7.5. Releases.....................................................................33
7.6. Retention and Enforcement, and Release, Of Causes Of Action..................34
ii
ARTICLE VIII 35
MISCELLANEOUS PROVISIONS................................................................35
8.1. Retention of Jurisdiction....................................................35
8.2. Terms Binding................................................................36
8.3. Successors and Assigns.......................................................36
8.4. Confirmation Order and Plan Control..........................................36
8.5. Governing Law................................................................37
8.6. Severability.................................................................37
8.7. Incorporation by Reference...................................................37
8.8. Modifications to this Plan...................................................37
8.9. Revocation, Withdrawal or Non-Consummation...................................37
8.10. Notice.......................................................................37
iii
The Warnaco Group, Inc. ("Group"), together with certain of its direct
and indirect subsidiaries, 184 Benton Street Inc., A.B.S. Clothing Collection,
Inc., Abbeville Manufacturing Company, AEI Management Corporation, Authentic
Fitness Corporation, Authentic Fitness On-Line, Inc., Authentic Fitness Products
Inc., Authentic Fitness Retail Inc., Blanche, Inc., CCC Acquisition Corp., CCC
Acquisition Realty Corp., C.F. Hathaway Company, Calvin Klein Jeanswear Company,
CKJ Holdings, Inc., CKJ Sourcing, Inc., Designer Holdings Ltd., Gregory Street,
Inc., Jeanswear Holdings, Inc., Kai Jay Manufacturing Company, Myrtle Avenue,
Inc., Outlet Holdings, Inc., Outlet Stores, Inc., Penhaligon's by Request, Inc.,
Rio Sportswear, Inc., Ubertech Products, Inc., Ventures Ltd., Warmana Limited,
Warnaco Inc., Warnaco International, Inc., Warnaco International, LLC, Warnaco
Men's Sportswear Inc., Warnaco of Canada Company, Warnaco Puerto Rico, Inc.,
Warnaco Sourcing Inc., Warnaco U.S. Inc., Warnaco Ventures Ltd., Warner's De
Costa Rica Inc., each a debtor and debtor-in-possession herein (collectively,
the "Debtors"), hereby propose the following First Amended Joint Plan of
Reorganization (the "Plan").
INTRODUCTION
In general, this Plan provides for the substantive consolidation of
all of the Debtors for voting and distribution purposes only, and provides for
the Debtors' reorganization pursuant to the terms of this Plan. This Plan
contemplates the payment in full in cash of all administrative claims (other
than such claims held by the Debtors' pre-petition secured lenders granted as
adequate protection) and priority claims against the Debtors, and the repayment
in full in cash of outstanding amounts, if any, under the Debtors' post-petition
financing facility. Furthermore, this Plan provides for the treatment of allowed
claims against, and interests in, the Debtors as follows:
o With respect to the Debtors' pre-petition secured lenders (a) payment
in Cash of the Original Foreign Facility Guaranty Claims,(1) (b)
distribution of new second lien notes of Reorganized Warnaco in the
principal amount of $200 million and (c) distribution of 96.263% of
newly issued common stock of Reorganized Warnaco, subject to dilution
in respect of new common stock to be issued to management of
Reorganized Warnaco under a stock incentive plan, plus, in the event
holders of TOPrS Claims receive no distribution pursuant to Section
2.9.(C) of this Plan, an additional 0.581% of the newly issued common
stock of Reorganized Warnaco, subject to dilution as described above;
o With respect to each holder of an allowed unsecured claim other than a
TOPrS Claim, distribution of its pro rata share of 2.549% of the newly
issued common stock of Reorganized Warnaco, subject to dilution as
described above, plus, in the event holders of TOPrS Claims receive no
distribution pursuant to Section 2.9.(C) of this Plan, an additional
0.015% of the newly issued common stock of Reorganized Warnaco,
subject to dilution as described above;
- ----------
(1) Capitalized terms used in this introductory section are defined in Article
I of this Plan.
2
o With respect to TOPrS Claims, distribution of 0.596% of the newly
issued common stock of Reorganized Warnaco, subject to dilution as
described above, in full satisfaction of any and all TOPrS Claims,
unless the holders of such Claims vote as a class to reject this Plan,
in which case there will be no distribution on account of such Claims;
and
o No distributions on account of common stock issued by Group, including
claims arising out of or with respect to such common stock interests.
Reference is made to the Disclosure Statement accompanying this Plan,
including the exhibits thereto, for a discussion of the Debtors' history,
business, properties, results of operations, and projections for future
operations and risk factors, together with a summary and analysis of this Plan.
All creditors entitled to vote on this Plan are encouraged to consult the
Disclosure Statement and to read this Plan carefully before voting to accept or
reject this Plan.
NO SOLICITATION MATERIALS, OTHER THAN THE DISCLOSURE STATEMENT AND
RELATED MATERIALS TRANSMITTED THEREWITH AND APPROVED BY THE BANKRUPTCY COURT,
HAVE BEEN AUTHORIZED BY THE BANKRUPTCY COURT FOR USE IN SOLICITING ACCEPTANCES
OR REJECTIONS OF THIS PLAN.
ARTICLE I
DEFINITIONS AND INTERPRETATION
A. Definitions. The following terms (which appear in this Plan as
capitalized terms) shall have the meanings set forth below. A term used in this
Plan and not defined in this Plan but that is defined in the Code has the
meaning set forth in the Code.
1.1. "1997 MLA" means the Master Lease Agreement, dated as of
October 21, 1997, between Warnaco Inc. and GE Capital for itself and other
participants.
1.2. "Administrative Agent" means the administrative agent as
defined in each of the Pre-Petition Facility and Intercreditor Agreements.
1.3. "Administrative Claim" means a Claim to the extent that it
is of the kind described in Section 503(b) of the Code and is entitled to
priority under Section 507(a)(1) or 507(b) of the Code, including, without
limitation, (a) any actual and necessary expenses of preserving the Estate, (b)
any actual and necessary expenses of operating the business of the Debtors, (c)
any actual indebtedness or obligations incurred or assumed by the Debtors during
the pendency of the Cases in connection with the conduct of their business, (d)
any actual expenses necessary or appropriate to facilitate or effectuate this
Plan, (e) any amount required to be paid under Section 365(b)(1) of the Code in
connection with the assumption of executory contacts or unexpired leases, (f)
all allowances of compensation or reimbursement of expenses to the extent
allowed by the Bankruptcy Court under Sections 330(a), 331 or 503(b)(2), (3),
(4) or
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(5) of the Code, (g) Claims with respect to the Alvarez Incentive Bonus and (h)
all fees and charges payable pursuant to Section 1930 of title 28 of the United
States Code.
1.4. "Allowed Claim" means a Claim or any portion thereof without
duplication, (a) that has been allowed by a Final Order or by this Plan, (b) as
to which, on or by the Effective Date, (i) no proof of claim has been filed with
the Bankruptcy Court and (ii) the liquidated and noncontingent amount of which
is listed in the Schedules, other than a Claim that is listed in the Schedules
at zero, in an unknown amount, or as disputed, (c) for which a proof of claim in
a liquidated amount has been timely filed with the Bankruptcy Court in
accordance with Bankruptcy Rule 3003(c)(3) and pursuant to the Code, any Final
Order of the Bankruptcy Court or other applicable bankruptcy law, and as to
which either (i) no objection to its allowance has been filed within the periods
of limitation fixed by this Plan, the Code or by any order of the Bankruptcy
Court or (ii) any objection to its allowance or classification has been settled,
abandoned, waived, withdrawn, or has been denied by a Final Order, (d) that is
expressly allowed in this Plan or (e) arises from the recovery of property under
Sections 550 or 553 of the Code and is allowed in accordance with Section 502(h)
of the Code.
1.5. "Alvarez Agreement" means that certain Amended Employment
Agreement dated as of June 11, 2001 and approved by order of the Bankruptcy
Court dated February 21, 2002 between Group and Antonio C. Alvarez II.
1.6. "Alvarez Incentive Bonus" means the payments and
distributions, as set forth in Plan Schedule 1.6, to be made on the Effective
Date to Antonio C. Alvarez II on account of the Administrative Claim held by Mr.
Alvarez pursuant to the Alvarez Agreement, including, without limitation, such
Claim on account of the Incentive Bonus, as defined in the Alvarez Agreement,
plus the additional distributions to be made to Mr. Alvarez under this Plan as
set forth in Plan Schedule 1.6.
1.7. "Amended Certificates of Incorporation and Bylaws" has the
meaning ascribed in Section 5.5. of this Plan.
1.8. "Assets" means all assets of the Debtors or the Reorganized
Debtors, as the case may be, of any nature whatsoever, including, without
limitation, property of the Estate pursuant to Section 541 of the Code, Cash,
Causes of Action, claims of right, interests and property, real and personal,
tangible and intangible, but excluding all Claims released pursuant to this Plan
or the Confirmation Order.
1.9. "Ballot" means the ballot for voting to accept or reject
this Plan distributed by the Debtors to all holders of impaired Claims entitled
to vote on this Plan.
1.10. "Bankruptcy Court" means the United States Bankruptcy Court
for the Southern District of New York in which the Cases were filed or any other
court with jurisdiction over the Cases.
1.11. "Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure and the local rules and standing orders of the Bankruptcy Court, as
amended from time to time to the extent applicable to the Cases.
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1.12. "Bar Date" means the dates by which the Bankruptcy Court
ordered that proof of certain claims be filed.
1.13. "Business Day" means any day other than a Saturday, Sunday
or "legal holiday" as such term is defined in Bankruptcy Rule 9006(a).
1.14. "Cases" means the reorganization proceedings of the Debtors
under chapter 11 of the Code, jointly administered as Case Nos. 01-41643 (RLB)
through 01-41680 (RLB).
1.15. "Cash" means cash and cash equivalents, such as bank
deposits, checks and other similar items or instruments denominated in legal
tender of the United States of America.
1.16. "Causes of Action" means any and all actions, causes of
action, suits, accounts, controversies, agreements, promises, rights to legal
remedies, rights to equitable remedies, rights to payment and claims, whether
known, unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured and whether asserted or assertable directly or
derivatively, in law, equity or otherwise.
1.17. "Claim" means "claim" as defined in Section 101(5) of the
Code, as supplemented by Section 102(2) of the Code, against any of the Debtors,
whether or not asserted.
1.18. "Class" means each category or group of holders of Claims
or Claims and Interests as designated under this Plan.
1.19. "Code" means the United States Bankruptcy Code, 11
U.S.C. 'SS''SS' 101 et seq., as amended from time to time to the extent
applicable to the Cases.
1.20. "Common Stock" means, collectively, (a) the common stock of
Group issued and outstanding immediately prior to the Effective Date, (b) all
options, warrants, conversion, privilege or other legal or contractual rights to
purchase the common stock of Group, (c) any rights associated with the common
stock under that certain Rights Agreement adopted by the Board of Directors of
Group in August 1999 and (d) any rights associated with the common stock of any
predecessor of Group or any predecessor of Group's subsidiaries.
1.21. "Common Stock Claim" means any Claim with respect to the
Common Stock of the kind described in Section 510(b) of the Code, together with
any Claim asserted by an officer, director or underwriter for contribution,
reimbursement or indemnification related thereto or otherwise.
1.22. "Confirmation" means "confirmation" as used in Section 1129
of the Code.
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1.23. "Confirmation Bonus Plan" means a plan awarding certain
bonus payments totaling $1 million to selected employees of the Debtors in
recognition of their contribution to the Debtors' reorganization in the Cases,
50% of which shall be payable on or as soon as practicable after April 30, 2003
and the remainder of which shall be payable on or as soon as practicable after
August 31, 2003, provided that such employee remains in the active employ of the
Reorganized Debtors as of the applicable payment date.
1.24. "Confirmation Date" means the date on which the
Confirmation Order is entered in the docket by the clerk of the Bankruptcy
Court.
1.25. "Confirmation Hearing" means the hearings at which the
Bankruptcy Court considers Confirmation of this Plan.
1.26. "Confirmation Order" means an order of the Bankruptcy Court
confirming this Plan pursuant to Section 1129 of the Code.
1.27. "Creditor" means "creditor" as defined in Section 101(10)
of the Code and shall mean a creditor of any Debtor.
1.28. "Creditors' Committee" means the Official Committee of
Unsecured Creditors appointed by the United States Trustee for the Southern
District of New York pursuant to Section 1102(a) of the Code in the Cases on
June 19, 2001, as it may be reconstituted from time to time.
1.29. "Cure" means the distribution, within five (5) Business
Days after the Effective Date or such other time as may be agreed upon by the
parties or as ordered by the Bankruptcy Court or another court of competent
jurisdiction, of Cash or such other property as may be agreed upon by the
parties, ordered by the Bankruptcy Court or another court of competent
jurisdiction, as the case may be, or determined in such other manner as the
Bankruptcy Court may specify, with respect to the assumption of an executory
contract or unexpired lease in accordance with the provisions of Article III of
this Plan.
1.30. "Debt Coordinators" has the meaning given to such term in
the Pre-Petition Facility and Intercreditor Agreements.
1.31. "Debtors" has the meaning set forth on page 2 of this Plan,
a list of which entities, together with their jurisdictions of incorporation and
case numbers in the Cases, is attached hereto as Plan Schedule 1.31.
1.32. "Designated Post-Petition Loans" shall have the meaning as
such term is defined in paragraph 3 of the DIP Approval Orders.
1.33. "Designer Finance Trust" means that certain trust
established pursuant to a Declaration of Trust dated as of September 26, 1996
and a Certificate of Trust filed with the Secretary of State of the State of
Delaware on September 27, 1996 for the sole purpose of issuing and selling the
TOPrS.
6
1.34. "Dilution" means the dilution resulting from (a) grants
pursuant to the Management Stock Incentive Program to the percentage
distributions of New Warnaco Common Shares provided for under this Plan and (b)
such adjustments in the total issued New Warnaco Common Shares as may occur
pursuant to Section 6.5.(A) of this Plan.
1.35. "DIP Approval Orders" means, collectively, the Interim and
Final Orders (a) Authorizing Debtors to (i) Obtain Post-Petition Financing,
Including Execution of Credit Agreement and (ii) Grant Liens and Priority
Administrative Expense Status, (b) Approving Use Of Cash Collateral and Granting
Adequate Protection and (c) Scheduling Final Hearing on Post-Petition Financing
and Approving Form and Manner of Notice Thereof, dated June 11, 2001 and July 9,
2001, respectively.
1.36. "DIP Credit Agreement" means the Senior Secured
Super-Priority Debtor in Possession Revolving Credit Agreement dated as of June
11, 2001 by and among Warnaco Inc., Group and the Domestic Subsidiaries (defined
therein), the Lenders (defined therein) and the Issuers (defined therein), as
amended from time to time.
1.37. "DIP Facility" means the senior secured superpriority
debtor-in-possession financing facility in an original principal amount up to
$600 million, provided by the DIP Lenders pursuant to the DIP Credit Agreement,
as approved by the DIP Approval Orders.
1.38. "DIP Facility Claim" means any Claim arising under the DIP
Credit Agreement and related agreements.
1.39. "DIP Lenders" means the Lenders as defined in the DIP
Credit Agreement.
1.40. "Disbursing Agent" means one or more disbursing agents, to
be designated by the Debtors prior to the Confirmation Hearing in consultation
with the Creditors' Committee, which may receive and make distributions to
holders of Allowed Claims under and as provided in this Plan.
1.41. "Disclosure Statement" means the Disclosure Statement with
respect to this Plan approved by order of the Bankruptcy Court and all
supplements, schedules and exhibits thereto.
1.42. "Disputed Claim" means any Claim against a Debtor to the
extent that (a) the allowance of such Claim or any portion thereof is the
subject of an objection, appeal or motion to estimate that has been timely filed
by a party in interest and which objection, appeal or motion has not been
determined by a Final Order, (b) such Claim is scheduled by the Debtors in the
Schedules as disputed, contingent and/or unliquidated or (c) during the period
prior to the deadline fixed by this Plan and/or the Bankruptcy Court for
objecting to such Claim, such Claim is in excess of the amount scheduled as
other than disputed, unliquidated or contingent.
1.43. "Distribution Record Date" means the date which is ten days
prior to the Voting Deadline.
7
1.44. "Effective Date" means the first Business Day that is 10
days after the later of the date on which (a) all conditions precedent set forth
in Section 4.1. of this Plan have been satisfied or waived as provided in
Section 4.2. of this Plan and (b) no stay of the Confirmation Order is in
effect.
1.45. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, 29 U.S.C. 'SS''SS' 1301-1461 (1994 & Supp. IV 1998).
1.46. "Estate" means the estates of the Debtors, individually or
collectively, as is appropriate in the context, created in the Cases pursuant to
Section 541 of the Code.
1.47. "Exculpated Persons" has the meaning ascribed in Section
7.4. of this Plan.
1.48. "Exhibit Filing Date" means the date on which certain
exhibits and schedules to this Plan, which shall be in a form reasonably
acceptable to the Debt Coordinators and the Creditors' Committee, shall be filed
with the Bankruptcy Court, which date shall be at least ten days prior to the
Voting Deadline.
1.49. "Exit Financing Facility" means the senior secured
asset-based financing facility to be entered into by the Reorganized Debtors and
the lender(s) thereunder as contemplated in Section 5.7. of this Plan, providing
for the principal terms and conditions set forth on Plan Schedule 5.7 to be
filed on or before the Exhibit Filing Date.
1.50. "Face Amount" means respecting a Claim, the amount equal to
the first of the following that is applicable: (a) the amount fixed or estimated
in an order of the Bankruptcy Court; (b) the liquidated amount set forth in a
proof of claim filed by the applicable Bar Date; or (c) the amount of the Claim
listed in the Schedules as liquidated or not contingent. If none of the
foregoing applies, the Face Amount of the Claim shall be zero ($0) dollars.
1.51. "Filed Fee Applications" has the meaning ascribed in
Section 5.2. of this Plan.
1.52. "Final Distribution Date" means the first Business Day that
is ten (10) days (or such longer period as may be reasonably determined by the
Reorganized Debtors in consultation with the Post-Effective Date Committee)
after the date on which all Disputed Claims have been resolved by Final Order.
1.53. "Final Order" means an order or judgment of the Bankruptcy
Court or other court of competent jurisdiction with respect to the subject
matter (a) that has not been reversed, stayed, modified or amended and as to
which (i) any right to appeal or seek certiorari, review, reargument, stay or
rehearing has been waived or (ii) the time to appeal or seek certiorari, review,
reargument, stay or rehearing has expired and no appeal or petition for
certiorari, review, reargument, stay or rehearing is pending or (b) as to which
an appeal has been taken or petition for certiorari, review, reargument, stay or
rehearing has been filed and (i) such appeal or petition for certiorari, review,
reargument, stay or rehearing has been resolved by the
8
highest court to which the order or judgment was appealed or from which
certiorari, review, reargument, stay or rehearing was sought or (ii) the time to
appeal further or seek certiorari, further review, reargument, stay or rehearing
has expired and no such further appeal or petition for certiorari, further
review, reargument, stay or rehearing is pending.
1.54. "GE Capital" means General Electric Capital Corporation.
1.55. "GE Capital Settlement Agreement" means that certain
settlement agreement entered into by and among the Debtors and GE Capital, for
itself and other participants, approved by the GE Settlement Order.
1.56. "GE Settlement Amount" has the meaning ascribed in Section
2.6.(C) of this Plan.
1.57. "GE Settlement Order" means that certain Order Pursuant to
Rule 9019(a) of the Federal Rules of Bankruptcy Procedure (i) Approving the
Settlement Between the Debtors and GE Capital Settlement, inter alia, of the
Claims Asserted in the Motions Filed Pursuant to 11 U.S.C. 'SS' 365(d)(10)
(Docket #266 and #268) and Cross Motion for Partial Summary Judgment (Docket
#796) and (ii) Authorizing Entry into a Settlement Agreement, entered by the
Bankruptcy Court on June 12, 2002.
1.58. "Group" means The Warnaco Group, Inc., as defined on page 2
of this Plan, a Delaware corporation and debtor-in-possession in the
above-captioned Case No. 01-41643 (RLB), pending in the Bankruptcy Court.
1.59. "Initial Distribution Date" means the first Business Day
that is ten (10) days (or such longer period as may be reasonably determined by
the Reorganized Debtors in consultation with the Post-Effective Date Committee)
after the Effective Date.
1.60. "Intellectual Property Contract" means any contract or
agreement relating to the right to use trademarks, service marks, trade names,
personal names, endorsements, domain names, designs, patents, art work, trade
secrets, copyrights and other proprietary mediums.
1.61. "Intercompany Claim" means a Claim by a Debtor or an
affiliate of a Debtor against a Debtor or an affiliate of a Debtor.
1.62. "Interest" means all rights (including unpaid dividends)
arising from any equity security (as defined in Section 101(16) of the Code) of
any of the Debtors, including, without limitation, the Common Stock, but
excluding Common Stock Claims.
1.63. "Interim Distribution Date" means any date after the
Initial Distribution Date on which the Reorganized Debtors determine, in
consultation with the Post-Effective Date Committee, that an interim
distribution should be made to Class 5, in light of, inter alia, resolutions of
Disputed Claims and the administrative costs of such a distribution.
9
1.64. "Lien" means, with respect to any interest in property, any
mortgage, lien, pledge, charge, security interest, easement or encumbrance of
any kind whatsoever affecting such interest in property.
1.65. "Management Stock Incentive Program" means a stock
incentive plan, pursuant to which, among other provisions, the Reorganized
Debtors will reserve 10.0% of the New Warnaco Common Shares for award to certain
members of management of the Reorganized Debtors, on a date and in a manner to
be determined in the sole discretion of the Board of Directors of Reorganized
Warnaco.
1.66. "New Warnaco Common Shares" means the shares of common
stock of Reorganized Warnaco that are to be issued and outstanding pursuant to,
and as contemplated in, Section 5.9. of this Plan.
1.67. "New Warnaco Second Lien Notes" means the notes to be
issued by Reorganized Warnaco, as contemplated in Sections 2.1.(C) and 2.5.(C)
of this Plan on account of the Alvarez Incentive Bonus and the Senior Secured
Bank Claims, respectively, containing the principal terms and conditions set
forth on Plan Schedule 1.67.
1.68. "Original Domestic Facilities" means all unsecured credit
facilities entered into by any of the Debtors prior to October 6, 2000, referred
to in the Pre-Petition Facility and Intercreditor Agreements, and listed on Plan
Schedule 1.68.
1.69. "Original Foreign Facilities" means all unsecured credit
facilities entered into by any Warnaco Non-Debtor Subsidiary prior to October 6,
2000, referred to in the Pre-Petition Facility and Intercreditor Agreements, and
listed on Plan Schedule 1.69.
1.70. "Original Foreign Facilities Guaranty Claims" means the
Claims arising under guaranties issued by any Debtor in respect of obligations
under the Original Foreign Facilities, determined in each case as of the
Petition Date.
1.71. "Other Secured Claim" means a Secured Claim not classified
in Class 2 and Class 3 under this Plan.
1.72. "PBGC" means the Pension Benefit Guaranty Corporation, a
wholly-owned United States government corporation that administers the defined
benefit pension plan termination insurance program under Title IV of ERISA.
1.73. "Pension Plan" means the Employee Retirement Plan of
Warnaco Inc., a defined benefit pension plan covered by Title IV of ERISA and
sponsored by Warnaco Inc.
1.74. "Person" means any person, including, without limitation,
any individual, partnership, joint venture, association, corporation, limited
liability company, limited liability partnership company, trust, estate,
unincorporated organization or governmental unit.
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1.75. "Petition Date" means June 11, 2001, the date on which the
petitions initiating the Cases were filed with the Bankruptcy Court.
1.76. "Plan" means this First Amended Joint Plan of
Reorganization, as defined on page 2 of this Plan, and all addenda, exhibits,
schedules and other attachments hereto, all of which are incorporated herein by
reference, as the same may be amended from time to time, pursuant to this Plan,
the Code or the Bankruptcy Rules.
1.77. "Post-Effective Date Committee" has the meaning ascribed in
Section 5.2. of this Plan.
1.78. "Post-Effective Date Committee Expenses" has the meaning
ascribed in Section 5.2. of this Plan.
1.79. "Post-Effective Date Committee Fees" has the meaning
ascribed in Section 5.2. of this Plan.
1.80. "Pre-Petition Collateral Trustee" shall have the meaning as
such term is defined in paragraph C of the DIP Approval Orders.
1.81. "Pre-Petition Facility and Intercreditor Agreements" means,
collectively, (a) the Amendment, Modification, Restatement and General
Provisions Agreement dated as of October 6, 2000 (as amended, supplemented or
otherwise modified) among The Warnaco Group, Inc., Warnaco Inc., the other
direct and indirect subsidiaries of Group party thereto, The Bank of Nova
Scotia, as Administrative Agent, Scotiabank and Citibank, N.A., as Debt
Coordinators, for themselves and as representatives of each of the Lender
Parties, and State Street Bank and Trust Company, as Collateral Trustee and (b)
the Intercreditor Agreement dated as of October 6, 2000 (as amended,
supplemented or otherwise modified) among The Warnaco Group, Inc., Warnaco Inc.,
the other subsidiaries of The Warnaco Group, Inc. party thereto, The Bank of
Nova Scotia, as Administrative Agent, The Bank of Nova Scotia and Salomon Smith
Barney Inc., as Lead Arrangers, The Bank of Nova Scotia and Citibank, N.A., as
Debt Coordinators, The Bank of Nova Scotia, Salomon Smith Barney Inc., Morgan
Guaranty Trust Company of New York, Commerzbank A.G., New York Branch and
Societe Generale, as Arrangers, Societe Generale, as Security Agent, the other
financial institutions from time to time parties thereto and State Street Bank
and Trust Company, as Collateral Trustee.
1.82. "Pre-Petition Secured Lenders" means those lenders
enumerated in the Pre-Petition Facility and Intercreditor Agreements, as such
lenders may be constituted from time to time.
1.83. "Pre-Petition Releasees" has the meaning ascribed in
Section 7.5. of this Plan.
1.84. "Pre-Petition Released Matters" has the meaning ascribed in
Section 7.5. of this Plan.
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1.85. "Priority Non-Tax Claim" means a Claim to the extent that
it is of the kind described in, and entitled to priority under, Section
507(a)(3), (4), (5) or (6) of the Code.
1.86. "Priority Tax Claim" means a Claim to the extent that it is
of the kind described in, and entitled to priority under, Section 507(a)(8) of
the Code.
1.87. "Registration Rights Agreement" means that certain
agreement, to be dated as of the Effective Date, and filed on or before the
Exhibit Filing Date, between Reorganized Warnaco, Antonio C. Alvarez II and
certain creditors of the Debtors.
1.88. "Reorganized Debtors" means, on and after the Effective
Date, collectively, all of the Debtors that are reorganized under and pursuant
to this Plan, and not merged pursuant to Section 5.4. of this Plan.
1.89. "Reorganized Warnaco" means, on and after the Effective
Date, Group, as reorganized under and pursuant to this Plan.
1.90. "Rights Plan" means the rights plan to be filed on or prior
to the Exhibit Filing Date, providing for, inter alia, the distribution to
holders of New Warnaco Common Shares of one preferred share purchase right for
each New Warnaco Common Share then outstanding.
1.91. "Schedules" means the joint Schedules of Assets,
Liabilities and Executory Contracts filed by the Debtors with the Clerk of the
Bankruptcy Court for the Southern District of New York pursuant to Bankruptcy
Rule 1007, as such schedules have been or may be amended or supplemented by the
Debtors from time to time.
1.92. "SEC" means the Securities and Exchange Commission.
1.93. "Secured Claim" means a Claim that constitutes a secured
claim under Section 506(a) or 1111(b) of the Code.
1.94. "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.95. "Senior Secured Bank Claim" means all Claims arising under
or relating to the Pre-Petition Facility and Intercreditor Agreements, the
Original Domestic Facilities, the Original Foreign Facilities and related
agreements, and the DIP Approval Orders, including, without limitation, the
Designated Post-Petition Loans, but excluding any claims against any Warnaco
Non-Debtor Subsidiary under or relating to the Pre-Petition Facility and
Intercreditor Agreements and the Original Foreign Facilities.
1.96. "Single-Employer Pension Plan Claims" means all Claims of
the PBGC against any of the Debtors, whether or not filed in the Cases,
including, without limitation, proof of claim numbers 1435, 1436 and 1437 filed
by the PBGC.
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1.97. "TOPrS" means the 6% Convertible Trust Originated Preferred
Securities and the 6% Convertible Common Securities issued by Designer Finance
Trust and representing undivided beneficial interests in the assets of Designer
Finance Trust.
1.98. "TOPrS Claim" means any claim arising under or with respect
to the TOPrS Indenture, the TOPrS Supplemental Indenture, the TOPrS Guarantees,
the TOPrS Trust Agreement or any documents executed in connection with or
related to the issuance of the TOPrS, including, without limitation, the claims
asserted in proofs of claim numbered 1692, 1693, 1694, and 1695 filed by the
TOPrS Trustee.
1.99. "TOPrS Guarantees" means, collectively, (i) that certain
Preferred Securities Guarantee Agreement of The Warnaco Group, Inc. dated as of
March 31, 1998, (ii) that certain Preferred Securities Guarantee Agreement of
Designer Holdings Ltd. dated as of November 6, 1996, (iii) that certain Common
Securities Guarantee Agreement of The Warnaco Group, Inc. dated as of March 31,
1998, and (iv) that certain Common Securities Guarantee Agreement of Designer
Holdings Ltd. dated as of November 6, 1996.
1.100. "TOPrS Indenture" means that certain Indenture between
Designer Holdings Ltd., as Issuer, and IBJ Schroder Bank & Trust Company, as
Trustee, dated as of November 6, 1996 with respect to the 6% Convertible
Subordinated Debentures due 2016.
1.101. "TOPrS Supplemental Indenture" means that certain First
Supplemental Indenture between Designer Holdings Ltd., The Warnaco Group, Inc.
and IBJ Schroder Bank & Trust Company, as Trustee, dated as of March 31, 1998.
1.102. "TOPrS Trust Agreement" means that certain Declaration of
Trust, dated as of September 26, 1996, as amended by the Amended and Restated
Declaration of Trust, dated as of November 6, 1996, among Designer Holdings
Ltd., as Sponsor, IBJ Schroder Bank & Trust Company, as Property Trustee,
Delaware Trust Capital Management, Inc., as Delaware Trustee, and Arnold H.
Simon and Merril M. Halpern, as Regular Trustees.
1.103. "TOPrS Trustee" means, collectively, (i) the Indenture
Trustee under the TOPrS Indenture and the TOPrS Supplemental Indenture, (ii) the
Property Trustee for the holders of the TOPrS, (iii) the Guarantee Trustee with
respect to the TOPrS Guarantees, and (iv) the Property Trustee, as the sole
holder of the 6% Convertible Subordinated Debentures due 2016, currently Wells
Fargo Bank Minnesota, N.A.
1.104. "TOPrS Trustee Charging Lien" means any Lien or other
priority in payment arising prior to the Effective Date to which the TOPrS
Trustee is entitled, pursuant to the TOPrS Indenture, the TOPrS Supplemental
Indenture, the TOPrS Guarantees, and the TOPrS Trust Agreement, against
distributions to be made to holders of TOPrS Claims for payment of any TOPrS
Trustee Fee.
1.105. "TOPrS Trustee Fee" means the reasonable compensation,
fees, expenses, disbursements and indemnity claims, including, without
limitation, attorneys' and agents' fees, expenses and disbursements, incurred by
the TOPrS Trustee, whether prior to or after the Petition Date and whether prior
to or after the consummation of the Plan.
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1.106. "Unclaimed Property" means any distribution under the Plan
that is unclaimed by the holder of the Allowed Claim entitled to such
distribution ninety (90) days after the distribution date applicable to such
distribution.
1.107. "Unsecured Claim" means a Claim that is not an
Administrative Claim, a Priority Tax Claim, a Priority Non-Tax Claim, a Secured
Claim, a Senior Secured Bank Claim, a TOPrS Claim, an Intercompany Claim or a
Common Stock Claim.
1.108. "Unsecured Pool" means the shares of New Warnaco Common
Shares to be delivered to the Disbursing Agent by Reorganized Warnaco in
accordance with Section 6.3. of this Plan for distribution to holders of Allowed
Class 5 Claims.
1.109. "Voting Deadline" means the date set in an order of the
Bankruptcy Court as the deadline for the return of Ballots accepting or
rejecting this Plan.
1.110. "Warnaco Non-Debtor Subsidiary" means any direct or
indirect subsidiary of Group that is not a Debtor in the Cases.
B. Interpretation. For purposes of this Plan: (a) whenever from
the context it is appropriate, each term, whether stated in the singular or the
plural, will include both the singular and the plural; (b) unless otherwise
provided in this Plan, any reference in this Plan to a contract, instrument,
release, indenture or other agreement or document being in a particular form or
on particular terms and conditions means that such document will be
substantially in such form or substantially on such terms and conditions; (c)
unless otherwise provided in this Plan, any reference in this Plan to an
existing document or exhibit means such document or exhibit, as it may have been
or may be amended, modified or supplemented pursuant to this Plan; (d) unless
otherwise specified herein, any reference to an entity as a holder of a Claim
includes that entity's successors, assigns and affiliates; (e) unless otherwise
specified, all references in this Plan to Sections, Articles, schedules and
exhibits are references to Sections, Articles, schedules and exhibits of or to
this Plan; (f) the words "herein" and "hereto" refer to this Plan in its
entirety rather than to a particular portion of this Plan; (g) captions and
headings to Articles and Sections are inserted for convenience of reference only
and are not intended to be part of or to affect the interpretation of this Plan;
and (h) the rules of construction set forth in Section 102 of the Code will
apply.
C. Computation of Time. In computing any period of time
prescribed or allowed by this Plan, the provisions of Bankruptcy Rule 9006(a)
will apply.
ARTICLE II
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests
classified under this Plan. A Claim or Interest is in a particular Class for
purposes of voting on, and of receiving distributions pursuant to, this Plan
only to the extent that such Claim or Interest is an Allowed Claim or Interest
in that Class and such Claim or Interest has not been paid, released or
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otherwise settled prior to the Effective Date. Claims against more than one
Debtor with respect to a single obligation, by reason of guaranty, joint or
"control group" liability, or otherwise, shall be deemed to be a single Claim in
the Allowed amount of such obligation for purposes of voting, allowance,
distribution and all other purposes under this Plan. In accordance with Section
1123(a)(1) of the Code, Administrative Claims and Priority Tax Claims have not
been classified, although the treatment for such unclassified Claims is set
forth below.
A. Unclassified Claims.
2.1. Administrative Claims.
(A) General. Subject to the provisions of Section 6.6.(A) of
this Plan and unless otherwise agreed by the holder of an Allowed Administrative
Claim (in which event such other agreement shall govern), and except with
respect to the Alvarez Incentive Bonus (see subsection (C) below), the
Designated Post-Petition Loans (see subsection (D) below), and claims of the
Debt Coordinators and the Pre-Petition Collateral Trustee payable under
paragraph 22 of the DIP Approval Orders, each holder of an Allowed
Administrative Claim shall be paid in full in Cash (i) at the sole option of the
Debtors (before the Effective Date) or the Reorganized Debtors (on or after the
Effective Date), (a) in the ordinary course of business as the Claim becomes due
and owing or (b) on the Initial Distribution Date or (ii) on such other date as
the Bankruptcy Court may order.
(B) Statutory Fees. On the Effective Date, Administrative
Claims for fees payable pursuant to Section 1930 of title 28 of the United
States Code, 28 U.S.C. Section 1930, as determined by the Bankruptcy Court at
the Confirmation Hearing, shall be paid in Cash in an amount equal to the amount
of such Administrative Claims. All such fees payable after the Effective Date
will be assumed and paid by the Reorganized Debtors.
(C) Alvarez Incentive Bonus. On the Effective Date, the
Reorganized Debtors shall make the payments in Cash and the distributions of New
Warnaco Second Lien Notes and New Warnaco Common Shares, as set forth in Plan
Schedule 1.6, in satisfaction of the Alvarez Incentive Bonus.
(D) Designated Post-Petition Loans. The Designated
Post-Petition Loans shall be satisfied in full by the payments and distributions
to be made to the Pre-Petition Secured Lenders as set forth in Section 2.5.(C)
of this Plan.
2.2. Priority Tax Claims. Unless otherwise agreed by the holder
of an Allowed Priority Tax Claim (in which event such other agreement shall
govern), each holder of an Allowed Priority Tax Claim shall receive, on the
Initial Distribution Date, at the Reorganized Debtors' option, (a) Cash equal to
the amount of such Allowed Priority Tax Claim or (b) Cash in six equal annual
installments, together with interest thereon at the legal rate required for such
claims in chapter 11 cases, which interest shall be paid annually in arrears
pursuant to Section 1129(a)(9)(C) of the Code.
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2.3. DIP Facility Claim. On the Effective Date, the DIP Facility
Claim shall be paid in full in Cash, or otherwise satisfied in a manner
acceptable to the DIP Lenders; provided, however, that all letters of credit
under the DIP Facility as of the Effective Date shall remain outstanding as of
the Effective Date and shall be paid, in the event drawn, through a borrowing by
the Reorganized Debtors under the Exit Financing Facility.
B. Classified Claims and Interests.
2.4. Class 1 -- Priority Non-Tax Claims.
(A) Classification. Class 1 consists of all Priority Non-Tax
Claims.
(B) Allowance. Class 1 Claims shall be allowed or disallowed
in accordance with Section 6.6.(B) of this Plan and applicable provisions of the
Code and Bankruptcy Rules.
(C) Treatment. Unless otherwise agreed by the holder of an
Allowed Priority Non-Tax Claim (in which event such agreement shall govern),
each holder of an Allowed Class 1 Claim shall be paid in full in Cash on the
later of the Initial Distribution Date and a date that is as soon as practicable
after the date upon which such Claim becomes an Allowed Priority Non-Tax Claim.
(D) Impairment and Voting. Class 1 Claims are unimpaired and
the holders thereof are not entitled to vote on this Plan.
2.5. Class 2 -- Senior Secured Bank Claims.
(A) Classification. Class 2 consists of all Senior Secured
Bank Claims.
(B) Allowance. Class 2 Claims shall be Allowed Claims
pursuant to this Plan and entitled to the distributions set forth herein.
(C) Treatment. On the Effective Date, each holder of a
Senior Secured Bank Claim shall receive in full satisfaction of its Senior
Secured Bank Claim its pro rata share of the following, to be distributed by the
Administrative Agent in accordance with the Pre-Petition Facility and
Intercreditor Agreements: (i) Cash equal to the amount of the balance due on the
Original Foreign Facilities Guaranty Claims, which shall be applied to repay in
full satisfaction of any outstanding amounts owing by the Debtors under the
Original Foreign Facilities as of the Petition Date; (ii) New Warnaco Second
Lien Notes in the aggregate principal amount of $200 million; and (iii) 96.263%
of the New Warnaco Common Shares, subject to Dilution. In the event that holders
of Class 6 Claims are not entitled to receive a distribution as provided in
Section 2.9.(C) of this Plan, on the Effective Date, each holder of a Class 2
Senior Secured Bank Claim will receive its pro rata share of an additional
0.581% of the New Warnaco Common Shares, subject to Dilution.
16
(D) Impairment and Voting. Class 2 Claims are impaired and
the holders thereof are entitled to vote on this Plan.
2.6. Class 3 -- GE Capital Secured Claims Under the 1997 MLA.
(A) Classification. Class 3 consists of GE Capital Secured
Claims Under the 1997 MLA.
(B) Allowance. Class 3 Claims shall be Allowed as provided
in the GE Capital Settlement Agreement.
(C) Treatment. The GE Capital Settlement Agreement and the
GE Settlement Order and each of their provisions shall be deemed to be a part of
this Plan and the Confirmation Order. As provided in the GE Capital Settlement
Agreement, in satisfaction of obligations arising under the 1997 MLA, GE Capital
shall receive an amount equal to $15.2 million (the "GE Settlement Amount"),
less all amounts paid by the Debtors to GE Capital with respect to the 1997 MLA
from the Petition Date through and including the Effective Date, which amount
shall be payable without interest at the rate of $750,000 per month from and
after the Effective Date until the GE Settlement Amount is paid in full. GE
Capital shall retain its first priority perfected security interest in and to
all of the 1997 Equipment (as that term is defined in the GE Capital Settlement
Agreement) all as more particularly set forth in the GE Capital Settlement
Agreement. To the extent of a conflict between the GE Capital Settlement
Agreement and/or the GE Settlement Order, on the one hand, and this Plan and/or
the Confirmation Order, on the other hand, the terms of the GE Capital
Settlement Agreement and the GE Settlement Order shall govern and control.
(D) Impairment and Voting. Class 3 Claims are unimpaired and
the holders thereof are not entitled to vote on this Plan.
2.7. Class 4 -- Other Secured Claims.
(A) Classification. Class 4 consists of Other Secured
Claims.
(B) Allowance. Class 4 Claims shall be allowed or disallowed
in accordance with Section 6.6.(B) of this Plan and applicable provisions of the
Code and Bankruptcy Rules.
(C) Treatment. Other Secured Claims against the Debtors
shall, at the sole option of the Debtors, be: (i) paid in full in Cash on the
Initial Distribution Date; (ii) reinstated according to the terms of the
relevant instrument; (iii) paid on such other terms as the Debtors and the
holder of such Claim may agree; or (iv) satisfied through the surrender by the
applicable Debtors of the collateral securing the Claim to the holder thereof.
(D) Impairment and Voting. Class 4 Claims are unimpaired and
the holders thereof are not entitled to vote on this Plan.
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2.8. Class 5 -- Unsecured Claims.
(A) Classification. Class 5 consists of Unsecured Claims.
(B) Allowance. Class 5 Claims shall be allowed or disallowed
in accordance with Section 6.6.(B) of this Plan and applicable provisions of the
Code and Bankruptcy Rules.
(C) Treatment. Each holder of an Allowed Unsecured Claim
shall receive its pro rata share of 2.549% of the New Warnaco Common Shares,
subject to Dilution. In the event that holders of Class 6 Claims are not
entitled to receive a distribution as provided in Section 2.9.(C) of this Plan,
each holder of an Allowed Unsecured Claim will receive its pro rata share of an
additional 0.015% of the New Warnaco Common Shares, subject to Dilution.
(D) Impairment and Voting. Class 5 Claims are impaired and
the holders thereof are entitled to vote on this Plan.
2.9. Class 6 -- TOPrS Claims.
(A) Classification. Class 6 consists of TOPrS Claims.
(B) Allowance. Class 6 Claims shall be Allowed Claims
pursuant to this Plan and entitled to the distributions set forth herein;
provided, however, that any proof of claim in respect of the TOPrS filed by a
registered or beneficial holder of a TOPrS Claim shall be disallowed as
duplicative of proofs of claim numbered 1692, 1693, 1694 and 1695 filed by the
TOPrS Trustee.
(C) Treatment. In the event that the holders of the TOPrS
Claims vote as a Class to reject this Plan, the holders of TOPrS Claims shall
not receive or retain any interest or property under this Plan, and no
distribution shall be made on account of the TOPrS Claims, and the New Warnaco
Common Shares that would otherwise be distributed on account of the TOPrS Claims
as set forth in the next sentence shall instead be distributed pro rata to
holders of Allowed Class 2 and Allowed Class 5 Claims in the following
percentages: 0.581% to the holders of Allowed Class 2 Claims and 0.015% to the
holders of Allowed Class 5 Claims, subject to Dilution. Otherwise, in full
satisfaction of the TOPrS Claims, on the Initial Distribution Date, the
Reorganized Debtors shall distribute to the TOPrS Trustee, subject to the right
of the TOPrS Trustee to assert its TOPrS Trustee Charging Lien against the
distributions to the holders of the TOPrS to the extent the TOPrS Trustee Fee
remains unpaid, or such persons as the TOPrS Trustee shall designate at least
ten days prior to the Confirmation Hearing, for redelivery to the holder(s) of
the TOPrS Claims, a stock certificate evidencing ownership of 0.596% of the New
Warnaco Common Shares, subject to Dilution, and in addition shall pay the amount
of up to $300,000 to the TOPrS Trustee on account of the TOPrS Trustee Fee,
subject to receipt and review by the Debtors of invoices detailing such fees and
expenses.
(D) Impairment. TOPrS Claims are impaired.
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2.10. Class 7 -- Intercompany Claims.
(A) Classification. Class 7 consists of Intercompany Claims.
(B) Treatment. Subject to Section 5.10. of this Plan,
Intercompany Claims shall be discharged, and the holders of Intercompany Claims
shall not be entitled to receive or retain any property on account of such
Claims.
2.11. Class 8 -- Common Stock Claims and Interests.
(A) Classification. Class 8 consists of Common Stock Claims
and Interests.
(B) Treatment. Interests shall be cancelled, and the holders
of Common Stock Claims and Interests shall not be entitled to receive or retain
any property on account of such Claims and Interests.
(C) Impairment and Voting. Class 8 Claims and Interests are
impaired and the holders thereof are deemed not to have accepted this Plan.
ARTICLE III
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
3.1. Rejected Contracts and Leases. Each executory contract and
unexpired lease to which any of the Debtors is a party shall be deemed
automatically rejected as of the Effective Date, except with respect to
Intellectual Property Contracts, which shall be deemed automatically assumed as
of the Effective Date, unless such executory contract or unexpired lease (a)
shall have been previously rejected or assumed by order of the Bankruptcy Court
or (b) is the subject of a motion to assume or reject filed on or before the
Confirmation Date or (c) is listed on the schedule of contracts and leases to be
rejected or assumed pursuant to this Plan, annexed as Plan Schedules 3.1 and
3.2, respectively (and as the same may be modified or supplemented, if at all,
pursuant to Section 3.3.(B) of this Plan). The Confirmation Order shall
constitute an order of the Bankruptcy Court approving such deemed rejection or
assumption (with respect to Intellectual Property Contracts only), as
applicable, as of the Effective Date. All executory contracts and unexpired
leases specifically listed on the schedule of rejected executory contracts and
unexpired leases, annexed as Plan Schedule 3.1, shall be deemed automatically
rejected pursuant to this Plan by the applicable Debtor as of the Effective
Date.
3.2. Assumed Contracts and Leases. All executory contracts and
unexpired leases specifically listed on the schedule of assumed executory
contracts and unexpired leases, annexed as Plan Schedule 3.2 and modified or
supplemented, if at all, pursuant to Section 3.3.(B) of this Plan, shall be
deemed automatically assumed pursuant to this Plan by the applicable Debtor as
of the Effective Date.
Each executory contract and unexpired lease that is assumed under
this Plan and relates to the use, ability to acquire or occupancy of real
property shall include (a) all
19
modifications, amendments, supplements, restatements or other agreements made
directly or indirectly by any agreement, instrument or other document that in
any manner affect such executory contract or unexpired lease and (b) all
executory contracts or unexpired leases appurtenant to the premises, including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, reciprocal easement agreements and any
other interests in real estate or rights in rem related to such premises, unless
any of the foregoing agreements has been rejected pursuant to a Final Order of
the Bankruptcy Court or is otherwise rejected as part of this Plan.
3.3. Miscellaneous.
(A) The Debtors reserve the right to file a motion on or
before the Confirmation Date to assume or reject any executory contract or
unexpired lease.
(B) Notwithstanding any other provision of this Plan, each
of the Debtors shall retain the right to, at any time prior to the Confirmation
Hearing, modify or supplement Plan Schedule 3.1 and Plan Schedule 3.2,
including, without limitation, the right to add any executory contract or
unexpired lease to, or delete any executory contract or unexpired lease from,
Plan Schedule 3.1 or Plan Schedule 3.2.
(C) Listing an executory contract or unexpired lease on Plan
Schedule 3.1 or Plan Schedule 3.2 shall not constitute an admission by any of
the Debtors or the Reorganized Debtors that such contract or lease (including
any related agreements that may exist) is an executory contract or unexpired
lease or that the applicable Debtor or Reorganized Debtor has any liability
thereunder.
3.4. Payments Related to Assumption of Executory Contracts and
Unexpired Leases. Any monetary amounts by which each executory contract and
unexpired lease to be assumed under this Plan may be in default shall be
satisfied by Cure in the amount, if any, set forth in Plan Schedule 3.2, or, in
the event of an objection to such Cure amount or if no such Cure amount is
listed, in the amount agreed between the parties or as ordered by the Bankruptcy
Court or another court of competent jurisdiction. To the extent the non-Debtor
party to the unexpired lease or executory contract does not object to the amount
of Cure set forth in Plan Schedule 3.2 on or before the Voting Deadline, such
non-Debtor party shall be deemed to accept such Cure amount. In the event of a
dispute regarding (a) the nature or the amount of any Cure, (b) the ability of
the applicable Reorganized Debtor or any assignee to provide "adequate assurance
of future performance" (within the meaning of Section 365 of the Code) under the
contract or lease to be assumed or (c) any other matter pertaining to
assumption, such dispute shall be determined by the Bankruptcy Court or another
court of competent jurisdiction, or as the parties may otherwise agree. To the
extent that the Debtor who is a party to the unexpired lease or executory
contract is to be merged pursuant to Section 5.4. of this Plan, upon assumption
as contemplated herein, the Reorganized Debtor that is the surviving entity
after such merger shall be the party to the unexpired lease or executory
contract.
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3.5. Post-Petition Contracts and Leases. All contracts,
agreements and leases that were entered into by the Debtors or assumed by the
Debtors after the Petition Date shall be deemed assigned by the Debtors to the
Reorganized Debtors on the Effective Date.
3.6. Rejection Damages Bar Date. If the rejection by a Debtor,
pursuant to this Plan or otherwise, of an executory contract or unexpired lease
results in a Claim, then such Claim shall be forever barred and shall not be
enforceable against any Debtor or Reorganized Debtor or the properties of any of
them unless a proof of claim is filed with the clerk of the Bankruptcy Court and
served upon counsel to the Debtors within thirty (30) days after service of the
earlier of (a) notice of the Confirmation Date or (b) other notice that the
executory contract or unexpired lease has been rejected pursuant to an order of
the Bankruptcy Court.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Conditions to Occurrence of Effective Date. The following
are conditions precedent to the occurrence of the Effective Date, each of which
may be satisfied or waived in accordance with Section 4.2. of this Plan: (i) the
Reorganized Debtors have entered into definitive documentation with respect to
the Exit Financing Facility and the New Warnaco Second Lien Notes, and all
conditions precedent under such Facility and Notes shall have been satisfied
(but for the occurrence of the Effective Date); (ii) the Reorganized Debtors
have entered into the Registration Rights Agreement; (iii) the Confirmation
Order has been entered by the Bankruptcy Court; (iv) at least ten (10) days have
elapsed since the Confirmation Date; (v) no stay of the Confirmation Order is in
effect; and (vi) the Confirmation Order has not been reversed, modified or
vacated.
4.2. Waiver of Conditions to Consummation. The conditions set
forth in Section 4.1. of this Plan may be waived, in whole or in part, upon the
mutual consent of the Debtors, the Debt Coordinators and the Creditors'
Committee, without notice to any other parties in interest or the Bankruptcy
Court and without a hearing. No waiver or non-waiver of any conditions to
Confirmation or to the Effective Date shall diminish the application of the
mootness doctrine with respect to the Confirmation of this Plan or any order
entered in connection therewith, which doctrine shall apply to the fullest
extent of applicable law.
4.3. Non-Consensual Confirmation. Because Class 7 and Class 8 are
deemed not to have accepted this Plan pursuant to Section 1126(g) of the Code,
as to such Classes and any other Class that votes to reject this Plan, the
Debtors are seeking confirmation of this Plan in accordance with Section 1129(b)
of the Code, either under the terms provided herein or upon such terms as may
exist if this Plan is modified in accordance with Section 1127(d) of the Code.
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ARTICLE V
IMPLEMENTATION OF PLAN
5.1. Pre-Effective Date Management and Operation of Debtors.
After the Confirmation Date and until the Effective Date, the current directors
and officers of each Debtor shall continue to serve in such capacities, subject
to such changes as may be determined by the Board of Directors of a Debtor in
accordance with the current Bylaws and Certificates of Incorporation of such
Debtor.
5.2. Post-Effective Date Committee; Dissolution of Committee. The
Creditors' Committee shall continue to exist after the Confirmation Date until
the Effective Date with the same power and authority, and the same ability to
retain and compensate professionals, as it had prior to the Confirmation Date.
On and as of the Effective Date, the Creditors' Committee shall be reconstituted
and shall be comprised of no more than seven (7) members of the Creditors'
Committee prior to the Effective Date (the "Post-Effective Date Committee"). The
members of the Creditors' Committee who are not members of the Post-Effective
Date Committee shall be released and discharged of and from all further
authority, duties, responsibilities, and obligations related to and arising from
and in connection with the Cases. In the event of the death or resignation of
any member of the Post-Effective Date Committee after the Effective Date, the
remaining members of the Post-Effective Date Committee shall have the right to
designate a successor from among the holders of Allowed Class 5 Claims. If a
Post-Effective Date Committee member assigns its Claim or releases the Debtors
from payment of all or the balance of its Claim, such act shall constitute a
resignation from the Post-Effective Date Committee. Until a vacancy on the
Post-Effective Date Committee is filled, the Post-Effective Date Committee shall
function in its reduced number. The Reorganized Debtors shall consult with the
Post-Effective Date Committee on a regular basis concerning the Reorganized
Debtors' investigation, prosecution and proposed settlement of Class 5 Claims
and shall provide written reports to the Post-Effective Date Committee on a
monthly basis regarding the status of the Claims resolution process. The
Reorganized Debtors shall not settle or compromise any Class 5 Claim in excess
of the Allowed amount of $25,000 without either the approval of the
Post-Effective Date Committee (which shall act by majority vote) or an order of
the Bankruptcy Court. Subject to the approval of the Post-Effective Date
Committee, the Reorganized Debtors may settle or compromise any Class 5 Claim in
excess of the Allowed amount of $25,000 without an order of the Bankruptcy
Court. The Reorganized Debtors may settle or compromise any Class 5 Claim for
less than the Allowed amount of $25,000 without an order of the Bankruptcy Court
and without the approval of the Post-Effective Date Committee. The duties of the
Post-Effective Date Committee shall also include services related to any
applications for allowance of compensation or reimbursement of expenses pending
on the Effective Date or filed after the Effective Date (collectively, the
"Filed Fee Applications"). The Reorganized Debtors shall pay (a) the reasonable
expenses of the members of the Creditors' Committee between the Confirmation
Date and the Effective Date, and the Post-Effective Date Committee (the
"Post-Effective Date Committee Expenses") and (b) the reasonable fees of the
professional persons employed by the Post-Effective Date Committee in connection
with its duties and responsibilities as set forth in this Plan (the
"Post-Effective Date Committee Fees"); provided, however, that the total
aggregate amount of the Post-Effective Date Committee Expenses and the
Post-Effective
22
Date Committee Fees shall not exceed $100,000.00 (exclusive of services related
to Filed Fee Applications). The Post-Effective Date Committee Fees and the
Post-Effective Date Committee Expenses shall be paid within fifteen (15)
Business Days after submission of a detailed invoice therefor to the Reorganized
Debtors. If the Reorganized Debtors dispute the reasonableness of any such
invoice, the Reorganized Debtors, the Post-Effective Date Committee or the
affected professional may submit such dispute to the Bankruptcy Court for a
determination of the reasonableness of such invoice, and the disputed portion of
such invoice shall not be paid until the dispute is resolved. The undisputed
portion of such reasonable fees and expenses shall be paid as provided herein.
The Post-Effective Date Committee shall be dissolved and the members thereof
shall be released and discharged of and from further authority, duties,
responsibilities and obligations relating to and arising from and in connection
with the Cases on the later of (i) the Final Distribution Date and (ii) the date
all services related to Filed Fee Applications are completed, and the retention
or employment of the Post-Effective Date Committee's professionals shall
terminate.
5.3. Pre-Effective Date Injunctions or Stays. All injunctions or
stays, whether by operation of law or by order of the Bankruptcy Court, provided
for in the Cases pursuant to Sections 105 or 362 of the Code or otherwise that
are in effect on the Confirmation Date shall remain in full force and effect
until the Effective Date.
5.4. Merger of Certain Debtors. Effective as of the Effective
Date but immediately prior to the discharge of the Debtors described in Section
7.2. of this Plan, the following transactions shall occur in the following
order: (i) each of Warnaco Men's Sportswear Inc., Warnaco Ventures Ltd.,
Ventures Ltd. and Blanche Inc. shall be merged with and into Warnaco Inc. and
Warnaco Inc. shall be the surviving corporation in such merger; (ii) AEI
Management Corporation shall be merged with and into Rio Sportswear Inc. and Rio
Sportswear Inc. shall be the surviving corporation in such merger; (iii) CCC
Acquisition Realty Corp. shall be merged with and into Authentic Fitness
Products Inc. and Authentic Fitness Products Inc. shall be the surviving
corporation in such merger; (iv) CKJ Sourcing Inc. shall be merged with and into
Calvin Klein Jeanswear Company and Calvin Klein Jeanswear Company shall be the
surviving entity in such merger; and (iv) Group shall transfer 100% of the
shares held by Group in each of Myrtle Avenue, Inc., Authentic Fitness
Corporation and Designer Holdings Ltd. to Warnaco Inc. Except as otherwise set
forth in this Plan, or as modified by appropriate corporate action after the
Effective Date, the corporate structure and equity ownership of the Debtors and
their subsidiaries shall be unchanged.
5.5. Amended Certificates of Incorporation and Bylaws. As of the
Effective Date, the certificates of incorporation and bylaws of each of the
Debtors shall be amended as necessary to satisfy the provisions of this Plan and
the Code, including, without limitation, the prohibition against the issuance of
non-voting equity securities set forth in Section 1123(a)(6) of the Code (the
"Amended Certificates of Incorporation and Bylaws"). The forms of Amended
Certificates of Incorporation and Bylaws, to be filed on or before the Exhibit
Filing Date as Exhibits 1 and 2 to this Plan, shall become effective on the
Effective Date. After the Effective Date, the Amended Certificates of
Incorporation and Bylaws shall be subject to such further amendments or
modifications as may be made by law, or pursuant to such Amended Certificates of
Incorporation and Bylaws.
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5.6. Post-Effective Date Management and Operation of Reorganized
Debtors. As of the Effective Date, the directors and officers of each Debtor
that is not a Reorganized Debtor will be terminated. The Debtors shall file Plan
Schedule 5.6 with the Bankruptcy Court on or before the Exhibit Filing Date
setting forth the offices, the names and affiliations of, and the compensation
proposed to be paid to, the individuals intended to serve as directors and
officers of each Reorganized Debtor on and after the Effective Date. On and
after the Effective Date, each Reorganized Debtor shall be governed in
accordance with the Amended Certificates of Incorporation and Bylaws.
5.7. Exit Financing Facility. On the Effective Date, the
Reorganized Debtors will enter into definitive documentation with respect to the
Exit Financing Facility with the respective lenders thereunder. On or about the
Effective Date, the Debtors shall borrow funds under the Exit Financing Facility
in amounts which, together with such other cash as is available to the Debtors,
will be sufficient to make all Cash distributions to be made under this Plan.
5.8. Issuance of New Warnaco Second Lien Notes. On the Effective
Date, Reorganized Warnaco will enter into definitive documentation with respect
to, and will issue, the New Warnaco Second Lien Notes for distribution in
accordance with this Plan. The issuance of the New Warnaco Second Lien Notes and
the distribution, transfer or exchange thereof in accordance with this Plan
shall be exempt from registration under applicable securities laws (including
without limitation, Section 5 of the Securities Act or any similar state or
local law requiring the registration for offer or sale of a security or
registration or licensing of an issuer or a security) pursuant to Section
1145(a) of the Code, and may be sold without registration to the extent
permitted under Section 1145 of the Code.
5.9. Issuance of New Warnaco Common Shares. On the Effective
Date, Reorganized Warnaco will issue the New Warnaco Common Shares for
distribution in accordance with this Plan. The issuance of the New Warnaco
Common Shares and the distribution, transfer or exchange thereof in accordance
with this Plan shall be exempt from registration under applicable securities
laws (including without limitation, Section 5 of the Securities Act or any
similar state or local law requiring the registration for offer or sale of a
security or registration or licensing of an issuer of a security) pursuant to
Section 1145(a) of the Code, and may be sold without registration to the extent
permitted under Section 1145 of the Code.
5.10. Transfer of Intercompany Claims. Prior to the discharge of
Intercompany Claims, as provided in Section 2.10.(B) of this Plan, the Debtors
shall have the right to retain, or effect such transfers and setoffs with
respect to, Intercompany Claims as they may deem appropriate for accounting, tax
and commercial business purposes, to the fullest extent permitted by applicable
law.
5.11. Management Stock Incentive Program and Confirmation
Bonuses. On or as soon as practicable after the Effective Date, the Management
Stock Incentive Program will be adopted by Reorganized Warnaco pursuant to its
terms. In addition, on the Effective Date, the Confirmation Bonus Plan will be
implemented. In addition, on or as soon as
24
practicable after the Effective Date, Stuart D. Buchalter, the Non-Executive
Chairman of the Board of Directors of Group shall receive a bonus in recognition
of his contribution to the Debtors' reorganization in these Cases and his
undertaking to serve on the board of directors of Reorganized Warnaco in the
aggregate amount of $350,000, comprised of $210,000 in Cash and an amount of New
Warnaco Common Shares equal in value to $140,000 which shall be distributed from
the New Warnaco Common Shares reserved under the Management Stock Incentive
Program.
5.12. Rights Plan. On the Effective Date, Reorganized Warnaco
will enter into the Rights Plan, which shall become effective in accordance with
its terms.
5.13. Registration Rights Agreement. On the Effective Date,
Reorganized Warnaco will enter into the Registration Rights Agreement, which
shall become effective in accordance with its terms. The Reorganized Debtors
shall use their reasonable best efforts to cause the New Warnaco Common Shares
to be quoted on the NASDAQ National Market within sixty (60) days after the
Effective Date.
5.14. Effectuating Documents; Further Transactions. The Chief
Executive Officer, President, Chief Financial Officer or General Counsel of
Reorganized Warnaco or any Debtor shall be 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 implement the provisions of this Plan, without any further order
of the Bankruptcy Court and without the requirement of any further action by any
stockholder or director of any of the Debtors or Reorganized Debtors. The
Secretary or any Assistant Secretary of each Debtor or Reorganized Debtor shall
be authorized to certify or attest to any of the foregoing actions.
5.15. Exemption From Certain Transfer Taxes. Pursuant to Section
1146 of the Code, (a) the issuance, transfer or exchange of any securities,
instruments or documents, (b) the creation of any Lien, mortgage, deed of trust
or other security interest, (c) the making or assignment of any lease or
sublease or the making or delivery of any deed or other instrument of transfer
under, pursuant to, in furtherance of, or in connection with this Plan,
including, without limitation, any deeds, bills of sale or assignments executed
in connection with any of the transactions contemplated under this Plan or the
reinvesting, transfer or sale of any real or personal property of the Debtors
pursuant to, in implementation of, or as contemplated in this Plan and (d) the
issuance, renewal, modification or securing of indebtedness by such means, and
the making, delivery or recording of any deed or other instrument of transfer
under, in furtherance of, or in connection with, this Plan, including, without
limitation, the Confirmation Order, shall not be subject to any document
recording tax, stamp tax, conveyance fee or other similar tax, mortgage tax,
real estate transfer tax, mortgage recording tax or other similar tax or
governmental assessment. Consistent with the foregoing, each recorder of deeds
or similar official for any county, city or governmental unit in which any
instrument hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument without requiring the
payment of any filing fees, documentary stamp tax, deed stamps, stamp tax,
transfer tax, intangible tax or similar tax.
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5.16. Continuation of Warnaco Pension Plan. Upon the occurrence
of the Effective Date, the Reorganized Debtors will continue the Pension Plan,
including meeting the minimum funding standards under ERISA and the Internal
Revenue Code, paying all PBGC insurance premiums, and administering and
operating the Pension Plan in accordance with its terms and ERISA. Nothing in
this Plan shall be deemed to discharge, release, or relieve the Debtors, the
Reorganized Debtors, any member of the Debtors' controlled groups (as defined in
29 U.S.C. 'SS''SS' 1301(a)(14)), or any other party, in any capacity, from any
current or future liability with respect to the Pension Plan, and PBGC and the
Pension Plan shall not be enjoined or precluded from enforcing such liability as
a result of this Plan's provisions or confirmation. Upon the Effective Date,
PBGC shall be deemed to have withdrawn the Single-Employer Pension Plan Claims
with prejudice. After the Effective Date, the Reorganized Debtors shall have the
authority to terminate, amend or freeze the Pension Plan in accordance with the
terms of the Pension Plan, ERISA and the Internal Revenue Code.
5.17. Employment, Retirement, and Incentive Compensation Plans
and Programs. Except as otherwise set forth in this Plan, to the extent that any
of the Debtors have in place as of the Effective Date retirement income plans,
welfare benefit plans and other employee-related plans and programs, such plans
and programs shall be deemed terminated as of the Effective Date; provided that,
the plans and programs set forth in Plan Schedule 5.17 to be filed on or before
the Exhibit Filing Date shall be deemed in effect. After the Effective Date, the
Reorganized Debtors shall have the sole authority to terminate, amend or
implement retirement income plans, welfare benefit plans and other plans and
programs for employees in accordance with the terms of such plans and applicable
law.
ARTICLE VI
DISTRIBUTIONS AND CLAIMS ALLOWANCE
6.1. Cash Distributions. Except as otherwise provided in this
Plan, all distributions of Cash to be made to the holders of Allowed Claims
shall be made on or as soon as practicable after the Initial Distribution Date.
6.2. Distributions to Holders of Senior Secured Bank Claims. On
the Effective Date, Reorganized Warnaco shall deliver to the Administrative
Agent for distribution on behalf of the Debtors to holders of Senior Secured
Bank Claims in Class 2: (a) Cash equal to the amount of the balance due on the
Original Foreign Facilities Guaranty Claims, which shall be applied to repay in
full satisfaction of any outstanding amounts owing by the Debtors under the
Original Foreign Facilities as of the Petition Date; (b) New Warnaco Second Lien
Notes in the aggregate principal amount of $200 million; and (c) share
certificates for the aggregate amount of either (i) 96.263% of the New Warnaco
Common Shares, subject to Dilution, if the holders of Class 6 Claims receive a
distribution as provided in Section 2.9.(C) of this Plan or (ii) 96.844% of the
New Warnaco Common Shares, subject to Dilution, if the holders of Class 6 Claims
are not entitled to receive a distribution as provided in Section 2.9.(C) of
this Plan. Notwithstanding any other provision of this Plan, all distributions
and issuances of such Cash, New Warnaco Second Lien Notes and New Warnaco Common
Shares to holders of Class 2 Claims shall be made as applicable, (i) based on
the amount of Class 2 Claims held by such holders as set forth
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in the books and records of the Administrative Agent as of the close of business
on the Confirmation Date, and (ii) in accordance with the Pre-Petition Facility
and Intercreditor Agreements. Such Cash shall be distributed to the holders of
Class 2 Claims by the Administrative Agent, and the New Warnaco Second Lien
Notes and New Warnaco Common Shares shall be issued by Reorganized Warnaco as
directed by the Administrative Agent in the names of the respective holders of
Class 2 Claims, in each case in accordance with the foregoing.
6.3. Distributions to Holders of Allowed Unsecured Claims. On the
Effective Date, Reorganized Warnaco shall deliver to the Disbursing Agent for
distribution on behalf of the Debtors to holders of Allowed Class 5 Claims share
certificates for the aggregate amount of either (i) 2.549% of the New Warnaco
Common Shares, subject to Dilution, if the holders of Class 6 Claims receive a
distribution as provided in Section 2.9.(C) of this Plan or (ii) 2.564% of the
New Warnaco Common Shares, subject to Dilution, if the holders of Class 6 Claims
are not entitled to receive a distribution as provided in Section 2.9.(C) of
this Plan. The Disbursing Agent shall make distributions of New Warnaco Common
Shares to holders of Allowed Class 5 Claims as follows:
(A) On the Initial Distribution Date, the Disbursing Agent
shall distribute the New Warnaco Common Shares allocable to Allowed Claims held
by holders of Class 5 Claims as of the Distribution Record Date. For the purpose
of calculating the amount of New Warnaco Common Shares to be distributed to
holders of Allowed Class 5 Claims on the Initial Distribution Date, all Disputed
Claims in Class 5 will be treated as though such Claims will be Allowed Claims
in the Face Amount of such Claims.
(B) On any Interim Distribution Date, the Disbursing Agent
shall make interim distributions of New Warnaco Common Shares to holders of
Allowed Class 5 Claims pursuant to and consistent with resolutions of Disputed
Claims since the Initial Distribution Date.
(C) On the Final Distribution Date, the Disbursing Agent
shall make the balance of all distributions to holders of Allowed Class 5 Claims
as required under this Plan.
6.4. Distributions to Holders of TOPrS Claims, If Any.
(A) In the event that holders of Class 6 Claims are entitled
to receive a distribution as provided in Section 2.9.(C) of this Plan, on the
Initial Distribution Date, the Reorganized Debtors shall distribute to the
Disbursing Agent subject to the right of the TOPrS Trustee to assert its TOPrS
Trustee Charging Lien against the distributions to the extent the TOPrS Trustee
Fee remains unpaid, or such persons as the TOPrS Trustee shall designate at
least ten (10) days prior to the Confirmation Hearing, for redelivery to the
holder(s) of the TOPrS Claims, a stock certificate evidencing ownership of
0.596% of the New Warnaco Common Shares, subject to Dilution, and in addition
shall pay in Cash the amount of up to $300,000 to the TOPrS Trustee on account
of its actual and reasonable fees and expenses incurred under the TOPrS
Indenture, subject to receipt and review by the Reorganized Debtors of invoices
detailing such fees and expenses.
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(B) All TOPrS, the TOPrS Indenture, the TOPrS Supplemental
Indenture, the TOPrS Guarantees, the TOPrS Trust Agreement, and the 6%
Convertible Subordinated Debentures due 2016 shall be deemed automatically
cancelled and discharged on the Effective Date, provided, however, that the
TOPrS, the TOPrS Indenture, the TOPrS Supplemental Indenture, the TOPrS
Guarantees, the TOPrS Trust Agreement, and the 6% Convertible Subordinated
Debentures due 2016 shall continue in effect solely for the purposes of (i)
allowing the holders of the TOPrS Claims to receive their distributions
hereunder, (ii) allowing the TOPrS Trustee to make the distributions, if any, to
be made on account of the TOPrS, and (iii) permitting the TOPrS Trustee to
assert its TOPrS Trustee Charging Lien against such distributions to the holders
of the TOPrS for payment of the TOPrS Trustee Fee to the extent that the TOPrS
Trustee Fee remains unpaid.
(C) As soon as practicable after the Effective Date, the
Debtors with the cooperation of the TOPrS Trustee shall send a letter of
transmittal to each holder of a TOPrS, advising such holder of the effectiveness
of this Plan and providing instructions to such holder to deliver to the TOPrS
Trustee its TOPrS in exchange for the distributions to be made pursuant to this
Plan. Delivery of any TOPrS will be effected, and risk of loss and title thereto
shall pass, only upon delivery of such TOPrS to the TOPrS Trustee, if any, in
accordance with the terms and conditions of such letter of transmittal, such
letter of transmittal to be in such form and have such other provisions as the
Debtors (or the Disbursing Agent) may reasonably request.
(D) Each holder of TOPrS shall surrender such TOPrS to the
TOPrS Trustee. No distribution hereunder shall be made to or on behalf of any
such holder unless and until such TOPrS is received by the TOPrS Trustee, or the
loss, theft or destruction of such TOPrS is established to the satisfaction of
the TOPrS Trustee, including requiring such holder (i) to submit a lost
instrument affidavit and an indemnity bond, and (ii) to hold the Debtors and the
TOPrS Trustee harmless in respect of such TOPrS and any distributions made in
respect thereof. Upon compliance with this Section by a holder of TOPrS, such
holder shall, for all purposes under this Plan, be deemed to have surrendered
such TOPrS. Any such holder that fails to surrender such TOPrS or satisfactorily
explain its non-availability to the TOPrS Trustee within eighteen months of the
Effective Date shall be deemed to have no TOPrS Claim against the Debtors, or
their property or the TOPrS Trustee in respect of such TOPrS Claim and shall not
participate in any distribution hereunder, and the distribution that would
otherwise have been made to such holder shall be distributed to all holders who
have surrendered their TOPrS or satisfactorily explained their non-availability
to the TOPrS Trustee within eighteen months of the Effective Date.
(E) As of the close of business on the Distribution Record
Date, (i) the claims register shall be closed, (ii) the transfer books and
records of the TOPrS as maintained by the TOPrS Trustee or its agent shall be
closed and (iii) any transfer of any TOPrS Claim or any interest therein shall
be prohibited. The Debtors, the Reorganized Debtors, and the TOPrS Trustee shall
have no obligation to recognize any transfer of any TOPrS Claims occurring after
the close of business on the Distribution Record Date, and shall instead be
entitled to recognize and deal for all purposes under this Plan with only those
holders of record as of the close of business on the Distribution Record Date.
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6.5. Miscellaneous Distribution Provisions.
(A) Fractional Plan Securities. Notwithstanding any other
provision of this Plan, only whole numbers of shares of New Warnaco Common
Shares shall be issued. When any distribution on account of an Allowed Claim
would otherwise result in the issuance of a number of shares of New Warnaco
Common Shares that are not a whole number, the actual distribution of such
Shares only shall include the next lower whole number of Shares. When any
distribution on the Final Distribution Date would otherwise result in the
issuance of a number of shares of New Warnaco Common Shares that is not a whole
number, the actual distribution of such Shares shall be rounded to the next
higher or lower whole number of Shares as follows: (i) fractions equal to or
greater than 1/2 shall be rounded to the next higher whole number; and (ii)
fractions less than 1/2 shall be rounded to the next lower number. The total
number of shares of New Warnaco Common Shares specified to be distributed to
holders of Allowed Claims pursuant to this Plan shall be adjusted as necessary
to account for the rounding provided for herein. No consideration shall be
provided in lieu of fractional shares that are rounded down, except that with
respect to distributions made to holders of Allowed Class 5 and Class 6 Claims
on the Initial Distribution Date, such fractional shares shall, with respect to
each Allowed Claim, be deemed held by the Reorganized Debtors, for the benefit
of the holder of such Allowed Claim, to be aggregated with the remaining
distribution to be made to such holder, if any, on the Final Distribution Date.
(B) Distributions on Non-Business Days. Any payment or
distribution due on a day other than a Business Day shall be made, without
interest, on the next Business Day.
(C) Post-Consummation Effect of Evidences of Claims or
Interests. Notes, stock certificates and other evidence of Claims against or
Interests in the Debtors shall, effective on the Effective Date, represent only
the right to participate in the distributions contemplated by this Plan and
shall not be valid or effective for any other purpose.
(D) No Distribution in Excess of Allowed Amount of Claim.
Notwithstanding anything to the contrary herein, if any portion of a Claim is a
Disputed Claim, no payment or distribution provided hereunder shall be made on
account of the portion of such Claim that is a Disputed Claim unless and until
such Disputed Claim becomes an Allowed Claim, but the payment or distribution
provided hereunder shall be made on account of the portion of such Claim that is
an Allowed Claim. Unless otherwise expressly provided herein, no Claim shall be
allowed under this Plan or otherwise to the extent that it is for post-petition
fees or interest.
(E) Disputed Payments. If any dispute arises as to the
identity of the holder of an Allowed Claim entitled to receive any distribution
under this Plan, the Reorganized Debtors may retain such distribution until its
disposition is determined by a Final Order or written agreement among the
interested parties to such dispute.
(F) Estimation of Disputed Claims. The aggregate Face Amount
of (a) Disputed Claims and (b) Allowed Claims shall set the maximum allowable
29
aggregate amount of Claims in Class 5. The existence of a Disputed Claim in
Class 5 shall not impair or impede the making of a distribution to Allowed
Claims in such Class or any other Class. If the Allowed amount of any particular
Disputed Claim is reconsidered under Section 502(j) of the Code and Bankruptcy
Rule 3008 and/or is Allowed in an amount that is greater than the estimated
amount of such Claim, or the ultimately Allowed amount of all Disputed Claims in
a Class 5 is greater than the estimated aggregate Face Amount of such Claims, no
claimant shall have recourse against the Reorganized Debtors (or any property
thereof), any distributions made to a creditor in any other Class herein, or any
distribution previously made on account of any Allowed Claim (however, nothing
herein shall modify any right of a holder of a reconsidered Claim under the
penultimate sentence of Section 502(j) of the Code).
(G) Unclaimed Property. Holders of Allowed Claims to
Unclaimed Property shall cease to be entitled thereto, and such Unclaimed
Property shall be reallocated to the Unsecured Pool.
(H) Voting of New Warnaco Common Shares. New Warnaco Common
Shares that are Unclaimed Property or held for Disputed Claims shall not be
voted at any meeting of the stockholders of Reorganized Warnaco.
(I) Setoffs and Recoupment. The Reorganized Debtors may, but
shall not be required to, setoff or recoup against any Allowed Claim and the
distributions to be made pursuant to this Plan on account of such Claim, claims
of any nature that the Debtors or Reorganized Debtors may have against the
holder of such Allowed Claim (other than a Class 2 Claim); provided, however,
that neither the failure to effect such a setoff or recoupment nor the allowance
of any Claim against the Debtors or the Reorganized Debtors shall constitute a
waiver or release by the Debtors or the Reorganized Debtors of any claim that
the Debtors or the Reorganized Debtors may possess against such holder.
(J) Compliance with Tax Requirements. In connection with
this Plan, to the extent applicable, the Reorganized Debtors shall comply with
all tax withholding and reporting requirements imposed on them by any
governmental unit, and all distributions pursuant to this Plan that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of this Plan, each Person that
has received any distribution pursuant to this Plan shall have sole and
exclusive responsibility for the satisfaction and payment of any tax obligation
imposed by any governmental unit, including income, withholding and other tax
obligations, on account of such distribution.
6.6. Procedure For Determination of Claims and Interests.
(A) Bar Date For Certain Administrative Claims. All
applications for final compensation of professional persons employed by the
Debtors or the Creditors' Committee pursuant to orders entered by the Bankruptcy
Court and on account of services rendered prior to the Effective Date, and all
other requests for payment of Administrative Claims (except for the Alvarez
Incentive Bonus, the Designated Post-Petition Loans, claims of the Debt
Coordinators and the Pre-Petition Collateral Trustee payable under paragraph 22
of the DIP Approval Orders, claims for taxes pursuant to Section 507(a)(8) of
the
30
Code, ordinary course trade debt and customer deposits and credits incurred in
the ordinary course of business after the Petition Date) shall be served on the
Reorganized Debtors in accordance with Section 8.10. of this Plan and filed with
the Bankruptcy Court, no later than 25 days after the Effective Date. Any such
claim that is not served and filed within this time period shall be discharged
and forever barred. Objections to any such application must be filed within 15
days after filing thereof.
(B) Objections To Claims. Objections to any Claim filed by
any party other than the Debtors (other than Administrative Claims governed by
Section 6.6.(A) of this Plan) must be filed no later than twenty (20) days
before the Effective Date; provided, however, that the Reorganized Debtors may
file objections to Claims through and including forty-five (45) days after the
Effective Date. In accordance with Section 6.5.(D) of this Plan, payment or
distribution shall be made on account of all or any portion of such Claim that
is an Allowed Claim. To the extent any property is distributed to an entity on
account of a Claim that is not an Allowed Claim, such property shall be held in
trust for and shall promptly be returned to the Reorganized Debtors. On and
after the Effective Date, the Reorganized Debtors shall have authority to
continue to prosecute, settle or withdraw objections to Claims and shall be
entitled to compromise or settle any Disputed Claim in accordance with Section
5.2. of this Plan.
ARTICLE VII
EFFECT OF THIS PLAN ON CLAIMS AND INTERESTS
7.1. Revesting of Assets. Except as provided in this Plan
(including, without limitation, Sections 7.4. and 7.5. of this Plan), on the
Effective Date, all property of the Estate, to the fullest extent of Section 541
of the Code, and any and all other rights and assets of the Debtors of every
kind and nature shall revest in the Reorganized Debtors free and clear of all
Liens, Claims and Interests other than (i) those Liens, Claims and Interests
retained or created pursuant to this Plan or any document entered into in
connection with the transactions described in this Plan and (ii) Liens that have
arisen subsequent to the Petition Date on account of taxes that arose subsequent
to the Petition Date.
7.2. Discharge of Claims and Termination of Interests.
(A) As of the Effective Date, except as provided in the
Confirmation Order, the rights afforded under this Plan and the treatment of
Claims and Interests under this Plan shall be in exchange for and in complete
satisfaction, discharge and release of all Claims and satisfaction or
termination of all Interests, including any interest accrued on Claims from and
after the Petition Date. Except as otherwise provided in this Plan or the
Confirmation Order, Confirmation shall, as of the Effective Date: (i) discharge
the Debtors from all Claims or other debts that arose before the Effective Date,
and all debts of the kind specified in Sections 502(g), 502(h) or 502(i) of the
Code, whether or not (x) a proof of claim based on such debt is filed or deemed
filed pursuant to Section 501 of the Code, (y) a Claim based on such debt is
Allowed pursuant to Section 502 of the Code or (z) the holder of a Claim based
on such debt has accepted this Plan; and (ii) satisfy, terminate or cancel all
Interests and other rights of equity security holders in the Debtors.
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(B) As of the Effective Date, except as otherwise provided
in this Plan or the Confirmation Order, all Persons shall be precluded from
asserting against the Debtors or the Reorganized Debtors, or their respective
successors or property, any other or further Claims, demands, debts, rights,
causes of action, liabilities or equity interests based upon any act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date. In accordance with the foregoing, except as provided in this
Plan or the Confirmation Order, the Confirmation Order will be a judicial
determination, as of the Effective Date, of discharge of all such Claims and
other debts and liabilities against the Debtors and satisfaction, termination or
cancellation of all Interests and other rights of equity security holders in the
Debtors, pursuant to Sections 524 and 1141 of the Code, and such discharge will
void any judgment obtained against the Debtors or the Reorganized Debtors at any
time, to the extent that such judgment relates to a discharged Claim.
7.3. Injunctions.
(A) Except as otherwise provided in this Plan or the
Confirmation Order, as of the Effective Date, all Persons that have held,
currently hold or may hold a Claim or other debt or liability that is discharged
or an Interest or other right of an equity security holder that is terminated
pursuant to the terms of this Plan are permanently enjoined from taking any of
the following actions on account of any such discharged Claims, debts or
liabilities or terminated Interests or rights: (i) commencing or continuing in
any manner any action or other proceeding against the Debtors or the Reorganized
Debtors or their respective property; (ii) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order against the
Debtors or the Reorganized Debtors or their respective property; (iii) creating,
perfecting or enforcing any lien or encumbrance against the Debtors or the
Reorganized Debtors or their respective property; (iv) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors or the Reorganized Debtors or their respective
property; and (v) commencing or continuing any action, in any manner, in any
place that does not comply with or is inconsistent with the provisions of this
Plan.
(B) As of the Effective Date, all Persons that have held,
currently hold or may hold a Claim, demand, debt, right, cause of action or
liability that is released pursuant to this Plan are permanently enjoined from
taking any of the following actions on account of such released Claims, demands,
debts, rights, causes of action or liabilities: (i) commencing or continuing in
any manner any action or other proceeding; (ii) enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order; (iii)
creating, perfecting or enforcing any lien or encumbrance; (iv) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to any released entity; and (v) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of this Plan.
(C) In exchange for the distributions pursuant to this Plan,
each holder of an Allowed Claim receiving such distribution pursuant to this
Plan will be deemed to have specifically consented to the injunctions set forth
in this Section 7.3.
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7.4. Limitation of Liability. None of the Debtors, the
Reorganized Debtors, the Creditors' Committee, the Post-Effective Date
Committee, the DIP Lenders, the Pre-Petition Secured Lenders, the TOPrS Trustee
nor any of their respective directors, employees employed by the Debtors as of
the Effective Date, members, attorneys, investment bankers, restructuring
consultants and financial advisors, nor any other professional Persons employed
by any of them (collectively, the "Exculpated Persons"), shall have or incur any
liability to any Person for any act taken or omission from and after the
Petition Date in connection with, relating to or arising out of the Cases, the
management and operation of the Debtors, the formulation, negotiation,
implementation, confirmation or consummation of this Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created in connection with this Plan. The Exculpated Persons shall have no
liability to any Debtor, holder of a Claim, holder of an Interest, other party
in interest in the Cases or any other Person for actions taken or not taken in
connection with, relating to or arising out of the Cases, the management and
operation of the Debtors, this Plan or the property to be distributed under this
Plan, including, without limitation, failure to obtain Confirmation of this Plan
or to satisfy any condition or conditions, or refusal to waive any condition or
conditions, to the occurrence of the Effective Date, and in all respects such
Exculpated Persons shall be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities in the Cases, the management and
operation of the Debtors and under this Plan.
7.5. Releases.
(A) On the Effective Date, the Reorganized Debtors on their
own behalf and as representatives of the Estates, release unconditionally, and
are hereby deemed to release unconditionally, (i) each of the Debtors' directors
who served at any time during the Cases, (ii) each of the Debtors' officers
employed as of the Effective Date, (iii) the members of the Creditors'
Committee, (iv) the DIP Lenders, (v) the Pre-Petition Secured Lenders, (vi) the
TOPrS Trustee and (vii) the attorneys, investment bankers, restructuring
consultants and financial advisors of the foregoing from any and all claims,
obligations, suits, judgments, damages, rights, causes of action and liabilities
whatsoever (including, without limitation, those arising under the Code),
whether known or unknown, foreseen or unforeseen, existing or hereafter arising,
in law, equity or otherwise, based in whole or in part on any act, omission,
transaction, event or other occurrence taking place on or after the Petition
Date through and including the Effective Date in connection with, relating to or
arising out of the Cases, the management and operation of the Debtors, the
formulation, negotiation, implementation, confirmation or consummation of this
Plan, the Disclosure Statement or any contract, instrument, release or other
agreement or document created in connection with this Plan.
(B) On the Effective Date, the Reorganized Debtors on their
own behalf and as representatives of the Estates, release unconditionally, and
are hereby deemed to release unconditionally, (i) each of the Debtors' former
and present officers and directors, (ii) the Pre-Petition Secured Lenders, (iii)
the TOPrS Trustee and (iv) the attorneys, investment bankers, restructuring
consultants and financial advisors of the foregoing (collectively, the
"Pre-Petition Releasees") from any and all claims, obligations,
33
suits, judgments, damages, rights, causes of action and liabilities whatsoever
(including, without limitation, those arising under the Code), whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity
or otherwise, based in whole or in part on any act, omission, transaction, event
or other occurrence taking place before the Petition Date in connection with or
relating to The Warnaco Group, Inc. or any of its direct or indirect
subsidiaries (the "Pre-Petition Released Matters"); provided, however, that the
foregoing release shall not apply to any current or former officers or directors
of any of the Debtors who, as of November 13, 2002, has been invited by the SEC
to make a Wells Submission describing the reasons why no enforcement proceedings
should be brought against them with respect to potential violations of the
Securities and Exchange Act of 1934 in connection with the preparation and
publication of various financial statements and other public statements of Group
(each, a "Wells Recipient"); and provided, further, that notwithstanding the
foregoing proviso, the release set forth in this Section 7.5.(B) shall apply to
a Wells Recipient in the event that either (i) the SEC has determined not to
commence an enforcement proceeding against such Wells Recipient, or (ii) the SEC
has commenced an enforcement proceeding and such proceeding has been concluded
with no finding against, or concession by, such Wells Recipient that he or she
(a) committed fraud, intentional or negligent misrepresentation, or gross
negligence in connection with the matters investigated, or (b) may not serve in
the future as an officer or director of any public company.
(C) On the Effective Date, each holder of a Claim that is
entitled to vote on this Plan shall be deemed to have unconditionally released
the Pre-Petition Releasees from the Pre-Petition Released Matters; provided,
however, that the foregoing release shall not apply to any Wells Recipient;
provided, further, that notwithstanding the foregoing proviso, the release set
forth in this Section 7.5.(C) shall apply to a Wells Recipient in the event that
either (i) the SEC has determined not to commence an enforcement proceeding
against such Wells Recipient, or (ii) the SEC has commenced an enforcement
proceeding and such proceeding has been concluded with no finding against, or
concession by, such Wells Recipient that he or she (a) committed fraud,
intentional or negligent misrepresentation, or gross negligence in connection
with the matters investigated, or (b) may not serve in the future as an officer
or director of any public company; provided, further, that each holder of a
Claim entitled to vote on this Plan may elect, by checking the box provided on
the Ballot, not to grant the releases set forth in this Section 7.5.(C).
(D) The Confirmation Order shall contain a permanent
injunction to effectuate the releases granted in this Section 7.5.
7.6. Retention and Enforcement, and Release, Of Causes Of Action.
Except as otherwise set forth in this Plan, pursuant to Section 1123(b)(3)(B) of
the Code, on the Effective Date, all Causes of Action, including, without
limitation, the Causes of Action identified on Plan Schedule 7.6, to be filed on
or before the Exhibit Filing Date, shall become the property of the Reorganized
Debtors and the Reorganized Debtors shall retain all Causes of Action that the
Debtors had or had power to assert immediately prior to the Effective Date,
whether or not such Causes of Action are listed on Plan Schedule 7.6, and may
commence or
34
continue in any appropriate court or tribunal any suit or other proceeding for
the enforcement of such Causes of Action; provided, however, that any and all of
the Debtors' claims and causes of action arising under Section 547 of the Code
that are not the subject of pending litigation as of the Effective Date
(collectively, the "Preference Actions") shall be waived, abandoned, discharged
and released pursuant to this Plan. Except with respect to Preference Actions,
nothing contained in this Plan shall constitute a release, satisfaction or
settlement of the Causes of Action or shall constitute waiver of the rights, if
any, of the Debtors or the Reorganized Debtors to a jury trial with respect to
any Cause of Action or objection to any Claim or Interest, and nothing in this
Plan or the Confirmation Order shall constitute a waiver or release of any Cause
of Action under the doctrine of res judicata nor shall any Cause of Action be
barred or limited by any estoppel, whether judicial, equitable or otherwise.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1. Retention of Jurisdiction. Following the Effective Date, the
Bankruptcy Court shall retain jurisdiction over all matters arising from or
relating to the Cases to the fullest extent of applicable law, including,
without limitation:
(A) To determine the allowability, classification and
priority of Claims and Interests upon objection, or to estimate, pursuant to
Section 502(c) of the Code, the amount of any Claim that is or is anticipated to
be contingent or unliquidated as of the Effective Date;
(B) To construe and to take any action authorized by the
Code and requested by the Reorganized Debtors or any other party in interest to
enforce this Plan and the documents and agreements filed in connection with this
Plan, issue such orders as may be necessary for the implementation, execution
and consummation of this Plan, including, without limiting the generality of the
foregoing, orders to expedite regulatory decisions for the implementation of
this Plan and to ensure conformity with the terms and conditions of this Plan,
such documents and agreements and other orders of the Bankruptcy Court,
notwithstanding any otherwise applicable non-bankruptcy law;
(C) To determine any and all applications for allowance of
compensation and expense reimbursement of professionals retained by the Debtors,
the Reorganized Debtors or the Creditors' Committee, and for members of the
Creditors' Committee, for periods on or before the Effective Date, and to
determine any other request for payment of administrative expenses;
(D) To determine all matters that may be pending before the
Bankruptcy Court on or before the Effective Date;
(E) To resolve any dispute regarding the implementation or
interpretation of this Plan, or any related agreement or document that arises at
any time before the Cases are closed, including determination, to the extent a
dispute arises, of the entities entitled to a distribution within any particular
Class of Claims and of the scope and nature of the
35
Reorganized Debtors' obligations to cure defaults under assumed contracts,
leases, franchises and permits;
(F) To determine any and all matters relating to the
rejection, assumption or assignment of executory contracts or unexpired leases
entered into prior to the Petition Date, the nature and amount of any Cure
required for the assumption of any executory contract or unexpired lease, and
the allowance of any Claim resulting therefrom;
(G) To determine all applications, adversary proceedings,
contested matters and other litigated matters that were brought or that could
have been brought in the Bankruptcy Court on or before the Effective Date;
(H) To determine matters concerning local, state and federal
taxes in accordance with Sections 346, 505 and 1146 of the Code, and to
determine any tax claims that may arise against the Debtors or the Reorganized
Debtors as a result of the transactions contemplated by this Plan; and
(I) To modify this Plan pursuant to Section 1127 of the Code
or to remedy any apparent nonmaterial defect or omission in this Plan, or to
reconcile any nonmaterial inconsistency in this Plan so as to carry out its
intent and purposes.
From the Confirmation Date through the Effective Date, the
Bankruptcy Court shall retain jurisdiction with respect to each of the foregoing
items and all other matters that were subject to its jurisdiction prior to the
Confirmation Date.
8.2. Terms Binding. Upon the entry of the Confirmation Order, all
provisions of this Plan, including all agreements, instruments and other
documents filed in connection with this Plan and executed by the Debtors or the
Reorganized Debtors in connection with this Plan, shall be binding upon the
Debtors, the Reorganized Debtors, all Claim and Interest holders and all other
Persons that are affected in any manner by this Plan. All agreements,
instruments and other documents filed in connection with this Plan shall have
full force and effect, and shall bind all parties thereto as of the entry of the
Confirmation Order, whether or not such exhibits actually shall be executed by
parties other than the Debtors or the Reorganized Debtors, or shall be issued,
delivered or recorded on the Effective Date or thereafter.
8.3. Successors and Assigns. The rights, benefits and obligations
of any Person named or referred to in this Plan shall be binding upon, and shall
inure to the benefit of, the heir, executor, administrator, successor or
assignee of such Person.
8.4. Confirmation Order and Plan Control. Except as otherwise
provided in this Plan, in the event of any inconsistency between this Plan and
the Disclosure Statement, any exhibit to this Plan or any other instrument or
document created or executed pursuant to this Plan, this Plan shall control. In
the event of any inconsistency between the Plan and the Confirmation Order, the
Confirmation Order shall control.
36
8.5. Governing Law. Except to the extent that the Code or any
other federal law is applicable or to the extent the law of a different
jurisdiction is validly elected by the Debtors, the rights, duties and
obligations arising under this Plan shall be governed in accordance with the
substantive laws of the United States of America and, to the extent federal law
is not applicable, the laws of the State of New York.
8.6. Severability. If the Bankruptcy Court determines at the
Confirmation Hearing that any material provision of this Plan is invalid or
unenforceable, such provision, subject to Section 1127 of the Code, shall be
severable from this Plan and shall be null and void, and, in such event, such
determination shall in no way limit or affect the enforceability or operative
effect of any or all other portions of this Plan.
8.7. Incorporation by Reference. Each Exhibit or Schedule to this
Plan is incorporated herein by reference.
8.8. Modifications to this Plan. Upon the mutual consent of the
Debtors, the Debt Coordinators and the Creditors' Committee, this Plan, and any
Exhibit or Schedule to this Plan, may be amended or modified at any time prior
to the Confirmation Date in accordance with the Code and Bankruptcy Rules.
8.9. Revocation, Withdrawal or Non-Consummation. The Debtors
reserve the right to revoke or withdraw this Plan at any time prior to the
Effective Date. If the Debtors revoke or withdraw this Plan prior to the
Effective Date, or if the Confirmation Date or the Effective Date does not
occur, then this Plan, any settlement or compromise embodied in this Plan
(including the fixing or limiting to an amount certain any Claim or Class of
Claims), the assumption or rejection of executory contracts or leases effected
by this Plan, and any document or agreement executed pursuant to this Plan,
shall be null and void; provided, however, that all orders of the Bankruptcy
Court and all documents executed pursuant thereto, except the Confirmation
Order, shall remain in full force and effect. In such event, nothing contained
herein, and no acts taken in preparation for consummation of this Plan, shall be
deemed to constitute a waiver or release of any Claims by or against any of the
Debtors or any other Person, to prejudice in any manner the rights of any of the
Debtors or any Person in any further proceedings or to constitute an admission
of any sort by any of the Debtors or any other Person.
8.10. Notice. Any notice required or permitted to be provided
under this Plan shall be in writing and served by (a) certified mail, return
receipt requested, (b) hand delivery or (c) overnight delivery service, to be
addressed as follows:
If to the Debtors:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attention: Stanley P. Silverstein, Esq.
37
With a copy to:
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
Attention: J. Ronald Trost, Esq.
Kelley A. Cornish, Esq.
Shalom L. Kohn, Esq.
Elizabeth R. McColm, Esq.
If to the Creditors' Committee:
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, New York 10169-0075
Attention: Scott L. Hazan, Esq.
Enid N. Stuart, Esq.
If to the DIP Lenders:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Marcia L. Goldstein, Esq.
Brian Rosen, Esq.
If to the Debt Coordinators for the Pre-Petition Secured Lenders:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: James L. Garrity, Jr., Esq.
Marc B. Hankin, Esq.
38
Dated: November 8, 2002
Respectfully submitted,
THE WARNACO GROUP, INC.
184 BENTON STREET INC.
A.B.S. CLOTHING COLLECTION, INC.
ABBEVILLE MANUFACTURING COMPANY
AEI MANAGEMENT CORPORATION
AUTHENTIC FITNESS CORPORATION
AUTHENTIC FITNESS ON-LINE, INC.
AUTHENTIC FITNESS PRODUCTS INC.
AUTHENTIC FITNESS RETAIL INC.
BLANCHE, INC.
CCC ACQUISITION CORP.
CCC ACQUISITION REALTY CORP.
C.F. HATHAWAY COMPANY
CALVIN KLEIN JEANSWEAR COMPANY
CKJ HOLDINGS, INC.
CKJ SOURCING, INC.
DESIGNER HOLDINGS LTD.
GREGORY STREET, INC.
JEANSWEAR HOLDINGS, INC.
KAI JAY MANUFACTURING COMPANY
MYRTLE AVENUE, INC.
OUTLET HOLDINGS, INC.
OUTLET STORES, INC.
PENHALIGON'S BY REQUEST, INC.
RIO SPORTSWEAR, INC.
UBERTECH PRODUCTS, INC.
VENTURES LTD.
WARMANA LIMITED
WARNACO INC.
WARNACO INTERNATIONAL, INC.
WARNACO INTERNATIONAL, LLC
WARNACO MEN'S SPORTSWEAR INC.
WARNACO OF CANADA COMPANY
WARNACO PUERTO RICO, INC.
WARNACO SOURCING INC.
WARNACO U.S. INC.
WARNACO VENTURES LTD.
WARNER'S DE COSTA RICA INC.
Debtors and Debtors-in-Possession
By: /s/ Antonio C. Alvarez II
---------------------------------
Antonio C. Alvarez II
President and Chief Executive
Officer of The Warnaco Group,
Inc. and Authorized Signatory
39
PLAN SCHEDULE 1.31
LIST OF DEBTORS
- -------------------------------------------------------------------------------------
Debtor Jurisdiction of Incorporation Case Number
- -------------------------------------------------------------------------------------
184 Benton Street Inc. Delaware No. 01-41644 (RLB)
- -------------------------------------------------------------------------------------
A.B.S. Clothing Collection, Inc. California No. 01-41645 (RLB)
- -------------------------------------------------------------------------------------
Abbeville Manufacturing Company Delaware No. 01-41646 (RLB)
- -------------------------------------------------------------------------------------
AEI Management Corporation California No. 01-41647 (RLB)
- -------------------------------------------------------------------------------------
Authentic Fitness Corporation Delaware No. 01-41648 (RLB)
- -------------------------------------------------------------------------------------
Authentic Fitness On-Line, Inc. Nevada No. 01-41649 (RLB)
- -------------------------------------------------------------------------------------
Authentic Fitness Products Inc. Delaware No. 01-41650 (RLB)
- -------------------------------------------------------------------------------------
Authentic Fitness Retail Inc. Delaware No. 01-41651 (RLB)
- -------------------------------------------------------------------------------------
Blanche, Inc. Delaware No. 01-41652 (RLB)
- -------------------------------------------------------------------------------------
CCC Acquisition Corp. Delaware No. 01-41653 (RLB)
- -------------------------------------------------------------------------------------
CCC Acquisition Realty Corp. Delaware No. 01-41654 (RLB)
- -------------------------------------------------------------------------------------
C.F. Hathaway Company Delaware No. 01-41655 (RLB)
- -------------------------------------------------------------------------------------
Calvin Klein Jeanswear Company Delaware No. 01-41656 (RLB)
- -------------------------------------------------------------------------------------
CKJ Holdings, Inc. Delaware No. 01-41657 (RLB)
- -------------------------------------------------------------------------------------
CKJ Sourcing, Inc. Delaware No. 01-41658 (RLB)
- -------------------------------------------------------------------------------------
Designer Holdings Ltd. Delaware No. 01-41659 (RLB)
- -------------------------------------------------------------------------------------
Gregory Street, Inc. Delaware No. 01-41660 (RLB)
- -------------------------------------------------------------------------------------
Jeanswear Holdings, Inc. Delaware No. 01-41661 (RLB)
- -------------------------------------------------------------------------------------
Kai Jay Manufacturing Company Delaware No. 01-41662 (RLB)
- -------------------------------------------------------------------------------------
Myrtle Avenue, Inc. Delaware No. 01-41663 (RLB)
- -------------------------------------------------------------------------------------
Outlet Holdings, Inc. Delaware No. 01-41664 (RLB)
- -------------------------------------------------------------------------------------
Outlet Stores, Inc. Delaware No. 01-41665 (RLB)
- -------------------------------------------------------------------------------------
Penhaligon's by Request, Inc. Delaware No. 01-41666 (RLB)
- -------------------------------------------------------------------------------------
Rio Sportswear, Inc. Delaware No. 01-41667 (RLB)
- -------------------------------------------------------------------------------------
Ubertech Products, Inc. Delaware No. 01-41668 (RLB)
- -------------------------------------------------------------------------------------
Ventures Ltd. Delaware No. 01-41669 (RLB)
- -------------------------------------------------------------------------------------
Warmana Limited Delaware No. 01-41670 (RLB)
- -------------------------------------------------------------------------------------
The Warnaco Group, Inc. Delaware No. 01-41643 (RLB)
- -------------------------------------------------------------------------------------
Warnaco Inc. Delaware No. 01-41671 (RLB)
- -------------------------------------------------------------------------------------
Warnaco International, Inc. Delaware No. 01-41672 (RLB)
- -------------------------------------------------------------------------------------
Warnaco International LLC Delaware No. 01-41673 (RLB)
- -------------------------------------------------------------------------------------
Warnaco Men's Sportswear Inc. Delaware No. 01-41674 (RLB)
- -------------------------------------------------------------------------------------
Warnaco of Canada Company Canada No. 01-41675 (RLB)
- -------------------------------------------------------------------------------------
Warnaco Puerto Rico, Inc. Delaware No. 01-41676 (RLB)
- -------------------------------------------------------------------------------------
Warnaco Sourcing Inc. Delaware No. 01-41677 (RLB)
- -------------------------------------------------------------------------------------
Warnaco U.S. Inc. Delaware No. 01-41678 (RLB)
- -------------------------------------------------------------------------------------
Warnaco Ventures Ltd. Delaware No. 01-41679 (RLB)
- -------------------------------------------------------------------------------------
Warner's De Costa Rica Inc. Delaware No. 01-41680 (RLB)
- -------------------------------------------------------------------------------------
PLAN SCHEDULE 1.6
ALVAREZ INCENTIVE BONUS
Cash $1.95 million(1)
New Warnaco Second Lien Notes $0.94 million(2)
New Warnaco Common Shares $2.81 million(3)
-------------
(0.592% of outstanding shares, subject to
dilution on account of Management Stock
Incentive Program)
Total Alvarez Incentive Bonus $5.70 million
=============
(Aggregate Estimated Value of Cash,
New Warnaco Second Lien Notes
and New Warnaco Common Shares)
- ----------
(1) As provided in the Alvarez Agreement, reflects the minimum cash bonus
payment of $2.25 million reduced by $301,000 previously received by Mr.
Alvarez.
(2) Calculated based upon the formula provided in the Alvarez Agreement.
(3) Based upon the formula provided in the Alvarez Agreement and an estimated
$485.6 equity value of Reorganized Warnaco (see Disclosure Statement,
Section VI.C.2.(b)), Mr. Alvarez is entitled to receive 0.453% of the New
Warnaco Common Shares under the Alvarez Agreement. In recognition of Mr.
Alvarez's substantial contribution to the Debtors' successful
reorganization in these Cases, Mr. Alvarez will receive an additional
0.139% of the New Warnaco Common Shares (see Disclosure Statement, Section
II.B.4.(h)(iv)).
PLAN SCHEDULE 1.67
PRINCIPAL TERMS AND CONDITIONS OF NEW WARNACO
SECOND LIEN NOTES
Principal: $200.94 million
Maturity: 5 Years
Amortization: $40.188 million per year, so long as certain
specified parameters are satisfied (including no
Event of Default under the Exit Financing Facility,
availability of $75 million post-amortization under
the Exit Financing Facility, and maintenance of
fixed charge coverage ratio of 1.25x).
Security: Second Lien to Exit Financing Facility
Interest Rate: Greater of (i) 9.5% per annum and (ii) LIBOR
plus 500 basis points, subject in each case to an
increase of 50 basis points per annum at the end of
the six month period following the Effective Date
and an increase of an additional 0.5% per annum at
the end of each six month period thereafter, until
the Notes are paid in full. Cash interest cap of
12% per annum; interest in excess of 12% is to be
capitalized, as is interest not paid because of any
existing Default under the Exit Financing Facility.
Mandatory
Repayment: Notes to be repaid with net cash proceeds of (i)
certain subordinated debt or equity securities
issued after the Effective Date and (ii) asset
sales and other debt incurred, subject to standard
exceptions to be determined (including payments
under the Exit Financing Facility).
The New Warnaco Second Lien Notes will contain customary affirmative and
negative covenants and events of default, but no financial covenants. Final
terms in the definitive documentation are expected to be customary for
facilities of this type.
PLAN SCHEDULE 1.68
ORIGINAL DOMESTIC FACILITIES
1. U.S. $600 million U.S. Amended and Restated Revolving Credit Facility,
dated 11/17/99
2. U.S. $450 million 5-Year Revolving Credit Facility, dated 11/17/99
3. U.S. $600 million Bridge Facility, dated 11/17/99
4. U.S. $21.5 million KBC Term Facility, dated 7/31/98
5. U.S. $15 million Dai-ichi Kangyo Bank, Ltd. Credit Facility, entered into
on 10/6/00
6. Bank of Nova Scotia Equity forward purchase agreement, dated 12/10/99
7. SunTrust Bank Equity forward purchase agreement, dated 2/10/00
8. FRF 370,000,000 Societe Generale Term Loan, dated 7/9/96
PLAN SCHEDULE 1.69
ORIGINAL FOREIGN FACILITIES
- ----------------------------------------------------------------------------------------------------------------
Principal Balance +
Facility Currency
- ----------------------------------------------------------------------------------------------------------------
CN $30,000,000 Revolving Facility, dated 9/24/96
- ----------------------------------------------------------------------------------------------------------------
'L'9,000,000 U.K. Facility Agreement, dated 5/15/95
- ----------------------------------------------------------------------------------------------------------------
FRF 480,000,000 French Franc Revolving Line of Credit, dated 10/31/96 and amended 4/17/98
- ----------------------------------------------------------------------------------------------------------------
2,500,000,000 Italian Lire Unicredito Credit Line Facility, dated 7/9/98
- ----------------------------------------------------------------------------------------------------------------
35,000,000 Belgian Francs Overdraft Facility, dated 12/2/98
- ----------------------------------------------------------------------------------------------------------------
U.S. $6,000,000 Bank of Nova Scotia Hong Kong Overdraft Facility, dated 8/24/99
- ----------------------------------------------------------------------------------------------------------------
U.S. $10,000,000 Bank of East Asia Letter of Credit Facility, dated 9/13/96
- ----------------------------------------------------------------------------------------------------------------
U.S. $75,000,000 Bank of America Letter of Credit Facility, dated 1/10/00
- ----------------------------------------------------------------------------------------------------------------
Societe Generale Overdraft Facilities:
20,000,000 Austrian Shillings dated 7/26/99
4,000,000 Deutsche Marks dated 3/21/00
$6,000,000 Multi-Purpose dated 10/29/97
7,500,000 French Francs dated 7/31/98
- ----------------------------------------------------------------------------------------------------------------
U.S. $500,000,000 6th Amended and Restated Credit Agreement, dated 11/17/99
- ----------------------------------------------------------------------------------------------------------------
$91,700,000 uncommitted Citibank Letter of Credit, dated 8/4/99
- ----------------------------------------------------------------------------------------------------------------
U.S. $27,000,000 Standard Chartered Bank Letter of Credit Facility Letter, dated 12/29/99
- ----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.1
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
CONTRACT DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS DESCRIPTION EXTENSION DATE REJECTION EFFECTIVE DATE
- -----------------------------------------------------------------------------------------------------------------------------
B-12 Nizamuddin West Buying Agency Earlier of Effective Date
Impulse (India) Private New Delhi 110013, India Agreement - Non of Plan and expiration date
Limited Contact: Ashwani Gupta exclusive 03/28/00 of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 701250
ASNA San Antonio, TX 78270-1250 Utility Tool (software) 01/31/03 Reject as of 1/31/03
- -----------------------------------------------------------------------------------------------------------------------------
25 Communications Highway,
Drawer 6000 Earlier of Effective Date
Hyannis, MA 02601 Software 2000 / of Plan and expiration date
Infinium Contact: Kristen Hambleton Financial Sys. of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
909 Third Ave. 12th Floor Earlier of Effective Date
New York, NY 10022 of Plan and expiration date
Cable & Wireless Contact: Robert Law Internet T1 11/3/1999 of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
Earlier of Effective Date
2225 American Dr of Plan and expiration date
Pitney Bowes (PBCC) Neenah, WI 54656-1005 1 DL4S COPIER 11/1/99 of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
Earlier of Effective Date
P.O. Box 642555 of Plan and expiration date
G.E. Capital Pittsburgh, PA 15264-2555 KONICA 7265 DIG COPIER 7/1/00 of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
Earlier of Effective Date
99 Park Ave. of Plan and expiration date
Vista Business Equipment New York, NY 10016 Two Iris printers of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
Earlier of Effective Date
P.O. Box 41647 of Plan and expiration date
Citicorp Vendor Finance Philadelphia, PA 19101 2 FAX MACHINES NY May 99 of contract or lease
- -----------------------------------------------------------------------------------------------------------------------------
1
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.1
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
CONTRACT DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS DESCRIPTION EXTENSION DATE REJECTION EFFECTIVE DATE
- ------------------------------------------------------------------------------------------------------------------------------
Helmsley-Spear, Inc.
60 E. 42nd Street
New York, NY 10165
230 Park Ave. Ste 559
New York, NY 10169
Copy to: Helmsley-Noyes Real property lease at
PO Box 5852 1385 Broadway,
1385 Broadway Company New York, NY 10087-5852 New York, NY 2/28/95 5/31/03
- ------------------------------------------------------------------------------------------------------------------------------
Abramson Brothers Inc.
501 Fifth Ave. Real property lease at
New York, NY 10017 149 Madison Ave
149 Madison, LLC Contact: Alan B. Abramson 5th Floor April-96 5/31/03
- ------------------------------------------------------------------------------------------------------------------------------
C/O Lend Lease Real Estate
Investments, Inc.
787 Seventh Ave.
New York, NY 10019
Copy to: Corporate Campus/
Joint Venture (Crown Milford,
LLC) PO Box 9440
Uniondale, New York 11555
Copy to: Rogin Nassau, Caplan,
Lassman & Hirtle, LLC
City Place I-22nd FLoor
Hartford, CT 06103 Real property lease at
Corporate Campus I Attention: Barry S. Milford Crowne Plaza/
Joint Venture Feigenbaum, Esq. Wheelers Farms Road 12/24/98 5/31/03
- ------------------------------------------------------------------------------------------------------------------------------
C/O MRC Management LLC
330 Madison Ave.
New York, NY 10017
Att: Mr. David L Sims
Copy to: Proskaur Rose
1585 Broadway
New York, NY 10036
Att: Lawrence J. Lipson, Esq.
Vornado Realty Trust
(MRC Management, LLC)
PO Box 11191
Church Street Station
New York, NY 10286
Copy to: Ninety Park Property,
LLC c/o Vornado Office
Management LLC
888 Seventh Ave.
New York, NY 10019
Attn: Mr. David R. Greenbaum
Copy to: Vornado Realty Trust
210 Route 4 East Real property lease at 10/24/63
Paramus, New Jersey 07652 90 Park Ave. (12th, as amended
Ninety Park Property LLC Attention: Mr. Joseph Macnow 13th and 26th Floor) 5/27/99 5/31/03
- ------------------------------------------------------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.1
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
CONTRACT DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS DESCRIPTION EXTENSION DATE REJECTION EFFECTIVE DATE
- ------------------------------------------------------------------------------------------------------------------------------
200 Park Ave. 6th Floor Telecommunications Earlier of Effective Date
New York, NY 10016 Voice and Data/Service of Plan and expiration date
MCI Contact: Deborah Drake Contract October-98 of contract or lease
- ------------------------------------------------------------------------------------------------------------------------------
71 Hammer Mill Rd. Earlier of Effective Date
Rocky Hill, CT 06067 Iron Mountain Off Site of Plan and expiration date
Iron Mountain Contact: Matt Cronin Data Storage 1999 of contract or lease
- ------------------------------------------------------------------------------------------------------------------------------
500 W. Madison St. Suite 2050 Earlier of Effective Date
Chicago IL 60661 of Plan and expiration date
Veri-Sign Contact: Eric Johnson AS/400 Software 9/29/01 of contract or lease
- ------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
15 W. 39th Street
New York, NY 10015 Buying Agency Agreement - Non
Inseco Inc. Attention: Mike Behmoaras exclusive 02/07/97 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2399 Mandeville Canyon Road,
Allen B. Schwartz Los Angeles, CA 90049 Name agreement 09/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Nancy Ganz,
300 Central Park West Apt. 2L
New York, NY 10024
Paul Weiss Rifkind Wharton &
Garrison
1285 Avenue of the Americas,
New York, NY 10019
Nancy Ganz Att: Robert M. Hirsh, Esq. Name Agreement 07/17/96 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Evan Morgenstein Premier
Management
200 Merry Hill Drive
Amanda Beard Raleigh, NC 27606 Athlete/Coach Agreement 06/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4948 Caldwell Mill Road
Ambrose (Rowdy) Gaines Birmingham, AL 35243 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Gold Medal Management
Amy Van Dyken 1750-14th Street Boulder, CO 80302 Athlete/Coach Agreement 03/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
P.O. Box 284
Barbara Lindquist Wilson, WY 83014 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
505 Attleboro Avenue
Bob Steele Bakersfield, CA 93314-4909 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Evan Morgenstein Premier
Management
200 Merry Hill Drive
Brooke Bennett Raleigh, NC 27606 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Evan Morgenstein Premier
Management
200 Merry Hill Drive
Chris Thompson Raleigh, NC 27606 Athlete/Coach Agreement 06/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1914 David St.
Colleen Lanne Austin, TX 78705 Athlete/Coach Agreement 03/27/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
College Swimming Coaches P.O. Box 63285
Association of America Colorado Springs, CO 801962 Athlete/Coach Agreement 07/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
155 International Drive #609
Courtney Shealy Athens, GA 30605 Athlete/Coach Agreement 09/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o SFX 220
West 42nd St. 12th Floor
Cristina Teuscher New York, NY 10036 (SFX, N1272) Athlete/Coach Agreement 04/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1586 Electric Ave.
Cynthia Gallagher Venice, CA 90291 Athlete/Coach Agreement 07/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
245 E. 72nd St. Apt. 9G
Dara Torres (Wilhelmina) New York, NY 10021-4588 Athlete/Coach Agreement 08/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
8604 Constance Way
Dave Parrington Knoxville, TN 37923 Athlete/Coach Agreement 04/17/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
21762 Quiet Oak Drive
Dave Salo Lake Forest, CA 92630 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1774 Girard Ave.
Dennis Dale S. Minneapolis, MN 55403 Athlete/Coach Agreement Jan 01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
201 Sesqui Trail
Donald Gibb Columbia, SC 29223 Athlete/Coach Agreement 01/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
8222 Forest Hills
Ed Sinnott Dallas, TX 75218 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3640 Churchwell Ct.
Ed Spencer Tucker, GA 30084 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5924 Gorham Glen Lane
Eddie Reese Austin, TX 78739 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
P.O. Box 4130
Greg Louganis Malibu, CA 90265 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
4962 Starling Way
Hongping Li La Palma, CA 90623 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
500 Crooked Oak Ct.
Hunter Kemper Longwood, FL 32779 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1335 Mountain Ave.
Ira Klein Santa Barbara, CA 93101 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
125 Tipperary Rd.
Jack Bauerle Athens, GA 30606 Athlete/Coach Agreement 1/1/2001 0.00
- ------------------------------------------------------------------------------------------------------------------------------
417 Idlewyld Drive
Jack Nelson Ft. Lauderdale, FL 33301 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5377 Traci Drive
Jason Lezak Santa Barbara, CA 93111 Athlete/Coach Agreement 10/15/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
6116 Jordan Drive
Jay Schryver Loveland, CO 80537 Athlete/Coach Agreement 05/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3522 Glencairn Rd.
Jerry Holtrey Shaker Heights, OH 44122 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5507 Mr. Bonnell Rd.
Jill Sterkel Austin, TX 78731 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Epstein
8631 Constence Way
Joanna Zeiger Knoxville, TN 37923 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
806 Defense Drive
John Carroll Marlton, NJ 08053 Athlete/Coach Agreement 09/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
105 Rockland Ave.
John Collins Larchmont, NY 10538 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
190 S. County Road #5
John Mattos Ft. Collins, CO 80524 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2713 Wortham
John Morse Nashville, TN 37215 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
7515 Little River Road
John Trembley Knoxville, TN 37920 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4408 Airport Blvd.
Josh Davis Austin TX 78722 Athlete/Coach Agreement 01/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
801 Astoria Park Dr.
Kerry Classen Bakersfield, CA 93311 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4743 S. Cedar Rd.
Kerstin Weule Evergreen, CO 80439 Athlete/Coach Agreement 03/27/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
6000 N. Maple Grove Rd.
Kris Kirchner Bloomington, IN 47404 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1726 Colony Drive
Kristy Kowal Wyomissing, PA 19610 Athlete/Coach Agreement 04/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
7315 San Carlos Road
Larry Shofe Jacksonville, FL 32217 Athlete/Coach Agreement 07/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
LK Sports Inc.
attn: Peter Carlisle
Octagon
50 Courtland Pier
Portland, ME 04101
OR LK Sports Inc. Octagon Box
Lenny Krayzelburg 17574 Portland, ME 04112 Athlete/Coach Agreement 07/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Evan Morgenstein Premier
Management 200 Merry Hill Drive
Lindsay Benko Raleigh, NC 27606 Athlete/Coach Agreement 07/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Premier Management Merry Hill
Mark Ruiz Drive Raleigh, NC 27606 Athlete/Coach Agreement 07/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
A-104 Surfside Ave.
Mark Schubert Surfside, CA 90743 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4900 Calhoun Canyon Loop
Matt Scoggins Austin, TX 78735 Athlete/Coach Agreement 10/15/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
11602-135th Street, Court
Megan Quann E Puyallup, WA 98374 Athlete/Coach Agreement 10/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1704 Todd Trail
Melvin Nash College Station, TX 77845 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1 Olympic Plaza
Michael Smedley Colorado Springs, CO 80909 Athlete/Coach Agreement Mar 01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3431 E. Cherokee Street
Mike Chasson Phoenix, AZ 85044 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
10755 Voyaitzes
Mike Hastings Auburn, CA 95603 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1801 Lakeshore Drive
Mike Walker Austin, TX 78746 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1869 Alma Road
Misty Hyman Palo Alto, CA 94301 Athlete/Coach Agreement 06/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
11123 Powers Avenue
Muray Stephens Cockeyville, MD 21030 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o IMG 1360 East 9th St., Ste 100
Neil Walker Cleveland, OH 44114 Athlete/Coach Agreement 08/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4 Irvine
Nort Thornton Moraga, CA 64556 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
10104 Whitehorn Drive
Patrick Hogan Charlotte, NC 28277 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
14910 SW Carlsbad Drive
Paul Bergen Beaverton, OR 97007 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
216 Ridgeway Drive
Paul Blair Little Rock, AR 72205 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
22253 N. DeAnza Circle
Pete Raykovich Cupertino, CA 95014 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
14320 Diplomat Drive
Peter Banks Tampa, FL 33613 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
8008 West Gate
Peter Malone Lenexa, KS 66215 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3252 E. Highland
Pierre LaFontaine Phoenix, AZ 85018 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Premier Management
Merry Hill Drive
Rada Owen Raleigh, NC 27606 Athlete/Coach Agreement 09/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
730 Springvale Rd.
Richard Curl Great falls, VA 22066 Athlete/Coach Agreement 07/31/95 0.00
- ------------------------------------------------------------------------------------------------------------------------------
725 Hobart Street
Richard Quick Menlo Park, CA 94025 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3208 Sunset Avenue
Richard Shoulberg Norristown, PA 19401 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2618 5th St.
Rick Benner SW Puyallup, WA 98373 Athlete/Coach Agreement 01/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
48 Pearce Mitchell
Rick Schavone Stanford, CA 94305 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
941 N. Calvert St.
Robert Bowman Baltimore, MD 21202 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
197 Pineview
Scott Tucker Irvine, CA 92620 Athlete/Coach Agreement 05/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o SFX 220 West 42nd Street,
12th Floor
Janet Evans New York, NY 10036 SFX(N1598) Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
30542 Puritan
Sheila Taormina Livonia, MI 48154 Athlete/Coach Agreement 01/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1316 Ann Court
Skip Runkle West Linn, OR 97068 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Thomas Wojslowoucs
93 Kennedy Blvd.
Speedo/NISCA Sponsorship Bayonne, NJ 07002 Athlete/Coach Agreement 09/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5233 Vanderbilt
Steve Collins Dallas, TX 75206 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
44 Maplewood Drive
Susan Teeter Cranbury, NJ 08512 Athlete/Coach Agreement 01/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
501 Seabreeze Blvd.
Tim O'Brien Ft. Lauderdale, FL 33316 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
c/o Evan Morgenstein Premier
Management 200 Merry Hill Drive
Tom Malchow Raleigh, NC 27606 Athlete/Coach Agreement 07/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2 Alpha Ct.
Tom Wilkens Middletown, NJ 07748 Athlete/Coach Agreement 07/15/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Universtiy Athletic Assoc. Inc.
PO 14485
University of Florida Gainesville, FL 32604-2485 Athlete/Coach Agreement 07/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Athletic Department
1000 S. State Street
University of Michigan Ann Arbor, MI 48109 Athlete/Coach Agreement 07/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Jean Freeman
3508 Spain Place NE
University of Minnesota Minneapolis, MN 55418 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Athletic Department University
University of Virginia Hall Charlottesville, VA 22903 Athlete/Coach Agreement 07/15/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1 Olympic Plaza
USA Swimming Colorado Springs, CO 80909 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2600 Darling Road
Vince Panzano Blacklick, OH 43004 Athlete/Coach Agreement 01/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
111 Wall Street
New York, NY 10043
Citibank Attention: David Humza Retirement Plan Trustee 06/29/89 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1400 Merrill Lynch Drive, MSC
04BSPRO,
Pennington, NJ 08534-4125 Savings Plan Trustee and
Merrill Lynch Attention: Connie Carpenter Recordkeeper 05/01/95 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1751 Lake Cook Road
Deloite & Touche Tax Deerfield, IL 60015 CORPTax Return Preparation 1/01/01-
Technologies LLC Attention: Chris Popson Software License 12/31/03 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3911 S. Walton Walker Blvd.
Dallas, TX 75236 Vendor agreement for
AAFES Attn: Ramona Brookshire markdowns, advertising, etc. 03/08/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
PO Box 46527 Vendor agreement for
Gart's Denver, CO 80201 markdowns, advertising, etc. 03/14/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
702 SW 8th St. Vendor agreement for
Sam's Club Bentonville, AK 72716 markdowns, advertising, etc. 11/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
920 Foothill Blvd. Vendor agreement for
Sport Chalet La Canada, CA 91011 markdowns, advertising, etc. 03/14/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
PO Box 508003 Vendor agreement for
Sports Authority Lauderdale, FL 33340-7002 markdowns, advertising, etc. 05/28/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
702 SW 8th St. Vendor agreement for
Wal-Mart Bentonville, AK 72716 markdowns, advertising, etc. 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Liberty Ave.
Union, NJ 07083
Copy to: City of Philadelphis
c/o Liberty Place RetailAssoc.
1625 Chestnut St.
Bed, Bath & Beyond Philadelphia, Pennsylvania 19103 EDI Agreement 11/10/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1600 Cantrell Rd.
Little Rock, AR 72201
Dillards Attn: Dean Worley EDI Agreement 07/31/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3201 W. Royal Lane
Footstar Corp Irving, TX 75063 EDI Agreement 0.00
- ------------------------------------------------------------------------------------------------------------------------------
2929 Walker Ave.
Meijer NW Grand Rapids, MI 49504 EDI Agreement 02/21/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Gart's Sports Co.
PO Box 46527
Oshman's Sporting goods Denver, CO 80201 EDI Agreement 01/07/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Karen Kong Polo/Ralph Lauren Corp
9 Polito Ave.
Polo Ralph Lauren Lyndhurst, NY 07071 EDI Agreement 07/10/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
AP Dept. Serv Cptes. Foum.
PO Box 4220, Station A
Zellers Toronto, ON Canada EDI Agreement 06/09/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
David Saxl & Spencer 205 W. 39th Street
Weinberg New York, NY 10018 Indp Rep 12/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
250 Spring St. Ste.135 118A
Lawler Grp & Pam Lawler Atlanta, GA 30303 Indp Rep 12/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
J. Price Inc.
1320 Fairway Drive
Price Inc & James Price Chesapeake, VA 23320 Indp Rep 11/01/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4764 La Villa Marina, Suite A
Stacey Gossman Marina Del Rey, CA 90292 Indp Rep 03/01/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Unemployment Compensation
10101 Woodfield Lane Service Agreement (formerly 12/30/94 and
TALXUC Express St. Luis, MO 63132 The Frick Company) amended 1/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
UNITE Mid-Atlantic Regional Joint
Board
903 Russell Ave. Suite 400, Collective Bargaining
UNITE Local 1701 Gaithersburg, PA 20879 Agreement 03/02/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1220 Rankin Street
VPSI Troy, MI 48083 Rideshare transportation 07/01/97 0.00
- ------------------------------------------------------------------------------------------------------------------------------
25 Phesant Run Independent Sales
Elaine Villano Kinnelon, NJ 07405 Representative 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1 Bay Club Dr. Ste. 19-A Independent Sales
Pam Lawler Bayside, NY 11360 Representative 12/01/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
9770 Trans Canada
AFC - Canada Saint Larent, Que, H4S 1V9 Royalty-Speedo 0.00
- ------------------------------------------------------------------------------------------------------------------------------
194 Rue de Rivoli 75001
Agnes B. Trouble Paris France Agreement on ALLEN B mark 02/20/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
License agreement in
perpetuity to manufacture
and distribute swimwear and
1709 Ambassador Ave. activewear under the 10/26/93 as
Anne Cole Beverly Hills, CA 90210 ANNE COLE trademark amended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
79-81 Coppin Street 08/01/98 as
Richmond Victoris 3121 Australia Export Customer Exclusive amended and
Body Art Australia Attention: Mr. Clyde Davenport Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Royalty CK Jeans 03/31/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Royalty CK Jeans - Kids 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064 National Advertising
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. CK Jeans 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas Men's Accessories License
New York, NY 10019-6064 for CALVIN KLEIN products 03/14/94 as
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. on men's accessories extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc., Exclusive License to
205 W. 39th Street manufacture, distribute and
New York, NY 10018 sell Men's and Women's jeans
Attention: Deirdre Miles-Graeter and jeans related items for
Copy to: Paul, Weiss, Rifkind, CALVIN KLEIN/CK CALVIN KLEIN
Wharton & Garrison and variations and CALVIN
1285 Avenue of the Americas KLEIN JEANS, CK/CALVIN KLEIN 08/04/98 as
New York, NY 10019-6064 JEANS AND CK/CALVIN KLEIN amended and
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. KHAKIS extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas Exclusive License for CALVIN 08/04/98 as
New York, NY 10019-6064 KLEIN marks for jeans and amended and
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. jeans related items extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Settlement Agreement 01/22/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K. Schwartz
copy to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas Trust Agreement transferring
New York, NY 10019-6064 all CALVIN KLEIN marks
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. worldwide 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
6
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton Men's Underwear
& Garrison License Agreement between
1285 Avenue of the Americas Calvin Klein
New York, NY 10019-6064 Trademark Trust and
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Calvin Klein, Inc. 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton
& Garrison
1285 Avenue of the Americas
New York, NY 10019-6064 Women's Intimate
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Apparel License Agreement 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton
& Garrison
1285 Avenue of the Americas
New York, NY 10019-6064 Quality Assurance
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Agreement 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton
& Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Servicing Agreement 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton Acquisition Agreement
& Garrison acquiring the beneficial
1285 Avenue of the Americas ownership interest in
New York, NY 10019-6064 the CALVIN KLEIN
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Trademarks 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton
& Garrison
1285 Avenue of the Americas Administration Agreement
New York, NY 10019-6064 (Underwear and
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Intimate Apparel) 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
7
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
205 W. 39th Street
New York, NY 10018
Attention: Mr. Barry K.
Schwartz copy
to: Calvin Klein, Inc.,
205 W. 39th Street
New York, NY 10018
Attention: Deirdre Miles-Graeter
Copy to: Paul, Weiss,
Rifkind, Wharton
& Garrison
1285 Avenue of the Americas
New York, NY 10019-6064 Worldwide Transfer
Calvin Klein Inc. Attention: Robert M. Hirsh, Esq. Agreement 03/14/94 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Christine Grimaldi/ 17 Cosdrew Lane Patent license for
Matthew Grimaldi East Hampton, NY 11907 Fitness Rope 10/31/1995 0.00
- ------------------------------------------------------------------------------------------------------------------------------
77 South First Street
Elizabeth, NJ 07206
d/b/a Children's
Apparel Network Termination of Sublicense
112 West 34th Street Agreement to manufacture
Cradle Togs, Inc. New York, NY 10102 children's swimwear 05/06/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Settlement agreement
John Deere Road on expanded use of
Deere & Company Moline, Illinois 61265 leaping stag design mark 06/23/97 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Settlement agreement of
pending litigation on use
John Deere Road of leaping stag
Deere & Company Moline, Illinois 61265 design mark 10/14/1975 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Oct 96 -
3455 Edison Way perpetuity (or
Endurance Sports Menlo Park, CA 94025 expiration
Tech./Hydraulic Swim Att: Marc Evans Swim Foil Paddles of last patent) 0.00
- ------------------------------------------------------------------------------------------------------------------------------
FaceFirst, Inc.,
34342 Pacific Coast Hwy,
Unti "A", Dana Point,
CA 92629; and Skellerup
Industries (Malaysia)
Face First, Inc. and SDN BHD, K.B. 705, Patent license
Skellerup Ulu Tiram Estate, 80990 for non-stick
Industries (Malaysia) Johor Bahru, Malaysia compound SlickFinish 11/10/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
International House
2 Lower Ashley Road
Ashley New Milton Export Customer
Fleetcraft International Hampshire BH24 5AD Non-Exclusive
Limited England Distribution Agreement 07/25/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
740 West Aire Libre Method for sealing external
Avenue PO Box 22084 auditory ear canal Aug 00 -
Jaco Enterprises, Inc. Phoenix, AZ 85028 (earplugs/headband product) life of patent 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Al Lotus Building Distribution Agreement
Jashanmal National Salah-Al-Din Street for intimate apparel
Company, LLC PO Box 1545 Dubai, UAR and men's accessories
- ------------------------------------------------------------------------------------------------------------------------------
Jordan March Ltda.
Avenida Estacion
No. 5AN-17,
Cali, Columbia/Jordan
March Latin
American, Inc.
16th Street, Roosevelt Ave, Settlement Agreement
Silbros Bldg. Rm. 2, terminating the Distribution
Jordan Marsh PO Box 32-0024 Agreement and related
Ltda./Jordan March Colon Free Zone, Consent Judgment Against
Latin American, Inc. Republic of Panama Jordan Marsh 02/02/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Sindia s.a.r.l., B.P. Export Customer
773 Beyrouth-Liban Non-Exclusive
Khalil Fattal Et Fils S.A.L. Jisr el Wati - Sin El Fil Distribution Agreement 10/13/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Marshalls Road
Lambert Howarth NN9 6EX Wellingborough
Safety Limited Great Britain Coexistence Agreement
- ------------------------------------------------------------------------------------------------------------------------------
36 Rue des Maraichers
P.O. Box 113 Export Customer 1/1/99 as
1211 Geneva, Switzerland Non-Exclusive amended and
Larema Distribuion, S.A. Attention: Mr. Bernard Comre Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Settlement Agreement to
cease manufacture of
Sparkle Satin
Leading Lady, Inc. padded underwire bra 07/05/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Trademark License
c/o Ruby Azrak for LIFEGUARD used on
1385 Broadway, Ste. 1407 apparel and July 1, 1995
Lifeguard Licensing Corp. New York, NY 10018 sporting accessories as extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
8
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Presa Salinillas
No. 370 desp. 704, Termination and Release
Col. Irrigacion, of Sales Representative
Macroconceptos C.P. 11200, Letter Agreement
S.A. de C.V. Mexico, D.F. dated May 14, 1998 05/01/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Settlement agreement
Martin Philip Hull of litigation of
Martin Philip Hull Menlo Park, CA Pro Short Fins 11/02/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Coexistence Agreement
for WARNER'S IN
25 Edison Road CONTROL and IN
Mayer-Bershire Corporation Wayne, NJ 07470 CONTROL products 05/03/96 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Export Customer 1/1/99 as
N. & AN. Kanellakis 30-32 Perikleous Str. Non-Exclusive amended and
& Co. O.E. 105 62 Athens, GREECE Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
6-5-1 Nishi Shinjuku
Shinjuku-ku Export Customer 8/1/98 as
Tokyo Japan Non-Exclusive amended and
O.B.T. CO., LTD Attention: Mr. Takashi Sudo Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Termination of Distribution
Oster Alle 48, DK-2100 Agreement dated
Piccoli International A/S Copenhaen, Denmark January 1, 1997 08/26/97 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Chaps License Amendment
Corporation Sherry Jetter adding Mexico to Territory 06/02/98 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022 Letter Agreement extending
Attention: President U.S. Chaps License and
Polo Ralph Lauren with copy to assigning Canadian
Corporation Sherry Jetter Chaps License 06/16/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
with copy to Amended and Restated
Polo Ralph Lauren, L.P. Sherry Jetter License Agreement 01/01/96 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
with copy to
PRL Fashions of Europe Sr. Sherry Jetter Distribution Agreement 02/08/99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention President;
with copy to
PRL USA Inc. Sherry Jetter Royalty Chaps 01/01/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
PRL USA USA, successor New York, NY 10022
to Polo Ralph Lauren, Attention President; Men's Sportswear License 1/1/96 as
LP and the with copy to for CHAPS BY RALPH amended and
Polo/Lauren Company LP Sherry Jetter LAUREN AND CHAPS marks extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
License Agreement to
manufacture and distribute
swimwear under the
RALPH LAUREN,
POLO SPORT RALPH
650 Madison Avenue LAUREN and
New York, NY 10022 POLO SPORT-RLX,
PRL USA, Inc. and Attention: President LAUREN-RALPH LAUREN, 2/1/98, as
Polo/Lauren with copy to RALPH- RALPH LAUREN amended and
Company, LP Sherry Jetter trademarks extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1 F, No. 3 Lane 20
Jen Ai Road Export Customer 8/1/97 as
San Floria Section 2 Taipei, Taiwan Non-Exclusive amended and
International Co., Ltd. Attention: Mr. Woody Liu Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Pentland Group PLC
The Pentland Centre,
Lakside, Squires Lane, 5/8/92
Finchley, Authentic Fitness effective
Speedo Holdings B.V. London N# 2QL England Name Agreement 4/29/92 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Pentland Group PLC,
The Pentland Centre, addendum to address
Lakside, Squires Lane, use of name and marks
Finchley, in connection
Speedo Holdings B.V. London N# 2QL England with retail stores 12/07/95
- ------------------------------------------------------------------------------------------------------------------------------
9
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Memorandum of Understanding
Regarding Calculation of
Pentland Group PLC, The Pentland Royalties for Licensed Products
Speedo Holdings B.V./Speedo Centre, Lakside, Squires Lane, Sold By the SPEEDO/AUTHENTIC
International Ltd. Finchley, London N# 2QL England FITNESS Retail Stores 12/15/95 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Pentland Group PLC, The Pentland License Agreement in perpetuity
Centre, Lakside, Squires Lane, for SPEEDO marks in U.S. and 5/10/90
Speedo International Limited Finchley, London N# 2QL England Canada as amended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Pentland Group PLC, The Pentland
Centre, Lakeside, Squires Lane,
Speedo International Limited Finchley, London N3 2QL ENGLAND Sublicense Agreement 05/14/90
- ------------------------------------------------------------------------------------------------------------------------------
Pentland Group PLC, The Pentland License Agreement in perpetuity
Centre, Lakside, Squires Lane, for SPEEDO marks in Mexico and 5/10/90
Speedo International Ltd. Finchley, London N# 2QL England Caribbean as amended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Avda. Francisco de Miranda,
Torre Proviincial B, Piso 3, Customer Letter Agreement for
Ofic. 32, Chacao, sale of multibrand products in
Sportzone S.A. Caracas VENEZUELA Venezuela 03/06/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Midland Buendia Bldg., Sen Gil 1/1/01
Puyat Avenue, Makati City, Metro Export Customer Non-Exclusive as amended and
Store Specialists, Inc. Manila, Philippines Distribution Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
United States Luggage
Company, L.P., 400 Wireless Blvd.
Hauppauge NY 11788 Termination of Sales
Attention: Mr. Richard Krulik, Representative Agreement dated
U.S. Luggage Company, L.P. Chairman and CEO June 1, 1999 03/14/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
08/01/93
702 SW 8th as amended and
Wal-Mart Stores St. Bentonville, AK 72716 License agreement/White Stag extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
08/01/93
702 SW 8th as amended and
Wal-Mart Stores St. Bentonville, AK 72716 License agreement/White Stag extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
12/29/93
702 SW 8th as amended and
Wal-Mart Stores St. Bentonville, AK 72716 License agreement/Catalina extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
12/29/93
702 SW 8th as amended and
Wal-Mart Stores St. Bentonville, AK 72716 License agreement/Catalina extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
555 Logan Avenue
Winnipeg, Manitoba, Canada R3A Termination of Independent Sales
Western Glove Works R.S. OS4 Attention: Mr. R. Silver Representative Agreement 02/28/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1709 Ambassador Ave. 10/26/1993
Anne Cole Beverly Hills, CA 90210 Consultant - Design Services as amended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Sherry Jetter Compensation/Design services Jul 98 - Jun 99 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Sherry Jetter Compensation/Design services Jul 99 - Jun 00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Sherry Jetter Compensation/Design services Jul 00 - Jun 01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Sherry Jetter Compensation/Design services Jul 01 - Jun 02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022
Attention: President
Polo Ralph Lauren with copy to Sherry Jetter Compensation/Design services Jul 02 - Jun 03 0.00
- ------------------------------------------------------------------------------------------------------------------------------
650 Madison Avenue
New York, NY 10022 2/1/98
Polo Ralph Lauren Attention: President as amended and
Corporation with copy to Sherry Jetter Design Agreement extended 0.00
- ------------------------------------------------------------------------------------------------------------------------------
10
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRAC CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
11/1/96
650 Madison Avenue Design Services and Copyright (assigned to
New York, NY 10022 License Agreement for CHAPS Warnaco of
Attention: President BY RALPH LAUREN mark on Canada on
Polo Ralph Lauren, L.P. with copy to Sherry Jetter men's sportswear 6/16'99) 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PRL USA USA, successor 650 Madison Avenue
to Polo Ralph Lauren, LP New York, NY 10022
and the Polo/Lauren Attention: President Design Services Agreement for
Company LP with copy to Sherry Jetter CHAPS 01/01/96 0.00
- -----------------------------------------------------------------------------------------------------------------------------
calle Hermosilla, 112 Commercial Collaboration (Non-
El Corte Ingles Madrid, SPAIN Exclusive) 08/15/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1999 Harrison St. Suite 1500
Oakland, CA 94612
Aldon Attention: Bob Anderson Software License 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1675 Broadway
New York, NY 10019
CGS Attention: Phil Williams Hardware Maintenance 12/30/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1675 Broadway
New York, NY 10019
CGS Attention: Phil Williams Software 0.00
- -----------------------------------------------------------------------------------------------------------------------------
12515 Sherman Way
North Hollywood, CA 91605
DataVault Attention: Gary Swaigen Off-Site Data Storage 06/20/00 4,300.16
- -----------------------------------------------------------------------------------------------------------------------------
12515 Sherman Way
North Hollywood, CA 91605
Datavault Attention: Gary Swaigen Network backup 482.20
- -----------------------------------------------------------------------------------------------------------------------------
2 Pin Plaza Suite 1500
New York, NY 10121
DSA Attention: John Raio UPS systems 0.00
- -----------------------------------------------------------------------------------------------------------------------------
19 Tompkins Ave.
Pleasantville, NY 10570
EMS Attention: Rich DeBlasi EMS Cleaning of Data Center 2,432.70
- -----------------------------------------------------------------------------------------------------------------------------
2684 Lacy Street
Firemaster Los Angeles, California 90031 Inergen system, server 1,320.00
- -----------------------------------------------------------------------------------------------------------------------------
100 Edison Park Drive MS52A2
GE Global Exchange Services Gaithersburg, MD 20878-3204 Maintenance 0.00
- -----------------------------------------------------------------------------------------------------------------------------
24 Industrial Park Road West
Tolland, CT 06084
Gerber Technologies Inc. Attention: Malcom Gullish Web PDM/PDS 24,795.43
- -----------------------------------------------------------------------------------------------------------------------------
543 Boston Post Rd. Hartford Fire DC fire
Hartford Fire Milford, CT 06640 surpression 0.00
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 2167
Fort Collins, CO 80522
Hawkeye Attention: Cindy Starck Software License 0.00
- -----------------------------------------------------------------------------------------------------------------------------
2929 North Central Ave.
IBM Corp. Phoenix, AZ 85012 Lease of Standalone Modem V.32 12/01/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
2929 North Central Ave.
Phoenix, AZ 85012
IBM Corp. Attention: Ray Beye Hardware maintenance 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1207-E. Crew Rd.
Matthew, NC 28105
Integrated Visual Systems Attention: Joe Wadlinger AS/400 Software/Inventory (IVS) 2,875.50
- -----------------------------------------------------------------------------------------------------------------------------
41 East 11th Street 11th Floor
New York NY 10003
Interworld Attention: Robert Weis Speedo.com E-commerce Sys. 0.00
- -----------------------------------------------------------------------------------------------------------------------------
14400 North 87th Street
Scottsdale, AZ 85260-3649
JDA Attention: Victor Foreman AS/400 SOFTWARE (RETAIL) 0.00
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 102851
Atlanta, GA 90368
Manhattan Associates Attention: Patricia Tessendorf AS/400 SOFTWARE PkMS 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1 Microsoft Way
Microsoft Redmond, WA 98052 Software License 0.00
- -----------------------------------------------------------------------------------------------------------------------------
175 Cabot Street, Suite 503
Monarch Kiwekkm, NA 01854 Report Formatting/Merchandising 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1277 Lenox Park Blvd.
Atlanta, GA 30319
Peregrine Attention: Chris Mascis Software License 08/01/00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
11
- ------------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ------------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ------------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
2809 South 160th St., Suite 401
Omaha, Nebraska 68130
Prodata Attention: Rachel Hartley AS/400 Software/DBU 05/30/01 960.00
- ------------------------------------------------------------------------------------------------------------------------------
1400 Marina Way
QRS South Richmond, CA 94804 Maintenance Agreement 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1037 Route 45 East Ste C-106
Ron Lynn Management Clifton, NJ 07013 Software License & Consulting 0.00
- ------------------------------------------------------------------------------------------------------------------------------
600 Alexander Park, Suite 303
Princeton, NJ 08540
Safestone Attention: Martin Norman AS/400 Software/Detect-IT 15,900.00
- ------------------------------------------------------------------------------------------------------------------------------
10550 Dearwood Park Blvd. Bldg 300
Secured Document Jacksonville, FL 32256
Systems (SDDS) Attention: Kim Wolfe A/P Check Printing software 0.00
- ------------------------------------------------------------------------------------------------------------------------------
4131 Highway 52 North Ste G11
Rochester, MN 55901
Showcase Vista Attention: Tammie Myers Data Base Query/Finance/software 0.00
- ------------------------------------------------------------------------------------------------------------------------------
5607 Plamer Way
Carlsbad, CA 92008
SVI Attention: Pat Jordon AS/400 Software SVI Retail 03/23/00 0.00
- ------------------------------------------------------------------------------------------------------------------------------
3151 Airway Bldg. I-3
Touchtone Corporation Costa Mesa, CA. 92626 AS/400 Retail 06/12/01 1,498.50
- ------------------------------------------------------------------------------------------------------------------------------
P.O. Box 688563 New Center Road
Vital Records Inc., Flagtown, NJ 08821 Maintenance Agreement 5,147.25
- ------------------------------------------------------------------------------------------------------------------------------
1212 E. Grandview Rd.
Phoenix, AZ 85022 or
7201 W. Oakland, Suite 2
Chandler, AZ 85226
ICI Solutions Attention: Kim Meche Software Maintenance 7/02 - 6/03 0.00
- ------------------------------------------------------------------------------------------------------------------------------
300 Lanidex Plaza
Parsippany, NJ 07054-3409
The GetPaid Corporation Attention: James Kinney Software Maintenance 12/01 - 12/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1344 Crossman
Avenue Sunnyvale,
CA 94089
Attention:
Hyperion Solutions Shereen Moubayed Headquarters Software Maintenance 7/02 - 6/03 164.50
- ------------------------------------------------------------------------------------------------------------------------------
155 Technology Parkway
Fiware, Inc. #400 Norcross, Georgia 30092
(formerly Westcorp) Attention: Evette Jackson Software Maintenance 11/01 - 10/02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
155 Technology Parkway #100
Business Software Inc. Norcross, Georgia 30092
(BSI) Attention: Patty Odell Software Maintenance 5/02 - 5/03 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1450 Energy Park Dr. Suite 127
SPS Commerce St. Paul, MN 55108 EDI Testing/Certification 02/23/01 0.00
- ------------------------------------------------------------------------------------------------------------------------------
1230 Long Beach Ave Los Angeles,
Automation Taft CA 90021
Printing Company Attention: Aileen Platon Parking Lease N/A 166.60
- ------------------------------------------------------------------------------------------------------------------------------
936 Long Beach Ave.
Los Angeles, CA 90021
Chin Jung Co. Attention: Julie Parking Lease N/A 382.95
- ------------------------------------------------------------------------------------------------------------------------------
12
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
100 W. Walnut GE104A
Pasadena, CA 91124
Parpark Attention: Eli Portiallo Parking Lease N/A 91.57
- -----------------------------------------------------------------------------------------------------------------------------
30 Rayette Rd.
A.P.I. Security Concord, Ont., L4K 2G3 Alarm monitoring (King St.) 02/02/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
940 6th Ave. St. W.
ADT Security Calgary, Alb., T2P 3R1 Alarm monitoring (Leeds) 01/01/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
940 6th Ave. St. W.,
ADT Security Calgary, Alb., T2P 3T1 Alarm monitoring (Gervais) 08/01/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Security services (US Sports
2858 Banksville Rd. Building) Account # 010 081 S
Pittsburgh, PA 45216 08149 010 081 S 06027 010
ADT Security Services Attention: Tom Madigan 084 S 05533 01/30/00 7,211.54
- -----------------------------------------------------------------------------------------------------------------------------
150 Steelcase Rd. W.
Ascom Markham, Ont. LeR 3J9 Equipment Lease (Postage) 07/31/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
150 Steelcase Rd. W.
Ascom Markham, Ont. LeR 3J9 Service (Postage) 12/01/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
150 Steelcase Rd. W.
Ascom Markham, Ont. LeR 3J9 Rate Update Agreem (Postage) 12/01/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
110 W. Walnut St. Service contract for color
Canon Gardena, CA 90248 copiers/Van Nuys 893.06
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 42937
Canon Financial Philadelphia, PA 19101-2937 3 Canon Color Copiers 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1600 Blvd Rene Levesque
Citicapital Ste 1400 Mtl., Que., H3H 1p9 Equipment Lease (Routers) 03/01/98 0.00
- -----------------------------------------------------------------------------------------------------------------------------
830 San Julian Street
Los Angeles, CA 90014
Empire Sewing Attention: David or Craig Equipment Lease 04/20/99 166.32
- -----------------------------------------------------------------------------------------------------------------------------
830 San Julian Street
Los Angeles, CA 90014
Empire Sewing Attention: David or Craig Equipment Lease 04/20/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
830 San Julian Street
Los Angeles, CA 90014
Empire Sewing Attention: David or Craig Equipment Lease 08/25/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
13
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
830 San Julian Street
Los Angeles, CA 90014
Empire Sewing Attention: David or Craig Equipment Lease 03/01/00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 642555
GE Capital Pittsburgh, PA 15264-2555 Static Cutter May-00 10,113.79
- ----------------------------------------------------------------------------------------------------------------------------
206 Plantation Oak Dr.
Georgia Florida Burglar Thomasville, GA 31792
Alarm Co. Attention: Reese Brookered Security system/fire alarm monthly 1,065.00
- ----------------------------------------------------------------------------------------------------------------------------
1979 Marcus Ave. Suite 137
Lake Success, NY 11042
Honeywell Inc. Attention: Tim Floyd Security System Feb-99 36,831.76
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 4552 Stn A Toronto
Image Financial Ontario M5W 4R9 Equipment Lease (Fax) 7/1/01 0.00
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 4552, Stn A,
Image Financial Toronto Ontario M5W 4R9 Equipment Lease (Copier) 3/1/00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Lease of Canon CLC 1150 and
P.O. Box 13078 Color Pass 240 for Design Room
IOS Capital Macon, GA 31208 (Color Copier). 11/30/00 5,746.47
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 9115
IOS Capital Macon, GA 31208-9115 Copiers/Van Nuys 13,727.51
- ----------------------------------------------------------------------------------------------------------------------------
1834 West Third Street
Mobile Mini Tempe, AZ Storage Contract 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 45822
Neopost San Francisco, CA 94145-0822 Postage Metere Lease Jan-01 1,998.43
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 33057
Newcourt Newark, NJ 07188-0057 Dell Computer Lease Feb-99 18,407.88
- ----------------------------------------------------------------------------------------------------------------------------
1769 Paragon Dr.
Newcourt Leasing Memphis, TN 38101 Canon 2400 Color Laser NKZ-01017 June 99 11,542.52
- ----------------------------------------------------------------------------------------------------------------------------
2225 American DR
Pitney Bowes Neenah, WI 54956-1005 Equipment Lease 01/30/97 5,970.67
- ----------------------------------------------------------------------------------------------------------------------------
2225 American DR
Pitney Bowes Neenah, WI 54956-1005 Equipment Lease 09/27/99 1,200.28
- ----------------------------------------------------------------------------------------------------------------------------
105 Gamma Drive
Suite 100
Pittsburgh, PA 15238 Equipment lease(1)Postage Meter
Attention: Michael Behringer, Head-U570 (2) METER BASE
Pitney Bowes George Homan, Ned Miller U560 05/30/00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
14
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT CURE
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
105 Gamma Drive
Suite 100
Pittsburgh, PA 15238
Attention: Michael Behringer, Equipment Lease/Postage
Pitney Bowes George Homan, Ned Miller Machine-Shipping #6500 06/20/00 3,535.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 5311
Pitney Bowes Burlington, Ont. L7R 4T9 Equipment Lease (Postage) 09/01/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 5311
Pitney Bowes Burlington, Ont. L7R 4T9 Equipment Lease (Postage) 11/01/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 5311
Pitney Bowes Burlington, Ont. L7R 4T9 Equipment Lease (Postage) 12/01/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
2225 American Dr.
Pitney Bowes Credit Corp Neenah, WI 54956-1005 Postage machine/Van Nuys 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1090 Elm Street Suite 201
Rocky Hill, CT 06067
Security Systems Inc. Attention: Tony Marrico Security System Oct-01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Symbol Equipment Inventory Ctrl Lease Dec-00 4,572.04
- -----------------------------------------------------------------------------------------------------------------------------
1301 Ridgeview Drive
Xerox Lewisville, TX 75057 Equipment Lease 09/09/98 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 4568, Stn A.
Xerox Toronto, Ontario M5W 4T8 Equipment Lease (Fax) 06/22/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 4568 Stn A.
Xerox Toronto, Ontario M5W 4T8 Equipment Lease (Copier) 09/10/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 4568 Stn A.
Xerox Toronto, Ontario M5W 4T8 Equipment Lease (Copier) 09/10/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 4568 Stn A.
Xerox Toronto, Ontario M5W 4T8 Equipment Lease (Copier) 04/30/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 4568 Stn A.
Xerox Toronto, Ontario M5W 4T8 Equipment Lease (Copier) 07/15/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
580 White Plains Rd.
Tarrytown, NY 10591 Attention
Xerox Corporation Gretchen Reasnor Leased copiers Jun-00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
740 Rue St., Maurice
3437931 Canada Mt. Que., H3C 1L5 Real Property (Crescent St.) 06/01/01 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1231 Long Beach Ave.
Los Angeles, CA 90021
Attention: Allen Schwartz Copy to:
Allen B. and Pamela Schwartz
c/o Gelfand Rennet & Feldman
Allen B. Schwartz and 1880 Century Park E.
Pamela Schwartz Los Angeles, CA 90067 Real Property Lease 02/25/98 5,299.23
- -----------------------------------------------------------------------------------------------------------------------------
240 Peachtree Stree, N.W.
Atlanta, GA 30303 Ste 2200
Att: Glen Bell Copy to: AMC,
Inc. (Americasmart Real
Estate, LLC) PO Box 116381
AMC, Inc. Atlanta, Georgia 30368 Real Property Lease 03/22/99 2,107.95
- -----------------------------------------------------------------------------------------------------------------------------
15
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
19501 Biscayne Blvd.
Aventura Mall Suite 400 Store Lease (Store
Venture Aventura, FL 33180 #41 Aventura Mall) September-94 3,350.24
- -----------------------------------------------------------------------------------------------------------------------------
264 Fortaleza Street
Old San Juan,
PR 00901 Store Lease (Store
Bared and Sons Attention: Evelio Santiago #177 Cristo Street) March-97 1,666.67
- -----------------------------------------------------------------------------------------------------------------------------
401 Biscayne
Blvd. R106
Miami, FL 33132
Copy to: Bayside
Center Limited
PO Box 64181
Baltimore, Maryland
21044-4181
Copy to: Bayside
Center Limited
(Central Parking System)
2 South Biscayne BLvd.,
Suite 1684 Store Lease (Store
Bayside Limited Part Miami, Florida 33131 #40 Bayside Mall) September-94 2,440.09
- -----------------------------------------------------------------------------------------------------------------------------
401 Biscayne Blvd. R106
Miami, FL 33132
Attention:
Bayside Market Place Wendy Hernandez Storage (Store #40) January-02 1,363.00
- -----------------------------------------------------------------------------------------------------------------------------
575 Bellevue Square
Bellevue, WA 98004
Attention: Wesley W. Harris
copy to: Bellevue
Square Managers
PO Box 908
Bellview Sq. Bellevue, Store Lease (Store
Managers, Inc. Washington 98009 #4 Bellevue Square) November-93 2,686.10
- -----------------------------------------------------------------------------------------------------------------------------
2335 South Ocean Blvd.
#4A Palm Beach,
FL 33480
Attention: Ben Abel
Copy to:
Davis & Gilbert LLP
1740 Broadway,
3rd Floor
New York, NY 10019
Attn:
Jeffrey A. Moross, Esq.
Copy to: Jones, Day,
Reavis & Pouge
599 Lexington Ave.
New York, NY 10022
Attention: Corinne Bull,
Ben Wunson d/b/a Esq., Reginald A. Storage and
Bee & Bee Realty Greene, Esq. Distribution 2,686.10
- -----------------------------------------------------------------------------------------------------------------------------
60 31St. Ave.
San Mateo,
CA 64403
Copy to: Bohannon
Development Company Store Lease (Store
60 Hillsdale Mall #101 Hillsdale Shopping
Bohannon Del San Mateo, CA 94403 Center) November-95 4,200.91
- -----------------------------------------------------------------------------------------------------------------------------
4 Embarcacero Center,
Lobby Level, Ste. 2600, Store Lease (Store
San Francisco, CA 94111 #17 Embarcadero
Boston Properties Attention: Laura Gigante Center) July-94 2,365.98
- -----------------------------------------------------------------------------------------------------------------------------
800 Boylston Street
Ste. 450 Boston,
MA 02199
Attention: Christine Bouffard
Copy to:
Boston Properties
PO Box 3557 Store Lease (Store
Boston, Massachusetts #5 Prudential
Boston Properties 02241 Center) December-93 0.00
- -----------------------------------------------------------------------------------------------------------------------------
800 Boylston Street,
Ste. 450 Boston,
MA 02199
BP PRU Center Attention: Store Lease (Store
Acquisition LLC Christine Bouffard #5 Prudential Center) November-01 594.77
- -----------------------------------------------------------------------------------------------------------------------------
400 Commons Way,
Ste. 100 Bridgewater,
NJ 08807
Attention: Janell Vaughan
Copy to: Rouse Property
Management
PO Box 64001 Store Lease (Store
Bridgewater Baltimore, Maryland #75 Bridgewater
Commons 21264-4001 Commons) July-95 2,719.74
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 9506 Store Lease (Store
San Juan, #175 San Patricio
Caparr Center Assoc PR 00908-9506 Plaza) December-96 1,455.89
- -----------------------------------------------------------------------------------------------------------------------------
1221 Newton Street
Key West, FL 33040 Store Lease (Store
Attention: #199 611 Duval
CC Ryder's Piano Bar, Inc. Michael J. Bunis Street) August-97 3,068.04
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 31147
Raleigh, NC 27622
2840 Plaza Place,
Ste. 100 Store Lease (Store
CVM Assoc Raleigh, NC 27612 #165 Crabtree Valley) November-96 3,475.36
- -----------------------------------------------------------------------------------------------------------------------------
1231 Long Beach Ave.
Los Angeles CA 90021
Attention: Allen Schwartz
Copy to: Danjon
Realty, LLC
c/o Gelfand Rennert
& Feldman 1880 Century
Park East Los Angeles,
Danjon Realty, LLC CA 90067 Real Property Lease 07/01/00 7,664.98
- -----------------------------------------------------------------------------------------------------------------------------
16
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
1050 W. Washington Blvd.
Los Angeles
Downtown Mini CA 90015
Warehouse Attention: Oscar Storage Lease 06/01/98 775.00
- ----------------------------------------------------------------------------------------------------------------------------
1050 W. Washington Blvd.
Downtown Mini Los Angeles CA 90015
Warehouse Attention: Oscar Storage Lease 09/23/99 555.00
- ----------------------------------------------------------------------------------------------------------------------------
501 Woodruff Ave.
Los Angeles CA 90024
Elenore Heller Attention: Elenor Heller Real Property Lease 12/03/97 2,871.08
- ----------------------------------------------------------------------------------------------------------------------------
1585 Kapiolani Blvd.,
Ste. 800
Honolulu, HI 96814
Attention: Phyllis M. Okuma
Copy to: GGP Ala
Moana, LLC
General Growth PO Box 1300 Store Lease (Store
Management of Honolulu, Hawaii #77 Ala Moana
Hawaii, Inc. 96807-1300 Shp. Ctr.) February-96 7,502.89
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 65262
Washington DC 20035
Goldtree Attention: Store Lease (Store
Investment Co. Gary Nath/Judith #126 3416 "M" Street) October-96 2,597.22
- ----------------------------------------------------------------------------------------------------------------------------
5506 Sixth Ave
Rear, Altoona PA 16602
Attention: John Radionoff/
Leonard Fiore
Copy to: Jones, Day,
Reavis & Pogue
599 Lexington Ave.
New York, NY 10022
Attention:
Corinne Bull, Esq.
Huntingdon Storage and
and Distribution Limited Reginald A. Greene, Esq. Warehouse Lease 32,180.60
- ----------------------------------------------------------------------------------------------------------------------------
101 South Hanley
Road Ste. 1300 St. Louis,
MO 63105-2494 Store Lease (Store
Hycel Properties Attention: Mary L. Rollins #32 St. Louis Galleria) November-94 3,196.24
- ----------------------------------------------------------------------------------------------------------------------------
Real Property Lease
413 Rue St-Jacques (Ctre J. Cartier-
Ivanhoe Inc. Mtl., Que., H2Y 3Z4 Longueuil) 03/15/99 0.00
- ----------------------------------------------------------------------------------------------------------------------------
3333 New Hyde Park Road,
Ste. 100
P.O. Box 5020
New Hyde Park,
NY 11042-0020 Store Lease (Store
Kimco Attention: Patricia Danielo #11 Bridgehampton Com.) May-94 1,317.99
- ----------------------------------------------------------------------------------------------------------------------------
L&B Realty Advisors/
Lehndorff Tysons
Joint Venture/
L&B Insititutional
Property Managers, Inc.
19 61 Chain Bridge Road
Mc Lean,
VA 22101-4562
Copy to:
Tysons Corner, LLC
PO Box 847058 Store Lease (Store
Dallas, Texas #13 Tysons
L&B Realty Advisors 75284-7058 Corner Center) May-94 3,822.33
- ----------------------------------------------------------------------------------------------------------------------------
Affordable Landmarks Inc.
/London Arms/
Lyn Mar LTD
1130 Washington Ave.
4th Floor Miami Beach, FL Store Lease (Store
London Arms/Lyn Mar Ltd. Attention: Guy Pue #155 Collins Ave.) January-97 1,403.07
- ----------------------------------------------------------------------------------------------------------------------------
Arden Fair Mall
The Mecerice Company
(Macerick Co.)
1689 Arden Way,
Ste. 1167 Sacramento, Store Lease (Store
Macerich CA 95815-4031 #12 Arden Fair Mall) April-94 2,530.33
- ----------------------------------------------------------------------------------------------------------------------------
401 Wilshire Blvd.,
Ste. 700
Santa Monica, CA 60401
Attention: Mark Strain
Copy to: Macerich Santa
Monica, LLP
395 Santa Monica PL Store Lease (Store
Santa Monica, #70 Santa Monica
Macerich CA 90401-2350 Place) November-95 2,580.48
- ----------------------------------------------------------------------------------------------------------------------------
17
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
401 Wilshire Blvd., Ste. 700
Santa Monica, CA 60401
Attention: Mark Strain
Copy to: Macerick
Northeastern Assoc.
(Macerick Northwestern Assoc.)
1275 Broadway Plaza Store Lease (Store #79
Macerich Walnut Creek, CA 94596 Broadway Plaza) June-95 2,986.14
- ----------------------------------------------------------------------------------------------------------------------------
401 Wilshire Blvd., Ste. 700
Santa Monica, CA 60401
Attention: Mark Strain
Copy to: Macerick
Corte Madera
1554 Redwood Highway Store Lease
Corte Madera, (Store #80 Village @
Macerich CA 94925 Corte Madera) June-95 4,335.01
- ----------------------------------------------------------------------------------------------------------------------------
60 East Broadway
Bloomington, MN
55425-5550 Store Lease (Store
Mall of America Attention: Stephanie Miller #38 Mall of America) October-94 5,651.26
- ----------------------------------------------------------------------------------------------------------------------------
148-154 Columbus
Avenue Partner 1995
Broadway, 3rd Floor Store Lease (Store #26
Mellenium Partners New York, NY 10023 Columbus Ave.) July-95 5,041.67
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 11191
New York, NY 10286-4142 Store Lease (Store
MRC Management LLC Attention: Roger Larson #3 90 Park Ave. NY, NY) November-93 144,914.00
- ----------------------------------------------------------------------------------------------------------------------------
New Mark & Co.
Real Estate Inc.
125 Park Ave. 11th Floor
New York, NY 10017 Store Lease (Store
Newmark Attention: William G. Cohen #145 500 Fifth Ave.) November-96 10,391.28
- ----------------------------------------------------------------------------------------------------------------------------
875 Don Mills Rd. Ltd.,
c/o Carlton St., Ste 909, Real Property Lease
Northam Realty Toronto, Ont. M5B 1J3 (Gervais Warehouse) 06/01/97 0.00
- ----------------------------------------------------------------------------------------------------------------------------
725 Warden Ave. Real Property Lease
O & Y Enterprises Tor. Ont., M1L 4R7 (Warden Outlet) 11/08/96 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Authentic Fitness Corp
Corporate Office 6040
Transamerica Occidental Bandini Blvd.
Life Milldrop 5441 Los Angeles, CA 90040.
AEGON 4333 Edgewood Offices & Common Area
Occidental Life Insurance NE Cedar Rapids, Designer Div. Warehouse
Co of Calif IA 52499 and Sewing Plant 06/14/67 2,614.84
- ----------------------------------------------------------------------------------------------------------------------------
525 Building Co., LLC
575 Eight Ave STE 2400
New York, NY 10018
Olmstead Properties, Inc. Attention: Waler Muller Real Property Lease 08/30/99 0.00
- ----------------------------------------------------------------------------------------------------------------------------
525 Building Co., LLC
575 Eight Ave STE 2400
New York, NY 10018
Olmstead Properties, Inc. Attention: Waler Muller Real Property Lease 8,346.34
- ----------------------------------------------------------------------------------------------------------------------------
18
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
24 East Union Street
Pasadena, CA 31103
Attention: Sally Lunetta
Copy to
1 Colorado Investments
PO Box 31001-0399
Pasadena,
One Colorado Associates CA 9110-0399 Real Property Lease 2/12/91 2,464.30
- -----------------------------------------------------------------------------------------------------------------------------
La Torre de Plaza
525 F.D. Roosevelt
Ave. Ste. 1000
Hato Rey, PR 00918
Copy to: Plaza Las
America, Inc.
PO Box 363268
San Juan, Puerto Store Lease (Store
Plaza Las Americas, Inc. Rico 00936 #176 Plaza Las Americas) July-00 6,546.53
- -----------------------------------------------------------------------------------------------------------------------------
4889 Valley Blvd.
Los Angeles, CA 90032
Public Storage Attention: Veronica Storage Lease 12/09/99 372.00
- -----------------------------------------------------------------------------------------------------------------------------
4889 Valley Blvd.
Los Angeles, CA 90032
Public Storage Attention: Veronica Storage Lease 10/15/99 438.40
- -----------------------------------------------------------------------------------------------------------------------------
4889 Valley Blvd.
Los Angeles, CA 90032
Public Storage Attention: Veronica Storage Lease 02/03/00 263.00
- -----------------------------------------------------------------------------------------------------------------------------
20 Adelaide St. East.,
Ste 1103 Tor. Ont., Real Property Lease
Realspace Manag. M5C 2T6 (Leeds Ave.) 11/01/86 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Realty Associates Fund V
Irwindale Distribution Center
PO 51921, Unit I
Los Angeles, CA 90051-6210
Landlord: TZ
Associates Realty
4100 Newport Place,
Suite 830
Newport Beach, CA 92660
Notices to: Wohl Property Authentic Fitness Corp
Group 30200 Rancho 5305 Rivergrade Road
Viejo Road, Suite C Irwindale, CA 91076
Realty Associated Fund San Juan Capistrano, Speedo Finished
V.I.P CA 92675 Goods Warehouse 10/17/00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1 Poydras Street, Ste. 101
New Orleans,
LA 70130
Copy to: Riverwalk
Partnership
PO Box 64865
Baltimore, Maryland Store Lease (Store
Riverwalk Partners 21264-4433 #113 Riverwalk Market Pl.) October-96 2,572.10
- -----------------------------------------------------------------------------------------------------------------------------
19
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
10275 Little Patuxant Pky.
Columbia, MD 21044
Attention: Charles Lanier
Copy to: Rouse Property
Management
PO Box 64117 Store Lease (Store
Baltimore, Maryland #20 Towson
Rouse 21264-4117 Town Center) July-94 2,410.79
- -----------------------------------------------------------------------------------------------------------------------------
10275 Little Patuxant Pky.
Columbia, MD 21044
Attention: Charles Lanier
Copy to:
Beachwood Place
PO Box 64350
Baltimore, Maryland Store Lease (Store
Rouse 21264-4350 #82 Beachwood Place) June-95 0.00
- -----------------------------------------------------------------------------------------------------------------------------
10275 Little Patuxant Pky.
Columbia, MD 21044 Store Lease (Store
Rouse Attention: Charles Lanier #124 Northstar Mall) August-96 6,037.44
- -----------------------------------------------------------------------------------------------------------------------------
7014-590 East
Camelback Rd.
Scottsdale, AZ 85251
Copy to: Scottsdale
Fashion Square
P.O. Box 3557 Store Lease (Store
Boston, Massachusetts #6 Scottsdale
Scottsdale Fashion Sq. 02241 Fashion Square) November-93 3,957.13
- -----------------------------------------------------------------------------------------------------------------------------
37A Hazelton Ave. Real Property Lease
Seniority Investments Tor. Ont., M5R 2E3 (King St. - 3rd Floor) 10/01/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
37A Hazelton Ave. Real Property Lease
Seniority Investments Tor. Ont., M5R 2E3 (King St. - 2nd Floor) 01/01/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
210 North Walton Blvd. Real Property Lease 10/1/2001
Suite 30 Bentonville, Rain Tree Business as amended
SH&S Limited Partnership Arkansas 72712 Center/ Suite 13&14 5/02 810.00
- -----------------------------------------------------------------------------------------------------------------------------
14006 Riverside Drive,
Ste. 17 Shearman Oaks,
A 91423
Attention: Ruth Twealt
Copy to: Sherman
Oaks Fashion Association
PO Box 35107 Store Lease (Store
Sherman Oaks Fashion Newark, New Jersey #66 Fashion
Associates 07193-5107 Square Mall) April-95 1,901.50
- -----------------------------------------------------------------------------------------------------------------------------
1200 Morris Turnpike,
Ste. A-001 Shorthills,
NJ 07078
Attention: Christine Barros
Copy to: Short Hills
Associates PO Box 67000
Dept. 53501 Store Lease (Store
Detroit, Michigan #19 The Mall
Short Hills Assc 48267-0523 @ Shorthills) November-94 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Ward Corporation of
Pennsylvania (Silk Mills
Properties Inc.)
5506 Sixth Ave., Com Rear
Altoona, PA 16602
Attention: John Radionoff/
Leonard Fiore
Copy to: Jones, Day,
Reavis & Pogue
599 Lexington Ave.
New York, NY 10022
Attention: Corinne Bull,
Silk Mills Properties LLC Esq. Reginald A. Greene, Esq. Warehouse Lease 0.00
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 7033
Indianapolis, Indiana 46207
Attention: John Geletka
Copy to: Town Center at B. Raton
Trust
PO Box 10909
Newark Post Office Store Lease (Store
Simon Newark, NJ 07193-0909 #22 Boca Raton Mall) November-94 8,505.50
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 7033
Indianapolis, Indiana 46207
Attention: Barney Quinn
Copy to: The Retail
Property Trust
PO Box 10909
Newark, Store Lease (Store
Simon New Jersey 07193 #34 Lenox Square) November-95 4,570.39
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 7033
Indianapolis, India 46207
Attention: Vicki Hanor
Copy to: Fashion
Mall Partners ID #774676
PO Box 5541
Indianapolis, Indiana Store Lease (Store
Simon 46255-5541 #44 The Westchester) 03/17/95 6,512.19
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 7033
Indianpolis, IN 46207
Attention: Matthew Barger
Copy to: Northgate Mall
Partnership
PO Box 2004
Indianaapolis, Store Lease (Store
Simon Property Group Indiana 46255 #182 Northgate Mall) November-96 4,086.67
- -----------------------------------------------------------------------------------------------------------------------------
20
- ---------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ---------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ---------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
47 King St.
St. Jacobs, Ont., Real Property Lease
St. Jacobs Countryside N0B 2NO (St. Jacobs Outlet) 06/01/00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
200 East Long Lake Road,
Suite 300 Bloomfield Hills, Store Lease
MI 48303 (Store #9 Cherry
Taubman Attention: Thomas S. Russom Creek Shop. Ctr.) February-94 0.00
- ---------------------------------------------------------------------------------------------------------------------------
100 Galleria Officentre,
Ste. 427 P.O. Box 667
Southfield, Michigan 48037-066
Copy to: Franklin/Forbes-Cohen
PO Box 79001 Store Lease (Store #102
The Forbes Company Detroit, Michigan 48279-1252 Somerset Collection N) August-96 2,129.52
- ---------------------------------------------------------------------------------------------------------------------------
115 Fairbanks Ave.
Thomasville, GA 31792
Attention: Harry Thomlinson
Copy to: PO Box 848
TRI Development Thomasville, Georgia 31799 Building Lease 08/01/96 0.00
- ---------------------------------------------------------------------------------------------------------------------------
4350 Lajolla Drive,
Suite 700 San Diego,
CA 92122-1233
Attention: Lee H. Wagman
Copy to: University Town
Trizec Hahn Center Assoc. File #55976 Store Lease (Store #33
Development Corporation Los Angeles, CA 90074-5976 University Town Ctr.) September-94 2,421.81
- ---------------------------------------------------------------------------------------------------------------------------
845 North Michigan Ave.
Suite 987W Chicago,
IL 60611 Store Lease (Store #14
Urban Attention: Dan Pollard Water Tower Place) May-94 3,402.59
- ---------------------------------------------------------------------------------------------------------------------------
845 North Michigan
Ave. Suite 987W
Chicago, IL 60611
Attention: Dan Pollard
Copy to: Century Hill
Center Inc. 7950
Collection Center Dr. Store Lease (Store #25
Urban Chicago, Illinois 60693 Century City Shop. Ctr.) October-94 2,716.87
- ---------------------------------------------------------------------------------------------------------------------------
845 North Michigan Ave.
Suite 987W Chicago,
IL 60611
Attention: Dan Pollard
Copy to: HG Shopping
Centers, LP 135 South
La Salle St., Dept. 2088 Store Lease (Store #64
Urban Chicago, Illinois 60674-2088 Houston Galleria) April-95 2,404.52
- ---------------------------------------------------------------------------------------------------------------------------
11601 Wilshire Blvd.
12th Floor Los Angeles,
CA 90025
Attention: Len Maenza
Copy to: Montgomery Mall,
LP File #54738 3L Store Lease (Store #16
Westfield Los Angeles, CA 90074-4738 Montgomery Mall) May-94 3,464.87
- ---------------------------------------------------------------------------------------------------------------------------
11601 Wilshire Blvd.
12th Floor Los Angeles,
CA 90025
Attention: Len Maenza
Copy to: Valley Fair Mall,
LLC File #55702 Store Lease (Store #50
Westfield Los Angeles, CA 90074-5702 Valley Fair Mall) November-95 7,402.70
- ---------------------------------------------------------------------------------------------------------------------------
2110 Northern Blvd.
Wheatley Plaza Manhasset, NY 11030
Associates Attention: Frank Castagna Real Property Lease 02/13/92 2,982.53
- ---------------------------------------------------------------------------------------------------------------------------
2155 Fasan Dr., RR #1 Real Property Lease
Windsor Factory Oldcastle, Ont. N0R 1L0 (Windsor Factory Outlet) 11/26/99 0.00
- ---------------------------------------------------------------------------------------------------------------------------
c/o Great Oak Capital
Corp. 36 Toronto St.
Ste 1160 Toronto, Real Property Lease
Worldland Dev. Ont., M5C 2C5 (Cookstown Outlet) 06/11/02 0.00
- ---------------------------------------------------------------------------------------------------------------------------
One Exchange Place
Suite 501 Jersey City,
Greenwich Ins. NJ 07302
Company Attention: Kieran Moran Security Agreement 05/24/01 0.00
- ---------------------------------------------------------------------------------------------------------------------------
One Exchange Place
Suite 501 Jersey City,
Greenwich Ins. NJ 07302
Company Attention: Kieran Moran Security Agreement 12/19/01 0.00
- ---------------------------------------------------------------------------------------------------------------------------
One Exchange Place
Suite 501 Jersey City,
Greenwich Ins. NJ 07302 General Indemnity
Company Attention: Kieran Moran Agreement 05/21/01 0.00
- ---------------------------------------------------------------------------------------------------------------------------
One Exchange Place
Suite 501 Jersey City,
Greenwich Ins. NJ 07302
Company Attention: Kieran Moran Security Agreement 05/21/01 0.00
- ---------------------------------------------------------------------------------------------------------------------------
21
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 2158 Trash Collection
AAA Rubish Bell Gardena, CA 90202 Service 1,019.25
- ----------------------------------------------------------------------------------------------------------------------------
429 Frelinghuysen Ave.
Newark, NJ 07114 Trash Collection
Action Carting Attention: Joe Service 1,623.78
- ----------------------------------------------------------------------------------------------------------------------------
5355 Orangethorpe Ave. Payroll Software/
ADP, Inc. La Palma, CA 90623 Hardware Fee 1,431.04
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #3 90
ADT Attention: Nadine Gunderson Park Ave. NY, NY) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #11
ADT Attention: Nadine Gunderson Bridgehampton Com.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #17
ADT Attention: Nadine Gunderson Embarcadero Center) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #25
ADT Attention: Nadine Gunderson Century City Shp. Ctr.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #26
ADT Attention: Nadine Gunderson Columbus Ave.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #29
ADT Attention: Nadine Gunderson Pacific Center) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #33
ADT Attention: Nadine Gunderson University Town Ctr.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #40
ADT Attention: Nadine Gunderson Bayside Mall) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #77
ADT Attention: Nadine Gunderson Ala moana Shp. Ctr.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #79
ADT Attention: Nadine Gunderson Broadway Plaza) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #80
ADT Attention: Nadine Gunderson Village @ Corte Madera) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #113
ADT Attention: Nadine Gunderson Riverwalk Market PI.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #126 3146
ADT Attention: Nadine Gunderson "M" Street) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #145 500
ADT Attention: Nadine Gunderson Fifth Ave.) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #199 611
ADT Attention: Nadine Gunderson Duval Street) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
5400 W. Rosencrans
Hawthorne, CA 90250 Security (Store #205 150
ADT Attention: Nadine Gunderson Bloor Street) 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 371956
Pittsburgh PA 15250-7956
ADT Security Services Attention: Shawnail King Security services 1,779.14
- ----------------------------------------------------------------------------------------------------------------------------
14938 Vose Street
Van Nuys, CA 91405
Antoni's Landscaping Attention: Debbie/Antony Landscaping services 1,378.63
- ----------------------------------------------------------------------------------------------------------------------------
22
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
6330 Commerce
Dr. Ste 150
Arch Wireless Irving, TX 75063 Pager Service N/A 113.23
- ----------------------------------------------------------------------------------------------------------------------------
2767 E. Imperial
HWY #100
Arrowhead Brea, CA 92821 Bottled Water Service 340.46
- ----------------------------------------------------------------------------------------------------------------------------
900 N. Cahuenga
Blvd. Los Angeles,
AT&T Broadband CA 90038 Cable Service 160.48
- ----------------------------------------------------------------------------------------------------------------------------
14400 Hertz Quail
Spring Pkwy Oklahoma Telephone System
Avaya City, OK 73134 Maintenance N/A 79.96
- ----------------------------------------------------------------------------------------------------------------------------
5084 Benedict
Court Oak Park,
CA 91301 Air Condition/Heating
Avi's Air Conditioning Attention: Avi Maintenance Services 435.00
- ----------------------------------------------------------------------------------------------------------------------------
360 Lexington Ave.
15th Fl. New York, Pest Control
Barton Exterminating NY 10017 Services 232.75
- ----------------------------------------------------------------------------------------------------------------------------
301 W. Bay Street
Room 12DD1,
Jacksonville, Fla 32202
Bell South Attention: Judy Arcey Telephone System 0.00
- ----------------------------------------------------------------------------------------------------------------------------
830 County Road Fire Alarm (Store #11
Bellringer Communications Southhampton, NY 11968 Bridgehampton Com.) May-01 259.80
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 30272
Tampa, FL 33630
Cartegy (Equifax) Attention: Mel Smith 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Central Window P.O. Box 106 Window Cleaning
Cleaning Commack, NY 11725 Service N/A 173.60
- ----------------------------------------------------------------------------------------------------------------------------
17390 Brookhurst Street
Fountain Valley,
CA 92708 2/13/91 last
Ceridian Tax Attention: Becky Nelson Payroll Tax amended
Service and Scott Vollmer Service 01/02/02 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 30272
Certegy Check Tampa, FL 33630
Services Attention: Pearl Perry Check Guard 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Champion Garage 545 Madion Ave.
Parking New York, NY 10022 Parking 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 60176
City Centurion Oakwood, S.I. Guard Service
Security NY 10306-0716 New York 46,174.92
- ----------------------------------------------------------------------------------------------------------------------------
Industrial Waste
City of Los Angeles PO Box 806 Sacramento, Disposal Fee/Van
Dept of Public Works CA 95812-0806 Nuys 0.00
- ----------------------------------------------------------------------------------------------------------------------------
227 King St. South Waterloo, RRSP Administration
Clarica Ont. N2J 4C5 Fee 03/01/02 0.00
- ----------------------------------------------------------------------------------------------------------------------------
944 W. Brevard
St. Tallahassee,
Culligan of Fla, 32304 Water Softner
Tallahassee Attention: Max Ullrich System 0.00
- ----------------------------------------------------------------------------------------------------------------------------
23
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
101 North Park Street
Culligan Water East Orange, NJ 07017 Bottled Water Service 160.41
- -----------------------------------------------------------------------------------------------------------------------------
151 Sheldon Rd.
Manchester, CT 06040
Data Capture Solutions Inc. Attention: Tom Venezia Warehouse Scanning Guns 0.00
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 52271 Phoenix,
Deer Park Spring Water AZ 85072 Bottled Water Service 177.54
- -----------------------------------------------------------------------------------------------------------------------------
3711 Beverly Blvd.
Dewey Pest Control Los Angeles, CA 90004 Pest Control Services 466.70
- -----------------------------------------------------------------------------------------------------------------------------
114 Business Circle
Thomasville, GA 31792
Dixon Exterminating Attention: Charles Dixon Exterminator 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #3
DMX AEI Music Attention: Debra Comer-Craft 90 Park Ave. NY, NY) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #4
DMX AEI Music Attention: Debra Comer-Craft Bellevue Square) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #5
DMX AEI Music Attention: Debra Comer-Craft Prudential Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #6
DMX AEI Music Attention: Debra Comer-Craft Scottsdale Fashion Sq.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #9
DMX AEI Music Attention: Debra Comer-Craft Cherry Creek Shop. Ctr.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #11
DMX AEI Music Attention: Debra Comer-Craft Bridgehampton Com.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #12
DMX AEI Music Attention: Debra Comer-Craft Arden Fair Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #13
DMX AEI Music Attention: Debra Comer-Craft Tysons Corner Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #14 Water
DMX AEI Music Attention: Debra Comer-Craft Tower Place) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #16
DMX AEI Music Attention: Debra Comer-Craft Montgomery Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #17
DMX AEI Music Attention: Debra Comer-Craft Embaracdero Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #19
DMX AEI Music Attention: Debra Comer-Craft The Mall @ Short Hills) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #20
DMX AEI Music Attention: Debra Comer-Craft Towson Town Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #22
DMX AEI Music Attention: Debra Comer-Craft Boca Raton Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #25
DMX AEI Music Attention: Debra Comer-Craft Century City Shop. Ctr.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #26
DMX AEI Music Attention: Debra Comer-Craft Columbus Ave.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #29
DMX AEI Music Attention: Debra Comer-Craft Pacific Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
24
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #32 December-99 0.00
DMX AEI Music Attention: Debra Comer-Craft St. Louis Galleria)
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #33
DMX AEI Music Attention: Debra Comer-Craft University Town Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #34
DMX AEI Music Attention: Debra Comer-Craft Lenox Square) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #38
DMX AEI Music Attention: Debra Comer-Craft Mall of America) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #40
DMX AEI Music Attention: Debra Comer-Craft Bayside Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #41
DMX AEI Music Attention: Debra Comer-Craft Aventura Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #44
DMX AEI Music Attention: Debra Comer-Craft The Westchester) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #50
DMX AEI Music Attention: Debra Comer-Craft Valley Fair Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #64
DMX AEI Music Attention: Debra Comer-Craft Houston Galleria) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #66
DMX AEI Music Attention: Debra Comer-Craft Fashion Square Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #70
DMX AEI Music Attention: Debra Comer-Craft Santa Monica Place) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #75
DMX AEI Music Attention: Debra Comer-Craft Bridgewater Commons) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #77
DMX AEI Music Attention: Debra Comer-Craft Ala Moana Shp. Ctr.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #79
DMX AEI Music Attention: Debra Comer-Craft Broadway Plaza) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #80
DMX AEI Music Attention: Debra Comer-Craft Village @ Corte Madera) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #82
DMX AEI Music Attention: Debra Comer-Craft Beachwood Place) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #101
DMX AEI Music Attention: Debra Comer-Craft Hillsdale Shopping Center) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #102
DMX AEI Music Attention: Debra Comer-Craft Somerset Collection N) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #113
DMX AEI Music Attention: Debra Comer-Craft Riverwlak Market PI.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #124
DMX AEI Music Attention: Debra Comer-Craft Northstar Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #126
DMX AEI Music Attention: Debra Comer-Craft 3146 "M" Street) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #145
DMX AEI Music Attention: Debra Comer-Craft 500 Fifth Ave.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #155
DMX AEI Music Attention: Debra Comer-Craft Collins Ave.) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #165
DMX AEI Music Attention: Debra Comer-Craft Crabtree Valley) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #175
DMX AEI Music Attention: Debra Comer-Craft San Patricio Plaza) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street
Seattle WA 98122 Music (Store #176
DMX AEI Music Attention: Debra Comer-Craft Plaza Las Americas) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
25
- -----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- -----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street Seattle
WA 98122 Music (Store #177 Cristo
DMX AEI Music Attention: Debra Comer-Craft Street) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street Seattle
WA 98122 Music (Store #182 Northgate
DMX AEI Music Attention: Debra Comer-Craft Mall) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street Seattle
WA 98122 Music (Store #199 611 Duval
DMX AEI Music Attention: Debra Comer-Craft Street) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street Seattle
WA 98122 Music (Store #205 150 Bloor
DMX AEI Music Attention: Debra Comer-Craft Street) December-99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
900 East Pine Street Seattle,
DMX Music/AEI WA 98122 Music Service Provider 1,601.000
- -----------------------------------------------------------------------------------------------------------------------------
1625 Riverside Drive Los
Angeles, CA 90031 Coffee and Water Dispensing
Foodcraft Attention: Linda Equipment Rental 0.00
- -----------------------------------------------------------------------------------------------------------------------------
PO Box 5100, Stn F
IBM Tor. Ont. M3Y 2T5 Service/Maint. (4 printers) 01/29/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
2929 N. Central
Ave. Phoeniz, AZ 85012
IBM Corporation Attention: Ray J. Beye Maintenance 0.00
- -----------------------------------------------------------------------------------------------------------------------------
33 Shalimar Place Maple,
Ines Cacedo Ont. L6A 1T6 Office Cleaning 01/01/02 0.00
- -----------------------------------------------------------------------------------------------------------------------------
ITR (Information 6722 Orangethorpe Ave.
Technology Resources, Buena Park CA 90622
Inc.) Attention: Linda Chase IS Consulting 11/01/00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
P.O. Box 4877
Whittier CA 90607
Jimenez Janitorial Attention; Juan Jimenez Cleaning Service 0.00
- -----------------------------------------------------------------------------------------------------------------------------
JVC Cleaning Services
P.O. Box 630083
Little Neck, NY 11363
JVC Cleaning Services Attention: Maria Cleaning Service 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Lanier de Costa RIca , Apartado
Lanier De Costa Rica Postal 301-1005 Barrio Mexico - Maintenance of Copiers and
S.A. Costa Rica Mr. Jose Antonio Ramierz Faxes 08/28/99 0.00
- -----------------------------------------------------------------------------------------------------------------------------
300 River Valley Road Suite
Methods Workshop 100 Atlanta GA GSD/Van Nuys 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1244 West 9th St Upland,
Nu-Waye Water CA 91786
Conditioning Attention: Christina Pattison Dye house/Van Nuys 568.50
- -----------------------------------------------------------------------------------------------------------------------------
3039 Roswell Street
Oliver & Williams Los Angeles, CA 90065
Elevator Company Attention: Stephen Crow Elevator Maintenance 0.00
- -----------------------------------------------------------------------------------------------------------------------------
1401 S. 52nd
St Tempe, AZ 85281
Paymentech Attention: Christy Houmes Credit Card Service Dec-98 0.00
- -----------------------------------------------------------------------------------------------------------------------------
16118 Sherman Way Van Nuys,
CA 91406 Attention: Pat
Pinkerton Slater Security/Van Nuys 0.00
- -----------------------------------------------------------------------------------------------------------------------------
610 N. Santa Anita
Ave. Arcadia, CA
91006 Attention:
Post Alarm Systems Tony Garcia Alarm Monitoring Services 293.35
- -----------------------------------------------------------------------------------------------------------------------------
105-6 Shields Court
Q Data Markham Ont., L3R 4S1 Bar Coding Guns Maintenance 08/01/00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
6953 Canoga Ave. Canoga
Rayne Water System Park, California 91303 Dye house/Van Nuys 0.00
- -----------------------------------------------------------------------------------------------------------------------------
26
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
644-P Poplar Orange,
Retail Cleaning CA 92868
Specialists Attention: Jse Torres Cleaning Service 0.00
- ---------------------------------------------------------------------------------------------------------------------------
44248 Palo Verde
St. Lancaster, CA 93536
Robinson Pest Control Attention: Michael Robinson Exterminator/Van Nuys 0.00
- ----------------------------------------------------------------------------------------------------------------------------
National Account Group DEPT L277
Security Link Columbus, OH 43260 Security Services 207.20
- ----------------------------------------------------------------------------------------------------------------------------
129 Central Ave.
Pompton Lake NJ 07442
Selami Bauta Attention: Selami Bauta Cleaning Service 3,733.20
- ----------------------------------------------------------------------------------------------------------------------------
Siemens de Costa Rica
Apartado Postal 10022-1000
San Jose - Costa Rica
Siemens De Costa Rica Attention: Rosibel Ulate Telephone system lease 01/01/97 0.00
- ----------------------------------------------------------------------------------------------------------------------------
7661 DensmoreAve.
Sola Security of Los Van Nuys CA 91406
Angeles Attention: 91406 Alarm system/Van Nuys 1,956.00
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 176
Hewlett NY, 11557
Telcorp Attention: Steve Samuels Data services Mar-00 161,557.38
- ----------------------------------------------------------------------------------------------------------------------------
15720 Ventura BL Ste 421
Encino, CA 91436
Top Protection Attention: Adel Ali Security Services 0.00
- ----------------------------------------------------------------------------------------------------------------------------
2707 W. Temple Street
Los Angeles,
United Alarm CA 90026 Alarm Monitoring Services 120.00
- ----------------------------------------------------------------------------------------------------------------------------
1198 Prospect Ave.
Waste Management of LI Westbury, NY 11590 Trash Collection Service 175.12
- ----------------------------------------------------------------------------------------------------------------------------
9081 Tujunga Ave.
Waste Management Sun Valley, CA 91352 Trash/Van Nuys 0.00
- ----------------------------------------------------------------------------------------------------------------------------
265 Broad Hollow Rd.
Wells Fargo Merchant Melville, NY 11747
Services Attention: Charles Caputo Credit Card Services 0.00
- ----------------------------------------------------------------------------------------------------------------------------
2300 N. Branch
Ave. PO Box 1762
Altoona, PA 16603-1762
Drennings Tractor Attention: Jeff Drenning Tractor ZJ72380 2,347.95
- ----------------------------------------------------------------------------------------------------------------------------
920 Champlain Court Whitby,
BMW Financial Ont. L1K 6K9 Car Lease 05/15/01 0.00
- ----------------------------------------------------------------------------------------------------------------------------
P.O. Box 802556
G.E. Capital Chicago, IL 60680-2556 Freightliner Truck Feb-99 2,097.06
- ----------------------------------------------------------------------------------------------------------------------------
890 Mountain Ave. Murray
Hill, NJ 07974
K-Line Attention: Pamela Donovan Ocean Freight 04/01/01 0.00
- ----------------------------------------------------------------------------------------------------------------------------
15 Ingram Avenue
Pittsburgh, PA 15205-2023
Ryder Truck Attention Sandra Becker Lease of Truck 328425 10/07/99 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Lease of road
404 Kettle Street trailer-T45-2193 T-48-1415
Zoresco Altoona, PA 16602 (Account #23018) 1,558.91
- ----------------------------------------------------------------------------------------------------------------------------
DL Peterson
Trust 5924
Collections Drive
DIL Peterson Trust Chicago, IL 60693 Nissan Altima Lease 34.75
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 7151 Lease of 2001 Explorer VIN#
Ford Motor Credit Springfield, Ohio 45501 1FMZU73E61ZA03053 147.35
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 7151 Lease of 2000 Mercury Sable
Ford Motor Credit Springfield, Ohio 45501 VIN# 1MEFM55S4YA624247 Dec-00 139.00
- ----------------------------------------------------------------------------------------------------------------------------
27
- ----------------------------------------------------------------------------------------------------------------------------
PLAN SCHEDULE 3.2
- ----------------------------------------------------------------------------------------------------------------------------
LIST OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------
CONTRACT
DATE/CONTRACT
CONTRACT PARTY NOTICE ADDRESS CONTRACT DESCRIPTION EXTENSION DATE CURE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
17197 N. Laurel Park
Drive Livonia, Michigan
48152 Attention: Jack
Ford Motor Credit Co. Champagne Vehicle Lease 05/09/00 166.27
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 630071 Lease of 2000 Chevrolet
Smart Lease by GMAC Dallas, TX 75263-0071 Blazer VIN#1GNDT1BW9Y2107030 Nov-99 173.00
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 630071 Lease of GMC Yukon VIN#
Smart Lease by GMAC Dallas, TX 75263-0071 1GKEK13T21J198477 Feb-01 1,505.01
- ----------------------------------------------------------------------------------------------------------------------------
PO Box 70085 Lease of 2000 Toyota Tundra
Toyota Motor Credit San Antonio, TX 78270 VIN# 5TBRT3417YS113609 Nov-00 2,221.21
- ----------------------------------------------------------------------------------------------------------------------------
28
PLAN SCHEDULE 5.6
LIST OF OFFICERS AND DIRECTORS OF EACH REORGANIZED DEBTOR
[TO BE FILED BY EXHIBIT FILING DATE]
PLAN SCHEDULE 5.7
PRINCIPAL TERMS AND CONDITIONS OF EXIT FINANCING FACILITY
[TO BE FILED BY EXHIBIT FILING DATE]
PLAN SCHEDULE 5.17
LIST OF CONTINUED EMPLOYMENT, RETIREMENT,
AND INCENTIVE COMPENSATION PROGRAMS
[TO BE FILED BY EXHIBIT FILING DATE]
PLAN SCHEDULE 7.6
LIST OF SPECIFIC CAUSES OF ACTION RETAINED BY REORGANIZED DEBTORS
[TO BE FILED BY EXHIBIT FILING DATE]
PLAN EXHIBITS
[TO BE FILED BY EXHIBIT FILING DATE]
EXHIBIT 1 - AMENDED CERTIFICATES OF INCORPORATION
EXHIBIT 2 - AMENDED BYLAWS
EXHIBIT 3 - REGISTRATION RIGHTS AGREEMENT
EXHIBIT 4 - RIGHTS PLAN
EXHIBIT B
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
SIDLEY AUSTIN BROWN & WOOD LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Counsel for Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - X
: Chapter 11
In re: :
: Case Nos. 01-41643 (RLB)
THE WARNACO GROUP, INC., et al., : through 01-41680 (RLB)
:
Debtors. : (Jointly Administered)
- - - - - - - - - - - - - - - - - - - - - - - - - X
ORDER APPROVING DISCLOSURE STATEMENT,
SCHEDULING CONFIRMATION HEARING AND
SETTING RELATED DEADLINES AND APPROVING
FORM AND MANNER OF NOTICE
The Warnaco Group, Inc., a Delaware corporation with its principal
place of business in New York, New York, and certain of its subsidiaries, each a
debtor and debtor-in-possession herein (collectively, the "Debtors"), having on
October 1, 2002, filed the Debtors' Joint Plan of Reorganization (the "Plan")(1)
and the Disclosure Statement to the Debtors' First Amended Joint Plan of
Reorganization (the "Disclosure Statement"); and the Court finding that proper
and adequate notice of the hearing on approval of the Disclosure Statement has
been given to all parties-in-interest; and a hearing having been held on
November 13, 2002, to consider approval of the Disclosure Statement (the
"Disclosure Statement Approval Hearing");
- ----------
(1) Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Plan.
and all parties-in-interest having been given an opportunity to be heard at the
Disclosure Statement Approval Hearing; and the Court having found that the
Disclosure Statement contains "adequate information" as that term is defined by
11 U.S.C. 'SS' 1125;
IT IS HEREBY ORDERED, and notice is hereby given that:
Approval of Disclosure Statement
1. The Disclosure Statement is approved and such Disclosure Statement
contains adequate information as such term is defined by 11 U.S.C. 'SS' 1125.
2. [All Objections to the Disclosure Statement, other than those
withdrawn on the record at the Disclosure Statement Approval Hearing or those
Objections resolved by making changes to the Disclosure Statement, are
overruled.]
3. Prior to mailing the Disclosure Statement and the Plan, the Debtors
may fill in any missing dates and other information, correct any typographical
errors and make such other non-material, non-substantive changes to the
Disclosure Statement and the Plan as they deem appropriate and necessary.
Date for Hearing to Consider Confirmation of the Plan
4. A hearing to consider confirmation of the Plan (the "Confirmation
Hearing") will be held on [__________ __, 2002] at [_______] [a.m./p.m.]
Prevailing Eastern Time (the "Confirmation Hearing Date") at the United States
Bankruptcy Court for the Southern District of New York before the Honorable
Richard L. Bohanon, United States Bankruptcy Judge, at the Alexander Hamilton
Custom House, One Bowling Green, New York, New York 10004.
5. The Debtors shall not be required to give any further notice of any
adjournment of the Confirmation Hearing that may be announced in open Court on
the Confirmation Hearing Date or at any subsequent Confirmation Hearing Date.
-2-
Deadline for Filing Objections to Confirmation of the Plan
6. All objections, if any, to confirmation of the Plan, including,
without limitation, objections to the assumption or rejection of any executory
contract or unexpired lease under the Plan, including any supporting
declarations, memoranda or other documentation, must be in writing, filed with
the Clerk of the Bankruptcy Court together with proof of service thereof, and
shall (a) state the name and the address of the objecting party, and the amount
of its Claim or the nature of its Interest in the Debtors' Cases, (b) if
applicable, identify the executory contract or unexpired lease to be assumed or
rejected under the Plan that is the subject of the objection, (c) state with
particularity the provision or provisions of the Plan, including, without
limitation, the assumption or rejection of any executory contract or unexpired
lease under the Plan, objected to and, for any objection asserted, the legal and
factual basis for such objection and (d) be served upon: (i) Sidley Austin Brown
& Wood LLP, 787 Seventh Avenue, New York, New York 10019, Attention: Kelley A.
Cornish, Esq., counsel to the Debtors, (ii) Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York 10153, Attention: Brian S. Rosen, Esq., counsel
to the Debtors' post-petition secured lenders, (iii) Shearman & Sterling, 599
Lexington Avenue, New York, New York 10022, Attention: James L. Garrity, Jr.,
Esq., counsel to the Debt Coordinators for the Debtors' pre-petition Secured
Lenders, (iv) the Office of the United States Trustee for the Southern District
of New York, 33 Whitehall Street, 21st Floor, New York, New York 10004,
Attention: Mary Tom, Esq., and (v) Otterbourg, Steindler, Houston & Rosen, P.C.,
230 Park Avenue, New York, New York 10169, Attention: Scott L. Hazan, Esq.,
counsel to the Official Committee of Unsecured Creditors so as to be received on
or before 4:00 p.m. (Prevailing Eastern Time) on [___________]. Any objection
not filed and served as set forth above shall be deemed waived and will not be
considered by the Bankruptcy Court.
-3-
Procedure for Distribution of Confirmation Hearing Notice
7. The Debtors are authorized and directed, as soon as practicable,
but no later than [________ __, 2002], to transmit by first class, United States
mail, to all known holders of Administrative Claims, Priority Tax Claims, the
DIP Facility Claim, unimpaired Claims in Class 1, Class 3, and Class 4, impaired
Claims and Interests in Class 2, Class 5, Class 6 and Class 8, to non-Debtor
parties to executory contracts and unexpired leases of the Debtors to be
rejected or assumed pursuant to the Plan as set forth in Plan Schedules 3.1 and
3.2, respectively, to the Securities and Exchange Commission, to the Internal
Revenue Service, to the United States Attorney's Office for the Southern
District of New York and to all parties having requested notice pursuant to Fed.
R. Bankr. P. 2002, a copy of the notice in the form attached hereto as Exhibit A
(the "Confirmation Hearing Notice"), the form of which hereby is approved.
8. The Debtors shall not be required to send any notice to any party
whose Claim has been disallowed or expunged in its entirety by Final Order
entered prior to the mailing of the items identified in paragraph 7 of this
Order.
9. The Debtors are authorized and directed to publish notice of the
approval of the Disclosure Statement, the Confirmation Hearing and the Objection
Deadline in The Wall Street Journal (Global Edition), the New York Times and
Women's Wear Daily on at least one occasion on or before [_________ __, 2002].
10. Notice given as provided herein shall be deemed adequate and
sufficient and the Debtors shall be deemed to have complied with Fed. R. Bankr.
P. 3017(a).
-4-
11. The Debtors are hereby authorized and empowered to take such steps
and incur and pay such costs and expenses and to do such things as may be
reasonably necessary to implement the provisions of this Order. This Court shall
retain jurisdiction to hear all such matters as may be related to, or arise
from, this Order.
Dated: New York, New York
______________, 2002
---------------------------------
THE HONORABLE RICHARD L. BOHANON
UNITED STATES BANKRUPTCY JUDGE
-5-
EXHIBIT A
Hearing Date: ________ __, 2002 at 9:45 a.m. (Prevailing Eastern Time)
Objection Deadline: _________ __, 2002 at 4:00 p.m. (Prevailing Eastern Time)
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
SIDLEY AUSTIN BROWN & WOOD LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Counsel for Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
:
THE WARNACO GROUP, INC., :
Federal Tax I.D. No. 95-4032739 :
:
184 BENTON STREET INC. :
Federal Tax I.D. No. 06-1045343 :
:
A.B.S. CLOTHING COLLECTION, INC. :
Federal Tax I.D. No. 95-3799247 :
: Chapter 11
ABBEVILLE MANUFACTURING COMPANY, :
Federal Tax I.D. No. 13-3779229 : Case Nos. 01-41643 (RLB)
: through 01-41680 (RLB)
AEI MANAGEMENT CORPORATION, :
Federal Tax I.D. No. 95-4355518 : (Jointly Administered)
:
AUTHENTIC FITNESS CORPORATION, :
Federal Tax I.D. No. 95-4268251 :
:
AUTHENTIC FITNESS ON-LINE, INC. :
Federal Tax I.D. No. 95-4741962 :
:
AUTHENTIC FITNESS PRODUCTS INC. :
Federal Tax I.D. No. 95-4267322 :
:
AUTHENTIC FITNESS RETAIL INC. :
Federal Tax I.D. No. 95-4442062 :
:
BLANCHE INC. :
Federal Tax I.D. No. 06-1290226 :
:
:
CCC ACQUISITION CORP. :
Federal Tax I.D. No. 95-4456443 :
:
CCC ACQUISITION REALTY CORP. :
Federal Tax I.D. No. 95-4456445 :
:
C.F. HATHAWAY COMPANY :
Federal Tax I.D. No. 01-0263592 :
:
CALVIN KLEIN JEANSWEAR COMPANY, :
Federal Tax I.D. No. 13-3779381 :
:
CKJ HOLDINGS, INC. :
Federal Tax I.D. No. 13-3928129 :
:
CKJ SOURCING, INC. :
Federal Tax I.D. No. 13-3928016 :
:
DESIGNER HOLDINGS LTD. :
Federal Tax I.D. No. 13-3818542 :
:
GREGORY STREET, INC. :
Federal Tax I.D. No. 06-1469376 :
:
JEANSWEAR HOLDINGS, INC. :
Federal Tax I.D. No. 13-3779227 :
:
KAI JAY MANUFACTURING COMPANY, :
Federal Tax I.D. No. 13-3779231 :
:
MYRTLE AVENUE, INC. :
Federal Tax I.D. No. 06-1469379 :
:
OUTLET HOLDINGS, INC. :
Federal Tax I.D. No. 13-3907558 :
:
OUTLET STORES, INC. :
Federal Tax I.D. No. 13-3907560 :
:
PENHALIGON'S BY REQUEST, INC. :
Federal Tax I.D. No. 13-4076879 :
:
RIO SPORTSWEAR, INC. :
Federal Tax I.D. No. 13-3779228 :
:
UBERTECH PRODUCTS, INC. :
Federal Tax I.D. No. 06-1577619 :
:
VENTURES LTD. :
Federal Tax I.D. No. 06-1559945 :
:
WARMANA LIMITED, :
Federal Tax I.D. No. 06-0902642 :
:
WARNACO INC. :
Federal Tax I.D. No. 22-1897478 :
2
:
WARNACO INTERNATIONAL, INC. :
Federal Tax I.D. No. 06-0967709 :
:
WARNACO INTERNATIONAL LLC :
Federal Tax I.D. No. 06-1442942 :
:
WARNACO MEN'S SPORTSWEAR INC. :
Federal Tax I.D. No. 25-1141063 :
:
WARNACO OF CANADA COMPANY :
Federal Tax I.D. No. 98-0201311 :
Canada Business No. 105586911 :
:
WARNACO PUERTO RICO, INC. :
Federal Tax I.D. No. 66-0585156 :
:
WARNACO SOURCING INC. :
Federal Tax I.D. No. 06-1172666 :
:
WARNACO U.S., INC. :
Federal Tax I.D. No. 06-1519997 :
:
WARNACO VENTURES LTD. :
Federal Tax I.D. No. 06-1559941 :
:
WARNER'S DE COSTA RICA INC. :
Federal Tax I.D. No. 06-0937741 :
:
Debtors. :
x
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NOTICE OF HEARING TO CONSIDER CONFIRMATION
OF DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
TO ALL HOLDERS OF CLAIMS AND INTERESTS
AND OTHER PARTIES IN INTEREST:
APPROVAL OF DISCLOSURE STATEMENT
PLEASE TAKE NOTICE that by Order dated [insert date], the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") approved the Debtors' Disclosure Statement to Debtors' First Amended
Joint Plan of Reorganization (the "Disclosure Statement") as containing adequate
information within the meaning of Section 1125 of the Bankruptcy Code.
3
CONFIRMATION HEARING
PLEASE TAKE FURTHER NOTICE that on [insert date at _:_ _.m.]
(Prevailing Eastern Time), or as soon thereafter as counsel may be heard, a
hearing (the "Confirmation Hearing") will commence before the Honorable Richard
L. Bohanon, United States Bankruptcy Judge, at the United States Bankruptcy
Court for the Southern District of New York, Alexander Hamilton Custom House,
One Bowling Green, New York, New York 10004-1408 to consider confirmation of the
Debtors' First Amended Joint Plan of Reorganization (the "Plan"), as the same
may be further amended or modified.
PLEASE TAKE FURTHER NOTICE that the Confirmation Hearing may be
adjourned from time to time without further notice to creditors or other parties
in interest other than by an announcement of such an adjournment in open court
at the Confirmation Hearing or any adjournment thereof. Additionally, the Plan
may be modified in accordance with the Bankruptcy Code, the Federal Rules of
Bankruptcy Procedure and other applicable law, without further notice, prior to,
at or as a result of the Confirmation Hearing.
SUMMARY OF PLAN TREATMENT OF CLAIMS AND INTERESTS
PLEASE TAKE FURTHER NOTICE that the Plan proposes to modify the rights
of certain creditors and equity securities holders of the Debtors. The Plan
establishes the following classes of Claims(1) and Interests with the following
treatment:
o Class 1 -- Priority Non-Tax Claims. Unless otherwise agreed by
the holder of an Allowed Priority Non-Tax Claim (in which event
such agreement will govern), each holder of an Allowed Class 1
Claim will be paid in full in Cash on the later of the Initial
Distribution Date and a date that is as soon as practicable after
the date upon which such Claim becomes an Allowed Priority
Non-Tax Claim.
o Class 2 -- Senior Secured Bank Claims. On the Effective Date,
each holder of a Senior Secured Bank Claim will receive in full
satisfaction of its Senior Secured Bank Claim its pro rata share
of the following, to be distributed by the Administrative Agent
in accordance with the Pre-Petition Facility and Intercreditor
Agreements: (i) Cash equal to the amount of the balance due on
the Original Foreign Facilities Guaranty Claims, which will be
applied to repay in full satisfaction of any outstanding amounts
owing by the Debtors under the Original Foreign Facilities as of
the Petition Date; (ii) New Warnaco Second Lien Notes in the
aggregate principal amount of $200 million; and (iii) 96.263% of
the New Warnaco Common Shares, subject to Dilution. In the event
that holders of Class 6 Claims are not entitled to receive a
distribution as provided in Section 2.9.(C) of the Plan, on the
Effective Date, each holder of a Class 2 Senior Secured Bank
Claim will receive its pro rata share of an additional 0.581% of
the New Warnaco Common Shares, subject to Dilution.
o Class 3 -- GE Capital Secured Claims Under the 1997 MLA. The GE
Capital Settlement Agreement and the GE Capital Settlement Order
and each of their provisions will be deemed to be a part of the
Plan and the Confirmation Order. As provided in the GE Capital
Settlement Agreement, in satisfaction of obligations arising
under the 1997 MLA, GE Capital will receive an amount equal to
$15.2 million (the "GE Settlement Amount"), less all amounts paid
by the Debtors to GE Capital with respect to the 1997 MLA from
the Petition Date
- ----------
(1) Capitalized terms used but not defined herein shall have the meaning
ascribed to such terms in the Plan.
4
through and including the Effective Date, which amount will be
payable without interest at the rate of $750,000 per month from
and after the Effective Date until the GE Settlement Amount is
paid in full. GE Capital will retain its first priority perfected
security interest in and to all of the 1997 Equipment (as that
term is defined in the GE Capital Settlement Agreement) all as
more particularly set forth in the GE Capital Settlement
Agreement. To the extent of a conflict between the GE Capital
Settlement Agreement and/or the GE Settlement Order on the one
hand, and the plan and/or the Confirmation Order on the other
hand, the terms of the GE Capital Settlement Agreement and the GE
Settlement Order will govern and control.
o Class 4 -- Other Secured Claims. Other Secured Claims against the
Debtors will, at the sole option of the Debtors, be: (i) paid in
full in Cash on the Initial Distribution Date; (ii) reinstated
according to the terms of the relevant instrument; (iii) paid on
such other terms as the Debtors and the holder of such Claim may
agree; or (iv) satisfied through the surrender by the applicable
Debtors of the collateral securing the Claim to the holder
thereof.
o Class 5 -- Unsecured Claims. Each holder of an Allowed Unsecured
Claim will receive its pro rata share of 2.549% of the New
Warnaco Common Shares, subject to Dilution. In the event that
holders of Class 6 Claims are not entitled to receive a
distribution as provided in Section 2.9.(C) of the Plan, each
holder of an Allowed Unsecured Claim will receive its pro rata
share of an additional 0.015% of the New Warnaco Common Shares,
subject to Dilution.
o Class 6 -- TOPrS Claims. In the event that the holders of the
TOPrS Claims vote as a Class to reject the Plan, the holders of
TOPrS Claims will not receive or retain any interest or property
under the Plan, and no distribution will be made on account of
the TOPrS Claims, and the New Warnaco Common Shares that would
otherwise be distributed on account of the TOPrS Claims as set
forth in the next sentence will instead be distributed pro rata
to holders of Allowed Class 2 and Allowed Class 5 Claims in the
following percentages: 0.581% to the holders of Allowed Class 2
Claims and 0.015% to the holders of Allowed Class 5 Claims,
subject to Dilution. Otherwise, in full satisfaction of the TOPrS
Claims, on the Initial Distribution Date, the Reorganized Debtors
will distribute to the TOPrS Trustee, subject to the right of the
TOPrS Trustee to assert its TOPrS Trustee Charging Lien against
the distributions to the holders of the TOPrS to the extent the
TOPrS Trustee Fee remains unpaid, or such persons as the TOPrS
Trustee will designate at least ten days prior to the
Confirmation Hearing, for redelivery to the holder(s) of the
TOPrS Claims, a stock certificate evidencing ownership of 0.596%
of the New Warnaco Common Shares, subject to Dilution, and in
addition will pay the amount of up to $300,000 to the TOPrS
Trustee on account of the TOPrS Trustee Fee, subject to receipt
and review by the Debtors of invoices detailing such fees and
expenses.
o Class 7 - Intercompany Claims. Subject to Section 5.10. of the
Plan, Intercompany Claims will be discharged, and the holders of
Intercompany Claims will not be entitled to receive or retain any
property on account of such Claims.
o Class 8 -- Common Stock Claims and Interests. Interests will be
cancelled, and the holders of Common Stock Claims and Interests
will not be entitled to receive or retain any property on account
of such Claims and Interests.
PLEASE TAKE FURTHER NOTICE that, in accordance with Section 1123(a)(1)
of the Bankruptcy Code, the Plan does not classify Administrative Claims, the
DIP Facility Claim and Priority Tax Claims, but the treatment afforded such
Claims under the Plan is as follows:
5
o Administrative Claims.
(i) General. Subject to the provisions of Section 6.6.(A) of the
Plan and unless otherwise agreed by the holder of an Allowed
Administrative Claim (in which event such other agreement will
govern), and except with respect to the Alvarez Incentive Bonus
(see below), the Designated Post-Petition Loans (see below), and
claims of the Debt Coordinators and the Pre-Petition Collateral
Trustee payable under Paragraph 22 of the DIP Approval Orders,
each holder of an Allowed Administrative Claim will be paid in
full in Cash (i) at the sole option of the Debtors (before the
Effective Date) or the Reorganized Debtors (on or after the
Effective Date), (a) in the ordinary course of business as the
Claim becomes due and owing or (b) on the Initial Distribution
Date or (ii) on such other date as the Bankruptcy Court may
order.
(ii) Alvarez Incentive Bonus. On the Effective Date, the
Reorganized Debtors will make the payments in Cash and the
distributions of New Warnaco Second Lien Notes and New Warnaco
Common Shares, as set forth in Plan Schedule 1.6, in satisfaction
of the Alvarez Incentive Bonus.
(iii) Designated Post-Petition Loans. The Designated
Post-Petition Loans will be satisfied in full by the payments and
distributions to be made to the Pre-Petition Secured Lenders as
set forth in Section 2.5.(C) of the Plan.
o DIP Facility Claim. On the Effective Date, the DIP Facility Claim
will be paid in full in Cash, or otherwise satisfied in a manner
acceptable to the DIP Lenders; provided, however, that all
letters of credit under the DIP Facility as of the Effective Date
will remain outstanding as of the Effective Date and will be
paid, in the event drawn, through a borrowing by the Reorganized
Debtors under the Exit Financing Facility.
o Priority Tax Claims. Unless otherwise agreed by the holder of an
Allowed Priority Tax Claim (in which event such other agreement
will govern), each holder of an Allowed Priority Tax Claim will
receive, on the Initial Distribution Date, at the Reorganized
Debtors' option, (a) Cash equal to the amount of such Allowed
Priority Tax Claim, or (b) Cash in six equal annual installments,
together with interest thereon at the legal rate required for
such claims in chapter 11 cases, which interest will be paid
annually in arrears pursuant to Section 1129(a)(9)(C) of the
Code.
SUMMARY OF TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
PLEASE TAKE FURTHER NOTICE that Article III of the Plan proposes the
following treatment of pre-petition executory contracts and unexpired leases to
which any of the Debtors are a party:
o Rejected Contracts and Leases: Each executory contract and
unexpired lease to which any of the Debtors is a party will be
deemed automatically rejected as of the Effective Date, except
with respect to Intellectual Property Contracts, which will be
deemed automatically assumed as of the Effective Date, unless
such executory contract or unexpired lease (a) will have been
previously been rejected or assumed by order of the Bankruptcy
Court, or (b) is the subject of a motion to assume or reject
filed on or before the Confirmation Date, or (c) is listed on the
schedule of contracts and leases to be rejected or assumed
pursuant to the Plan, annexed as Plan Schedules 3.1 and 3.2,
respectively, (and as the same may be modified or supplemented,
if at all, pursuant to Section 3.3.(B) of the Plan). The
Confirmation Order will constitute an order of the Bankruptcy
Court approving such deemed rejection or assumption (with respect
to Intellectual Property Contracts only), as applicable, as of
the Effective Date. All executory contracts and unexpired leases
specifically listed on the schedule of rejected
6
executory contracts and unexpired leases, annexed as Plan
Schedule 3.1, will be deemed automatically rejected pursuant to
the Plan by the applicable Debtor as of the Effective Date.
o Assumed Contracts and Leases: All executory contracts and
unexpired leases specifically listed on the schedule of assumed
executory contracts and unexpired leases, annexed as Plan
Schedule 3.2 and modified or supplemented, if at all, pursuant to
Section 3.3.(B) of the Plan, will be deemed automatically assumed
pursuant to the Plan by the applicable Debtor as of the Effective
Date. Each executory contract and unexpired lease that is assumed
under the Plan and relates to the use, ability to acquire or
occupancy of real property will include (a) all modifications,
amendments, supplements, restatements or other agreements made
directly or indirectly by any agreement, instrument or other
document that in any manner affect such executory contract or
unexpired lease and (b) all executory contracts or unexpired
leases appurtenant to the premises, including all easements,
licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, reciprocal easement
agreements and any other interests in real estate or rights in
rem related to such premises, unless any of the foregoing
agreements has been rejected pursuant to a Final Order of the
Bankruptcy Court or is otherwise rejected as part of the Plan.
o The Debtors reserve the right to file a motion on or before the
Confirmation Date to assume or reject any executory contract or
unexpired lease. Notwithstanding any other provision of the Plan,
each of the Debtors will retain the right to, at any time prior
to the Confirmation Hearing, modify or supplement Plan Schedule
3.1 and Plan Schedule 3.2, including, without limitation, the
right to add any executory contract or unexpired lease to, or
delete any executory contract or unexpired lease from, Plan
Schedule 3.1 or Plan Schedule 3.2. Listing an executory contract
or unexpired lease on Plan Schedule 3.1 or Plan Schedule 3.2 will
not constitute an admission by any of the Debtors or the
Reorganized Debtors that such contract or lease (including any
related agreements that may exist) is an executory contract or
unexpired lease or that the applicable Debtor or Reorganized
Debtor has any liability thereunder.
o Payments Related to Assumption of Executory Contracts and
Unexpired Leases. Any monetary amounts by which each executory
contract and unexpired lease to be assumed under the Plan may be
in default will be satisfied by Cure in the amount, if any, set
forth in Plan Schedule 3.2, or, in the event of an objection to
such Cure amount or if no such Cure amount is listed, in the
amount agreed between the parties or as ordered by the Bankruptcy
Court or another court of competent jurisdiction. To the extent
the non-Debtor party to the unexpired lease or executory contract
does not object to the amount of Cure set forth in Plan Schedule
3.2 on or before the Voting Deadline, such non-Debtor party will
be deemed to accept such Cure amount. In the event of a dispute
regarding (a) the nature or the amount of any Cure, (b) the
ability of the applicable Reorganized Debtor or any assignee to
provide "adequate assurance of future performance" (within the
meaning of Section 365 of the Code) under the contract or lease
to be assumed or (c) any other matter pertaining to assumption,
such dispute will be determined by the Bankruptcy Court or
another court of competent jurisdiction, or as the parties may
otherwise agree. To the extent the Debtor who is a party to the
unexpired lease or executory contract is to be merged pursuant to
Section 5.4. of the Plan, upon assumption as contemplated
therein, the Reorganized Debtor that is the surviving entity
after such merger will be the party to the unexpired lease or
executory contract.
o Post-Petition Contracts and Leases. All contracts, agreements and
leases that were entered into by the Debtors or assumed by the
Debtors after the Petition Date will be deemed assigned by the
Debtors to the Reorganized Debtors on the Effective Date.
7
o Rejection Damages Bar Date. If the rejection by a Debtor,
pursuant to the Plan or otherwise, of an executory contract or
unexpired lease results in a Claim, then such Claim will be
forever barred and will not be enforceable against any Debtor or
Reorganized Debtor or the properties of any of them unless a
proof of claim is filed with the clerk of the Bankruptcy Court
and served upon counsel to the Debtors within thirty (30) days
after service of the earlier of (a) notice of the Confirmation
Date, or (b) other notice that the executory contract or
unexpired lease has been rejected pursuant to an order of the
Bankruptcy Court.
CONSEQUENCES OF CONFIRMATION AND INJUNCTION
PLEASE TAKE FURTHER NOTICE that if the Bankruptcy Court confirms the
Plan, the Plan will bind all holders of Claims and Interests against the
Debtors, whether or not they are entitled to vote or did vote on the Plan and
whether or not they receive or retain any distributions or property under the
Plan, wherever located. The Plan provides for an injunction against holders of
certain Claims and Interests against the Debtors from taking certain actions on
account of such Claims and Interests, including, but not limited to: (i)
commencing or continuing in any manner any action or other proceeding against
the Debtors or the Reorganized Debtors or their respective property; (ii)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors or the Reorganized Debtors or their
respective property; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors or the Reorganized Debtors or their respective
property; (iv) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to the Debtors or the
Reorganized Debtors or their respective property; and (v) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
As more particularly described in the Plan, the Plan also provides for
certain exculpations and releases by, and injunctions against, the Debtors in
favor of (i) each of the Debtors' directors who served at any time during the
Cases, (ii) each of the Debtors' officers employed as of the Effective Date,
(iii) the members of the Creditors' Committee, (iv) the members of the Post-
Effective Date Committee, (v) the DIP Lenders, (vi) the Pre-Petition Secured
Lenders, (vii) the TOPrS Trustee, and (viii) the attorneys, investment bankers,
restructuring consultants and financial advisors of the foregoing from any and
all claims, obligations, suits, judgments, damages, rights, causes of action
and liabilities whatsoever (including, without limitation, those arising under
the Code), whether known or unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise, based in whole or in part on
any act, omission, transaction, event or other occurrence taking place on or
after the Petition Date through and including the Effective Date in connection
with, relating to or arising out of the Cases, the management and operation of
the Debtors, the formulation, negotiation, implementation, confirmation or
consummation of the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with the Plan.
8
Finally, the Plan provides for certain releases by, and injunctions
against, the Debtors and holders of Claims entitled to vote on the Plan in favor
of, (i) each of the Debtors' former and present officers and directors, (ii) the
Pre-Petition Secured Lenders, (iii) the TOPrS Trustee, and (iv) the attorneys,
investment bankers, restructuring consultants and financial advisors of the
foregoing from any and all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever (including, without
limitation, those arising under the Code), whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, based in
whole or in part on any act, omission, transaction, event or other occurrence
taking place before the Petition Date in connection with or relating to The
Warnaco Group, Inc. or any of its direct or indirect subsidiaries to any current
or former officers or directors of any of the Debtors that is notified by the
Debtors in a writing dated and transmitted by overnight mail on November 13,
2002, has been invited by the SEC to make a Wells Submission describing the
reasons why no enforcement proceedings should be brought against them with
respect to potential violations of the Securities and Exchange Act of 1934 in
connection with the preparation and publication of various financial statements
and other public statements of Group (each a "Wells Recipient"); and provided,
further, that notwithstanding the foregoing proviso, the release set forth in
Section 7.5 of the Plan will apply to a Wells Recipient in the event that either
(I) the SEC has determined not to commence and enforcement proceeding against
such Wells Recipient, or (ii) the SEC has commenced an enforcement proceeding
and such proceeding has been concluded with no finding against, or concession
by, such Wells Recipient that he or she (a) committed fraud, intentional or
negligent misrepresentation, or gross negligence in connection with the matters
investigated, or (b) may not serve in the future as an officer or director of a
public company; provided, further, that each holder of a Claim entitled to vote
on the Plan may elect, by checking the box provided on the Ballot, not to grant
such release.
CLASSES OF CLAIMS ENTITLED TO VOTE ON THE PLAN
PLEASE TAKE FURTHER NOTICE that in accordance with the terms of the
Plan and the Bankruptcy Code, holders of Priority Non-Tax Claims in Class 1, GE
Capital Secured Claims under the 1997 MLA in Class 3 and Other Secured Claims in
Class 4 are unimpaired, are conclusively presumed to have accepted the Plan and
are not entitled to vote on the Plan. Additionally, holders of Impaired Claims
and Interests in Class 7 and Class 8 are deemed to have rejected the Plan and
are not entitled to vote on the Plan. Only the holders of Senior Secured Bank
Claims in Class 2, Unsecured Claims in Class 5 and the holders of TOPrS Claims
in Class 6 are entitled to vote to accept or to reject the Plan.
9
BAR DATE FOR CERTAIN ADMINISTRATIVE CLAIMS
PLEASE TAKE FURTHER NOTICE that all applications for final
compensation of professional persons employed by the Debtors or the Creditors'
Committee pursuant to orders entered by the Bankruptcy Court and on account of
services rendered prior to the Effective Date, and all other requests for
payment of Administrative Claims (except for the Alvarez Incentive Bonus, the
Designated Post-Petition Loans, claims of the Debt Coordinators and the
Pre-Petition Collateral Trustee payable under paragraph 22 of the DIP Approval
Orders, claims for taxes, ordinary course trade debt and customer deposits and
credits incurred in the ordinary course of business after the Petition Date)
will be served on the Reorganized Debtors in accordance with Section 8.10. of
the Plan and filed with the Bankruptcy Court, no later than 25 days after the
Effective Date. Any such claim that is not served and filed within this time
period will be discharged and forever barred. Objections to any such application
must be filed within 15 days after filing thereof.
DEADLINE FOR OBJECTIONS TO CONFIRMATION OF THE PLAN
PLEASE TAKE FURTHER NOTICE that objections, if any, to confirmation of
the Plan, including, without limitation, objections to the assumption or
rejection of any executory contract or unexpired lease under the Plan, including
any supporting declarations, memoranda or other documentation, must be in
writing, filed with the Clerk of the Bankruptcy Court together with proof of
service thereof, and shall (a) state the name and the address of the objecting
party, and the amount of its Claim or the nature of its Interest in the Debtors'
Cases, (b) if applicable, identify the executory contract or unexpired lease to
be assumed or rejected under the Plan that is the subject of the objection, (c)
state with particularity the provision or provisions of the Plan, including,
without limitation, the assumption or rejection of any executory contract or
unexpired lease under the Plan, objected to and, for any objection asserted, the
legal and factual basis for such objection and (d) be served upon: (i) Sidley
Austin Brown & Wood LLP, 787 Seventh Avenue, New York, New York 10019,
Attention: Kelley A. Cornish, Esq., counsel to the Debtors, (ii) Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153, Attention: Brian S.
Rosen, Esq., counsel to the Debtors' post-petition secured lenders, (iii)
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, Attention:
James L. Garrity, Jr., Esq., counsel to the Debt Coordinators for the Debtors'
pre-petition banks, (iv) the Office of the United States Trustee for the
Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New
York 10004, Attention: Mary Tom, Esq., and (v) Otterbourg, Steindler, Houston &
Rosen, P.C., 230 Park Avenue, New York, New York 10169, Attention: Scott L.
Hazan, Esq., counsel to the Official Committee of Unsecured Creditors so as to
be received on or before 4:00 p.m. (Prevailing Eastern Time) on [insert date].
Any objection not filed and served as set forth above shall be deemed
waived and will not be considered by the Bankruptcy Court.
10
VOTING DEADLINE
PLEASE TAKE FURTHER NOTICE that the deadline for receipt by the
Debtors of ballots to accept or reject the Plan is [insert date] at 4:00
p.m. (prevailing Eastern time) (the "Voting Deadline"). In order for a ballot to
be counted, it must be properly completed, signed and returned, so as to be
actually received by the Voting Deadline at: Warnaco Ballot Processing, P.O. Box
5014, FDR Station, New York, NY 10150-5014, for ballots sent by regular mail, or
Warnaco Ballot Processing, c/o Bankruptcy Services LLC, 70 East 55th Street, 6th
Floor, New York, New York, 10022-3222 for ballots sent by messenger or overnight
mail. Copies of ballots and facsimile ballots will not be accepted.
If you believe you are entitled to vote on the Plan and did not
receive a ballot, if your ballot is damaged or lost, or if you have questions
concerning balloting procedures, you should contact Debtors' counsel, Elizabeth
R. McColm, Esq., at (212) 839-5985.
11
COPIES OF THE PLAN AND DISCLOSURE STATEMENT
PLEASE TAKE FURTHER NOTICE that copies of the Plan and Disclosure
Statement will be available for inspection by interested parties (a) during
regular business hours in the Office of the Clerk of the Bankruptcy Court,
Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004,
and (b) on the Court's electronic docket for the Debtors' chapter 11 cases,
which is posted on the Internet at (www.nysb.uscourts.gov). A PACER password is
required to access case information, which can be obtained at
(www.pacer.psc.uscourts.gov) or by calling 1-800-676-6856. If it is
impracticable for an interested party to obtain access to the Plan and
Disclosure Statement by either of the foregoing methods, such party should
contact Ms. Brooke Filler at Sidley Austin Brown & Wood LLP, 787 Seventh Avenue,
New York, New York 10019, Telephone: (212) 839-5603, Telecopier: (212) 839-5599,
Email: bfiller@sidley.com.
Dated: New York, New York SIDLEY AUSTIN BROWN & WOOD LLP
________ __, 2002
By:
------------------------------------------
(A Member of the Firm)
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Telecopier: (212) 839-5599
Counsel for Debtors and Debtors-in-Possession
12
EXHIBIT C
Reorganized Debtors
Structure Chart
-----------------
The Warnaco
Group Inc.
95-4032739
03/14/86 Delaware
-----------------
100%
- ------------------------------------------------------------------------------------------------------
-----------------
Warnaco Inc.
22-1897478
10/22/69 Delaware
-----------------
100%
- ------------------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
- ------------------- ----------------- ----------------- ------------------ -------------------
Gregory Street Inc. Warnaco Authentic Fitness Warnaco U.S., Inc. A.B.S. Clothing
06-1469376 Puerto Rico Inc. Corporation 06-1519997 Collection Inc.
11/22/96 Delaware 66-0585156 95-4268251 11/22/96 Delaware 95-3799247
- ------------------- 06/13/00 Delaware 04/11/90 Delaware ------------------ 11/18/82 California
----------------- ----------------- -------------------
100%
- ------------------- ----------------- ------------------
Warnaco Operations Ubertech Authentic Fitness
Corporation Products Inc. Products Inc.
52-2123311 06-1577619 95-4287322
09/23/98 Delaware 07/21/99 Delaware 04/02/90 Delaware
- ------------------- ----------------- ------------------
100% 100% 100%
----------------- ------------------ -------------------
Authentic Fitness CCC Acquisition Authentic Fitness
Online Inc. Corp. Retail Inc.
95-4741962 95-4456443 95-4442062
11/19/98 Delaware 9/16/93 Delaware 08/31/93 Delaware
----------------- ------------------ -------------------
----------------- This foreign subsidiary is indirectly owned
Warnaco of by Warnaco, Inc. through nondebtor
Canada Company foreign subsidiaries.
1/3/1999
Canada
-----------------
-----------------
The Warnaco
Group Inc.
95-4032739
03/14/86 Delaware
----------------
100%
- -----------------------------------------------------------
-----------------
Warnaco Inc.
22-1897478
10/22/69 Delaware
-----------------
100%
- -----------------------------------------------------------
100% 100% 100%
- ------------------- ----------------- -----------------
C.F. Hathaway Warnaco(b) Myrtle Ave. Inc.
Company International Inc. 06-1469379
01-0263592 06-0967709 11/22/96 Delaware
08/12/60 Delaware 10/17/77 Delaware -----------------
- ------------------- -----------------
- ------------------- ----------------- -----------------
Warmana Limited(c) Warnaco Warner's de
06-0902642 Sourcing Inc. Costa Rica Inc.
08/20/73 Delaware 06-1172666 06-0937741
- ------------------- 03/05/86 Delaware 01/09/76 Delaware
----------------- -----------------
-----------------
The Warnaco
Group Inc.
95-4032739
03/14/86 Delaware
----------------
100%
- ------------------------------------------------------------------------------------------
-----------------
Warnaco Inc.
22-1897478
10/22/69 Delaware
-----------------
100%
- ------------------------------------------------------------------------------------------
100% 100% 100% 99%
- ------------------- ----------------- ---------------------- --------------------
Penhaligon's By Designer 184 Benton Street Inc. 1% Warnaco(a)
Request, Inc. Holdings Ltd. 06-1045343 International L.L.C.
13-4076897 13-3818542 06/17/81 Delaware 06-1442942
8/26/99 Delaware 03/27/95 Delaware ---------------------- 03/24/95 Delaware
- ------------------- ----------------- --------------------
100% 100% 100% 100%
- ------------------- ----------------- ---------------------- --------------------
Outlet Outlet Jeanswear Rio Sportswear
Stores Inc. Holdings Inc. Holdings Inc. Inc.
13-3907560 13-3907558 13-3779227 13-3779228
09/12/96 Delaware 09/12/96 Delaware 07/01/94 Delaware 07/27/94 Delaware
- ------------------- ----------------- ---------------------- --------------------
100%
----------------------
Calvin Klein
Jeanswear Company
13-3779381
07/01/94 Delaware
----------------------
100% 100% 100%
----------------- ---------------------- --------------------
CKJ Holdings Inc. Kai Jay Manufacturing Abbeville
13-3928129 Company Manufacturing Co.
12/05/96 Delaware 13-3779231 13-3779229
----------------- 07/01/94 Delaware 07/01/94 Delaware
---------------------- --------------------
EXHIBIT D
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The WARNACO GROUP, INC.
New York, New York
We have audited the accompanying consolidated balance sheets of The Warnaco
Group Inc. (Debtor-in-Possession) and its subsidiaries (the 'Company') as of
January 5, 2002 and December 30, 2000, and the related consolidated statements
of operations, stockholders' equity (deficiency) and comprehensive income (loss)
and of cash flows for each of the three years in the period ended January 5,
2002. Our audits also included the financial statement schedule listed in the
Index at Item 14(a) 2. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audits.
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 provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Warnaco Group, Inc.
(Debtor-in-Possession) and subsidiaries as of January 5, 2002 and December 30,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended January 5, 2002 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective
January 2, 2000 the Company changed its method of accounting for its retail
outlet store inventory.
As discussed in Note 1, the Company and certain of its subsidiaries have
filed for reorganization under Chapter 11 of the Federal 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 net
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed
for claims or contingencies, or the status or priority thereof; (c) as to
stockholder accounts, the effect of any changes that may be made in the
capitalization of the Company or; (d) as to operations, the effect of any
changes that may be made in its business.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1, the Company's recurring losses from operations, stockholders' capital
deficiency and Chapter 11 filings 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.
As discussed in Note 2, the accompanying consolidated financial statements
for the years ended December 30, 2000 and January 1, 2000 have been restated.
DELOITTE & TOUCHE LLP
New York, New York
May 30, 2002
(June 9, 2002 as to Note 20,
July 5, 2002 as to Note 15,
July 12, 2002 as to Note 1 and
July 18, 2002 as to Note 23)
F-1
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCLUDING SHARE DATA)
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
2000 2002
---- ----
(AS RESTATED)
(SEE NOTE 2)
ASSETS
Current assets:
Cash.................................................... $ 11,076 $ 39,558
Accounts receivable, less reserves of $95,669 -- 2000
and $107,947 -- 2001.................................. 127,941 282,387
Inventories, less reserves of $29,296 -- 2000 and
$50,097 -- 2001....................................... 481,859 418,902
Prepaid expenses and other current assets............... 32,891 36,988
Assets held for sale.................................... -- 31,066
Deferred income taxes................................... 7,632 --
---------- -----------
Total current assets................................ 661,399 808,901
---------- -----------
Property, plant and equipment -- net........................ 329,514 212,129
Other assets:
Licenses, trademarks, intangible and other assets, at
cost, less accumulated amortization of $98,066 -- 2000
and $108,067 -- 2001.................................. 359,157 271,500
Goodwill, less accumulated amortization of
$92,971 -- 2000 and $101,094 -- 2001.................. 855,150 692,925
Deferred income taxes................................... 136,929 --
---------- -----------
Total other assets.................................. 1,351,236 964,425
---------- -----------
$2,342,149 $ 1,985,455
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Liabilities not subject to compromise
Current liabilities:
Current portion of long-term debt....................... $1,493,483 $ --
Debtor-in-possession revolving credit facility.......... -- 155,915
Accounts payable........................................ 467,500 84,764
Accrued liabilities..................................... 130,269 104,421
Accrued interest........................................ 40,740 857
Accrued income taxes payable............................ 13,630 14,505
---------- -----------
Total current liabilities........................... 2,145,622 360,462
---------- -----------
Other long-term liabilities............................... 65,955 31,754
---------- -----------
Liabilities subject to compromise........................... -- 2,439,393
Deferred income taxes....................................... -- 5,130
Commitments and Contingencies (Note 1, 10, 15, 16, 20, and
23)
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities ($120,000-par value) of Designer
Finance Trust holding solely convertible debentures....... 103,387 --
Stockholders' equity (deficiency):
Class A Common Stock, $0.01 par value, 130,000,000
shares authorized, 65,232,594 issued in 2000 and
2001.................................................. 654 654
Additional paid-in capital.............................. 912,983 909,054
Accumulated other comprehensive loss.................... (33,750) (53,016)
Deficit................................................. (532,521) (1,393,674)
Treasury stock, at cost -- 12,063,672 shares -- 2000 and
12,242,629 shares -- 2001............................. (313,840) (313,889)
Unearned stock compensation............................. (6,341) (413)
---------- -----------
Total stockholders' equity (deficiency)............. 27,185 (851,284)
---------- -----------
$2,342,149 $ 1,985,455
---------- -----------
---------- -----------
</Table>
See Notes to Consolidated Financial Statements
F-2
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCLUDING PER SHARE DATA)
<Table>
<Caption>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
(AS RESTATED) (AS RESTATED)
(SEE NOTE 2) (SEE NOTE 2)
Net revenues............................................ $2,114,156 $2,249,936 $1,671,256
Cost of goods sold...................................... 1,432,384 1,845,389 1,374,382
---------- ---------- ----------
Gross profit............................................ 681,772 404,547 296,874
Selling, general and administrative expenses............ 476,408 625,014 598,186
Impairment charge....................................... -- -- 101,772
Reorganization items.................................... -- -- 177,791
---------- ---------- ----------
Operating income (loss)................................. 205,364 (220,467) (580,875)
Investment income (loss), net........................... -- 36,882 (6,556)
Interest expense (contractual interest of
$221,557 -- 2001)..................................... 80,976 172,232 122,752
---------- ---------- ----------
Income (loss) before provision for income taxes and
cumulative effect of change in accounting principle... 124,388 (355,817) (710,183)
Provision for income taxes.............................. 30,734 21,044 150,970
---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle.................................. 93,654 (376,861) (861,153)
Cumulative effect of change in accounting principle, net
of income tax benefit of $8,577 -- 2000............... -- (13,110) --
---------- ---------- ----------
Net income (loss)....................................... $ 93,654 $ (389,971) $ (861,153)
---------- ---------- ----------
---------- ---------- ----------
Basic earnings (loss) per common share:
Income (loss) before accounting change.............. $ 1.68 $ (7.14) $ (16.28)
Cumulative effect of accounting change.............. -- (0.25) --
---------- ---------- ----------
Net income (loss)................................... $ 1.68 $ (7.39) $ (16.28)
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings (loss) per common share:
Income (loss) before accounting change.............. $ 1.65 $ (7.14) $ (16.28)
Cumulative effect of accounting change.............. -- (0.25) --
---------- ---------- ----------
Net income (loss)................................... $ 1.65 $ (7.39) $ (16.28)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding used in
computing earnings (loss) per share:
Basic............................................... 55,910 52,783 52,911
---------- ---------- ----------
---------- ---------- ----------
Diluted............................................. 56,796 52,783 52,911
---------- ---------- ----------
---------- ---------- ----------
</Table>
See Notes to Consolidated Financial Statements
F-3
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCLUDING SHARE DATA)
<Table>
<Caption>
ACCUMULATED
CLASS A ADDITIONAL OTHER UNEARNED
COMMON PAID-IN COMPREHENSIVE TREASURY STOCK
STOCK CAPITAL INCOME/(LOSS) DEFICIT STOCK COMPENSATION TOTAL
----- ------- ------------- ------- ----- ------------ -----
Balance at January 2, 1999......... $652 $953,512 $ (15,703) $ (202,996) $(171,559) $(11,772) $ 552,134
Net income -- as restated, see note
2................................. 93,654 93,654
Foreign currency translation
adjustments....................... 1,614 1,614
Unrealized gain on marketable
securities, net of tax............ 38,966 38,966
---------
Comprehensive income as restated, see
note 2............................ 134,234
Employee stock options exercised... 3,131 178 3,309
Issuance of 190,680 shares of
restricted stock.................. 2 5,456 (5,458) --
Dividends declared................. (20,250) (20,250)
Amortization of unearned stock
compensation...................... 6,246 6,246
Shares tendered for withholding tax
on restricted stock............... (2,640) (2,640)
Purchase of 6,182,088 shares of
treasury stock.................... (142,048) (142,048)
Issuance of 100,000 shares of
treasury stock for acquisition.... (731) 2,931 2,200
---- -------- ----------- ----------- --------- -------- ---------
Balance at January 1, 2000 -- as
restated, see note 2.............. 654 961,368 24,877 (129,592) (313,138) (10,984) 533,185
---- -------- ----------- ----------- --------- -------- ---------
Net loss -- as restated, see note
2................................. (389,971) (389,971)
Foreign currency translation
adjustments....................... (4,618) (4,618)
Unfunded minimum pension liability. (14,648) (14,648)
Unrealized loss on marketable
securities, net of tax............ (680) (680)
---------
Comprehensive loss as restated, see
note 2............................ (409,917)
Adjustment for items included in net
income, net of tax................ (38,681) (38,681)
Shares tendered for withholding tax
on restricted stock............... (702) (702)
Dividends declared................. (12,958) (12,958)
Amortization of unearned stock
compensation...................... 787 4,643 5,430
Equity Forward Contract............ (49,172) (49,172)
---- -------- ----------- ----------- --------- -------- ---------
Balance at December 30, 2000 -- as
restated, see note 2.............. 654 912,983 (33,750) (532,521) (313,840) (6,341) 27,185
---- -------- ----------- ----------- --------- -------- ---------
Transition adjustment related to the
adoption of accounting principle.. 21,744 21,744
Recognition of deferred gain on
interest rate swap................ (21,744) (21,744)
Net loss........................... (861,153) (861,153)
Foreign currency translation
adjustments....................... (1,854) (1,854)
Unrealized gain (loss) on marketable
securities, net of tax............ 434 434
Unfunded minimum pension liability. (17,846) (17,846)
---------
Comprehensive loss................. (880,419)
Shares tendered for withholding tax
on restricted stock............... (49) (49)
Restricted shares forfeited........ (3,929) 3,929 --
Amortization of unearned stock
compensation...................... -- 1,999 1,999
---- -------- ----------- ----------- --------- -------- ---------
Balance at January 5, 2002......... $654 $909,054 $ (53,016) $(1,393,674) $(313,889) $ (413) $(851,284)
---- -------- ----------- ----------- --------- -------- ---------
---- -------- ----------- ----------- --------- -------- ---------
</Table>
See Notes to Consolidated Financial Statements
F-4
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
FOR THE YEAR ENDED
-------------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
(AS RESTATED) (AS RESTATED)
(SEE NOTE 2) (SEE NOTE 2)
Cash flows from operating activities:
Net income (loss)........................................ $ 93,654 $(389,971) $(861,153)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Pre-tax gain on sale of investment.................... -- (42,782) --
Depreciation and amortization......................... 60,956 102,079 97,818
Provision for receivable allowances................... 218,098 262,641 253,943
Provision for inventory reserves...................... 6,247 179,254 74,786
Cumulative effect of accounting change, net of
taxes............................................... -- 13,110 --
Amortization of deferred financing costs.............. 1,430 12,353 19,414
Interest rate swap income............................. -- (4,064) (21,355)
Preferred stock accretion............................. 1,068 483 16,613
Market value adjustment to Equity Agreements.......... -- 5,900 6,556
Non-cash asset write-downs............................ -- 22,704 273,646
Amortization of unearned stock compensation........... 6,246 4,643 1,999
Deferred income taxes................................. 13,748 17,343 149,691
Sale of accounts receivable.............................. 25,400 53,700 --
Repurchase of accounts receivable........................ -- -- (185,000)
Accounts receivable...................................... (272,767) (204,603) (229,306)
Inventories.............................................. (155,631) 38,857 (21,647)
Prepaid expenses and other current and long-term
assets.................................................. (20,295) 32,401 (5,087)
Accounts payable and accrued expenses.................... 31,857 (114,748) 6,241
--------- --------- ---------
Net cash provided by (used in) operating activities......... 10,011 (10,700) (422,841)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale/leaseback transaction................. 23,185 -- --
Disposal of fixed assets................................. 4,726 2,599 6,213
Increase in intangibles and other assets................. (29,813) (9,976) (1,427)
Purchase of property, plant and equipment................ (109,088) (110,062) (24,727)
Acquisition of businesses, net of cash acquired.......... (625,515) (2,585) (1,492)
Proceeds from sale of marketable securities.............. -- 50,432 --
--------- --------- ---------
Net cash used in investing activities....................... (736,505) (69,592) (21,433)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options.................. 3,309 -- --
Proceeds from the termination of interest rate swaps..... -- 26,076 --
Borrowings under revolving credit facilities............. 247,221 133,724 303,377
Borrowings under term loan agreements.................... 149 15,499 --
Borrowings under acquisition loan facility............... 586,200 13,800 --
Borrowings under foreign credit facilities............... 66,838 -- 72,842
Borrowings under capital lease obligations............... 5,443 -- --
Repayments of acquisition loan facility.................. -- (12,452) --
Repayments of term loan agreements....................... (10,160) (22,058) (36,195)
Repayments of foreign credit facilities.................. -- (18,720) --
Repayments of capital lease obligations.................. (1,550) (2,762) (938)
Borrowings under DIP facility............................ -- -- 155,915
Repayments of other debt................................. (3,503) (21) --
Cash dividends paid...................................... (20,631) (14,362) --
Payment of withholding taxes on option exercises and
restricted stock vesting................................ (2,640) (702) (49)
Purchase of treasury shares and net cash settlements
under Equity Agreements................................. (142,048) 1,404 --
Deferred financing costs................................. (1,385) (37,314) (19,852)
Other.................................................... (2,530) -- (490)
--------- --------- ---------
Net cash provided by financing activities................... 724,713 82,112 474,610
--------- --------- ---------
Translation adjustments..................................... 1,614 (72) (1,854)
--------- --------- ---------
Increase (decrease) in cash................................. (167) 1,748 28,482
Cash at beginning of year................................... 9,495 9,328 11,076
--------- --------- ---------
Cash at end of year......................................... $ 9,328 $ 11,076 $ 39,558
--------- --------- ---------
--------- --------- ---------
</Table>
See Notes to Consolidated Financial Statements
F-5
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: The Warnaco Group, Inc. was incorporated in Delaware on
March 14, 1986 and on May 10, 1986 acquired substantially all of the outstanding
shares of Warnaco Inc. ('Warnaco'). Warnaco is the principal operating
subsidiary of the Company.
Nature of Operations: The Warnaco Group, Inc. and its subsidiaries
(collectively, the 'Company') design, manufacture and market a broad line of
(i) women's intimate apparel, such as bras, panties, sleepwear, shapewear and
daywear; (ii) men's apparel, such as sportswear, jeanswear, khakis, underwear
and accessories; (iii) women's and junior's apparel, such as sportswear and
jeanswear; and (iv) active apparel, such as swimwear, swim accessories and
fitness apparel. The Company's products are sold under a variety of
internationally recognized brand names which are either owned or licensed by the
Company. The Company's products are sold to department and specialty stores,
chain stores, mass merchandise stores, sporting goods stores, and catalog and
other retailers throughout the world. The Company also sells directly to
consumers through its Retail Stores Division.
Basis of Consolidation and Presentation: The accompanying consolidated
financial statements include the accounts of the Company and all subsidiary
companies for the years ended January 1, 2000 ('Fiscal 1999'), December 30, 2000
('Fiscal 2000'), and January 5, 2002 ('Fiscal 2001'). All significant
inter-company accounts and transactions are eliminated in consolidation.
On June 11, 2001 (the 'Petition Date'), the Company and certain of its
subsidiaries (each a 'Debtor' and, collectively, the 'Debtors') each filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C.
'SS'SS' 101-1330, as amended (the 'Bankruptcy Code'), in the United States
Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court')
(collectively the 'Chapter 11 Cases'). The Company, 37 of its 38 U.S.
subsidiaries and one of Warnaco's Canadian subsidiaries, Warnaco of Canada
Company ('Warnaco Canada') are Debtors in the Chapter 11 Cases. The remainder of
the Company's foreign subsidiaries are not debtors in the Chapter 11 Cases, nor
are they subject to foreign bankruptcy or insolvency proceedings. However,
certain debt obligations of the Company's foreign subsidiaries are subject to
standstill agreements with the Company's pre-petition lenders.
On June 11, 2001, the Company entered into a Debtor-In-Possession Financing
Agreement (the 'DIP') with a group of banks, which was approved by the
Bankruptcy Court in an interim amount of $375,000. On July 9, 2001, the
Bankruptcy Court approved an increase in the amount of borrowing available to
the Company to $600,000. The DIP was subsequently amended as of August 27, 2001,
December 27, 2001, February 5, 2002 and May 15, 2002 (the 'Amended DIP'). The
amendments, among other things, amend certain definitions and covenants, permit
the sale of certain of the Company's assets and businesses, extend deadlines
with respect to certain asset sales and certain filing requirements with respect
to a plan of reorganization and reduce the size of the facility to reflect the
Debtor's revised business plan. On May 28, 2002, the Company voluntarily reduced
the amount of borrowing available to the Company under the Amended DIP to
$325,000. Borrowings outstanding under the Amended DIP were $155,915 as of
January 5, 2002.
Pursuant to the Bankruptcy Code, pre-petition obligations of the Debtors,
including obligations under debt instruments, generally may not be enforced
against the Debtors, and any actions to collect pre-petition indebtedness are
automatically stayed, unless the stay is lifted by the Bankruptcy Court. In
addition, as debtors-in-possession, the Debtors have a right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases. In this context, 'assumption' means
the Debtors agree to perform their obligations under the lease or contract and
to cure all defaults, and 'rejection' means that the Debtors are relieved from
their obligation to perform under the contract or lease, but are subject to
damages for the breach thereof. Any damages resulting from such a breach will be
treated as unsecured claims in the Chapter 11 Cases. The Debtors are in the
F-6
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
process of reviewing their executory contracts and unexpired leases. Through
January 5, 2002, the Debtors have identified and rejected a number of executory
contracts and unexpired leases. As of January 5, 2002, the Company had accrued
approximately $20,600 related to rejected leases and contracts which is included
in liabilities subject to compromise on the consolidated balance sheets. The
Company continues to evaluate its business operations and expects to reject
additional contracts and leases prior to filing its plan of reorganization.
Although the Debtors have attempted to estimate the ultimate amount of liability
that may result from rejected contracts and leases, additional leases may be
rejected in the future. Such rejections could result in additional liabilities
subject to compromise that the Company has not anticipated. In connection with
the consummation of a confirmed plan or plans of reorganization, the Company
will elect to assume certain of its leases and executory contracts. The success
of any plan of reorganization is dependent upon the Bankruptcy Court's approval
of the Company's assumption of certain of these executory contracts, including
certain license agreements.
As a result of the Chapter 11 Cases and the circumstances leading to the
filing thereof, as of January 5, 2002, the Company was not in compliance with
certain financial and bankruptcy covenants contained in certain of its license
agreements. Under applicable provisions of the Bankruptcy Code, compliance with
such terms and conditions in executory contracts generally are either excused or
suspended during the Chapter 11 Cases.
In the Chapter 11 Cases, substantially all of the Debtors' unsecured
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan or plans of reorganization which must be confirmed by the
Bankruptcy Court after obtaining the requisite amount of votes by affected
parties. For financial reporting purposes, those liabilities have been
segregated and classified as liabilities subject to compromise in the
consolidated balance sheets. The ultimate amount of and settlement terms for
such liabilities are subject to a confirmed plan or plans of reorganization and,
accordingly, are not presently determinable.
The Bankruptcy Code provides that the Debtors have exclusive periods during
which only they may file and solicit acceptances of a plan of reorganization.
The Debtors requested and, on July 12, 2002, were granted an extension of time
until August 30, 2002 to file their exclusive plan of reorganization and until
October 31, 2002 to solicit acceptances of such plan. If the Debtors fail to
file a plan of reorganization or fail to obtain additional extensions of time to
file a plan of reorganization by the extension date, or if the Debtors' plan is
not accepted by the Bankruptcy Court, impaired classes of creditors and equity
holders or any party-in-interest (including a creditor, equity holder, a
committee of creditors or equity holders or an indenture trustee) may file their
own plan of reorganization for the Debtors.
After a plan of reorganization has been filed with the Bankruptcy Court, the
plan and a disclosure statement approved by the Bankruptcy Court will be sent to
classes of creditors whose acceptances will be solicited as part of the plan.
Following the solicitation period, the Bankruptcy Court will consider whether to
confirm the plan. In order to confirm the plan, the Bankruptcy Court is required
to find that (i) with respect to each impaired class of creditors and equity
holders, each holder in such class has accepted the plan or will, pursuant to
the plan, receive at least as much as such holder would have received in a
liquidation, (ii) each impaired class of creditors and equity holders has
accepted the plan by the requisite vote (except as described below) and
(iii) confirmation of the plan is not likely to be followed by a liquidation or
a need for further financial reorganization unless the plan proposes such
measures. If any impaired class of creditors or equity holders does not accept
the plan, then, assuming that all of the other requirements of the Bankruptcy
Code are met, the proponent of the plan may invoke the 'cram-down' provisions of
the Bankruptcy Code. Under these provisions, the Bankruptcy Court may approve a
plan notwithstanding the non-acceptance of the plan by an impaired class of
creditors or equity holders if certain requirements are met. These requirements
include payment in full
F-7
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
for a dissenting senior class of creditors before payment to a junior class can
be made. Under the priority scheme established by the Bankruptcy Code, absent
agreement to the contrary, certain post-petition liabilities and pre-petition
liabilities need to be satisfied before shareholders can receive any
distribution. As a result of the amount and character of the Company's
pre-petition indebtedness, the shortfall between the Company's projected
enterprise value and the amount necessary to satisfy the claims, in full, of its
secured and unsecured creditors and the impact of the provisions of the
Bankruptcy Code applicable to confirmation of a plan or plans of reorganization,
the Company believes that it is highly unlikely that current holders of common
stock or preferred securities of the Company will receive any distribution under
any plan of reorganization or liquidation of the Company. Certain of the
Company's financial instruments (e.g., pre-petition secured debt) trade in
markets for debt securities and other instruments. The Company expects that
holders of the Company's financial instruments will receive substantially less
than face value in any plan or plans of reorganization approved by the
Bankruptcy Court.
Management is in the process of stabilizing the business of the Debtors and
evaluating the Company's operations as part of the development of a plan of
reorganization. After developing a plan of reorganization, the Debtors will seek
the acceptance and confirmation of the plan in accordance with the provisions of
the Bankruptcy Code.
During the course of the Chapter 11 Cases, the Debtors may seek Bankruptcy
Court authorization to sell assets and settle liabilities for amounts other than
those reflected in the consolidated financial statements. The Debtors are in the
process of reviewing their operations and identifying assets available for
potential disposition, including entire business units of the Company. However,
there can be no assurance that the Company will be able to consummate such
transactions at prices the Company or the Company's creditor constituencies will
find acceptable. Since the Petition Date, through January 5, 2002, the Company
has sold certain personal property, certain owned buildings and land and other
assets for approximately net book value, generating net proceeds of
approximately $6,213. Reorganization items include the write-down of the related
assets to net realizable value. The total loss related to asset sales and
abandonments, included in reorganization items was $3,656 for the year ended
January 5, 2002. In the first quarter of fiscal 2002, the Company sold
additional assets for approximately the net book value generating net proceeds
of approximately $4,000 (collectively the 'Asset Sales'). Substantially all of
the net proceeds from the Asset Sales were used to reduce outstanding borrowings
under the Amended DIP. In addition, in the first quarter of fiscal 2002, the
Company sold the businesses and substantially all of the assets of GJM
Manufacturing Ltd. ('GJM'), a private label manufacturer of women's sleepwear
and Penhaligon's Ltd. ('Penhaligon's'), a United Kingdom based retailer of
perfumes, soaps, toiletries and other products. The sales of GJM and
Penhaligon's generated approximately $20,100 of net proceeds in the aggregate
during the first quarter of fiscal 2002. Proceeds from the sale of GJM and
Penhaligon's were used to (i) reduce amounts outstanding under certain of the
Company's debt agreements ($4,800), (ii) reduce amounts outstanding under the
Amended DIP ($4,200), (iii) create an escrow fund (subsequently disbursed in
June 2002) for the benefit of pre-petition secured lenders ($9,400) and
(iv) create an escrow fund for the benefit of the purchasers for potential
indemnification claims and for any working capital valuation adjustments
($1,700). In the second quarter of fiscal 2002, the Company began the process of
closing 25 of its outlet stores. The closing of the stores and the related sale
of inventory at approximately net book value generated approximately $12,000 of
net proceeds which were used to reduce amounts outstanding under the Amended DIP
in fiscal 2002.
Administrative and reorganization expenses resulting from the Chapter 11
Cases will unfavorably affect the Debtors and, consequently, the Company's
consolidated results of operations. Future results of operations may also be
adversely affected by other factors relating to the Chapter 11 Cases.
Reorganization and administrative expenses related to the Chapter 11 Cases have
been separately identified in the consolidated statements of operations as
reorganization items.
F-8
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The accompanying consolidated financial statements have been prepared in
accordance with 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') assuming the Company will continue as a going
concern. The Company is currently operating under the jurisdiction of the
Bankruptcy Code and the Bankruptcy Court. Continuation of the Company as a going
concern is contingent upon, among other things, (i) its ability to formulate a
plan of reorganization that will gain approval of the parties required by the
Bankruptcy Code and be confirmed by the Bankruptcy Court, (ii) the Company's
ability to continue to comply with the terms of the Amended DIP, (iii) its
ability to return to profitable operations, and (iv) its ability to generate
sufficient cash flows from operations and obtain financing sources to meet
future obligations. These matters, along with the Company's recurring losses
from operations and stockholders' capital deficiency raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any of the adjustments relating
to the recoverability and classification of recorded assets or the amounts and
classifications of liabilities that might result from the outcome of these
uncertainties.
Use of Estimates: The Company uses estimates and assumptions in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements.
These estimates and assumptions also affect the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ materially
from these estimates.
Translation of Foreign Currencies: Cumulative translation adjustments,
arising primarily from consolidating the net assets and liabilities of the
Company's foreign operations at current rates of exchange as of the respective
balance sheet date, are applied directly to stockholders' equity (deficiency)
and are included as part of accumulated other comprehensive income (loss).
Income and expense items for the Company's foreign operations are translated
using monthly average exchange rates.
Marketable Securities: Marketable securities are stated at fair value based
on quoted market prices. Marketable securities are classified as
available-for-sale with any unrealized gains or losses, net of tax, included as
a component of stockholders' equity (deficiency) and included in other
comprehensive income (loss).
Accounts Receivable: Accounts receivable consist principally of amounts owed
to the Company by trade customers, net of allowances for discounts, allowances
and doubtful accounts. The Company sells its products to department stores,
specialty stores, chain stores, sporting goods stores, catalogs, direct sellers
and mass merchandisers. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company has credit insurance covering its customers within agreed upon limits
and exclusions.
Inventories: The Company values its inventories at the lower of cost
determined principally on a first-in, first-out basis, or market.
Assets held for sale: The Company classifies assets to be sold as assets
held for sale. Assets held for sale are reported at the lower of their carrying
amount or estimated fair value less selling costs. Assets held for sale at
January 5, 2002 include accounts receivable, inventories, prepaid expenses,
fixed assets and other assets of GJM and Penhaligon's and other assets
identified for disposition.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are provided over the lesser of the estimated useful lives of the
assets or term of the lease, using the straight-line method, as summarized
below:
F-9
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
Buildings...................................... 20 - 40 years
Building improvements.......................... 2 - 20 years
Machinery and equipment........................ 3 - 10 years
Furniture and fixtures......................... 7 - 10 years
Computer hardware.............................. 3 - 5 years
Computer software.............................. 3 - 7 years
</Table>
Depreciation and amortization expense was $36,671, $62,148 and $60,890 for
fiscal years 1999, 2000 and 2001, respectively.
Computer Software Costs: Internal and external costs incurred in developing
or obtaining computer software for internal use are capitalized in property,
plant and equipment in accordance with SOP 98-1 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and related guidance
and are amortized on a straight-line basis, over the estimated useful life of
the software, generally 3 to 7 years. General and administrative costs related
to developing or obtaining such software are expensed as incurred.
Intangible and Other Assets: Intangible assets consist of goodwill,
licenses, trademarks, deferred financing costs and other intangible assets.
Goodwill represents the excess of cost over net assets acquired from business
acquisitions, and is amortized on a straight-line basis over the estimated
useful life, not exceeding 40 years. Deferred financing costs are amortized over
the life of the related debt, using the interest method and included in interest
expense. Deferred financing costs, net of accumulated amortization, were $43,132
and $8,971 as of December 30, 2000 and January 5, 2002, respectively. Deferred
financing costs relating to pre-petition debt of the Company were written-off as
of the Petition Date resulting in a charge to reorganization items of $34,599 in
the second quarter of fiscal 2001. Licenses and trademarks, net of accumulated
amortization, were $269,595 and $250,917 as of December 30, 2000 and January 5,
2002, respectively. Licenses are amortized on a straight line basis over the
remaining life of the license, which range between 5 and 40 years. Trademarks
are amortized on a straight line basis over the remaining life of the trademark
not to exceed 20 years. Other intangible assets are amortized on a straight line
basis over their estimated useful lives which range from 8 to 20 years. Other
assets of $46,430 at December 30, 2000 and $11,612 at January 5, 2002 include
long-term investments, other non-current assets and deposits. During fiscal
2001, the Company reviewed other long-term assets for potential impairment. As a
result of this review, in the fourth quarter the Company wrote down the carrying
amount of certain barter credits by $30,734 to $2,006 based upon the Company's
plans to utilize such credits in the future.
Amortization expense related to goodwill and intangible assets, included in
selling, administrative and general expenses was $24,285, $39,931, and $36,928
for fiscal 1999, fiscal 2000 and fiscal 2001, respectively.
The Company reviews any potential impairment of long-lived assets when
changes in circumstances, which include, but are not limited to, the historical
and projected operating performance of business operations, specific industry
trends and general economic conditions, indicate that the carrying value of
business specific intangibles or goodwill may not be recoverable. Under these
circumstances, the Company estimates future undiscounted cash flows as a basis
for determining any impairment loss. If undiscounted cash flows are less than
the carrying amount of the asset then impairment charges are recorded to adjust
the carrying value of long-lived assets to the estimated fair value. The Company
recorded an impairment charge of $101,772 for the write-off of goodwill related
to Bodyslimmers, CK Kids and ABS of $96,171 and the write-off of certain other
intangible assets of $5,601 in the fourth quarter of fiscal 2001.
Advertising Costs: Advertising costs are included in selling, general and
administrative expenses and are expensed when the advertising or promotion is
published or presented to consumers.
F-10
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Cooperative advertising allowances provided to customers are charged to
operations as earned and are included in selling, general expenses and
administrative. The amounts charged to operations for advertising ( including
cooperative advertising), marketing and promotion expenses during fiscal 1999,
2000 and 2001 were $118,029, $141,340, and $138,407, respectively.
Reorganization items: Reorganization items relate to expenses incurred and
amounts accrued as a direct result of the Chapter 11 Cases and include certain
impairment losses, professional fees, facility shutdown costs, employee
severance payments, employee retention payments, lease termination accruals, and
other items. Reorganization items are separately identified on the consolidated
statement of operations.
Income Taxes: The provision for income taxes, income taxes payable and
deferred income taxes are determined using the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
enacted tax rates and laws to taxable years in which such differences are
expected to reverse. A valuation allowance is provided when the Company
determines that it is more likely than not that a portion of the deferred tax
asset balance will not be realized. As of January 5, 2002, unremitted earnings
of non-U.S. subsidiaries were approximately $149,800. Since it is the Company's
intention to permanently reinvest these earnings, no U.S. taxes have been
provided. Management believes that there would be no additional tax liability on
the statutory earnings of foreign subsidiaries, if remitted.
Revenue Recognition: The Company recognizes revenue when goods are shipped
and title has passed to customers, net of allowances for returns and other
discounts. The Company recognizes revenue from its retail stores when goods are
sold to customers.
Stock Options: The Company accounts for options granted using the intrinsic
value method. Because the exercise price of the Company's options equals the
market value of the underlying stock on the date of grant, no compensation
expense has been recognized for any period presented.
Financial Instruments: Derivative financial instruments were used by the
Company in the management of its interest rate and foreign currency exposures
prior to the Petition Date. The Company also used derivative financial
instruments to execute purchases of its shares under its stock buyback program.
The Company does not use derivative financial instruments for speculation or for
trading purposes. Gains and losses resulting from effective hedges of existing
assets, liabilities or firm commitments, prior to the Petition Date, were
deferred and recognized when the offsetting gains and losses are recognized on
the related hedged items. Income and expense were recorded in the same category
as that arising from the related asset or liability being hedged. Periodic
accruals of amounts to be received or paid under interest rate swap agreements
were recognized as interest expense. Gains and losses realized prior to the
Petition Date on termination of interest rate swap contracts were deferred and
amortized over the remaining terms of the original hedging relationship.
A number of major international financial institutions are counter-parties
to the Company's financial instruments, including derivative financial
instruments. The Company monitors its positions with, and the credit quality of,
these counter-party financial institutions and does not anticipate non-
performance of these counter-parties. Management believes that the Company would
not suffer a material loss in the event of nonperformance by these
counter-parties.
Equity Instruments Indexed to the Company's Common Stock: Prior to September
19, 2000, equity instruments indexed to the Company's common stock were recorded
at fair value. Proceeds received under net share settlements or amounts paid
upon the purchase of such equity instruments were recorded as a component of
stockholders' equity. Subsequent changes in the fair value of the Equity
Agreements were not recorded. Repurchases of common stock pursuant to the terms
of the Equity Agreements were recorded as treasury stock. On September 19, 2000,
the Company amended its Equity Agreements and elected to cash settle a portion
of its obligation to the bank through notes payable. As a result, the Company
recorded notes payable ('Equity Agreement Notes') in an amount equal to the
difference between the forward equity price of the Company's common stock and
the fair value of the Company's common stock. The recognition of the Equity
Agreement Notes was recorded as an adjustment to stockholders'
equity. On October 6, 2000, the Company amended its outstanding credit
agreements and recorded an adjustment to increase the balance of the Equity
Agreement Notes based upon the change in fair value of the Company's common
stock. Changes in the fair value of the equity instruments after
October 6, 2000 through the Petition Date were recorded as a component of
operating income (loss) and as a change in the carrying amount of the related
Equity Agreement Notes. Subsequent to October 6, 2000, the Company was required
to cash settle the Equity Agreements. Since the Petition Date, no changes in the
fair value of the Equity Agreement Notes have been recorded. Equity Agreement
Notes are classified in liabilities subject to compromise as of January 5, 2002.
(See Note 18)
F-11
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Comprehensive Income (Loss): Comprehensive income (loss) consists of net
income (loss), unrealized gain/(loss) on marketable securities (net of tax),
unfunded minimum pension liability and cumulative foreign currency translation
adjustments. Because such cumulative translation adjustments are considered a
component of permanently invested un-remitted earnings of subsidiaries outside
the United States, no income taxes are provided on such amounts.
Start-Up Costs: Pre-operating costs relating to the start-up of new
manufacturing facilities, product lines and businesses are expensed as incurred.
Change in accounting principle: Effective January 2, 2000, the Company
changed its accounting method for valuing its retail outlet store inventory.
Prior to the change, the Company valued its retail inventory using average cost.
Under its new method, the Company values its retail inventory using the actual
cost method. The Company believes its new method is preferable because it
results in a better matching of revenue and expense and is consistent with the
method used for its other inventories. The cumulative effect of the change as of
January 1, 2000 was to reduce net income by $13,110, net of tax of $8,600.
Reclassifications: Certain fiscal 1999 and 2000 amounts have been
reclassified to conform to the current year presentation.
Recent accounting pronouncements: In June 1998, the Financial Accounting
Standards Board ('FASB') issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Activities and Hedging Activities ('SFAS
133'). SFAS 133 was amended by SFAS 137 and SFAS 138. SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company adopted the provisions of SFAS 133 as of
December 31, 2000. The Company adopted SFAS 133 effective with the first quarter
of fiscal 2001. As a result of the adoption of SFAS 133, the Company recorded a
transition adjustment of $21,744 primarily related to the reclassification of a
gain on the sale of certain interest rate swaps from other liabilities to other
comprehensive income. The adoption of SFAS 133 did not have a material impact on
the Company's cash flows or its results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations, ('SFAS 141') and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets,
('SFAS 142'). SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated or completed after June 30, 2001.
SFAS 141 specifies criteria for the recognition of certain intangible assets
apart from goodwill. SFAS 141 did not have an impact on the Company's financial
statements.
SFAS 142 eliminates the amortization of goodwill and certain other
intangible assets with indefinite lives effective for the Company's 2002 fiscal
year. SFAS 142 requires that indefinite lived assets be tested for impairment at
least annually. SFAS 142 further requires that intangible assets with finite
useful lives be amortized over their useful lives and reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets ('SFAS 144').
SFAS 142 requires that the Company evaluate its existing goodwill and other
intangible assets with indefinite useful lives. In addition, the Company will
reassess the useful lives of its intangible assets and will test indefinite
lived intangible assets for impairment in accordance with the provisions of
SFAS 142. The Company is in the process of evaluating the impact of SFAS 142 on
its financial statements.
As of January 5, 2002 the Company had goodwill and other intangible assets
net of accumulated amortization of approximately $944,000. Based upon
preliminary evaluations of the fair value of the Company's business units
obtained in connection with preparing the Company's plan of reorganization,
F-12
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
the Company believes that the carrying value of the Company's goodwill and
intangible assets will substantially exceed the fair value of those assets. As a
result, the Company will write-off a significant amount of its goodwill and
intangible assets upon the adoption of SFAS 142. In addition, amortization
expense related to goodwill and intangible assets for the year ended January 5,
2002 was approximately $36,900. The Company estimates that after the adoption of
SFAS 142 and the write-down of intangible assets noted above, amortization
expense for the 2002 fiscal year will also be reduced significantly.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations ('SFAS 143'). SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
The Company plans to adopt the provisions of SFAS 143 for its 2003 fiscal year
and does not expect the adoption of SFAS 143 to have a material impact on the
Company's financial position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
('SFAS 144'). SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The Company is required to adopt
the provisions of SFAS 144 for its 2002 fiscal year. The Company does not expect
the adoption of SFAS 144 to have a material impact on the Company's financial
position or results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections ('SFAS 145'). SFAS 145 rescinds the
provisions of SFAS No. 4 that requires companies to classify certain gains and
losses from debt extinguishments as extraordinary items, eliminates the
provisions of SFAS No. 44 regarding transition to the Motor Carrier Act of 1980
and amends the provisions of SFAS No. 13 to require that certain lease
modifications be treated as sale leaseback transactions. The provisions of SFAS
145 related to classification of debt extinguishment is effective for fiscal
years beginning after May 15, 2002. The provisions of SFAS 145 related to lease
modifications is effective for transactions occurring after May 15, 2002.
Earlier application is encouraged. The adoption of SFAS 145 is not expected to
have a material impact on the financial position or results of operations of the
Company.
In April 2001, the FASB's Emerging Issues Task Force ('EITF') reached a
final consensus on EITF Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products,
which was later codified along with the other similar issues, into EITF 01-09,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products ('EITF 01-09'). EITF 01-09 will be effective for the
Company in the first quarter of 2002. EITF 01-09 clarifies the income statement
classification of costs incurred by a vendor in connection with the reseller's
purchase or promotion of the vendor's products, resulting in certain cooperative
advertising and product placement costs previously classified as selling
expenses to be reflected as a reduction of revenues earned from that activity.
The Company does not expect the adoption of EITF 01-09 to have a material impact
on the Company's results of operations or its financial position.
NOTE 2 -- RESTATEMENT OF FINANCIAL STATEMENTS
In June 2001, during the course of reviewing its business operations, the
Company became aware of certain accounting errors involving the recording of
inter-company pricing arrangements, the recording of accounts payable primarily
related to the purchase of inventory from suppliers and the accrual of certain
liabilities. The errors were related to the Company's Designer Holdings Ltd.
('Designer Holdings') subsidiary. The correction of these errors, together with
additional errors primarily related to the recording of accounts payable and
inventory discovered in certain of the Company's European
F-13
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
subsidiaries in connection with the Company's year-end closing for fiscal 2001,
has caused the Company to restate its previously issued financial statements for
the years ended January 1, 2000 and December 30, 2000 (fiscal 1999 and fiscal
2000, respectively), its previously issued financial results for each of the
quarterly periods in fiscal 1999 and fiscal 2000 and for the fiscal 2001 quarter
ended April 7, 2001. The Company reduced previously reported net income by
$4,132 (net of income tax benefit of $2,703), or $0.07 per share, for fiscal
1999, increased its previously reported net loss by $45,788 (net of income tax
benefit of $137), or $0.87 per share, for fiscal 2000 and increased its
previously reported net loss by $1,116, (no income tax effect), or $0.02 per
share, for the fiscal 2001 quarter ended April 7, 2001 (collectively, the
'Restatements').
The Company began an internal investigation of the suspected accounting
errors in June 2001. In August 2001, after reviewing the preliminary results of
the internal investigation, the Audit Committee of the Board of Directors of the
Company retained the law firm Dewey Ballantine LLP ('Dewey Ballantine') to
investigate the suspected accounting errors at Designer Holdings. In addition,
Dewey Ballantine retained FTI Consulting, Inc. ('FTI') to assist in the
investigation and provide accounting expertise to Dewey Ballantine. Dewey
Ballantine issued its report to the Audit Committee on February 6, 2002. Since
the discovery of the accounting errors at Designer Holdings and at certain of
the Company's European subsidiaries, the Company has replaced certain financial
staff and has taken several steps to improve the accounting for inter-company
purchases, and the reconciliation of inter-company accounts.
The Company estimates that the total cost of conducting the investigation
into this matter, consisting primarily of professional fees, will be
approximately $1,000. Approximately $681 of the cost of the investigation is
included in the Company's results of operations for the year ended January 5,
2002 and the remaining $319 will be included in the results of operations in the
first quarter of fiscal 2002.
F-14
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A summary of the significant effects of the Restatements is as follows:
<Table>
<Caption>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 1, 2000 DECEMBER 30, 2000
----------------------- -----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
Consolidated statements of operations data:
Cost of goods sold............................ 1,425,549 1,432,384 1,799,463 1,845,389
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle........................ 131,223 124,388 (309,892) (355,817)
Provision for income taxes.................... 33,437 30,734 21,181 21,044
Income (loss) before cumulative effect of
change in accounting principle.............. 97,796 93,654 (331,073) (376,861)
Net income (loss)............................. 97,786 93,654 (344,183) (389,971)
Basic earnings (loss) per common share:
Income (loss) before accounting change.... $ 1.75 $ 1.68 $ (6.27) $ (7.14)
Net income (loss)......................... 1.75 1.68 (6.52) (7.39)
Diluted earnings (loss) per common share:
Income (loss) before accounting change.... $ 1.72 $ 1.65 $ (6.27) $ (7.14)
Net income (loss)......................... 1.72 1.65 (6.52) (7.39)
Consolidated balance sheet data:
Inventories............................... $ 722,539 $ 730,379 $ 483,111 $ 481,859
Property, plant and equipment, net........ 326,352 326,608 329,175 329,514
Accounts payable.......................... 599,768 618,192 413,786 467,500
Accrued liabilities....................... 90,736 87,243 132,137 130,269
Accrued income taxes payable.............. 16,217 16,217 16,470 13,630
Deferred income taxes..................... 7,468 4,765 -- --
Deficit................................... (125,460) (129,592) (482,602) (532,521)
Stockholders' equity...................... 537,317 533,185 77,105 27,185
</Table>
See Note 25 of Notes to Consolidated Financial Statements for restated
quarterly information for fiscal 1999, fiscal 2000 and the first quarter of
fiscal 2001.
NOTE 3 -- ACQUISITIONS
AUTHENTIC FITNESS CORPORATION
In December 1999, the Company acquired all of the outstanding common stock
of Authentic Fitness Corporation ('Authentic Fitness') for $437,100 (all of
which was financed), excluding debt assumed of approximately $154,170 and other
costs incurred in the acquisition of $3,255. The acquisition was accounted for
as a purchase. Accordingly, the accompanying consolidated financial statements
include the results of operations for Authentic Fitness commencing on
December 16, 1999. The allocation of the total purchase price, exclusive of cash
acquired of approximately $7,000, to the fair value of the net assets acquired
and liabilities assumed is summarized as follows:
<Table>
Fair Value of assets acquired..................... $674,256
Liabilities assumed............................... (79,731)
--------
Purchase price -- net of cash balance............. $594,525
--------
--------
</Table>
Goodwill as of December 30, 2000 and January 5, 2002 includes $417,526 and
$390,219, respectively, related to the Authentic Fitness acquisition which is
being amortized over 40 years.
F-15
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following summarized unaudited pro forma information combines financial
information of the Company with Authentic Fitness for fiscal year 1999 assuming
the acquisition had occurred as of January 3, 1999. The unaudited pro-forma
information does not reflect any cost savings or other benefits anticipated by
the Company's management as a result of the acquisition. The unaudited pro-forma
information reflects interest expense on the additional financing of $437,100
incurred for the acquisition and the amortization of goodwill using a 40-year
life.
<Table>
<Caption>
FOR THE YEAR ENDED
JANUARY 1, 2000
---------------
Statement of Income Data:
Net revenues........................... $2,473,771
Net income............................. 65,994
</Table>
A.B.S. CLOTHING COLLECTION, INC.
In September 1999, the Company acquired the outstanding common stock of
A.B.S. Clothing Collection, Inc. ('ABS'). ABS is a designer of casual sportswear
and dresses sold through better department and specialty stores. The purchase
price consisted of a cash payment of $29,500, shares of the Company's common
stock with a fair market value of $2,200 and a deferred cash payment of $22,800
and other costs incurred in the acquisition of approximately $1,208. The
acquisition was accounted for as a purchase. The allocation of the purchase
price to the fair value of assets acquired and liabilities assumed is summarized
as follows:
<Table>
Fair Value of assets acquired...................... $59,720
Liabilities assumed................................ (3,730)
-------
Purchase price -- net of cash balance.............. $55,990
-------
-------
</Table>
The acquisition did not have a material impact on 1999 consolidated
earnings. Goodwill related to the ABS acquisition was $54,136 as of
December 30, 2000. As part of the Company's evaluation of potential impairment
of long-lived assets, the Company determined that the goodwill associated with
ABS was impaired, and as a result (Note 1), the Company recorded an impairment
charge of $36,803 in the fourth quarter of fiscal 2001. Goodwill related to the
ABS acquisition, after giving effect to the impairment charge, was $10,974 at
January 5, 2002.
OTHER ACQUISITIONS -- 1999
During 1999, the Company acquired two other companies and certain other
licenses to sell products in Canada which were not significant and did not have
a significant pro forma impact on fiscal 1999 consolidated earnings. The excess
purchase price over fair value of the net assets acquired and liabilities
assumed on these acquisitions was approximately $5,000 as of December 30, 2000.
As part of the Company's evaluation of potential impairment of long lived assets
(Note 1), the Company determined that the goodwill associated with these
acquisitions was impaired, and as a result, the Company recorded an impairment
charge of $4,826 during the fourth quarter of fiscal 2001 which is included in
reorganization items.
NOTE 4 -- REORGANIZATION ITEMS
In connection with the Chapter 11 Cases, the Company initiated several
strategic and organizational changes during fiscal 2001 to streamline the
Company's operations, focus on its core businesses, and return the Company to
profitability. Many of the strategic actions are long-term in nature and, though
initiated in fiscal 2001, will not be completed until the end of fiscal 2002. In
F-16
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
connection with these strategies, the Company has reorganized its Retail Stores
Division by closing 86 of the 267 or 32% of the retail stores it operated at the
beginning of fiscal 2001.
The Debtors are in the process of reviewing their operations and identifying
assets available for potential disposition including entire business units of
the Company. However, there can be no assurance that the Company will be able to
consummate any such transactions at prices the Company, or the Company's
creditor constituencies will find acceptable.
In the first quarter of fiscal 2002, the Company sold the assets of
Penhaligon's and GJM for net proceeds of approximately $20,100 in the aggregate.
The Company recorded an impairment loss of $26,842 related to the write-down of
GJM goodwill in fiscal 2001.
The amount of proceeds that will be realized, if any, and the effect of any
additional asset sales on the Company's proposed plan or plans of reorganization
cannot presently be determined. The Company has recorded reductions to the
estimated net realizable value for those assets that the Company believes will
not be fully realized when they are sold or abandoned.
During fiscal 2001, the Company sold certain personal property, vacated
buildings, surplus land and other assets generating net proceeds of
approximately $6,213 since the Petition Date. The loss related to the write-down
of these assets was $3,656 for the year ended January 5, 2002. The Company has
vacated certain leased premises, and rejected those leases (many related to its
Retail Stores Division) under the provisions of the Bankruptcy Code.
As a direct result of the Chapter 11 Cases, the Company has recorded certain
liabilities, incurred certain legal and professional fees, written-down certain
assets and accelerated the recognition of certain deferred charges. The
transactions were recorded consistent with the provisions of SOP 90-7.
Reorganization items included in the consolidated statements of operations
in fiscal 2001 are $177,791. Included in reorganization items are certain
non-cash asset impairment provisions and accruals for items that have been, or
will be, paid in cash. In addition, certain accruals are included in liabilities
subject to compromise under the provisions of the Bankruptcy Code. The Company
has recorded these accruals at the estimated amount the creditor is entitled to
claim under the provisions of the Bankruptcy Code. The ultimate amount of and
settlement terms for such liabilities are subject to determination in the
bankruptcy process, including the terms of a confirmed plan or plans of
reorganization and accordingly are not presently determinable. However, the
Company believes that these claims will ultimately be discharged under a
confirmed plan of reorganization for amounts that are substantially less than
the carrying amount of the related liability. The components of reorganization
items for fiscal 2001 are:
F-17
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
Legal and professional fees....................... $ 24,206
Company-obligated mandatorily redeemable preferred
securities(a)................................... 21,411
Facility shutdown accruals........................ 8,440
Write-down to net realizable value:
Fixed assets.................................. 3,656
Goodwill...................................... 31,668
Intangible assets............................. 382
Investments................................... 1,355
Deferred financing costs -- pre-petition debt..... 34,599
Systems development abandoned..................... 33,066
Lease terminations................................ 20,591
Employment contracts and retention................ 8,728
Other employee costs.............................. 821
Interest rate swap gain........................... (18,887)
Retail store closure provisions................... 6,105
Aviation and other assets......................... 1,650
--------
$177,791
--------
--------
</Table>
- ---------
(a) Includes original issue discount and deferred bond issue costs of $4,798
net of accumulated amortization.
For the year ended January 5, 2002, cash reorganization items were $36,893
and non-cash reorganization items were $140,898. Certain accruals are included
in liabilities subject to compromise. The ultimate amount of cash payments for
all reorganization items are subject to the provisions of a confirmed plan or
plans of reorganization and therefore cannot be determined.
NOTE 5 -- SPECIAL CHARGES -- FISCAL 2000
The Company performed a strategic review of its worldwide businesses,
manufacturing, distribution and other facilities, and product lines and styles
and initiated a global implementation of programs designed to create cost
efficiencies through plant consolidations, workforce reductions and
consolidation of the finance, manufacturing and operations organizations within
the Company and the discontinuation of product lines and styles that were
unprofitable. As a result of these initiatives which commenced in fiscal 2000
and continued into fiscal 2001, the Company recorded special charges of $269,626
during fiscal 2000 related to costs to exit certain facilities and activities
and consolidate such operations, including charges related to inventory
write-downs and other asset write-offs, facility shutdown and lease obligation
costs, employee termination and severance costs, retail outlet store closings
and other related costs. The non-cash portion of the charge was originally
estimated to be $171,317 and the cash portion was originally estimated to be
$98,309. As of January 5, 2002, $6,336 of accruals remained related primarily to
severance obligations and expected payments under discontinued licenses. Actual
cash charges through January 5, 2002 were $90,589. Non-cash charges were
$172,574. Of the total amount of charges, $201,279 is reflected in cost of goods
sold and $68,347 is reflected in selling, general and administrative expenses in
the 2000 fiscal year. The detail of the charge, including costs incurred and
reserves remaining for costs the Company expects to incur through completion of
the aforementioned programs are summarized below:
F-18
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
FACILITY
INVENTORY SHUTDOWN EMPLOYEE
WRITE-DOWNS AND AND CONTRACT TERMINATION LEGAL AND
OTHER ASSET TERMINATION AND SEVERANCE RETAIL OUTLET OTHER RELATED
WRITE-OFFS COSTS COSTS STORE CLOSINGS COSTS TOTAL
---------- ----- ----- -------------- ----- -----
Provisions............ $ 154,851 $ 53,261 $ 25,772 $ 20,037 $ 15,705 $ 269,626
Cash Reductions --
2000................ -- (41,456) (19,117) (2,969) (10,909) (74,451)
Non-cash reductions --
2000................ (125,350) -- -- (12,357) (976) (138,683)
--------- -------- -------- -------- -------- ---------
Balance as of Dec. 30,
2000................ 29,501 11,805 6,655 4,711 3,820 56,492
Cash Reductions --
2001................ -- (3,998) (6,376) (1,578) (4,186) (16,138)
Non-cash reductions --
2001................ (29,501) (1,257) -- (3,133) -- (33,891)
Other adjustments --
2001(1)............. -- (493) -- -- 366 (127)
--------- -------- -------- -------- -------- ---------
Balance as of Jan. 5,
2002................ $ -- $ 6,057(2) $ 279 $-- $ -- $ 6,336
--------- -------- -------- -------- -------- ---------
--------- -------- -------- -------- -------- ---------
</Table>
- ---------
(1) Other adjustments represent reversals of over accruals related to facility
shutdowns and additional legal costs. The net effect of other adjustments is
included in selling, general and administrative expenses in fiscal 2001.
(2) Includes $2,211 of liabilities subject to compromise.
INVENTORY WRITE-DOWNS AND OTHER ASSET WRITE-OFFS $(154,851)
Management's strategic review of the Company's manufacturing, distribution
and administrative facilities and product lines and styles resulted in the
decision to close seven manufacturing plants, twelve distribution facilities and
two administrative facilities as well as the closure of 26 outlet stores. In
addition, the Company discontinued the manufacturing of certain raw materials
and product styles and wrote-off shop and fixture costs no longer in service at
certain of its customer's retail locations. Included in the above amount are
charges for inventory write-downs of $127,825 and write-off of fixed assets and
other assets of $27,026. Of the total charge, $134,901 is included in cost of
sales and $19,950 is included in selling, general and administrative expenses.
FACILITY SHUTDOWN AND CONTRACT TERMINATION COSTS $(53,261)
Costs associated with the shutdown of the facilities mentioned above include
plant reconfiguration and shutdown costs of $47,751, which were expensed as
incurred and lease obligation costs of $5,510. Of the total charge, $40,281 is
included in cost of sales and $12,980 is included in selling, administrative and
general expenses in fiscal 2000. Accruals amounting to $6,057 for future lease
and contract payments remain at January 5, 2002.
EMPLOYEE TERMINATION AND SEVERANCE COSTS $(25,772)
The Company recorded charges of $11,729 to cost of goods sold related to
providing severance and benefits to 3,589 manufacturing related employees
terminated as a result of the closure of certain facilities in fiscal 2000. The
Company also recorded charges of $14,043 to selling, administrative and general
expenses related to providing severance and benefits to 816 distribution and
administrative
F-19
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
employees who were terminated in fiscal 2000. The Company expects to pay the
$279 remaining at January 5, 2002 to terminated employees over the next 12
months.
RETAIL OUTLET STORE CLOSINGS $(20,037)
During fiscal 2000, the Company announced plans to close 26 retail outlet
stores. Included in the charge are costs for the write-down of inventory of
discontinued product lines and styles which the Company intends to liquidate
through these stores of $13,697, the write-off of fixed assets associated with
these stores of $1,793 and the costs of terminating leases of $1,653. Of the
total charge, $13,697 is included in cost of sales and $6,340 is included in
selling, general and administrative expenses in fiscal 2000.
LEGAL AND OTHER RELATED COSTS $(15,705)
Also included in the charge are $12,490 of legal expenses related to the
Calvin Klein litigation and global initiatives mentioned above and $3,215 of
other costs in fiscal 2000. Of the total charge, $671 is included in cost of
sales and $15,034 is included in selling, general and administrative expenses in
fiscal 2000.
NOTE 6 -- ACCOUNTS RECEIVABLE SECURITIZATION
In October 1998, the Company entered into a revolving accounts receivable
securitization facility, to mature on August 12, 2002, whereby it could obtain
up to $200,000 of funding from the securitization of eligible United States
trade accounts receivable through a bankruptcy remote special purpose
subsidiary. The facility was amended in March 2000 to provide up to $300,000 of
funding. In fiscal 1999 the Company securitized $383,827 of accounts receivable
(gross) for which it received cash proceeds of $195,900. In fiscal 2000, the
Company securitized $454,862 of accounts receivable (gross) for which it
received cash proceeds of $249,600. In fiscal 2001, prior to the Petition Date,
the Company securitized $366,233 of accounts receivable (gross) for which it
received cash proceeds of approximately $185,000. The Company retains the
interest in and subsequent realization of the excess of amounts securitized over
the proceeds received and provides allowances as appropriate on the entire
balance. Accounts receivable at December 30, 2000 are presented net of the
$249,600 of proceeds from trade receivables securitized, with the remaining
$205,262 included in accounts receivable. Accounts receivable were $282,387 at
January 5, 2002 compared to $377,541 at December 30, 2000 after adjusting for
accounts receivable securitized. The securitization is reflected as a reduction
of accounts receivable at December 30, 2000 and the proceeds received are
included in cash flow from operating activities in the consolidated statement of
cash flows. Fees for this program were paid monthly and were based on variable
rates indexed to commercial paper and are included in selling, general and
administrative expense. On June 11, 2001, concurrent with the completion of the
DIP, the Company terminated the revolving accounts receivable securitization
agreement by repaying $186,214 previously received under the account receivable
securitization facility. The repayment of the account receivable securitization
facility included $1,214 of fees and accrued interest. Consequently, none of the
Company's outstanding trade accounts receivable are securitized at January 5,
2002. The termination of the accounts receivable securitization agreement did
not have a material effect on the Company's financial position as of January 5,
2002 or its results of operations for fiscal 2001.
NOTE 7 -- RELATED PARTY TRANSACTIONS
Prior to the December 1999 acquisition, Authentic Fitness was considered a
related party as certain directors and officers of the Company were also
directors and officers of Authentic Fitness. From time to time, the Company and
Authentic Fitness jointly negotiated contracts and agreements with vendors and
suppliers. In fiscal 1999, Authentic Fitness paid the Company $24,614 for
certain occupancy services
F-20
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
related to leased facilities, computer services, laboratory testing,
transportation and contract production services. In fiscal 1999, the Company
paid Authentic Fitness approximately $865 for certain design and occupancy
services. The Company also purchased inventory from Authentic Fitness for sale
in its retail outlet stores of $16,833 in fiscal 1999. In connection with and
under a sub-license entered into with Authentic Fitness to design, manufacture
and distribute certain intimate apparel using the Speedo brand name the Company
recognized royalty expense of $10 in fiscal 1999.
A former director of the Company is the sole stockholder, President and a
director of The Spectrum Group, Inc. ('Spectrum'). The Company recognized
consulting expenses of $560, $560 and $0 in fiscal 1999, 2000 and 2001,
respectively, pursuant to a consulting agreement with Spectrum that was
terminated effective December 31, 2000.
The Company leases certain real property from an entity controlled by an
employee and the former owner of ABS. The lease expires on May 31, 2005 and
includes four five-year renewal options. Rent expense related to this lease for
fiscal 1999, fiscal 2000 and fiscal 2001 was $60, $345 and $458, respectively.
From April 30, 2001 to June 11, 2001, the Company incurred consulting fees
to Alvarez & Marsal, Inc. ('A&M') of $1,256 pursuant to a consulting agreement.
The President and Chief Executive Officer and the Chief Financial Officer of the
Company are affiliated with A&M. The A&M consulting agreement was terminated on
June 11, 2001.
The Company believes that the terms of the relationships and transactions
described above are at least as favorable to the Company as could have been
obtained from an unaffiliated third party.
NOTE 8 -- BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
BUSINESS SEGMENTS
The Company operates in three segments: Intimate Apparel, Sportswear and
Accessories and Retail Stores.
The Company designs, manufactures and markets apparel within the Intimate
Apparel and Sportswear and Accessories markets and operates a Retail Stores
Division, with stores under the Speedo Authentic Fitness name, as well as
Company outlet stores for the disposition of excess and irregular inventory.
The Intimate Apparel Division designs, manufactures, imports and markets
moderate to premium priced intimate apparel for women under the Warner's, Olga,
Calvin Klein, Lejaby, Rasurel and Bodyslimmers brand names, and men's underwear
under the Calvin Klein brand name.
The Sportswear and Accessories Division designs, manufactures, imports and
markets moderate to premium priced men's, women's, junior's and children's
sportswear and jeanswear, men's accessories and men's, women's, junior's and
children's active apparel under the Chaps by Ralph Lauren, Calvin Klein,
Catalina, A.B.S by Allen Schwartz, Speedo, Anne Cole, Cole of California,
Sandcastle, Sunset Beach, Ralph Lauren, Polo Sport Ralph Lauren, Polo Sport RLX
and White Stag brand names.
The Retail Stores Division which is comprised of both outlet as well as
full-price retail stores, principally sells the Company's products to the
general public through stores under the Speedo Authentic Fitness name as well as
the Company's outlet stores for the disposition of excess and irregular
inventory. The Company had 95 Speedo Authentic Fitness and 86 outlet stores open
as of January 5, 2002.
The accounting policies of the segments are the same as those described in
the 'Summary of Significant Accounting Policies' in Note 1. Transfers to the
Retail Stores Division occur at standard cost and are not reflected in net
revenues of the Intimate Apparel or Sportswear and Accessories segments. The
Company evaluates the performance of its segments based on operating income
(loss) before
F-21
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
interest, taxes, amortization of intangibles and deferred financing costs and
special charges, as well as the effect of the adoption of new accounting
pronouncements or other changes in accounting. Information by business segment
is set forth below:
<Table>
<Caption>
SPORTSWEAR
INTIMATE AND RETAIL
APPAREL ACCESSORIES STORES TOTAL(1)
------- ----------- ------ --------
Fiscal 2001
Net revenues................................ $ 626,340 $ 869,368 $175,548 $1,671,256
Operating income (loss)..................... $ (95,071) $ (163,054) $(19,349) $ (277,474)
Fiscal 2000
Net revenues................................ $ 806,793 $1,227,552 $215,591 $2,249,936
Operating income (loss)..................... $(130,715) $ 67,258 $(29,633) $ (93,090)
Fiscal 1999
Net revenues................................ $ 943,383 $1,022,783 $147,990 $2,114,156
Operating income (loss)..................... $ 136,305 $ 141,535 $ 10,035 $ 287,875
</Table>
(1) Operating income (loss) for the years ended January 1, 2000 and December
30, 2000 have been restated to reflect the Restatements. See Note 2.
Operating income loss does not include corporate expenses not allocated
to divisions of $82,511, $127,377 and $125,610 in fiscal 1999, 2000 and
2001, respectively, and Reorganization Items of $177,791 in fiscal 2001.
A reconciliation of segment operating income (loss) to consolidated income
(loss) before provision for income taxes and cumulative effect of a change in
accounting principle for fiscal years ended January 1, 2000, December 30, 2000
and January 5, 2002 is as follows:
<Table>
<Caption>
FOR THE YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Segment operating income (loss)............................ $287,875 $ (93,090) $(277,474)
General corporate expenses not allocated................... 69,678 71,218 116,249
Depreciation of corporate assets and amortization of
intangibles and unearned stock compensation.............. 12,833 56,159 9,361
Reorganization items....................................... -- -- 177,791
-------- --------- ---------
Consolidated operating income (loss)....................... 205,364 (220,467) (580,875)
Investment income (loss)................................... -- 36,882 (6,556)
Interest expense........................................... 80,976 172,232 122,752
-------- --------- ---------
Income (loss) before provision for income taxes and
cumulative effect of a change in accounting principle.... $124,388 $(355,817) $(710,183)
-------- --------- ---------
-------- --------- ---------
</Table>
<Table>
<Caption>
SPORTSWEAR
INTIMATE AND RETAIL RECONCILING
APPAREL ACCESSORIES STORES ITEMS* CONSOLIDATED
------- ----------- ------ ------ ------------
Year Ended January 5, 2002
Total assets...................... $420,147 $1,145,134 $ 87,613 $332,561 $1,985,455
Depreciation and amortization..... 25,995 39,758 7,342 24,723 97,818
Capital expenditures.............. 8,463 4,952 1,187 10,125 24,727
Year Ended December 30, 2000
Total assets...................... $617,015 $1,375,868 $116,735 $232,531 $2,342,149
Depreciation and amortization..... 26,618 48,616 4,390 22,455 102,079
Capital expenditures.............. 33,043 17,708 10,089 49,222 110,062
Year Ended January 1, 2000
Total assets...................... $796,614 $1,515,629 $143,056 $297,882 $2,753,181
Depreciation and amortization..... 25,367 22,385 2,902 10,302 60,956
Capital expenditures.............. 38,937 23,571 9,008 37,572 109,088
</Table>
(footnote on next page)
F-22
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(footnote from previous page)
* Includes corporate items not allocated to business segments, primarily fixed
assets related to the Company's management information systems and corporate
facilities and goodwill, intangible and other assets.
GEOGRAPHIC INFORMATION
Included in the consolidated financial statements are the following amounts
relating to geographic locations:
<Table>
<Caption>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Net revenues:
United States........................................ $1,775,905 $1,892,219 $1,342,903
Canada............................................... 68,953 96,840 82,897
Europe............................................... 208,593 199,736 185,570
Mexico............................................... 35,636 45,112 41,896
Asia................................................. 25,069 16,029 17,990
---------- ---------- ----------
$2,114,156 $2,249,936 $1,671,256
---------- ---------- ----------
---------- ---------- ----------
Property, plant and equipment, net
United States........................................ $ 291,616 $ 293,384 $ 173,569
Canada............................................... 8,964 6,888 4,638
All other............................................ 26,028 29,242 33,922
---------- ---------- ----------
$ 326,608 $ 329,514 $ 212,129
---------- ---------- ----------
---------- ---------- ----------
</Table>
INFORMATION ABOUT MAJOR CUSTOMERS
In fiscal 1999, 2000 and 2001 no customer accounted for more than 10% of the
Company's net revenues
NOTE 9 -- INCOME TAXES
The following presents the United States and foreign components of income
from continuing operations before income taxes and cumulative effect of change
in accounting principle and the total provision for United States federal and
other income taxes:
F-23
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Income (loss) before provision for income taxes and
cumulative effect of change in accounting principle:
Domestic............................................... $ 67,988 $(337,394) $(659,321)
Foreign................................................ 56,400 (18,423) (50,862)
-------- --------- ---------
Total.................................................. $124,388 $(355,817) $(710,183)
-------- --------- ---------
-------- --------- ---------
Current tax provision
Federal................................................ $ 1,436 $ -- $ --
State and local........................................ 2,350 588 600
Foreign................................................ 13,200 410 17,946
-------- --------- ---------
Total current tax provision................................ $ 16,986 998 $ 18,546
-------- --------- ---------
Deferred tax provision:
Federal................................................ $ 17,911 $(106,864) $(202,150)
State and local........................................ (3,453) (20,189) (44,543)
Foreign................................................ (5,238) (4,901) (14,201)
Valuation allowance increase........................... 4,528 152,000 393,318
-------- --------- ---------
Total deferred tax provision............................... 13,748 20,046 132,424
-------- --------- ---------
Provision for income taxes................................. $ 30,734 $ 21,044 $ 150,970
-------- --------- ---------
-------- --------- ---------
</Table>
The following presents the reconciliation of the provision for income taxes
to United States federal income taxes computed at the statutory rate:
<Table>
<Caption>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Income (loss) before provision for income taxes and
cumulative effect of change in accounting principle...... $124,388 $(355,817) $(710,183)
-------- --------- ---------
-------- --------- ---------
Provision (benefit) for income taxes at the statutory
rate..................................................... $ 43,536 $(124,536) $(248,564)
State income tax benefit, net of federal taxes............. (4,324) (18,947) (28,353)
Foreign income taxes at rates in excess of (lower than) the
U.S. statutory rate...................................... (12,214) 1,344 3,899
Non-deductible intangible amortization and impairment
charges.................................................. 3,582 6,504 16,297
Losses not benefited and increase in valuation allowance... 4,528 152,000 393,318
Other, net................................................. (4,374) 4,679 14,373
-------- --------- ---------
Provision for income taxes................................. $ 30,734 $ 21,044 $ 150,970
-------- --------- ---------
-------- --------- ---------
</Table>
F-24
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The components of deferred tax assets and liabilities as of December 30,
2000 and January 5, 2002 are as follows:
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
2000 2002
---- ----
Deferred Tax Assets:
Discounts and sales allowances.......................... $ 3,052 $ 2,060
Inventory............................................... 1,016 13,343
Postretirement benefits................................. 3,366 16,113
Alternative minimum tax credit carryovers............... 4,835 5,245
Financing transaction................................... 8,446 13,219
Reserves and accruals................................... 42,190 98,137
Net operating losses and tax credits.................... 372,234 501,432
--------- ---------
Gross deferred tax assets........................... 435,139 649,549
--------- ---------
Valuation allowance..................................... (178,657) (582,249)
--------- ---------
Deferred tax assets -- net...................... 256,482 67,300
--------- ---------
Deferred Tax Liabilities:
Prepaid and other assets................................ 10,763 10,202
Depreciation and amortization........................... 74,735 44,956
Bond discount........................................... 6,865 6,865
Other................................................... 19,558 10,407
--------- ---------
Deferred tax liabilities........................ 111,921 72,430
--------- ---------
Net deferred tax asset (liability).............. $ 144,561 $ (5,130)
--------- ---------
--------- ---------
</Table>
The Company has estimated United States net operating loss carryforwards of
approximately $1,173,225 and foreign net operating loss carryforwards of
approximately $95,250 at January 5, 2002. The United States net operating loss
carryforwards, if they remain unused, expire as follows:
<Table>
<Caption>
YEAR AMOUNT
---- ------
2003 - 2010..................... $ 119,013
2011 - 2017..................... 46,316
2018 - 2021..................... 1,007,896
----------
$1,173,225
----------
----------
</Table>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized. The valuation allowance
increased to $582,249 (of which $28,041 relates to foreign entities) in fiscal
2001 from $178,657 (of which $15,005 relates to foreign entities) in fiscal
2000. The provision primarily represents an increase in the valuation allowance.
The increase in the valuation allowance relates to an increase in the net
operating loss and other net deferred tax assets that may not be realized. In
addition, the Company was unable to implement certain tax planning strategies
resulting in a further increase in the valuation allowance of approximately
$126.0 million.
The Company expects that the consummation of a plan or plans of reorganization
will result in the forgiveness of a substantial amount of the Company's
pre-petition debt and other liabilities subject to compromise. In the event
that a plan or plans of reorganization are consummated, considering the amount
and nature of the Company's pre-petition liabilities, the Company expects to
utilize a substantial portion of its net operating loss carryforwards to
offset taxable income generated from such debt forgiveness. The ability of
the Company to consummate a plan or plans of reorganization is subject to
uncertainty. In addition, after the Company consummates a plan or plans of
reorganization, which includes the forgiveness of pre-petition debt and other
liabilities subject to compromise, the provisions of the U.S. tax code will
limit the Company's ability to utilize any remaining net operating loss
carryforwards. Since the ultimate outcome of the Chapter 11 Cases cannot be
determined at this time and there is substantial doubt about the Company's
ability to continue as a going concern, the Company has provided a valuation
allowance for all U.S. deferred tax assets.
A portion of the valuation allowance in the amount of approximately $19,026
(of which $4,841 relates to foreign entities) at January 5, 2002 relates to net
deferred tax assets which were recorded in
F-25
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
purchase accounting. The recognition of such amount in future years will be
allocated to reduce the excess purchase price over the net assets acquired and
other non-current intangible assets.
At January 5, 2002, prepaid expenses and other current assets includes
current income taxes receivable of $19,500 of which $3,200 relates to foreign
entities and current liabilities include income taxes payable of $14,505 of
which $13,900 relates to foreign entities.
At December 30, 2000 prepaid and other current assets includes current
income tax receivable of $4,023 of which $2,090 relates to foreign entities and
current liabilities include income taxes payable of $13,630 of which $13,042
relates to foreign entities.
NOTE 10 -- EMPLOYEE RETIREMENT PLANS
The Company has a defined benefit pension plan, which covers substantially
all non-union domestic employees (the 'Pension Benefit Plan'). The Pension
Benefit Plan is noncontributory and benefits are based upon years of service.
The Company also has defined benefit health care and life insurance plans that
provide postretirement benefits to retired employees and former directors
('Other Benefit Plans'). The Other Benefit Plans are, in most cases,
contributory with retiree contributions adjusted annually.
The components of net periodic benefit cost is as follows:
<Table>
<Caption>
PENSION BENEFIT PLAN OTHER BENEFIT PLANS
FOR THE YEAR ENDED FOR THE YEAR ENDED
-------------------------------------- --------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5, JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002 2000 2000 2002
---- ---- ---- ---- ---- ----
Service Cost............... $ 2,279 $ 2,640 $ 2,658 $ 193 $ 143 $ 163
Interest Cost.............. 8,867 9,307 9,316 394 424 283
Expected return on plan
assets................... (11,586) (11,252) (9,645) -- -- --
Amortization of prior
service cost............. (74) (74) (74) (33) (33) (33)
Net actuarial gain
(loss)................... -- -- 684 (163) (263) (133)
-------- -------- ------- ----- ----- -------
Net benefit cost
(income)................. $ (514) $ 621 $ 2,939 $ 391 $ 271 $ 280
-------- -------- ------- ----- ----- -------
-------- -------- ------- ----- ----- -------
</Table>
A reconciliation of the balance of the benefit obligations is as follows:
<Table>
<Caption>
PENSION BENEFIT PLAN OTHER BENEFIT PLANS
------------------------- -------------------------
DECEMBER 30, JANUARY 5, DECEMBER 30, JANUARY 5,
2000 2002 2000 2002
---- ---- ---- ----
Change in benefit obligations
Benefit obligation at beginning of year.... $119,634 $126,676 $5,362 $ 5,296
Service cost............................... 2,640 2,658 143 163
Interest cost.............................. 9,307 9,316 424 283
Plan participants' contribution............ -- -- 280 --
Change in actuarial assumptions............ 4,533 5,015 (118) (233)
Benefits paid.............................. (9,438) (9,592) (795) (305)
-------- -------- ------ -------
Benefit obligation at end of year.......... $126,676 $134,073 $5,296 $ 5,204
-------- -------- ------ -------
-------- -------- ------ -------
</Table>
F-26
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A reconciliation of the change in the fair value of plan assets is as
follows:
<Table>
<Caption>
PENSION BENEFIT PLAN OTHER BENEFIT PLANS
------------------------- -------------------------
DECEMBER 30, JANUARY 5, DECEMBER 30, JANUARY 5,
2000 2002 2000 2002
---- ---- ---- ----
Fair value of plan assets at beginning of
year......................................... $122,871 $104,249 $-- $ --
Actual return on plan assets................... (9,184) (2,985) -- --
Employer's contributions....................... -- 4,186 515 305
Plan participants' contributions............... -- -- 280 --
Benefits paid.................................. (9,438) (9,591) (795) (305)
-------- -------- ------- -------
Fair value of plan assets at end of year....... $104,249 $ 95,859 $-- $ --
-------- -------- ------- -------
-------- -------- ------- -------
Funded status.................................. $(22,426) $(38,214) $(5,296) $(5,204)
Unrecognized prior service cost................ (124) (49) (439) (406)
Unrecognized net actuarial loss (gain)......... 21,588 38,547 (3,488) (3,588)
-------- -------- ------- -------
Net amount recognized.......................... $ (962) $ 284 $(9,223) $(9,198)
-------- -------- ------- -------
-------- -------- ------- -------
</Table>
Pension Benefit Plan assets include fixed income securities and marketable
equity securities, including 673,100 shares of the Company's Class A Common
Stock, which had a fair market value of $13,554 and $37 at December 30, 2000 and
January 5, 2002, respectively. The Company contributes to a multi-employer
defined benefit pension plan on behalf of union employees of its two
manufacturing facilities and a warehouse and distribution facility, which
amounts are not significant for the periods presented.
The weighted-average assumptions used in the actuarial calculations were as
follows:
<Table>
<Caption>
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Discount rate.............................................. 8.00% 7.75% 7.25%
Expected return on plan assets............................. 9.50% 9.50% 9.50%
Rate of compensation increase.............................. 5.00% 5.00% 5.00%
</Table>
For measurement purposes, the weighted average annual assumed rate of
increase in the per capita cost of covered benefits (health care cost trend
rate) was 12% for 2001 and decreases by 0.5% each year from 2002 to 2015 to 5%.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:
<Table>
<Caption>
ONE PERCENTAGE ONE PERCENTAGE
POINT POINT
INCREASE DECREASE
-------- --------
Effect on total of service and interest cost components..... $ 44 $ (49)
---- -----
---- -----
Effect on health care component of the accumulated
postretirement benefit obligation......................... $214 $(393)
---- -----
---- -----
</Table>
The Company also sponsors a defined contribution plan for substantially all
of its domestic employees. Employees can contribute to the plan, on a pre-tax
and after-tax basis, a percentage of their qualifying compensation up to the
legal limits allowed. The Company contributes amounts equal to 15.0% of the
first 6.0% of employee contributions to the defined contribution plan. The
maximum Company contribution on behalf of any employee is $1.35 in one year.
Employees vest in the Company contribution over four years. Company
contributions to the defined contribution plan totaled $388, $552 and $483 for
fiscal years 1999, 2000 and 2001, respectively.
In the second quarter of fiscal 2002, the Company closed two manufacturing
plants. Plant employees were covered under a multi-employer pension plan. The
Company recorded a termination
F-27
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
liability related to the closing of the plants amounting to approximately $900
in the second quarter of fiscal 2002.
NOTE 11 -- MARKETABLE SECURITIES
The Company receives marketable securities from time to time in connection
with the settlement of obligations due to the Company. Securities received are
recorded at estimated fair market value at the date they are received. During
fiscal 1999, the Company received securities with a fair market value of $875 in
exchange for the early termination of a non-compete agreement with the former
principal stockholder of Designer Holdings. The receipt of such securities was
recorded as a reduction of goodwill. The fair market value of such securities
was $259 and $231 at December 30, 2000 and January 5, 2002, respectively. During
fiscal 2001, the Company received securities as settlement of amounts owed to
the Company by certain bankrupt customers. The receipt of the securities was
recorded as a recovery of bad debts. The securities had a fair market value of
approximately $200 at the time of settlement. The fair market value of such
securities was $662 at January 5, 2002. Marketable securities are classified
with other assets in the consolidated balance sheet.
During 1998 and 1999, the Company made investments, aggregating $7,650, to
acquire an interest in InterWorld Corporation, a provider of E-Commerce software
systems and other applications for electronic commerce sites. These investments
were classified as available-for-sale securities and recorded at fair value
based on quoted market prices at January 1, 2000. In the first quarter of fiscal
2000, the Company sold its investment in InterWorld resulting in a realized
pre-tax gain of $42,782 ($25,862 net of taxes), which is recorded as investment
income.
NOTE 12 -- INVENTORIES
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
2000 2002
---- ----
Finished goods.............................................. $395,051 $375,956
Work in process............................................. 58,104 47,325
Raw materials............................................... 58,000 45,718
-------- --------
511,155 468,999
Less: reserves.............................................. 29,296 50,097
-------- --------
$481,859 $418,902
-------- --------
-------- --------
</Table>
NOTE 13 -- PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
2000 2002
---- ----
Land and land improvements.................................. $ 6,067 $ 573
Building and building improvements.......................... 98,361 70,428
Furniture and fixtures...................................... 110,529 102,833
Machinery and equipment..................................... 124,429 76,711
Computer hardware and software.............................. 143,960 169,811
Construction in progress(a)................................. 39,406 1,101
--------- ---------
522,752 421,457
Less: Accumulated depreciation and amortization............. (193,238) (209,328)
--------- ---------
Property, plant and equipment, net.......................... $ 329,514 $ 212,129
--------- ---------
--------- ---------
</Table>
- ---------
(a) Reduction in construction in progress includes $33,066 related to computer
system developments costs written-off as a reorganization item in fiscal
2001.
F-28
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 14 -- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) as of
January 1, 2000, December 30, 2000 and January 5, 2002 are summarized below.
<Table>
<Caption>
FOR THE YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Foreign currency translation adjustments................... $(14,089) $(18,707) $(20,561)
Unfunded minimum pension liability......................... -- (14,648) (32,494)
Unrealized holding (loss) gain -- net...................... 38,966 (395) 39
-------- -------- --------
Total accumulated other comprehensive income (loss)........ $ 24,877 $(33,750) $(53,016)
-------- -------- --------
-------- -------- --------
</Table>
NOTE 15 -- DEBT
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
SHORT-TERM DEBT 2000 2002
- --------------- ---- ----
Amended DIP................................................. $ -- $ 155,915
Foreign credit facilities................................... 182 215
---------- ----------
Total short-term debt................................... 182 156,130
---------- ----------
LONG-TERM DEBT
$600 million term loan...................................... 587,548 587,548
Revolving credit facilities................................. 710,391 1,018,719
Term loan agreements........................................ 63,356 27,161
Capital lease obligations................................... 6,519 5,582
French Franc facilities..................................... 54,152 59,545
Foreign credit facilities................................... 21,214 83,679
Equity Agreement Notes...................................... 50,121 56,677
---------- ----------
Total long-term debt.................................... 1,493,301 1,838,911
---------- ----------
Current portion............................................. 1,493,483 --
Reclassified to liabilities subject to compromise........... -- 1,839,126
---------- ----------
Total debt.......................................... $1,493,483 $ 155,915
---------- ----------
---------- ----------
</Table>
Total debt does not include $169,142 of trade drafts outstanding as of December
30, 2000. Trade drafts outstanding as of January 5, 2002 of $351,367 are
included in liabilities subject to compromise.
DEBTOR-IN-POSSESSION FINANCING
On June 11, 2001, the Company entered into a Debtor-In-Possession Financing
Agreement (the 'DIP') with a group of banks, which was approved by the
Bankruptcy Court in an interim amount of $375,000. On July 9, 2001, the
Bankruptcy Court approved an increase in the amount of borrowing available to
the Company to $600,000. The DIP was subsequently amended as of August 27, 2001,
December 27, 2001, February 5, 2002 and May 15, 2002. The amendments, among
other things, amend certain definitions and covenants, permit the sale of
certain of the Company's assets and businesses, extend deadlines with respect to
certain asset sales and certain filing requirements with respect to a plan of
reorganization and reduce the size of the facility to reflect the Debtors'
revised business plan.
The Amended DIP (when originally executed) provided for a $375,000
non-amortizing revolving credit facility (which includes a letter of credit
facility of up to $200,000) ('Tranche A') and a $225,000
F-29
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
revolving credit facility ('Tranche B'). On December 27, 2001, the Tranche B
commitment was reduced to $100,000. On April 19, 2002, the Company elected to
eliminate the Tranche B facility based upon its determination that the Company's
liquidity position had improved significantly since the Petition Date and the
Tranche B facility would not be needed to fund the Company's on-going
operations. On May 28, 2002, the Company voluntarily reduced the amount of
borrowing available under the Amended DIP to $325,000. The Amended DIP
terminates on the earlier of June 11, 2003 or the effective date of a plan of
reorganization.
Borrowing under the Amended DIP bears interest at either the London Inter
Bank Offering Rate (LIBOR) plus 2.75% (4.8% on January 5, 2002) or at the
Citibank N.A. Base Rate plus 1.75% (6.5% at January 5, 2002). In addition, the
fees for the undrawn amounts are .50% for Tranche A. During fiscal 2001 and
through its termination on April 19, 2002, the Company did not borrow any funds
under Tranche B. The Amended DIP contains restrictive covenants that require the
Company to maintain minimum levels of EBITDAR (earnings before interest, taxes,
depreciation, amortization, restructuring charges and other items as set forth
in the agreement), restrict investments, limit the annual amount of capital
expenditures, prohibit paying dividends and prohibit the Company from incurring
material additional indebtedness. Certain restrictive covenants are subject to
adjustment in the event the Company sells certain business units and/or assets.
In addition, the Amended DIP requires that proceeds from the sale of certain
business units and/or assets are to be used to reduce the outstanding balance of
Tranche A. The maximum borrowings under Tranche A are limited to 75% of eligible
accounts receivable, 25% to 67% of eligible inventory, and 50% of other
inventory covered by outstanding trade letters of credit.
Amounts outstanding under the Amended DIP at January 5, 2002 were $155,915
with a weighted average interest rate of 4.8%. In addition, the Company had
stand-by and documentary letters of credit outstanding under the Amended DIP at
January 5, 2002 of approximately $60,031. The total amount of additional credit
available to the Company at January 5, 2002 was $159,054. As of July 5, 2002,
the Company had repaid all outstanding borrowings under the Amended DIP and had
approximately $61,000 of cash available as collateral against outstanding trade
and stand-by letters of credit.
The Amended DIP is secured by substantially all of the domestic assets of
the Company.
PRE-PETITION DEBT AGREEMENTS -- SUBJECT TO COMPROMISE
The Company was in default of substantially all of its U.S. pre-petition
credit agreements as of January 5, 2002. All pre-petition debt of the Debtors
has been reclassified with liabilities subject to compromise in the consolidated
balance sheet at January 5, 2002. In addition, the Company stopped accruing
interest on all domestic pre-petition credit facilities and outstanding balances
on June 11, 2001 except for interest on certain foreign credit agreements that
are subject to standstill and intercreditor agreements. A brief description of
each pre-petition credit facility and its terms is included below.
AMENDMENT AGREEMENT
On October 6, 2000 the Company and the lenders under its credit facilities
entered into an Amendment, Modification, Restatement and General Provisions
Agreement (the 'Amendment Agreement') and an Intercreditor Agreement. Pursuant
to the Amendment Agreement, the Company's credit facilities were modified so
that each contains identical representations and warranties, covenants,
mandatory prepayment obligations, and events of default. The Amendment Agreement
also amended uncommitted credit facilities and those which matured prior to
August 12, 2002 so that they would mature on August 12, 2002 (maturity dates of
the credit facilities due after August 12, 2002 were unaffected).
F-30
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Amendment Agreement made the margins added to a base rate or Eurodollar
rate loan uniform under the credit facilities, and determined according to the
debt rating of the Company. As of December 30, 2000, the applicable margin for
base rate advances under the credit facilities was 2.5% and the applicable
margin for Eurodollar rate advances under the credit facilities was 3.5%. The
Amendment Agreement also made the fee charged based on the letters of credit
outstanding and a commitment fee charged based on the undrawn amount of the
credit facilities consistent across the credit facilities. Both of these fees
also varied according to the Company's debt rating.
As part of the signing of the Amendment Agreement, obligations under the
credit facilities were guaranteed by the Company, by all of its domestic
subsidiaries and, on a limited basis, by all of its subsidiaries located in
Canada, the United Kingdom, France, Germany, the Netherlands, Mexico, Belgium,
Hong Kong and Barbados. The Company and each of such entities have granted liens
on substantially all of their assets to secure these obligations. As a result of
the Amendment Agreement, as of December 30, 2000, the Company had committed
credit facilities in an aggregate amount of $2,609,000 all of which were to
mature on or after August 12, 2002 with substantially no debt amortization until
then. All obligations under the Amendment Agreement are in default under the
Chapter 11 Cases. The Company has not accrued interest on these obligations
since the Petition Date, except for interest on certain foreign credit
agreements. Creditors under the Amendment Agreement are considered secured
creditors in the Chapter 11 Cases, and as such will receive a higher priority
than other classes of creditors. Amounts outstanding under the Amendment
Agreement, not including accrued interest, at the Petition Date were
approximately $2,190,493, including $351,367 of trade drafts. The Company has
classified these obligations as liabilities subject to compromise. The Company
has not completed its plan of reorganization under the Chapter 11 Cases and, as
a result, the Company cannot yet determine the ultimate amount that the
creditors under the Amendment Agreement will ultimately receive.
$600,000 REVOLVING CREDIT FACILITY
The Company is the borrower under a $600,000 Revolving Credit Facility,
which includes a $100,000 sub-facility available for letters of credit. This
facility was scheduled to expire on August 12, 2002 in accordance with the terms
of the Amended and Restated Credit Agreement, dated November 17, 1999, which
governs the facility. Amounts borrowed under this facility were borrowed at
either base rate or at an interest rate based on the Eurodollar rate plus a
margin determined under the Amendment Agreement. As of December 30, 2000, the
amount of borrowings outstanding under this facility was $425,680. Additionally,
as of December 30, 2000, the amount of letters of credit outstanding under this
facility was $4,739. The weighted-average interest rate under this facility as
of December 30, 2000 was 10.34%. As of January 5, 2002, $595,119 was outstanding
under this facility, all of which is included in liabilities subject to
compromise at January 5, 2002.
$450,000 REVOLVING CREDIT FACILITY
The Company is also a borrower under a $450,000 Revolving Credit Facility,
which was reduced to $423,600 under the Amendment Agreement. The credit
agreement governing this facility, dated November 17, 1999, provides that the
term of the facility will expire on November 17, 2004. Amounts borrowed under
this facility were subject to interest at a base rate or at an interest rate
based on the Eurodollar rate plus a margin determined under the Amendment
Agreement. As of December 30, 2000, the amount of borrowings outstanding under
this facility was $284,711 with a weighted average interest rate of 10.47%. As
of January 5, 2002, $423,600 was outstanding under this facility, all of which
is included in liabilities subject to compromise.
F-31
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
$587,548 TERM LOAN
The Company is also a borrower under a $600,000 Term Loan, dated
November 17, 1999, which was reduced to approximately $587,548 under the
Amendment Agreement. The maturity of this loan was also extended until
August 12, 2002 in conjunction with the Amendment Agreement. Amounts borrowed
under this facility were subject to interest at a base rate or an interest rate
based on the Eurodollar rate plus a margin determined under the Amendment
Agreement. As of December 30, 2000 and January 5, 2002, $587,548 was outstanding
under this facility all of which is included in liabilities subject to
compromise at January 5, 2002.
FRENCH FRANC FACILITIES
The Company and its subsidiaries entered into French Franc facilities in
July and August 1996 relating to its acquisition of Lejaby. These facilities,
which were amended in April 1998 and in August and November 1999, include a term
loan facility in an original amount of 370 million French Francs and a revolving
credit facility of 480 million French Francs, which was reduced to 441.6 million
French Francs pursuant to the Amendment Agreement. Amounts borrowed under these
facilities are subject to interest at an interest rate based on the Eurodollar
rate plus a margin determined under the Amendment Agreement. The term loan was
being repaid in annual installments, which began in July 1997, with a final
installment due on December 31, 2001. In conjunction with the Amendment
Agreement the annual installments were eliminated and the maturity of the loan
was extended to August 12, 2002. As of December 30, 2000, $36,282 equivalent of
the term loan was outstanding with a weighted average interest rate of 8.79%.
The revolving portion of this facility provides for multi-currency revolving
loans to be made to the Company and a number of its European subsidiaries. As of
December 30, 2000, approximately $54,152 equivalent of revolving advances were
outstanding under this facility with a weighted average interest rate of 9.94%.
As of January 5, 2002, the total amount outstanding under these facilities was
$59,545 equivalent, all of which is included in liabilities subject to
compromise.
$400,000 TRADE CREDIT FACILITY
On October 6, 2000, in conjunction with signing the Amendment Agreement, the
Company entered into a new $400,000 Trade Credit Facility which provided
commercial letters of credit for the purchase of inventory from suppliers and
offers the Company extended terms for periods of up to 180 days ('Trade
Drafts'). Amounts drawn under this facility were subject to interest at an
interest rate based on the Eurodollar rate plus a margin determined under the
Amendment Agreement. The Company classified the 180-day Trade Drafts in trade
accounts payable. As of December 30, 2000, the amount of Trade Drafts
outstanding under this facility was $163,947. Also at December 30, 2000, the
Company had outstanding letters of credit under this facility totaling
approximately $81,062. At January 5, 2002, the Company had approximately
$351,367 of Trade Drafts outstanding under this facility, all of which is
included in liabilities subject to compromise.
OTHER FACILITIES
In July 1998, the Company entered into a term loan agreement with a member
of its existing bank group. The balance of this loan as of December 30, 2000 was
$17,025. This loan was due to be repaid in equal installments with a final
maturity date of July 4, 2002. Amounts outstanding under this agreement as of
the Petition Date of $27,161 are included in liabilities subject to compromise
at January 5, 2002.
On September 19, 2000 the Company issued Equity Agreement Notes payable to
certain banks in an initial aggregate amount of $40,372 related to the Company's
Equity Forward Purchase Agreements.
F-32
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Amounts due under such Equity Agreement Notes were $50,121 and $56,677 at
December 30, 2000 and January 5, 2002, respectively.
PRE-PETITION DEBT AGREEMENTS -- SUBJECT TO STANDSTILL AGREEMENTS
FOREIGN CREDIT FACILITIES
The Company and certain of its foreign subsidiaries have entered into credit
agreements that provide for revolving lines of credit and issuance of letters of
credit ('Foreign Credit Facilities'). At December 30, 2000 and January 5, 2002,
the total outstanding amounts of the Foreign Credit Facilities were
approximately $16,263 and $83,894, respectively. The foreign subsidiaries are
not parties to the Chapter 11 Cases. Certain of the Company's foreign
subsidiaries are parties to debt agreements which are subject to standstill and
intercreditor agreements. The Company has recorded interest of $4,110 in fiscal
2001 on certain of these foreign credit facilities. Consummation of a plan or
plans of reorganizaton may provide for the payment of such interest.
RESTRICTIVE COVENANTS
Pursuant to the terms of the Amendment Agreement the Company was required to
maintain certain financial ratios and was prohibited from paying dividends. On
March 29, 2001, lenders under Amendment Agreement waived compliance with the
financial ratios until April 16, 2001. On April 13, 2001, the lenders extended
this waiver until May 16, 2001 and on May 16, 2001, the lenders extended the
waiver to June 15, 2001. The Company filed for protection under Chapter 11 of
the Bankruptcy Code on June 11, 2001.
INTEREST RATE SWAPS
As of December 30, 2000, the Company had four interest rate swap agreements
in place which were used to convert variable interest rate borrowings of
$329,500 to fixed interest rates. The counter-parties to all of the Company's
interest rate swap agreements were banks who were lenders in the Company's bank
credit agreements. The fair value of these swaps based on quoted market prices
at December 30, 2000 was $512 less than the carrying amount. Due to the
Chapter 11 Cases the Company's outstanding swap agreement maturing in June 2006
were cancelled as of the Petition Date at a cost to the Company of $420.
As of December 30, 2000, the Company's in-place swap agreements were as
follows:
<Table>
<Caption>
NOTIONAL FIXED INTEREST
AMOUNT MATURITY DATE RATE
------ ------------- ----
$153,000............................... March 2001 6.72%
$ 80,000............................... April 2001 6.74%
$190,000............................... April 2001 6.75%
$ 6,500............................... June 2006 6.60%
</Table>
The Company's agreements in place as of January 1, 2000 in the amounts of
$75,000, $210,000, $150,000 and $250,000 were terminated in March 2000 for a
cash gain of $26,076 which was being amortized over the life of the agreements.
Unamortized deferred swap income of $21,744 was reclassified to other
comprehensive income as a transition adjustment upon the adoption of SFAS 133 in
the first quarter of fiscal 2001. In conjunction with the Chapter 11 Cases the
Company suspended interest payments on the outstanding debt obligations of the
Debtors, and as a result, realized the deferred income as of the Petition Date.
The unamortized amount of $18,887 is included in reorganization items for the
year ended January 5, 2002.
F-33
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Differences between the fixed interest rate on each swap and the one month
or three month LIBOR rate were settled at least quarterly between the Company
and each counter-party. Pursuant to its interest rate swap agreements, the
Company made payments totaling $4,853 in the year ended January 1, 2000 and made
payments totaling $372 in the year ended December 30, 2000 (none in the year
ended January 5, 2002).
The Company's average interest rate on its outstanding debt, after giving
effect to the interest rate swap agreements, was approximately 10.19% at
December 30, 2000.
NOTE 16 -- LIABILITIES SUBJECT TO COMPROMISE
The principal categories of obligations classified as liabilities subject to
compromise are identified below. The amounts set forth below may vary
significantly from the stated amounts of proofs of claim as filed with the
Bankruptcy Court and may be subject to future adjustments depending on future
Bankruptcy Court action, further developments with respect to disputed claims,
determination as to the value of any collateral securing claims, or other
events. In addition, other claims may result from the rejection of additional
leases and executory contracts by the Debtors. The following summarizes the
amount of liabilities subject to compromise at January 5, 2002:
<Table>
Current liabilities:
Accounts payable(a)..................................... $ 386,711
Accrued liabilities..................................... 61,961
Accrued interest........................................ 4,110
Debt:
$600 million term loan.................................. 587,548
Foreign credit facilities............................... 143,439
Revolving credit facilities............................. 1,018,719
Term loan agreements.................................... 27,161
Capital lease obligations............................... 5,582
Equity option note...................................... 56,677
Company-obligated mandatorily redeemable convertible
preferred securities...................................... 120,000
Other liabilities........................................... 27,485
----------
$2,439,393
----------
----------
</Table>
(a) Accounts payable includes $351,367 of trade drafts payable. As a result
of the Chapter 11 Cases, no principal or interest payments will be made on
unsecured pre-petition debt without Bankruptcy Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the
Bankruptcy Court and becomes effective. Therefore, interest expense on domestic
pre-petition unsecured obligations has not been accrued after the Petition Date.
The Company's foreign subsidiaries (non-filed entities) are parties to certain
debt agreements that are subject to standstill and intercreditor agreements. The
Company has recorded $4,110 of interest expense related to these agreements in
the year ended January 5, 2002. Consummation of a plan or plans of
reorganization may provide for the payment of such interest.
NOTE 17 -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES
In 1996, Designer Holdings issued 2.4 million Company-obligated mandatorily
redeemable convertible preferred securities of a wholly owned subsidiary (the
'Preferred Securities') for aggregate gross proceeds of $120,000. The Preferred
Securities represent preferred undivided beneficial interests
F-34
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
in the assets of Designer Finance Trust ('Trust'), a statutory business trust
formed under the laws of the State of Delaware in 1996. Designer Holdings owns
all of the common securities representing undivided beneficial interests of the
assets of the Trust. Accordingly, the Trust is included in the consolidated
financial statements of the Company. The Trust exists for the sole purpose of
(i) issuing the Preferred Securities and common securities (together with the
Preferred Securities, the 'Trust Securities'), (ii) investing the gross proceeds
of the Trust Securities in 6% Convertible Subordinated Debentures of Designer
Holdings due 2016 ('Convertible Debentures') and (iii) engaging in only those
other activities necessary or incidental thereto. The Company indirectly owns
100% of the voting common securities of the Trust, which is equal to 3% of the
Trust's total capital.
Each Preferred Security is convertible at the option of the holder thereof
into 0.6888 of a share of Common Stock, par value $.01 per share, of the
Company, or 1,653,177 shares of the Company's Common Stock in the aggregate, at
an effective conversion price of $72.59 per share of common stock, subject to
adjustments in certain circumstances.
The holders of the Preferred Securities are entitled to receive cumulative
cash distributions at an annual rate of 6% of the liquidation amount of $50.00
per Preferred Security, payable quarterly in arrears. The distribution rate and
payment dates correspond to the interest rate and interest payment dates on the
Convertible Debentures, which are the sole assets of the Trust. As a result of
the acquisition of Designer Holdings by the Company, the Preferred Securities
were adjusted to their estimated fair value at the date of acquisition of
$100,500, resulting in a decrease in their recorded value of approximately
$19,500. This decrease was being amortized, using the effective interest rate
method to maturity of the Preferred Securities. As of December 30, 2000, the
unamortized balance was $16,613. Such distributions and accretion to redeemable
value were included in interest expense. As of the Petition Date the Company
suspended payments due under the Convertible Debentures and wrote off the
original issue discount related to the Convertible Debentures and the related
bond issue costs, net of accumulated amortization, as of the Petition Date
totalling $21,411. This amount is included in reorganization items and the
nominal value of the Convertible Debentures of $120,000 is included in
liabilities subject to compromise as of January 5, 2002.
The Company had the right to defer payments of interest on the Convertible
Debentures and distributions on the Preferred Securities for up to twenty
consecutive quarters (five years), provided such deferral did not extend past
the maturity date of the Convertible Debentures. Upon the payment, in full, of
such deferred interest and distributions, the Company may defer such payments
for additional five-year periods. The Company deferred the interest payments
under these instruments that were due on December 31, 2000 and March 31, 2001.
The deferred interest and distributions through the Petition Date amounting to
$4,975 are included in liabilities subject to compromise at January 5, 2002.
The Preferred Securities are mandatorily redeemable upon the maturity of the
Convertible Debentures on December 31, 2016, or earlier to the extent of any
redemption by the Company of any Convertible Debenture, at a redemption price of
$50.00 per share plus accrued and unpaid distributions to the date fixed for
redemption. In addition, there are certain circumstances wherein the Trust will
be dissolved, with the result that the Convertible Debentures will be
distributed pro-rata to the holders of the Trust Securities.
The Company has guaranteed, on a subordinated basis, distributions and other
payments due on the Preferred Securities ('Guarantee'). In addition, the Company
has entered into a supplemental indenture pursuant to which it has assumed, as a
joint and several obligor with Designer Holdings, liability for the payment of
principal, premium, if any, and interest on the Convertible Debentures, as well
as the obligation to deliver shares of Common Stock, par value $.01 per share,
of the Company upon conversion of the Preferred Securities as described above.
The claims of the holders of the Convertible Debentures are subordinate to the
secured creditors and other preferred creditors under
F-35
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
the Chapter 11 Cases and are structurally subordinated to general unsecured
claims. Certain post-petition liabilities and pre-petition liabilities need to
be satisfied before holders of the Convertible Debentures can receive any
distribution. The ultimate recovery, if any, to holders of the Convertible
Debentures will not be determined until confirmation of a plan or plans of
reorganization. As a result of the amount and character of the Company's
pre-petition indebtedness the shortfall between the Company's enterprise value
and the amount necessary to satisfy the claims of its secured and unsecured
creditors and the impact of the provisions of the Bankruptcy Code, the Company
believes that it is highly unlikely that current holders of the Preferred
Securities will receive any distribution under any plan of reorganization.
The following is summarized financial information of Designer Holdings and
its subsidiaries as of December 30, 2000 and January 5, 2002 and for each of the
three fiscal years in the period ended January 5, 2002.
<Table>
<Caption>
DECEMBER 30, JANUARY 5,
2000 2002
---- ----
Current assets.............................................. $118,243 $ 96,536
Non-current assets.......................................... 510,059 421,955
Current liabilities......................................... 77,498 24,684
Non-current liabilities..................................... 24,607 39,562
Redeemable preferred securities............................. 103,387 --
Liabilities subject to compromise:
Current liabilities..................................... -- 8,564
Redeemable preferred securities......................... -- 120,000
Stockholder's equity........................................ 422,810 325,681
</Table>
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
JANUARY 1, DECEMBER 30, JANUARY 5,
2000(a) 2000(a) 2002(a)
------- ------- -------
Net revenues.................................... $547,126 $481,835 $287,655
Cost of goods sold.............................. 359,522 374,221 236,675
Net income (loss)............................... 61,365 (43,171)(b) (97,129)(b)
</Table>
- ---------
(a) Excludes Retail Store division net revenues of $87,000, $72,456 and $53,146
for fiscal 1999, 2000 and fiscal 2001 respectively, and cost of goods sold
of $58,050, $49,025 and $38,643 for fiscal 1999, fiscal 2000 and fiscal
2001, respectively. As a result of the integration of Designer Holdings
into the operations of the Company, net income associated with these
revenues cannot be separately identified. Excludes special charges of
$18,074 in fiscal 2000 as described in Note 5.
(b) Net income (loss) includes a charge of $54,752 and $38,842 of general
corporate expenses for fiscal 2000 and 2001, respectively.
NOTE 18 -- STOCKHOLDERS' EQUITY (DEFICIENCY)
Total dividends declared during fiscal years 1999 and 2000 were $20,250
($0.36 per share) and $12,958 ($0.27 per share), respectively. In December 2000,
the Company suspended payment of its quarterly cash dividend. The Amended DIP
prohibits the Company from the paying dividends or making distributions to the
holders of common stock.
The Company has 10,000,000 shares of authorized and unissued preferred stock
with a par value of $0.01 per share.
F-36
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In August 1999, the Board of Directors of the Company adopted a rights
agreement (the 'Rights Agreement'). Under the terms of the Rights Agreement, the
Company declared a dividend distribution of one right for each outstanding share
of common stock of the Company to stockholders of record on August 31, 1999.
Each right entitles the holder to purchase from the Company a unit consisting of
one one-thousandth of a Series A Junior Participating Preferred Stock, par value
$.01 per share at a purchase price of $100 per unit. The rights only become
exercisable, if not redeemed, ten days after a person or group has acquired 15%
or more of the Company's common stock or the announcement of a tender offer that
would result in a person or group acquiring 15% or more of the Company's common
stock. The Rights Agreement expires on August 31, 2009, unless earlier redeemed
or extended by the Company.
STOCK COMPENSATION PLANS
The Board of Directors and Compensation Committee thereof are responsible
for administration of the Company's compensation plans and determine, subject to
the provisions of the plans, the number of shares to be issued, the terms of
awards, the sale or exercise price, the number of shares awarded and the rate at
which awards vest or become exercisable.
1988 EMPLOYEE STOCK PURCHASE PLAN
In 1988, the Company adopted the 1988 Employee Stock Purchase Plan ('Stock
Purchase Plan'), which provides for sales of up to 4,800,000 shares of Class A
Common Stock of the Company to certain key employees. At December 31, 2000 and
January 5, 2002, 4,521,300 shares were issued and outstanding pursuant to grants
under the Stock Purchase Plan. All shares were sold at amounts determined to be
equal to the fair market value.
1991 STOCK OPTION PLAN
In 1991, the Company established The Warnaco Group, Inc. 1991 Stock Option
Plan ('Option Plan') and authorized the issuance of up to 1,500,000 shares of
Class A Common Stock pursuant to incentive and non-qualified option grants to be
made under the Option Plan. The exercise price on any stock option award may not
be less than the fair market value of the Company's Common Stock at the date of
the grant. The Option Plan limits the amount of qualified stock options that may
become exercisable by any individual during a calendar year. Options generally
expire 10 years from the date of grant and vest ratably over four years.
1993 STOCK PLAN
On May 14, 1993, the stockholders approved the adoption of The Warnaco
Group, Inc. 1993 Stock Plan ('Stock Plan') which provides for the issuance of up
to 2,000,000 shares of Class A Common Stock of the Company through awards of
stock options, stock appreciation rights, performance awards, restricted stock
units and stock unit awards. On May 12, 1994, the stockholders approved an
amendment to the Stock Plan whereby the number of shares issuable under the
Stock Plan is automatically increased each year by 3% of the number of
outstanding shares of Class A Common Stock of the Company as of the beginning of
each fiscal year. The exercise price of any stock option award may not be less
than the fair market value of the Company's Common Stock at the date of the
grant. Options generally expire 10 years from the date of grant and vest ratably
over 4 years.
In accordance with the provisions of the Stock Plan, the Company granted
190,680 shares of restricted stock to certain employees, including certain
officers of the Company, during the fiscal year ended January 1, 2000. During
fiscal 2000 and 2001, there were no restricted stock grants. The restricted
F-37
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
shares vest over four years. The fair market value of the restricted shares was
$5,458 at the date of grant. The Company recognizes compensation expense equal
to the fair value of the restricted shares over the vesting period. Compensation
expense for the 1999, 2000 and 2001 fiscal years was $6,246, $4,643 and $1,999,
respectively. During 1999 and 2000, there were no restricted shares cancelled.
During fiscal 2001, 119,250 unvested restricted shares were cancelled and the
unearned stock compensation of $3,929 was reversed in stockholders' equity
(deficiency). Unearned stock compensation at January 1, 2000, December 30, 2000
and January 5, 2002 was $10,984, $6,341 and $413, respectively, and is a
reduction to stockholders' equity (deficiency).
1993 NON-EMPLOYEE DIRECTOR STOCK PLAN AND 1998 DIRECTOR PLAN
In May 1994, the Company's stockholders approved the adoption of the 1993
Non-Employee Director Stock Plan ('Director Plan'). The Director Plan provides
for awards of non-qualified stock options to non-employee directors of the
Company. Options granted under the Director Plan are exercisable in whole or in
part until the earlier of ten years from the date of the grant or one year from
the date on which an optionee ceases to be a Director eligible for grants.
Options are granted at the fair market value of the Company's Common Stock at
the date of the grant. In May 1998, the Board of Directors approved the adoption
of the 1998 Stock Plan for Non-Employee Directors ('1998 Director Plan', and
together with the Director Plan, 'Combined Director Plan'). The 1998 Director
Plan includes the same features as the Director Plan and provides for issuance
of the Company's Common Stock held in treasury. The Combined Director Plan
provides for the automatic grant of options to purchase (i) 30,000 shares of
Common Stock upon a Director's election to the Company's Board of Directors and
(ii) 20,000 shares of Common Stock immediately following each annual
shareholder's meeting as of the date of such meeting.
1997 STOCK OPTION PLAN
In 1997, the Company's Board of Directors approved the adoption of The
Warnaco Group, Inc. 1997 Stock Option Plan ('1997 Plan') which provides for the
issuance of incentive and non-qualified stock options and restricted stock up to
the number of shares of common stock held in treasury. The exercise price on any
stock option award may not be less than the fair market value of the Company's
common stock on the date of grant. The Plan limits the amount of qualified stock
options that may become exercisable by any individual during a calendar year and
limits the vesting period for options awarded under the 1997 Plan.
F-38
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
A summary of the status of the Company's stock option plans are presented
below:
<Table>
<Caption>
FISCAL 1999 FISCAL 2000 FISCAL 2001
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding at beginning of
year........................ 8,908,932 $32.68 13,857,346 $29.85 15,741,796 $26.03
Granted....................... 5,935,338 25.30 2,718,750 10.73 430,000 3.52
Exercised..................... (29,750) 16.93 -- -- -- --
Canceled...................... (957,174) 31.62 (834,300) 24.10 (10,160,157) 28.85
---------- ---------- -----------
Outstanding at end of year.... 13,857,346 29.85 15,741,796 26.03 6,011,639 20.92
---------- ---------- -----------
---------- ---------- -----------
Options exercisable at end of
year........................ 10,309,122 30.33 12,237,437 28.62 3,793,572 23.00
---------- ---------- -----------
---------- ---------- -----------
Weighted average fair value of
options granted............. $ 9.69 $ 5.66 $ 2.75
------ ------ ------
------ ------ ------
Options available for future
grant....................... 1,850,552 2,788,611 14,226,104
---------- ---------- -----------
---------- ---------- -----------
</Table>
In fiscal 1999, fiscal 2000 and fiscal 2001, in exchange for shares received
from option holders with a fair value of $2,640, $702 and $49, respectively, the
Company paid $2,640, $702 and $49, respectively, of withholding taxes on options
that were exercised during the year. Such shares have been included in treasury
at cost, which equals fair value at date of option exercise or vesting.
Summary information related to options outstanding and exercisable at
January 5, 2002 is as follows:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
JANUARY 5, CONTRACTUAL EXERCISE JANUARY 5, EXERCISE
RANGE OF EXERCISE PRICES 2002 LIFE PRICE 2002 PRICE
- ------------------------ ---- ---- ----- ---- -----
(YEARS)
$ 0.67 - $10.00...................... 552,500 9.04 $ 4.32 248,125 $ 2.66
$10.01 - $20.00...................... 2,021,250 5.98 12.57 1,092,313 14.19
$20.01 - $30.00...................... 2,130,838 6.44 25.15 1,332,919 25.16
$30.01 - $40.00...................... 1,222,551 5.72 33.39 1,056,840 33.02
$40.01 - $50.00...................... 84,500 6.32 41.79 63,375 41.79
--------- ---------
6,011,639 3,793,572
--------- ---------
--------- ---------
</Table>
The Company has reserved 10,442,646 shares of Class A Common Stock for
issuance under the Director Plan, Stock Plan and Option Plan as of January 5,
2002. In addition, as of January 5, 2002 there are 12,242,629 shares of Class A
Common Stock in treasury stock available for issuance under the 1997 Plan.
The fair value for these stock options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following assumptions:
F-39
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Risk-free interest rate............................ 4.83% 5.24% 4.50%
Dividend yield..................................... 1.43% -- --
Expected volatility of market price of Company's
Common Stock..................................... 41.64% 54.50% 104.64%
Expected option life............................... 5 years 5 years 5 years
The Company's pro forma information is as follows:
Pro forma income (loss) before cumulative effect of
accounting change in accounting principle........ $56,374 $(395,128) $(873,403)
------- --------- ---------
------- --------- ---------
Pro forma basic income (loss) per common share
before accounting change......................... $ 1.01 $ (7.49) $ (16.51)
------- --------- ---------
------- --------- ---------
Pro forma diluted income (loss) per common share
before accounting change......................... $ 0.99 $ (7.49) $ (16.51)
------- --------- ---------
------- --------- ---------
</Table>
These pro forma effects may not be representative of the effects on future
years because of the prospective application required by SFAS No. 123, and the
fact that options vest over several years and new grants generally are made each
year.
The following are the number of shares of common and treasury stock
outstanding as of January 1, 2000, December 30, 2000 and January 5, 2002.
<Table>
<Caption>
NUMBER OF SHARES
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Common Stock:
Balance at beginning of year......................... 65,172,608 65,393,038 65,232,594
Shares issued upon exercise of stock options......... 29,750 -- --
Shares issued under restricted stock grants, net of
cancellations...................................... 190,680 (160,444) --
---------- ---------- ----------
Balance at end of year............................... 65,393,038 65,232,594 65,232,594
---------- ---------- ----------
---------- ---------- ----------
Treasury Stock:
Balance at beginning of year......................... 6,087,674 12,163,650 12,063,672
Shares issued for acquisition of ABS................. (100,000) -- --
Shares repurchased................................... 6,182,088 -- --
Net additions/returned............................... 6,112 (99,978) 178,957
---------- ---------- ----------
Balance at end of year............................... 12,163,650 12,063,672 12,242,629
---------- ---------- ----------
---------- ---------- ----------
</Table>
STOCK BUYBACK PROGRAM
On November 14, 1996, the Board of Directors approved a stock buyback
program of up to 2.0 million shares. On May 14, 1997, the Company's Board of
Directors approved an increase of this program to 2.42 million shares. On
February 19, 1998 and on March 1, 1999, the Company's Board of Directors
authorized the repurchase of an additional 10.0 million shares, resulting in a
total authorization of 22.42 million shares. During fiscal 1999, the Company
repurchased 6,182,088 shares of its common stock under the repurchase programs
at a cost of $144,688. At January 5, 2002, there were 10,353,894 shares
available for repurchase under this program.
The Company has used a combined put-call option contract to facilitate the
repurchase of its common stock. This contract provides for the sale of a put
option giving the counter-party the right to sell the Company's shares to the
Company at a preset price at a future date and for the simultaneous purchase of
a call option giving the Company the right to purchase its shares from the
counter-party at the same price at the same future date.
F-40
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
At January 2, 1999, the Company held call options and had sold put options
(all covered by one contract) covering 1.5 million shares of common stock with
an average forward price of $35.35 per share. The equity instruments were
exercisable only at expiration of the contracts, with expiration dates ranging
from the first through third quarters of fiscal 1999. The equity instruments
were settled, at the election of the Company, through physical, net share or net
cash settlement.
In connection with the Company's stock repurchase program, the Company
entered into Equity Forward Purchase Agreements ('Equity Agreements') on
December 10, 1999 and February 10, 2000, with two banks for terms of up to two
and one-half years. The Equity Agreements provided for the purchase by the
Company of up to 5.2 million shares of the Company's Common Stock. The Equity
Agreements were required to be settled by the Company, in a manner elected by
the Company, on a physical settlement, cash settlement or net share settlement
basis within the duration of the Equity Agreements. As of December 30, 2000, the
banks had purchased 5.2 million shares under the Equity Agreements. On
September 19, 2000, the Equity Agreements were amended and supplemented to
reduce the price at which the Equity Agreements could be settled from $12.90 and
$10.90, respectively to $4.50 a share. In return for this reduction the banks
received interest bearing notes payable on August 12, 2002 in an aggregate
amount of $40,372 which resulted in a corresponding charge to shareholders
equity. As of January 5, 2002 and December 30, 2000, the price at which the
Company could effect physical settlement or settle in cash or net shares with
the two banks under the Equity Agreements was $4.50. Losses related to the
Equity Agreements are included with investment income (loss) in the consolidated
statements of operations for the years ended December 30, 2000 and January 5,
2002 were $5,900 and $6,556, respectively. Amounts due to the banks under these
agreements totalled $56,677 at January 5, 2002 and are included in liabilities
subject to compromise.
NOTE 19 -- EARNINGS (LOSS) PER SHARE
<Table>
<Caption>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Numerator for basic and diluted earnings (loss) per
share:
Income (loss) before cumulative effect of change in
accounting........................................ $93,654 $(376,861) $(861,153)
Cumulative effect of change in accounting, net of
taxes............................................. -- (13,110) --
------- --------- ---------
Net income (loss)....................................... $93,654 $(389,971) $(861,153)
------- --------- ---------
------- --------- ---------
Denominator for basic earnings (loss) per share --
Weighted average shares............................. 55,910 52,783 52,911
------- --------- ---------
Effect of dilutive securities:
Employee stock options.............................. 237 -- -- (b)
Restricted stock shares............................. 462 -- --
Shares under equity agreements (put option
contracts)........................................ 187 -- --
------- --------- ---------
Dilutive potential common shares........................ 886(a) -- (a) -- (a)
------- --------- ---------
Denominator for diluted earnings (loss) per share --
Weighted average adjusted shares.................... 56,796 52,783 52,911
------- --------- ---------
------- --------- ---------
Basic earnings (loss) per share before cumulative effect
of change in accounting............................... $ 1.68 $ (7.14) $ (16.28)
------- --------- ---------
------- --------- ---------
Diluted earnings (loss) per share before cumulative
effect of change in accounting........................ $ 1.65 $ (7.14) $ (16.28)
------- --------- ---------
------- --------- ---------
</Table>
(footnotes on next page)
F-41
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(footnotes from previous page)
(a) The effect of dilutive securities was not included in the computation of
diluted earnings (loss) per share for the fiscal years ended December 30,
2000 and January 5, 2002 because the effect would have been anti-dilutive.
Dilutive securities included options outstanding to purchase 15,741,796
and 6,011,639 shares of common stock, unvested restricted stock of 260,950
and 19,424, and 5.200,000 of shares under Equity Agreements at December 30,
2000 and January 5, 2002, respectively.
Additionally, incremental shares issuable on the assumed conversion of the
Preferred Securities of 1,653,177 were not included in the fiscal 1999,
2000, or 2001 computation of diluted earnings per share as the impact
would have been anti-dilutive for each period presented.
(b) There are no outstanding in-the-money stock options at or for the year
ended January 5, 2002.
NOTE 20 -- LEASE AND OTHER COMMITMENTS
In fiscal 1999, the Company sold certain equipment for cash proceeds of
$23,185, which approximated net book value. The equipment was leased back from
the purchaser under an operating lease with an initial term of three years and a
one-year renewal option. Under the terms of certain operating leases, upon lease
termination the Company has the option to acquire the related assets at the then
fair value. If the Company does not exercise its option, it guaranteed to repay
a portion of the residual value loss, if any, incurred by the lessors in
remarketing or disposing of such assets upon lease termination or expiration.
The Company is a party to various lease agreements for equipment, real estate,
furniture, fixtures and other assets which expire at various dates through 2020.
Under these agreements the Company is required to pay various amounts including
property taxes, insurance, maintenance fees, and other costs. The following is a
schedule of future minimum rental payments required under operating leases with
terms in excess of one year, as of January 5, 2002:
<Table>
<Caption>
RENTAL PAYMENTS
-----------------------
REAL ESTATE EQUIPMENT
----------- ---------
2002........................................................ 33,926 18,331
2003........................................................ 27,248 12,277
2004........................................................ 18,608 1,737
2005........................................................ 13,531 615
2006........................................................ 9,825 533
2007 and thereafter......................................... 21,572 --
</Table>
Rent expense included in the consolidated statements of operations for the
years ended January 1, 2000, December 31, 2000 and January 5, 2002 was $61,152,
$70,827 and $56,519, respectively.
The Company's domestic lease agreements are subject to the provisions of the
Bankruptcy Code and may be confirmed or rejected by the Company. The Company has
estimated the total amount of claims for rejected leases. Accrued rent for
rejected leases totalled $20,600 at January 5, 2002. The total amount that will
ultimately be paid on these items is subject to a confirmed plan or plans of
reorganization and may differ from the amounts the Company has recorded at
January 5, 2002.
On June 9, 2002, the Bankruptcy Court approved the Company's settlement of
certain operating lease agreements. The leases had original terms of from three
to seven years and were secured by certain equipment, machinery, furniture,
fixtures and other assets. The total amount payable to the lessor under the
settlement agreement is $15,200 of which $4,400 had been paid by the Company
through May 30, 2002. The remaining balance of $10,800 will be paid by the
Company in equal installments of $550 through the date of the consummation of a
confirmed plan of reorganization and
F-42
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
$750 per month thereafter until the balance is fully repaid. Future obligations
under operating leases as of January 5, 2002 after giving effect to the
settlement are summarized below:
<Table>
2002........................................................ $ 8,065
2003........................................................ 7,725
2004........................................................ 972
2005........................................................ 615
2006........................................................ 533
</Table>
In connection with the Chapter 11 Cases, the Company instituted a Key Domestic
Employee Retention Plan (the 'Retention Plan') which has been approved by the
Bankruptcy Court. The Retention Plan provides for stay bonuses, severance
protection and discretionary bonuses during the Chapter 11 Cases. Approximately
245 domestic employees are covered under the Retention Plan. Participants must
meet certain criteria to receive payments under the Retention Plan. The Company
incurred $5,763 of expenses related to the Retention Plan in the year ended
January 5, 2002, representing approximately one-third of the total amount due
under the Retention Plan. Retention Plan payments are included in reorganization
items for the year ended January 5, 2002. On June 10, 2002 the Company made the
second payment of $4,654 amounting to one-third of amounts due to employees
under the Retention Plan. The payment of the final installment of amounts due
under the Plan will be made when a plan or plans of reorganization are
consummated or upon the liquidation of the Company and are estimated to be
approximately $5,879.
The Company has entered into an employment agreement with an executive of
the Company. The agreement, as amended, provides for a monthly salary of
$125 payable through April 30, 2003 or the consummation of a plan of
reorganization for all or substantially all of the Debtors in the Chapter 11
Cases. In addition to the employee's monthly salary the employee is entitled to
earn an incentive bonus of not less than $2,250. The employee may earn
additional incentive bonus amounts based upon criteria established in the
agreement up to an additional $7,750. The minimum bonus is payable upon the
earlier of the expiration of the agreement, the date a plan of reorganization is
consummated, the date of a complete disposition of the Company or the date the
employee's employment is terminated under certain circumstances. Additional
bonus amounts may be paid to the employee prior to the payment of the minimum
bonus if certain financial criteria are met. Total bonus payments cannot exceed
$10,000.
As a result of the Chapter 11 Cases and the circumstances leading to the
filing thereof, as of January 5, 2002, the Company was not in compliance with
certain financial and bankruptcy covenants contained in certain of its license
agreements. Under applicable provisions of the Bankruptcy Code, compliance with
such terms and conditions in executory contracts generally are either excused or
suspended during the Chapter 11 Cases.
The Company expects to assume certain of its license agreements as part of
its plan or plans of reorganization. The assumption of any executory contracts,
including licenses, is subject to the approval of the Company's plan or plans of
reorganization by the Bankruptcy Court or other order of the court. There can be
no assurance that the Company will be successful in its efforts to assume these
licenses.
NOTE 21 -- FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments.
Accounts Receivable. The carrying amount of the Company's accounts
receivables approximate fair value.
Marketable Securities. Marketable securities are stated at fair value based
on quoted market prices.
Pre-petition revolving loans, term loans and other borrowings. The carrying
amounts of the Company's outstanding balances under its various pre-petition
Bank Credit Agreements are recorded at the nominal amount plus accrued interest
and fees through the Petition Date and are included in
F-43
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
liabilities subject to compromise at January 5, 2002. The ultimate amount of and
settlement terms for these liabilities are subject to a confirmed plan or plans
of reorganization and accordingly are not presently determinable.
Amended DIP. The carrying amounts under the Amended DIP are recorded at the
nominal amount which approximates its fair value because the interest rate on
the outstanding debt is variable and there are no prepayment penalties.
Redeemable preferred securities. These securities were publicly traded on
the New York Stock Exchange prior to the petition date. The fair market value
was determined based on the closing price on the last trading date prior to
December 30, 2000. At January 5, 2002 the redeemable preferred securities are
recorded at their nominal value of $120,000 and are included in liabilities
subject to compromise.
Interest rate swap agreements. Prior to the Petition Date the Company
entered into interest rate swap agreements, which had the effect of converting
the Company's floating rate obligations to fixed rate obligations. The fair
value of the Company's interest rate swap agreements at December 30, 2000 were
based upon quotes from brokers and represent the cash requirement if the
existing agreements had been settled at year-end. There are no swap agreements
outstanding at January 5, 2002.
Letters of credit -- post petition. Letters of credit collateralize the
Company's obligations to third parties and have terms ranging from 30 days to
one year. The face amounts of the letters of credit are a reasonable estimate of
the fair value since the value for each is fixed over its relatively short
maturity.
Letters of credit -- pre-petition. Letters of credit collateralize the
Company's obligations to third parties and have terms ranging from 30 days to
one year. The face amounts of the letters of credit are a reasonable estimate of
the fair value since the value for each is fixed over its relatively short
maturity. Pre-petition letters of credit are recorded at their face amount.
Pre-petition letters of credit were satisfied by the Company's lenders or by the
Company during fiscal 2001.
Equity Agreements. These arrangements could be settled, at the Company's
option, by the purchase of shares, on a net basis in shares of the Company's
common stock or on a net cash basis prior to the Petition Date. To the extent
that the market price of the Company's common stock on the settlement date was
higher or lower than the forward purchase price, the net differential could have
been paid or received by the Company in cash or in the Company's common stock.
Amounts payable under the Equity Agreements are included in liabilities subject
to compromise at January 5, 2002.
Foreign currency transactions. Prior to the Petition Date the Company
entered into various foreign currency forward and option contracts to hedge
certain commercial transactions. The fair value of open foreign currency forward
and option contracts was based upon quotes from brokers and reflects the cash
benefit if the existing contracts had been sold. At December 30, 2000 the
Company had foreign currency forward contracts outstanding with a carrying
amount of $26 which approximated fair value. The Company has no foreign currency
forward contracts outstanding as of January 5, 2002. The Company had no foreign
currency option contracts outstanding at December 30, 2000 and January 5, 2002.
The carrying amounts and fair value of the Company's financial instruments
as of December 30, 2000 and January 5, 2002, are as follows:
F-44
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
DECEMBER 30, 2000 JANUARY 5, 2002
------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Accounts receivable................................ $127,941 $127,941 $ 276,579 $276,579
Marketable securities.............................. 259 259 155 155
Amended DIP........................................ -- -- 155,915 155,915
Revolving loans.................................... 785,757 785,757 1,161,943 (a)
Acquisition term loan.............................. 587,548 587,548 587,548 (a)
Term loans......................................... 63,356 63,356 27,161 (a)
Other long-term debt............................... 6,701 6,701 5,582 (a)
Redeemable preferred securities.................... 103,387 11,424 120,000 (a)
Interest rate swap agreements...................... -- (512) -- --
Letters of credit.................................. -- 103,300 -- 60,031
Equity Agreements.................................. 50,121 50,121 56,677 (a)
Foreign currency forward contracts................. 26 26 -- --
</Table>
- ---------
(a) Amounts outstanding under these debt agreements are subject to compromise
under the Chapter 11 Cases and as a result the fair value cannot be
estimated.
FOREIGN CURRENCY-RISK MANAGEMENT
The Company's international operations are subject to certain risks,
including currency fluctuations and government actions. The Company closely
monitors its operations in each country so that it can respond to changing
economic and political environments and to fluctuations in foreign currencies.
Accordingly, prior to the Petition Date the Company utilized foreign currency
option contracts and forward contracts to hedge its exposure on anticipated
transactions and firm commitments, primarily for receivables and payables
denominated in currencies other than the entities' functional currencies.
Foreign currency instruments generally had maturities that did not exceed twelve
months.
The Company had foreign currency instruments, primarily denominated in
Canadian dollars, British pounds, Euros and Mexican pesos. At January 1, 2000
and December 30, 2000, the Company had $39,417 and $4,996 in foreign currency
instruments outstanding, respectively. For 1999 and 2000 the net realized gains
or losses associated with these types of instruments were not material. The net
unrealized gain (loss) as of January 1, 2000 and December 30, 2000, based on the
fair market value of the instruments, were not material to each respective
period.
The Company did not have any foreign currency hedge contracts at January 5,
2002.
F-45
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 22 -- CASH FLOW INFORMATION
The following table sets forth supplemental cash flow information for fiscal
1999, 2000 and 2001:
<Table>
<Caption>
FOR THE YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 30, JANUARY 5,
2000 2000 2002
---- ---- ----
Cash paid (received) during the year for:
Interest, including $4,038, $3,014 and $ --
capitalized in fiscal 1999, 2000 and 2001,
respectively....................................... $ 82,517 $166,523 $ 85,957
Income taxes, net of refunds received................ 1,917 (10,008) 6,148
Supplemental Non-Cash Investing and Financing Activities:
Details of acquisitions:
Fair value of assets acquired........................ $740,976 $ -- $ --
Liabilities assumed.................................. (83,461) -- --
Stock issued......................................... (2,200) -- --
-------- -------- ----------
655,315 -- --
Less cash acquired................................... (7,000) -- --
Less future cash payment(a).......................... (22,800) 2,585 1,491
-------- -------- ----------
Net cash paid........................................ $625,515 $ 2,585 $ 1,491
-------- -------- ----------
-------- -------- ----------
</Table>
- ---------
(a) Represents deferred cash payment related to the acquisition of ABS of which
$18,724 was outstanding at January 5, 2002 and is included in liabilities
subject to compromise.
NOTE 23 -- LEGAL MATTERS
As a consequence of the Chapter 11 Cases, all pending claims and litigation
against the Company and its filed subsidiaries have been automatically stayed
pursuant to Section 362 of the Bankruptcy Code absent further order of the
Bankruptcy Court. Below is a summary of legal proceedings the Company believes
to be material.
Calvin Klein Litigation. On May 30, 2000, Calvin Klein, Inc. ('CKI') and the
Calvin Klein Trademark Trust filed a complaint in the U.S. District Court in the
Southern District of New York (Calvin Klein Trademark Trust, et al. v. The
Warnaco Group, Inc., et al., No. 00 CIV. 4052 (JSR) (S.D.N.Y.)) against The
Warnaco Group, Inc., various other Warnaco entities, and Linda Wachner alleging,
inter alia, claims for breach of contract and trademark violations.
Certain defendants filed counterclaims against CKI for, inter alia, breach
of the jeanswear and men's accessories licenses and breach of fiduciary duty,
and against CKI and Calvin Klein personally for tortious interference with
business relations, defamation and trade libel. CKI subsequently filed
additional claims against CKJ Holdings, Inc. and Calvin Klein Jeanswear Company
in the Supreme Court of the State of New York.
On January 22, 2001, the parties entered into a confidential settlement
agreement whereby they agreed, inter alia, to the dismissal of all claims and
counterclaims asserted in both actions with prejudice and without the payment of
any sum of money by any party to any other party.
Speedo Litigation. On September 14, 2000, Speedo International Limited
('SIL') filed a complaint in the U.S. District Court for the Southern District
of New York, styled Speedo International Limited v. Authentic Fitness Corp., et
al., No. 00 Civ. 6931 (DAB) (the 'Speedo Litigation'), against The Warnaco
Group, Inc. and various other Warnaco entities (the 'Warnaco Defendants')
alleging claims, inter alia,
F-46
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
for breach of contract and trademark violations (the 'Speedo Claims'). The
complaint seeks, inter alia, termination of certain licensing agreements,
injunctive relief and damages.
On November 8, 2000, the Warnaco Defendants filed an answer and
counterclaims against SIL seeking, inter alia, a declaration that the Warnaco
Defendants have not engaged in trademark violations and are not in breach of the
licensing agreements, and that the licensing agreements at issue (the 'Speedo
Licenses') may not be terminated.
On or about October 30, 2001, SIL filed a motion in the Bankruptcy Court
seeking relief from the automatic stay to pursue the Speedo Litigation in the
District Court, and have its rights determined there through a jury trial (the
'Speedo Motion'). The Debtors opposed the Speedo Motion, and oral argument was
held on February 21, 2002. On June 11, 2002, the Bankruptcy Court denied the
Speedo Motion on the basis that, inter alia, (i) the Speedo Motion was
premature, and (ii) the Bankruptcy Court has core jurisdiction over resolution
of the Speedo Claims. Accordingly, the material issues raised by the Speedo
Claims will likely be decided by the Bankruptcy Court in the context of
assumption or rejection of the Speedo Licenses or the confirmation of the
Company's plan or plans of reorganization.
The Company believes the Speedo Claims to be without merit and intends to
vigorously dispute them and pursue its counterclaims.
Wachner Claim. On January 18, 2002, Mrs. Linda J. Wachner, former President
and Chief Executive Officer of the Company filed a proof of claim in the
Chapter 11 Cases related to the post-petition termination of her employment with
the Company.
Shareholder Class Actions. Between August 22, 2000 and October 26, 2000,
seven putative class action complaints were filed in the U.S. District Court for
the Southern District of New York against the Company and certain of its
officers and directors (the 'Shareholder I Class Action'). The complaints, on
behalf of a putative class of shareholders of the Company who purchased Company
stock between September 17, 1997 and July 19, 2000 (the 'Class Period'), allege,
inter alia, that the defendants violated the Securities Exchange Act of 1934, as
amended (the 'Exchange Act') by artificially inflating the price of the
Company's stock and failing to disclose certain information during the Class
Period.
On November 17, 2000, the Court consolidated the complaints into a single
action, styled In Re The Warnaco Group, Inc. Securities Litigation, No.
00-Civ-6266 (LMM), and appointed a lead plaintiff and approved a lead counsel
for the putative class. A second amended consolidated complaint was filed on
May 31, 2001. On October 5, 2001, the defendants other than the Company filed a
motion to dismiss based upon, among other things, the statute of limitations,
failure to state a claim and failure to plead fraud with the requisite
particularity. On April 25, 2002, the Court granted the motion to dismiss this
action based on the statute of limitations. On May 10, 2002, the plaintiffs
filed a motion for reconsideration in the District Court. On May 24, 2002, the
plaintiffs filed a notice of appeal. On July 23, 2002, plaintiffs' motion for
reconsideration was denied.
The Shareholder I Class Action has been stayed against the Company pursuant
to Section 362 of the Bankruptcy Code and is not expected to have a material
impact on the Company's financial statements.
Between April 20, 2001 and May 31, 2001, five putative class action
complaints against the Company and certain of its officers and directors were
filed in the U.S. District Court for the Southern District of New York (the
'Shareholder II Class Action'). The complaints, on behalf of a putative class of
shareholders of the Company who purchased Company stock between September 29,
2000 and April 18, 2001 (the 'Second Class Period'), allege, inter alia that
defendants violated the Exchange Act by artificially inflating the price of the
Company's stock and failing to disclose negative information during the Second
Class Period.
On August 3, 2001, the Court consolidated the actions into a single action,
styled In Re The Warnaco Group, Inc. Securities Litigation (II), No. 01 CIV 3346
(MCG), and appointed a lead plaintiff and approved a lead counsel for the
putative class. A consolidated amended complaint was filed against certain
current and former officers and directors of the Company, which expanded the
Second Class
F-47
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Period to encompass August 16, 2000 to June 8, 2001. The amended complaint also
dropped the Company as a defendant, but added as defendants certain outside
directors. On April 18, 2002, the Court dismissed the amended complaint, but
granted plaintiffs leave to replead. On June 7, 2002, the plaintiffs filed a
second amended complaint, which again expanded the Second Class Period to
encompass August 15, 2000 to June 8, 2001. On June 24, 2002 the defendants filed
motions to dismiss the second amended complaint, which motions are pending.
Shareholder Derivative Suits. On October 13, 2000, a shareholders'
derivative complaint was filed on behalf of the Company in the U.S. District
Court for the Southern District of New York, styled Widdicombe, derivatively on
behalf of The Warnaco Group, Inc. v. Linda J. Wachner, et al., No. 00 Civ. 7816
(LMM), naming certain of the Company's officers and directors as defendants (the
'Individual Defendants') and the Company as a nominal defendant. The complaint
filed on October 13, 2000 asserted claims on the Company's behalf for, inter
alia, breach of fiduciary duty, corporate waste and unjust enrichment, and
sought, inter alia, damages, punitive damages, and the imposition of a
constructive trust upon the assets of the Individual Defendants. The complaint
was subsequently withdrawn voluntarily.
SEC Investigation. As previously disclosed, the staff of the Securities and
Exchange Commission (the 'SEC') has been conducting an investigation to
determine whether there have been any violations of the Exchange Act in
connection with the preparation and publication of various financial statements
and other public statements. The Company has cooperated in that investigation.
On July 18, 2002, the SEC staff informed the Company that it intends to
recommend that the SEC authorize an enforcement action against the Company and
certain persons who have been employed by or affiliated with the Company since
prior to January 3, 1999 alleging violations of the federal securities laws. The
SEC staff has invited the Company to make a Wells Submission describing the
reasons why no such action should be brought. The Company intends to make a
Wells Submission. The Company does not expect the resolution of this matter as
to the Company to have a material effect on the Company's financial condition,
results of operation or business.
F-48
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 24 -- SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
The following condensed financial statements of The Warnaco Group, Inc., 37
of its 38 U.S. subsidiaries and Warnaco Canada represent the condensed
consolidated financial position, results of operations and cash flows for the
Debtors as of January 5, 2002 and for the year ended January 5, 2002.
<Table>
<Caption>
FOR THE YEAR
ENDED
JANUARY 5, 2002
---------------
Net revenues................................................ $1,410,597
Cost of goods sold.......................................... 1,233,982
----------
Gross profit................................................ 176,615
Selling, general and administrative expenses................ 465,120
Impairment charge........................................... 101,772
Reorganization items........................................ 138,815
Equity in loss of unconsolidated subsidiaries............... 54,661
----------
Operating loss.............................................. (583,753)
Interest expense............................................ 129,826
Investment income (loss).................................... (6,556)
Other income (loss)......................................... 1,319
----------
Loss before provision for income taxes...................... (718,816)
Provision for income taxes.................................. 142,337
----------
Net loss.................................................... $ (861,153)
----------
----------
</Table>
F-49
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
JANUARY 5, 2002
---------------
ASSETS
Current assets.............................................. 624,623
Net property, plant and equipment........................... 191,117
Intercompany accounts, net.................................. 44,532
Intangible assets -- net.................................... 869,659
Investment in affiliates.................................... 181,212
----------
$1,911,143
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise:
Current liabilities:
Amended DIP........................................... $ 155,915
Other current liabilities............................. 135,383
----------
Total current liabilities..................... 291,298
----------
Other long-term liabilities............................... 31,736
Liabilities subject to compromise........................... 2,439,393
Stockholders' deficiency:
Class A Common Stock, $0.01 par value, 130,000,000
shares authorized, 65,232,594 issued.................. 654
Additional paid-in capital.............................. 909,054
Accumulated other comprehensive loss.................... (53,016)
Deficit................................................. (1,393,674)
Treasury stock, at cost 12,242,629 shares............... (313,889)
Unearned stock compensation............................. (413)
----------
Total stockholders' deficiency.................. (851,284)
----------
$1,911,143
----------
----------
</Table>
F-50
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
FOR THE YEAR
ENDED
JANUARY 5, 2002
---------------
Cash flows from operating activities:
Net loss................................................ $(861,153)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 87,590
Amortization of deferred financing costs............ 19,414
Market value adjustment to Equity Agreement......... 6,556
Non-cash assets write-downs and reorganization
items............................................. 242,738
Interest rate swap income........................... (21,355)
Preferred stock interest accretion.................. 16,613
Amortization of unearned stock compensation......... 1,999
Deferred income taxes............................... 149,691
Repurchase of accounts receivable....................... (185,000)
Accounts receivable..................................... 97,745
Inventories............................................. 50,905
Prepaid expenses and other current and
long-term assets.................................... 2,210
Accounts payable and accrued expenses................... 2,456
---------
Net cash used in operating activities........... (389,591)
Cash flows from investing activities
Capital expenditures.................................... (20,155)
Disposal of fixed assets................................ 6,213
Increase in intangible and other assets................. (1,427)
---------
Net cash used in investing activities........... (15,369)
Cash flows from financing activities
Repayments under pre-petition credit facilities......... (37,133)
Borrowings under pre-petition credit facilities......... 366,593
Borrowings under Amended DIP............................ 155,915
Deferred financing costs................................ (19,852)
Net change in intercompany accounts..................... (42,841)
Other................................................... (2,465)
---------
Net cash provided by financing activities....... 420,217
Translation adjustments..................................... (1,854)
---------
Net increase in cash........................................ 13,403
Cash at beginning of year................................... 5,355
---------
Cash at end of year......................................... $ 18,758
---------
---------
</Table>
F-51
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 25 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's fiscal 1999 and fiscal 2000 quarterly results of operations
have been restated to reflect the correction of certain accounting errors
involving the recording of inter-company pricing arrangements, the recording of
accounts payable primarily related to the purchase of inventory from suppliers
and the accrual of certain liabilities. See Note 2.
<Table>
<Caption>
AS RESTATED
YEAR ENDED JANUARY 1, 2000
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net revenues................................... $441,603 $492,237 $577,112 $603,204
Gross profit................................... 149,241 172,000 196,655 163,876
Net income..................................... 21,956 29,001 43,271 (574)
Basic earnings per common share................ 0.38 0.52 0.78 (0.01)
Diluted earnings per common share.............. 0.37 0.51 0.78 (0.01)
</Table>
<Table>
<Caption>
AS PREVIOUSLY REPORTED
YEAR ENDED JANUARY 1, 2000
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net revenues................................... $441,603 $492,237 $577,112 $603,204
Gross profit................................... 150,789 173,563 198,488 165,767
Net income..................................... 22,892 29,946 44,379 569
Basic earnings per common share................ 0.39 0.53 0.80 0.01
Diluted earnings per common share.............. 0.39 0.52 0.80 0.01
</Table>
<Table>
<Caption>
AS RESTATED
YEAR ENDED DECEMBER 30, 2000
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net revenues................................... $607,138 $ 596,696 $ 500,076 $ 546,026
Gross profit................................... 176,736 89,827 51,397 86,587
Net income (loss) before cumulative effect of
accounting change............................ 21,832 (68,647) (100,029) (230,017)
Cumulative effect of accounting change......... (13,110) -- -- --
-------- --------- --------- ---------
Net income (loss).............................. $ 8,722 $ (68,647) $(100,029) $(230,017)
-------- --------- --------- ---------
-------- --------- --------- ---------
Basic earnings (loss) per common share:
Income (loss) before accounting change..... $ 0.41 $ (1.30) $ (1.89) $ (4.38)
Cumulative effect of accounting change, net
of taxes................................. (0.25) -- -- --
-------- --------- --------- ---------
Net income (loss).......................... $ 0.16 $ (1.30) $ (1.89) $ (4.38)
-------- --------- --------- ---------
-------- --------- --------- ---------
Diluted earnings (loss) per common share:
Income (loss) before accounting change..... $ 0.41 $ (1.30) $ (1.89) $ (4.38)
Cumulative effect of accounting change..... (0.25) -- -- --
-------- --------- --------- ---------
Net income (loss).......................... $ 0.16 $ (1.30) $ (1.89) $ (4.38)
-------- --------- --------- ---------
-------- --------- --------- ---------
</Table>
F-52
THE WARNACO GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
AS PREVIOUSLY REPORTED
YEAR ENDED DECEMBER 30, 2000
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Net revenues................................... $607,138 $ 596,696 $ 500,076 $ 546,026
Gross profit................................... 185,417 98,371 61,401 105,284
Net income (loss) before cumulative effect of
accounting change............................ $ 27,093 $ (63,469) $ (93,958) $(200,739)
Cumulative effect of accounting change, net of
taxes(a)..................................... (13,110) -- -- --
-------- --------- --------- ---------
Net income (loss).............................. $ 13,983 $ (63,469) $ (93,958) $(200,739)
-------- --------- --------- ---------
-------- --------- --------- ---------
Basic earnings (loss) per common share:
Income (loss) before accounting change..... $ 0.51 $ (1.20) $ (1.77) $ (3.79)
Cumulative effect of accounting change, net
of taxes(a).............................. (0.25) -- -- --
-------- --------- --------- ---------
Net Income (loss).......................... $ 0.26 $ (1.20) $ (1.77) $ (3.79)
-------- --------- --------- ---------
-------- --------- --------- ---------
Diluted earnings (loss) per common share:
Income (loss) before accounting change..... $ 0.51 $ (1.20) $ (1.77) $ (3.79)
Cumulative effect of accounting change, net
of taxes................................. (0.25) -- -- --
-------- --------- --------- ---------
Net Income (loss).......................... $ 0.26 $ (1.20) $ (1.77) $ (3.79)
-------- --------- --------- ---------
-------- --------- --------- ---------
</Table>
(a) Effective January 2, 2000, the Company changed its accounting method for
valuing its retail outlet store inventory. Prior to the change, the Company
valued its retail inventory using average cost. Under its new method, the
Company values its retail inventory using the actual cost method. The
Company believes its new method is preferable because it results in a better
matching of revenue and expense and is consistent with the method used for
its other inventories.
<Table>
<Caption>
YEAR ENDED JANUARY 5, 2002
---------------------------------------------------------------------
FIRST
QUARTER FIRST
AS PREVIOUSLY QUARTER SECOND THIRD FOURTH
REPORTED AS RESTATED QUARTER QUARTER QUARTER
-------- ----------- ------- ------- -------
Net revenues...................... $499,219 $499,219 $ 362,270 $ 397,664 $ 412,103
Gross profit (loss)............... 146,394 145,277 (24,313) 87,512 88,398
Impairment charges(a)............. -- -- -- -- 101,772
Reorganization items(b)........... -- -- 78,202 25,735 73,854
Net (loss)........................ (62,502) (63,618) (338,418) (64,171) (394,946)
Basic earnings (loss) per common
share........................... (1.18) (1.20) (6.40) (1.21) (7.46)
Diluted earnings (loss) per common
share........................... (1.18) (1.20) (6.40) (1.21) (7.46)
</Table>
(a) Impairment charges represent the write-down of certain intangible assets to
estimated fair value, see Note 1.
(b) Reorganization items represent costs and expenses related to the
Chapter 11 Cases, see Note 4.
- ---------
The fourth quarter of fiscal 2001 includes a provision for income taxes of
$141,548 primarily related to the increase in the valuation allowance for future
income tax benefits.
F-53
SCHEDULE II
THE WARNACO GROUP, INC.
VALUATION & QUALIFYING ACCOUNTS & RESERVES(5)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
ADDITIONS
BALANCE AT CHARGES TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF YEAR EXPENSES(1) ADDITIONS DEDUCTIONS(4) OF YEAR
----------- ------- ----------- --------- ------------- -------
Year Ended January 1, 2000
Receivable allowances........... $85,668 $218,098 $ 4,383 (2) $(214,277) $ 93,872
------- -------- ------- --------- --------
------- -------- ------- --------- --------
Inventory reserves.............. $16,901 $ 6,247 $ 8,140 (2) $ (16,914) $ 14,374
------- -------- ------- --------- --------
------- -------- ------- --------- --------
Year Ended December 30, 2000
Receivable allowances........... $93,872 $262,641 $ 6,993 (2) $(267,837) $ 95,669
------- -------- ------- --------- --------
------- -------- ------- --------- --------
Inventory reserves.............. $14,374 $179,254 $ 4,076 (2) $(168,408) $ 29,296
------- -------- ------- --------- --------
------- -------- ------- --------- --------
Year Ended January 5, 2002
Receivable allowances........... $95,669 $253,943 $(1,344)(3) $(240,321) $107,947
------- -------- ------- --------- --------
------- -------- ------- --------- --------
Inventory reserves.............. $29,296 $ 74,786 $ (627)(3) $ (53,358) $ 50,097
------- -------- ------- --------- --------
------- -------- ------- --------- --------
</Table>
(1) Includes bad debts, cash discounts, allowances and sales returns.
(2) Reserves related to assets acquired including fair value
adjustments -- See Note 3.
(3) Reclassifications of reserve amounts for assets held for sale.
(4) Amounts written-off, net of recoveries.
(5) See Note 9 for income tax valuation allowance information.
A-1
EXHIBIT E
Exhibit E
Projected Consolidated Income Statement
($ in Millions)
Three Year Plan
FY '02 ----------------------------
Plan FY '03 FY '04 FY '05
------- -------- ------- -------
Gross Revenue 1,660.7 1,751.2 1,827.8 1,935.0
Dilution 175.2 198.4 184.4 194.9
------- -------- ------- -------
Net Revenue 1,485.5 1,552.8 1,643.4 1,740.1
Cost of Goods Sold 1,046.7 1,079.9 1,138.2 1,206.4
------- -------- ------- -------
Gross Profit 438.8 472.9 505.2 533.7
Selling 188.5 177.4 185.3 195.5
Marketing 101.5 103.7 108.3 111.6
Administrative 91.1 86.1 97.5 94.6
------- -------- ------- -------
Total SM&A 381.0 367.2 391.1 401.7
EBITAR 57.8 105.7 114.1 132.0
Depreciation 54.6 46.9 51.3 53.9
------- -------- ------- -------
EBITDAR (a) 112.4 152.6 165.4 185.9
Special Items 77.4 (2,274.4) -- --
Extraordinary Prof. Fees 35.5 6.8 -- --
Depreciation (b) 54.6 46.9 51.3 53.9
Amortization 1.2 0.1 -- --
Interest Expense 20.2 29.1 26.4 23.0
Tax Provision (2.8) 30.6 35.1 43.6
Other (primarily Unicap) 16.6 -- -- --
Cum. Effect of Acctg. Change 855.1 -- -- --
------- -------- ------- -------
Net Income / (Loss) (945.4) 2,313.6 52.6 65.4
======= ======== ======= =======
(a) EBITDAR above reflects the elimination of GE Expense effective July 2002.
Excluding 2002 GE expense, Pro Forma FY '02 EBITDAR is $120.4.
(b) The depreciation reflected herein does not give effect to any revaluation
of assets for book purposes that will occur. Management is in the process
of evaluating the appropriate revaluation and associated depreciation.
Exhibit E
Projected Consolidated Cash Flow
($ in Millions)
Three Year Plan
Plan ------------------------
FY '02 FY '03 FY '04 FY '05
------- ------ ------ ------
EBITDAR $ 112.4 $152.6 $165.4 $185.9
Cash Taxes (11.7) (26.7) (44.0) (51.5)
Cash Interest & Fees (Revolver) (4.6) (7.7) (7.8) (7.5)
Cash Interest & Fees (Senior Debt) -- (19.6) (17.3) (14.2)
Employee Retention Program (9.7) -- -- --
Extraordinary Professional Fees (32.2) (12.8) -- --
Closed Store Operating Loss / Other (18.1) -- -- --
------- ------ ------ ------
36.2 85.9 96.3 112.7
Working Capital
Accounts Receivable 78.5 (35.1) (14.4) (15.3)
Inventory 68.6 (4.5) (20.3) (21.7)
Accounts Payable 8.1 4.3 5.6 6.0
Accrued Expenses (3.0) (5.7) 4.8 5.1
Prepaid Expense 23.8 3.9 (0.8) (0.9)
------- ------ ------ ------
Sub-total 176.0 (37.2) (25.1) (26.8)
Change in Other Liabilities 9.4 2.3 -- --
Pension Funding (2.1) (11.1) (3.5) (14.3)
Change in Pre-Pet. Liabilities 0.3 (15.0) -- --
------- ------ ------ ------
Change in Working Capital 183.6 (61.1) (28.6) (41.1)
Capital Leases (6.3) (6.1) (1.1) --
Capital Expenditures (13.7) (25.0) (25.8) (24.2)
Senior Sub. Debt - Amortization -- (40.2) (40.2) (40.2)
Deferred Financing Fees -- (10.3) -- --
Sale of Assets 8.5 0.4 -- --
------- ------ ------ ------
Cash Flow (Before Borrowings) 208.2 (56.4) 0.7 7.2
Pre-Pet Debt - Borrow / (Paydown) (8.8) (90.1) -- --
DIP Facility - Borrow / (Paydown) (155.9) -- -- --
Revolver Facility - Borrow / (Paydown) -- 88.4 (0.7) (7.2)
------- ------ ------ ------
NET CASH FLOW 43.5 (58.0) -- --
Beginning Cash 39.6 83.1 25.0 25.0
------- ------ ------ ------
Ending Cash $ 83.1 $ 25.0 $ 25.0 $ 25.0
======= ====== ====== ======
DIP Newco Revolver
------- ------------------------
Beginning Borrowing / (Cash) $ 155.9 ($0.0) $ 88.4 $ 87.7
Borrow / (Paydown) (155.9) 88.4 (0.7) (7.2)
------- ------ ------ ------
Ending Borrowing / (Cash) ($0.0) $ 88.4 $ 87.7 $ 80.5
======= ====== ====== ======
Availability
Borrowing Base $245.8 $257.9 $275.0
Revolver O/S 88.4 87.7 80.5
Trade LCs O/S 56.2 63.0 65.5
Standby LCs O/S 13.0 13.0 13.0
------ ------ ------
Availability $ 88.2 $ 94.3 $116.1
====== ====== ======
Exhibit E
Projected Consolidated Balance Sheet
($ in Millions)
Three Year Plan
FY '02 Plan Fresh Start ------------------------------
Old Co. New Co.* FY '03 FY '04 FY '05
----------- ----------- -------- -------- --------
Cash $ 32.3 $ 32.3 $ 25.0 $ 25.0 $ 25.0
Excess Cash 50.8 -- -- -- --
Accounts Receivable, net 211.0 211.0 246.1 260.5 275.8
Inventories, net 343.4 343.4 347.9 368.2 389.9
Prepaid Expenses 17.6 17.6 14.4 15.3 16.2
--------- -------- -------- -------- --------
Total Current Assets 655.0 604.2 633.5 668.9 706.8
--------- -------- -------- -------- --------
PP&E, net 166.4 166.4 144.0 118.5 88.8
Other Investment (Seaway JV) 0.4 0.4 0.4 0.4 0.4
Intangibles 86.8 237.4 237.4 237.4 237.4
Deferred Financing Fees -- -- 8.5 6.3 4.1
Deferred Income Taxes 2.3 2.3 -- -- --
Other Long-Term Assets 5.7 3.3 4.2 4.2 4.2
--------- -------- -------- -------- --------
Total Assets $ 916.5 $1,014.0 $1,027.9 $1,035.7 $1,041.6
========= ======== ======== ======== ========
Liabilities & Shareholders' Equity
Liabilities Subject To Compromise
Liabilities Subject to Compromise 179.9 -- -- -- --
Debt Subject to Compromise 2,297.3 -- -- -- --
--------- -------- -------- -------- --------
2,477.2 -- -- -- --
Current Liabilities:
Accounts Payable 98.1 98.1 96.3 102.0 108.0
Accrued Expenses 83.9 85.6 82.3 87.1 92.2
Taxes Payable 13.1 13.1 10.5 10.5 10.5
--------- -------- -------- -------- --------
Total Current Liabilities 195.0 196.7 189.1 199.5 210.6
Deferred Tax Liability -- 17.6 24.1 15.2 7.3
Other Long-Term Liabilities 43.7 49.7 40.4 35.9 20.6
Debt:
DIP Facility -- -- -- -- --
New Revolver -- 56.3 88.4 87.7 80.5
GE Debt 5.4 5.4 -- -- --
Capital Leases 1.7 1.7 0.9 -- --
Sr. Sub Debt (9.5%) -- 201.0(a) 160.8 120.6 80.4
--------- -------- -------- -------- --------
Total Liabilities 2,723.0 528.3 503.7 458.9 399.4
--------- -------- -------- -------- --------
Shareholders Equity (1,806.5) 485.6 524.2 576.8 642.2
--------- -------- -------- -------- --------
Total Liab. & S/H's Equity $ 916.5 $1,014.0 $1,027.9 $1,035.7 $1,041.6
========= ======== ======== ======== ========
* Reflects the "Fresh Start" projected consolidated balance sheet on the
first day of FY '03.
(a) Rounded from $200.94.
EXHIBIT F
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended July 6, 2002
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10857
THE WARNACO GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4032739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
90 Park Avenue
New York, New York 10016
(Address of registrant's principal executive offices)
(212) 661-1300
(Registrant's telephone number, including area code)
Copies of all communications to:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attention: Vice President and General Counsel
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[_] Yes [X] No
The number of shares outstanding of the registrant's Class A Common Stock as of
October 15, 2002 is as follows: 52,936,206.
================================================================================
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
July 6, January 5,
2002 2002
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 116,164 $ 39,558
Accounts receivable, less reserves of $110,991 and $107,947, respectively 212,212 282,387
Inventories, less reserves of $38,931 and $50,097 336,176 418,902
Prepaid expenses and other current assets 19,576 36,988
Assets held for sale 1,310 31,066
----------- -----------
Total current assets 685,438 808,901
----------- -----------
Property, plant and equipment -- net 193,823 212,129
Licenses, trademarks, intangible and other assets, at cost, less
accumulated amortization 101,106 271,500
Goodwill, less accumulated amortization -- 692,925
Deferred income tax 2,325 --
----------- -----------
$ 982,692 $ 1,985,455
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities not subject to compromise:
Current liabilities:
Current portion of long-term debt $ 6,825 $ --
Amended Debtor-in-Possession revolving credit facility -- 155,915
Accounts payable 106,715 84,764
Accrued liabilities 87,438 105,278
Accrued income tax payable 18,340 14,505
----------- -----------
Total current liabilities 219,318 360,462
----------- -----------
Other long-term liabilities 34,349 31,754
----------- -----------
Long-term debt 1,756 --
Liabilities subject to compromise 2,470,199 2,439,393
Deferred income taxes -- 5,130
Stockholders' deficiency:
Class A Common stock: $.01 par value, 130,000,000 shares
authorized, 65,232,594 issued in 2002 and 2001 654 654
Additional paid-in capital 909,054 909,054
Accumulated other comprehensive loss (55,138) (53,016)
Deficit (2,283,415) (1,393,674)
Treasury stock, at cost 12,242,629 shares (313,889) (313,889)
Unearned stock compensation (196) (413)
----------- -----------
Total stockholders' deficiency (1,742,930) (851,284)
----------- -----------
$ 982,692 $ 1,985,455
=========== ===========
See notes to unaudited consolidated condensed financial statements.
2
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
-------------------- ---------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- --------- ---------
(Unaudited)
Net revenues $381,767 $ 362,270 $ 791,819 $ 861,489
Cost of goods sold 265,919 386,583 557,559 740,525
-------- --------- --------- ---------
Gross profit (loss) 115,848 (24,313) 234,260 120,964
Selling, general and administrative expenses 100,579 188,472 202,697 327,541
-------- --------- --------- ---------
Operating income (loss) before reorganization items 15,269 (212,785) 31,563 (206,577)
Reorganization items 42,554 78,202 58,085 78,202
-------- --------- --------- ---------
Operating loss (27,285) (290,987) (26,522) (284,779)
Investment loss -- 3,708 -- 6,672
Interest expense, net 3,095 40,523 10,059 104,463
-------- --------- --------- ---------
Loss before provision for income taxes and cumulative
effect of change in accounting principle (30,380) (335,218) (36,581) (395,914)
Provision for income taxes 1,609 3,200 51,538 6,122
-------- --------- --------- ---------
Loss before cumulative effect of change in
accounting principle (31,989) (338,418) (88,119) (402,036)
Cumulative effect of change in accounting principle
(net of income tax benefits of $53,513) -- -- (801,622) --
-------- --------- --------- ---------
Net loss $(31,989) $(338,418) $(889,741) $(402,036)
======== ========= ========= =========
Contractual interest expense $ 42,101 $ 49,773 $ 88,071 $ 113,713
======== ========= ========= =========
Basic and diluted loss per common share:
Loss before accounting change $ (0.60) $ (6.40) $ (1.66) $ (7.60)
Cumulative effect of accounting change, net of taxes -- -- (15.14) --
-------- --------- --------- ---------
Net loss $ (0.60) $ (6.40) $ (16.81) $ (7.60)
======== ========= ========= =========
Weighted average number of shares used in computing loss per share:
Basic and diluted 52,936 52,898 52,936 52,886
======== ========= ========= =========
See notes to unaudited consolidated condensed financial statements.
3
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Debtor-In-Possession)
INCREASE (DECREASE) IN CASH
(Dollars in thousands)
Six Months Ended
---------------------
July 6, July 7,
2002 2001
--------- ---------
(Unaudited)
Cash flows from operating activities:
Net loss $(889,741) $(402,036)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss on sale of GJM and Penhaligon's 2,100 --
Loss (gain) on sales of fixed assets (105) 4,510
Non-cash reorganization and other items 31,994 96,945
Cumulative effect of change in accounting, net of taxes 801,622 --
Increase in deferred income tax valuation allowance 46,058 --
Depreciation and amortization 29,011 48,755
Market value adjustments to Equity Agreements -- 6,672
Amortization of interest rate swap gain -- (2,468)
Amortization of unearned stock compensation 217 1,994
Amortization of deferred financing costs 4,731 10,345
Change in operating assets and liabilities:
Repurchase of accounts receivable -- (185,000)
Accounts receivable 66,617 (29,735)
Inventories 84,177 71,731
Prepaid expenses and other assets 18,570 4,252
Accounts payable, accrued expenses and other liabilities 19,359 (81,048)
Accrued income taxes 3,835 (8,721)
--------- ---------
Net cash provided by (used in) operating activities 218,445 (463,804)
--------- ---------
Cash flows from investing activities
Disposals of fixed assets 7,564 3,014
Purchase of property, plant & equipment (5,214) (20,534)
Proceeds from sale of business units, net of cash balances 20,459 --
Increase in intangible and other assets -- (151)
--------- ---------
Net cash provided by (used in) investing activities 22,809 (17,671)
--------- ---------
Cash flows from financing activities:
Net borrowing under pre-petition credit facilities -- 340,246
Repayments of GECC debt (490) --
Repayments of pre-petition debt (10,054) --
Borrowings (repayments) under Amended DIP (155,915) 183,922
Increase in deferred financing costs -- (17,344)
--------- ---------
Net cash provided by (used in) financing activities (166,459) 506,824
--------- ---------
Translation adjustments 1,811 (73)
--------- ---------
Increase in cash 76,606 25,276
Cash at beginning of period 39,558 11,076
--------- ---------
Cash at end of period $ 116,164 $ 36,352
========= =========
See notes to unaudited consolidated condensed financial statements.
4
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Note 1 - Basis of Presentation
General. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and Securities and Exchange Commission
rules and regulations for interim financial information. Accordingly, they do
not contain all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of The Warnaco Group, Inc. and its
subsidiaries (the "Company"), the accompanying consolidated condensed financial
statements contain all of the adjustments (all of which were of a normal
recurring nature, except for the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142") and
adjustments related to the Chapter 11 Cases) necessary to present fairly the
financial position of the Company as of July 6, 2002 as well as its results of
operations and cash flows for the periods ended July 6, 2002 and July 7, 2001.
Operating results for interim periods may not be indicative of results for the
full fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 5, 2002.
Chapter 11 Cases. On June 11, 2001 (the "Petition Date"), the Company and
certain of its subsidiaries (each a "Debtor" and, collectively, the "Debtors")
each filed a voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code, 11 U.S.C. 'SS''SS' 101-1330, as amended (the "Bankruptcy
Code"), in the United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court") (collectively the "Chapter 11 Cases"). The
Company, 36 of its 37 U.S. subsidiaries and one of the Company's Canadian
subsidiaries, Warnaco of Canada Company ("Warnaco Canada") are Debtors in the
Chapter 11 Cases. The remainder of the Company's foreign subsidiaries are not
debtors in the Chapter 11 Cases, nor are they subject to foreign bankruptcy or
insolvency proceedings. However, certain debt obligations of the Company's
foreign subsidiaries are subject to standstill agreements with the Company's
pre-petition lenders.
On June 11, 2001, the Company entered into a Debtor-In-Possession Financing
Agreement ("DIP") with a group of banks, which was approved by the Bankruptcy
Court in an interim amount of $375,000. On July 9, 2001, the Bankruptcy Court
approved an increase in the amount of borrowing available to the Company to
$600,000. The DIP was subsequently amended on August 27, 2001, December 27,
2001, February 5, 2002 and May 15, 2002. In addition, the Administrative Agent
granted certain extensions under the DIP on April 12, 2002, June 19, 2002, July
18, 2002, August 22, 2002 and September 30, 2002 (the "Amended DIP"). The
amendments and extensions, among other things, amend certain definitions and
covenants, permit the sale of certain of the Company's assets and businesses,
extend certain deadlines with respect to certain asset sales and filing
requirements with respect to a plan of reorganization and reduce the size of the
facility to reflect the Debtor's revised business plan. On May 28, 2002, the
Company voluntarily reduced the amount of borrowing available to the Company
under the Amended DIP to $325,000. On October 8, 2002, the Company voluntarily
reduced the amount of borrowing available to the Company under the Amended DIP
to $275,000. As of July 6, 2002, the Company had repaid all outstanding
borrowings under the Amended DIP and at October 1, 2002 had approximately
$60,835 of cash available as collateral against outstanding trade and stand-by
letters of credit.
Pursuant to the Bankruptcy Code, pre-petition obligations of the Debtors,
including obligations under debt instruments, generally may not be enforced
against the Debtors, and any actions to collect pre-petition indebtedness are
automatically stayed, unless the stay is lifted by the Bankruptcy Court. In
addition, as debtors-in-possession, the Debtors have a right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases. In this context,
5
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
"assumption" means the Debtors agree to perform their obligations under the
lease or contract and to cure all defaults, and "rejection" means that the
Debtors are relieved from their obligation to perform under the contract or
lease, but are subject to damages for the breach thereof. Any damages resulting
from such a breach will be treated as unsecured claims in the Chapter 11 Cases.
The Debtors are reviewing their executory contracts and unexpired leases.
Through July 6, 2002, the Debtors had rejected a number of executory contracts
and unexpired leases and had accrued approximately $21,400 related to rejected
leases and contracts. Through October 1, 2002, the Company had rejected
additional contracts and had accrued an additional $1,694 related to rejected
leases which is included in liabilities subject to compromise on the
consolidated condensed balance sheets. The Debtors have attempted to estimate
the ultimate amount of liability that may result from rejected contracts and
leases, however, the ultimate distribution that such creditors will receive is
subject to the satisfaction of certain requirements under the Bankruptcy Code
and the approval of the Bankruptcy Court. In connection with the consummation of
its proposed plan of reorganization as filed on October 1, 2002, the Company
will assume certain of its leases and executory contracts. The Debtors' ability
to confirm any plan of reorganization is dependent upon the Bankruptcy Court's
approval of the Company's assumption of certain license agreements.
As a result of the Chapter 11 Cases and the circumstances leading to the
filing thereof, as of July 6, 2002, the Company was not in compliance with
certain financial and bankruptcy covenants contained in certain of its license
agreements. Under applicable provisions of the Bankruptcy Code, compliance with
such terms and conditions in executory contracts generally are either excused or
suspended during the Chapter 11 Cases.
In the Chapter 11 Cases, substantially all of the Debtors' unsecured
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan or plans of reorganization which must be confirmed by the
Bankruptcy Court after obtaining the requisite amount of votes by affected
parties. For financial reporting purposes, those liabilities have been
segregated and classified as liabilities subject to compromise in the
consolidated condensed balance sheets. The ultimate amount of and settlement
terms for such liabilities are subject to confirmation of the Debtors' proposed
plan of reorganization and, accordingly, are not presently determinable.
The Debtors filed their proposed plan of reorganization and related
disclosure statement with the Bankruptcy Court on October 1, 2002. A hearing is
scheduled before the Bankruptcy Court on November 13, 2002 with respect to the
adequacy of the information contained in the disclosure statement. If the
Bankruptcy Court approves the Debtors' disclosure statement, the Debtors will
solicit acceptances of the plan from certain of their creditors whose claims are
impaired under the plan. In order to confirm the plan, the Bankruptcy Court is
required to find that (i) with respect to each impaired class of creditors and
equity holders, each holder in such class has accepted the plan or will,
pursuant to the plan, receive at least as much as such holder would have
received in a liquidation, (ii) each impaired class of creditors and equity
holders has accepted the plan by the requisite vote (except as described below)
and (iii) confirmation of the plan is not likely to be followed by a liquidation
or a need for further financial reorganization unless the plan proposes such
measures. If any impaired class of creditors or equity holders does not accept
the plan, then, assuming that all of the other requirements of the Bankruptcy
Code are met, the Debtors may invoke the "cram-down" provisions of the
Bankruptcy Code. Under these provisions, the Bankruptcy Court may approve a plan
notwithstanding the non-acceptance of the plan by an impaired class of creditors
or equity holders if certain requirements are met. These requirements include
payment in full for a dissenting senior class of creditors before payment to a
junior class can be made. Under the priority scheme established by the
Bankruptcy Code, absent agreement to the contrary, certain post-petition
liabilities and pre-petition liabilities need to be satisfied before
shareholders can receive any distribution.
6
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
The Bankruptcy Code provides that the Debtors have exclusive periods during
which only they may file and solicit acceptances of a plan of reorganization.
The Debtors have obtained approval of five separate extensions of their
exclusive periods, the most recent extension being to and including October 7,
2002 and December 2, 2002, respectively. The Debtors filed a proposed joint plan
of reorganization on October 1, 2002 within the applicable exclusive period. If
the Debtors' plan is not confirmed by the Bankruptcy Court, or if the Debtors
fail to obtain additional extensions of time to file an amended plan of
reorganization or solicit acceptances thereof by the expiration of the
applicable exclusive periods, impaired classes of creditors and equity holders
or any party-in-interest (including a creditor, equity holder, a committee of
creditors or equity holders or an indenture trustee) may file their own plan of
reorganization for the Debtors.
As a result of the amount and character of the Company's pre-petition
indebtedness, the shortfall between the Company's projected enterprise value and
the amount necessary to satisfy the claims, in full, of its secured and
unsecured creditors and the impact of the provisions of the Bankruptcy Code
applicable to confirmation of the Debtors' proposed plan of reorganization,
holders of the Company's debt and equity securities will receive distributions
under the Company's proposed plan of reorganization as follows:
(i) the Company's existing common stock will be extinguished and common
stockholders will receive no distribution;
(ii) general unsecured claimants will receive approximately 2.55% of newly
issued common stock of the reorganized Company;
(iii) the Company's pre-petition secured lenders will receive their
pro-rata share of approximately $101 million in cash, newly issued
senior subordinated notes in the principal amount of $200,000 and
approximately 96.26% of newly issued common stock of the reorganized
Company;
(iv) holders of claims arising from or related to certain preferred
securities will receive approximately 0.60% of newly issued common
stock of the reorganized Company if such holders do not vote to reject
the plan; and
(v) pursuant to the terms of his Employment Agreement, as adjusted under
the Plan, Antonio C. Alvarez II, the President and Chief Executive
Officer of the Company, will receive an incentive bonus consisting of
$1,950 in cash, senior subordinated notes in the principal amount of
$940 and 0.59% of newly issued common stock of the reorganized
Company.
(vi) In addition to the foregoing, cash distributions will be made to
certain parties holding administrative and certain priority claims.
Under the proposed plan, additional shares of common stock of the
reorganized Company up to 10% of the newly issued common stock of
the Company will be reserved for issuance pursuant to management
incentive stock grants.
During the course of the Chapter 11 Cases, the Debtors may seek Bankruptcy
Court authorization to sell assets and settle liabilities for amounts other than
those reflected in the consolidated condensed financial statements. The Debtors
continue to evaluate the Company's operations and may identify additional assets
for potential disposition. However, there can be no assurance that the Company
will be able to consummate such transactions at prices the Company or the
Company's creditor constituencies will find acceptable. Since the Petition Date,
through July 6, 2002, the Company sold certain personal property, certain owned
buildings and land and other assets generating net proceeds of approximately
$10,200 of which approximately $7,564 was generated in the first half of fiscal
2002 (collectively the "Asset Sales"). The Asset Sales did not result in a
material gain or loss since the Company had previously written-down assets
identified for potential disposition to estimated net realizable value.
Substantially all
7
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
of the net proceeds from the Asset Sales were used to reduce outstanding
borrowings under the Amended DIP. In addition, in the first quarter of fiscal
2002, the Company sold the business and substantially all of the assets of GJM
Manufacturing Ltd. ("GJM"), a private label manufacturer of women's sleepwear
and Penhaligon's Ltd. ("Penhaligon's"), a United Kingdom based retailer of
perfumes, soaps, toiletries and other products. The sales of GJM and
Penhaligon's generated approximately $20,459 of net proceeds in the aggregate
and a net loss of approximately $2,100. Proceeds from the sale of GJM and
Penhaligon's were used to (i) reduce amounts outstanding under certain of the
Company's debt agreements ($4,800), (ii) reduce amounts outstanding under the
Amended DIP ($4,200), (iii) create an escrow fund (subsequently disbursed in
June 2002) for the benefit of pre-petition secured lenders ($9,759) and (iv)
create an escrow fund for the benefit of the purchasers for potential
indemnification claims and for any working capital valuation adjustments
($1,700). In the second quarter of fiscal 2002, the Company began the process of
closing 25 of its outlet retail stores. The closing of the outlet stores and the
related sale of inventory at approximately net book value, generated
approximately $12,000 of net proceeds which were used to reduce amounts
outstanding under the Amended DIP in the second quarter of fiscal 2002. The
Company expects to close its remaining 26 domestic outlet retail stores by the
end of fiscal 2002. At July 6, 2002, the Company has classified certain assets
as assets held for sale. The assets held for sale of $1,310 primarily represent
remaining land and buildings that were sold by the Company in the third
quarter of fiscal 2002. Such assets were previously written down to estimated
net realizable value in fiscal 2001.
Administrative and reorganization expenses resulting from the Chapter 11
Cases will unfavorably affect the Debtors and, consequently, the Company's
consolidated results of operations. Future results of operations may also be
adversely affected by other factors relating to the Chapter 11 Cases.
Reorganization and administrative expenses related to the Chapter 11 Cases have
been separately identified in the consolidated condensed statement of operations
as reorganization items.
The Company's current Chief Executive Officer, Antonio C. Alvarez II, and
Chief Financial Officer, James P. Fogarty, joined the Company from the
turnaround and crisis management consulting firm, Alvarez & Marsal, Inc. ("A&M")
in April 2001. The Company has formed a search committee and has engaged an
executive search firm to identify internal and external candidates to succeed
Messrs. Alvarez and Fogarty following their return to their practices at A&M.
Messrs. Alvarez and Fogarty have committed to remain in place through the
completion of the restructuring process and to provide for a smooth and orderly
transition to a new Chief Executive Officer and Chief Financial Officer.
Separately, the Company has engaged an executive search firm to identify
candidates for the Board of Directors of the reorganized Company.
The accompanying consolidated condensed financial statements have been
prepared in accordance with 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") assuming the Company will
continue as a going concern. The Company is currently operating under the
jurisdiction of the Bankruptcy Code and the Bankruptcy Court. Continuation of
the Company as a going concern is contingent upon, among other things its
ability to, (i) formulate a plan of reorganization that will gain approval of
the parties required by the Bankruptcy Code and be confirmed by the Bankruptcy
Court, (ii) continue to comply with the terms of the Amended DIP, (iii) return
to profitability, and (iv) generate sufficient cash flows from operations and
obtain financing sources to meet future obligations. These matters, along with
the Company's losses from operations and stockholders' capital deficiency, raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated condensed financial statements do not include any
of the adjustments relating to the
8
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
recoverability and classification of recorded assets or the amounts and
classifications of liabilities that might result from the outcome of these
uncertainties.
Periods Covered. The quarters ended July 6, 2002 (the "second quarter of
fiscal 2002") and July 7, 2001 (the "second quarter of fiscal 2001") included 13
weeks of operations. The six months ended July 6, 2002 (the "first half of
fiscal 2002") included 26 weeks of operations. The six months ended July 7, 2001
(the "first half of fiscal 2001") included 27 weeks of operations
Reclassification: Certain prior period amounts have been reclassified to
conform to the current period presentation.
Impact of New Accounting Standards: In June 2001, the FASB issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated or completed after June 30, 2001. SFAS No.
141 specifies criteria for the recognition of certain intangible assets apart
from goodwill. The adoption of SFAS No. 141 did not have an impact on the
Company's financial statements.
SFAS No. 142 eliminates the amortization of goodwill and certain other
intangible assets with indefinite lives effective for the Company's 2002 fiscal
year. SFAS No. 142 requires that indefinite lived intangible assets be tested
for impairment at least annually. SFAS No. 142 further requires that intangible
assets with finite useful lives be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. The Company adopted SFAS No. 142
beginning with the first quarter of fiscal 2002, See Note 3.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. The Company plans to adopt the provisions of SFAS
No. 143 for its 2003 fiscal year and does not expect the adoption of SFAS No.
143 to have a material impact on the Company's financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. The Company
was required to adopt the provisions of SFAS No. 144 for its 2002 fiscal year.
The adoption of SFAS No. 144 did not have a material impact on the Company's
financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds the provisions of SFAS No. 4 that require
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to classification of debt
extinguishment are effective for fiscal years beginning after May 15, 2002. The
provisions of SFAS No. 145 related to lease modifications are effective for
transactions occurring after May 15, 2002. The adoption of SFAS 145 did not have
a material impact on the financial position or results of operations of the
Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or
9
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for costs associated
with the exit or disposal of an activity be recognized when the liability is
incurred. This statement also established that fair value is the objective for
initial measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. The Company is currently evaluating the impact, if any, that SFAS No. 146
will have on its consolidated financial statements.
In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a Reseller of a
Vendor's Products, which was later codified along with other similar issues,
into EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer or
a Reseller of the Vendor's Products ("EITF 01-09"). EITF 01-09 was effective for
the Company in the first quarter of fiscal 2002. EITF 01-09 clarifies the income
statement classification of costs incurred by a vendor in connection with the
reseller's purchase or promotion of the vendor's products. The adoption of EITF
01-09 did not have a material impact on the Company's financial position or its
results of operations.
Note 2 - Reorganization Items
In connection with the Chapter 11 Cases, the Company has initiated several
actions and organizational changes designed to streamline the Company's
operations, focus on its core businesses and return the Company to
profitability. Many of the strategic actions are long-term in nature and, though
initiated in fiscal 2001, will not be completed until the end of fiscal 2002 or
later. The Company continues to evaluate the operations of the Company and may
identify additional assets for disposition. However, there can be no assurance
that the Company will be able to consummate any such transactions at prices the
Company or the Company's creditor constituencies will find acceptable.
The amount of proceeds that will be realized, if any, and the effect of any
additional asset sales on the Company's proposed plan of reorganization cannot
presently be determined. The Company has recorded reductions to the net
realizable value for assets the Company believes will not be fully realized when
they are sold or abandoned.
Certain reorganization-related accruals are classified with liabilities
subject to compromise. The Company's proposed plan of reorganization summarizes
the amount of distribution that each class of impaired creditors is expected to
receive. See Note 1.
As a direct result of the Chapter 11 Cases, the Company has recorded
certain liabilities, incurred certain legal and professional fees and
written-down certain assets. The transactions recorded were consistent with the
provisions of SOP 90-7. The components of reorganization items are as follows:
10
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
------- -------- ------- --------
GECC lease settlement $22,907 $ -- $22,907 $ --
Professional fees 7,737 6,106 14,918 6,106
Employee contracts and retention 5,261 -- 10,424 --
Write-off of fixed assets related to
retail stores closed 4,990 -- 4,990 --
(Gains) losses on sales of fixed assets (231) 4,510 (105) 4,510
Sales of Penhaligon's and GJM (39) -- 2,100
Employee benefit costs related to
plant closings 979 -- 979 --
Interest rate swap gain -- (18,887) -- (18,887)
Company-obligated mandatorily redeemable
preferred securities -- 21,411 -- 21,411
Systems development abandoned -- 30,145 -- 30,145
Deferred financing fees -- 34,822 -- 34,822
Other 950 95 1,872 95
------- -------- ------- --------
$42,554 $ 78,202 $58,085 $ 78,202
======= ======== ======= ========
Cash portion of reorganization items $13,948 $ 6,261 $26,091 $ 6,261
Non-cash portion of reorganization items $28,606 $ 71,941 $31,994 $ 71,941
Note 3 - Intangible Assets and Goodwill
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 eliminates the amortization of goodwill and certain other
intangible assets with indefinite lives effective for the Company's 2002 fiscal
year. SFAS No. 142 addresses financial accounting and reporting for intangible
assets and acquired goodwill. SFAS No. 142 requires that indefinite lived
intangible assets be tested for impairment at least annually. Intangible assets
with finite useful lives are to be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets.
As of January 5, 2002 the Company had intangible assets with indefinite
useful lives and goodwill net of accumulated amortization of approximately
$940,065. The Intimate Apparel Division's intangible assets consisted of
goodwill of $136,960 and indefinite lived intangible assets (primarily owned
trademarks) of $64,992. The Sportswear and Swimwear Division's intangible assets
consisted of goodwill of $552,349 and indefinite lived intangible assets
(primarily owned trademarks and license rights for periods exceeding forty
years) of $172,198. The Retail Stores Division had intangible assets consisting
of goodwill of $3,616 (subsequently written-off in connection with the sale of
Penhaligon's). The Company also had other indefinite lived intangible assets
consisting of owned trademarks of $9,950. In addition, the Sportswear and
Swimwear Division had definite lived intangible assets consisting of certain
license rights of $6,316.
Under the provisions of SFAS No. 142, goodwill may be deemed impaired if the net
book value of a business reporting unit exceeds the fair value of that business
reporting unit. Intangible assets may be deemed
11
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
impaired if the carrying amount exceeds the fair value of the assets. The
Company obtained an independent appraisal of its Business Enterprise Value
("BEV") in connection with the preparation of its proposed plan of
reorganization. The Company allocated the appraised BEV to its various reporting
units and determined that the value of certain of the Company's intangible
assets and goodwill were impaired. As a result, the Company recorded a charge of
$801,622 net of income tax benefit of $53,513 as a cumulative effect of a change
in accounting from the adoption of SFAS No. 142. The remaining value of
intangible assets with indefinite useful lives and goodwill after the adoption
of SFAS No. 142 is $84,930. The Intimate Apparel Division has indefinite lived
intangible assets of $52,037. The Sportswear and Swimwear Division has
indefinite lived intangible assets of $19,327. The Company also had other
indefinite lived intangible assets of $9,950. The Retail Stores Division had
goodwill of $3,616 (subsequently written-off in connection with the sale of
Penhaligon's). In addition, the Sportswear and Swimwear Division had definite
lived intangible assets of $6,316, net of accumulated amortization of $2,712
with a remaining useful life of seven years.
Amortization expense related to intangible assets was $226 and $452 in the
three and six month periods ending July 6, 2002, respectively. Amortization
expense related to goodwill and intangible assets was $17,849 and $27,024 in
the three and six month periods ending July 7, 2001, respectively. Pro-forma
net loss for the second quarter and first six months of fiscal 2001, assuming
SFAS No. 142 had been adopted effective January 1, 2001 is as follows:
Three Months Six Months
Ended Ended
July 7, 2001 July 7, 2001
------------ ------------
Net loss - as originally reported $(338,418) $(402,036)
Decrease in amortization expense 17,623 26,572
--------- ---------
Net Loss - as adjusted $(320,795) $(375,464)
========= =========
Basic and diluted loss per weighted
average share outstanding:
As reported $ (6.40) $ (7.60)
========= =========
As adjusted $ (6.06) $ (7.10)
========= =========
12
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Note 4 - Special Charges
The Company incurred certain special charges during fiscal 2000. The
details of reserves remaining as of January 5, 2002 and July 6, 2002 for costs
incurred in connection with the fiscal 2000 special charges are summarized
below:
Facility Employee
Inventory write- shutdown and termination and
downs and other contract termination severance
asset write-offs costs (a) costs
---------------- -------------------- ---------------
Balance as of January 5, 2002 $ -- $ 6,057 $ 279
Cash Reductions - 2002 -- (1,864) (207)
-------- ------- -------
Balance as of July 6, 2002 $ -- $ 4,193 $ 72
======== ======= =======
Balance as of December 30, 2000 $ 29,501 $11,805 $ 6,655
Cash Reductions - 2001 -- (5,302) (3,861)
Non-cash reductions - 2001 (22,016) (129) --
-------- ------- -------
Balance as of July 7, 2001 $ 7,485 $ 6,374 $ 2,794
======== ======= =======
Legal and
Retail outlet other related
store closings costs Total
-------------- ------------- --------
Balance as of January 5, 2002 $ -- $ -- $ 6,336
Cash Reductions - 2002 -- -- (2,071)
------- ------- --------
Balance as of July 6, 2002 $ -- $ -- $ 4,265
======= ======= ========
Balance as of December 30, 2000 $ 4,711 $ 3,820 $ 56,492
Cash Reductions - 2001 (937) (3,172) (13,272)
Non-cash reductions - 2001 (2,859) -- (25,004)
------- ------- --------
Balance as of July 7, 2001 $ 915 $ 648 $ 18,216
======= ======= ========
(a) Includes $2,211 of liabilities subject to compromise at July 6, 2002 and
January 5, 2002.
Note 5 - Inventories
July 6, January 5,
2002 2002
-------- ----------
Finished goods $288,522 $375,956
Work in process 46,020 47,325
Raw materials 40,565 45,718
-------- --------
375,107 468,999
Less: reserves 38,931 50,097
-------- --------
$336,176 $418,902
======== ========
Note 6 - Debt
13
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
July 6, 2002 January 5, 2002
------------ ---------------
Amended DIP $ -- $ 155,915
GECC lease settlement (a) (e) 8,581 --
$600 million term loan (b) 585,050 587,548
Revolving credit facilities (b) 1,014,386 1,018,719
Term loan agreements (b) 27,045 27,161
Capital lease obligations 3,862 5,582
Foreign credit facilities (b)(c) 143,702 143,439
Equity Agreement Notes (b)(d) 56,520 56,677
----------- -----------
1,839,146 1,995,041
Current portion (6,825) (155,915)
Reclassified to liabilities subject to compromise (1,830,565) (1,839,126)
----------- -----------
Total long-term debt $ 1,756 $ --
=========== ===========
(a) Represents payments due pursuant to the GECC lease settlement.
(b) The reduction in the credit facilities primarily reflects the repayment of
certain amounts from the proceeds generated from the sale of GJM and
Penhaligon's.
(c) Includes impact of fluctuations in foreign currency exchange rates.
(d) Interest bearing notes payable to certain banks related to the settlement
of equity forward purchase agreements ("Equity Agreements") entered into in
connection with the Company's stock repurchase program.
(e) Reflects July 2002 payment.
Total debt does not include pre-petition trade drafts outstanding as of
July 6, 2002 and January 5, 2002 of $349,872 and $351,367, respectively that are
included in liabilities subject to compromise.
Debtor-in-Possession Financing
On June 11, 2001, the Company entered into a Debtor-In-Possession Financing
Agreement ("DIP") with a group of banks, which was approved by the Bankruptcy
Court in an interim amount of $375,000. On July 9, 2001, the Bankruptcy Court
approved an increase in the amount of borrowing available to the Company to
$600,000. The DIP was subsequently amended on August 27, 2001, December 27,
2001, February 5, 2002 and May 15, 2002. In addition, the Administrative Agent
granted certain extensions under the DIP on April 12, 2002, June 19, 2002, July
18, 2002, August 22, 2002 and September 30, 2002. The amendments and extensions,
among other things, amend certain definitions and covenants, permit the sale of
certain of the Company's assets and businesses, extend deadlines with respect to
certain asset sales and filing requirements with respect to a plan of
reorganization and reduce the size of the facility to reflect the Debtor's
revised business plan. The Amended DIP (when originally executed) provided for a
$375,000 non-amortizing revolving credit facility (which includes letter of
credit facility of up to $200,000) ("Tranche A") and a $225,000 revolving credit
facility ("Tranche B"). On December 27, 2001 the Tranche B commitment was
reduced to $100,000. On April 19, 2002, the Company voluntarily elected to
eliminate Tranche B based upon its determination that the Company's liquidity
position had improved significantly since the Petition Date and Tranche B would
not be needed to fund the Company's on-going operations. On May 28, 2002, the
Company voluntarily reduced the amount of borrowing available to the Company
under the Amended DIP to $325,000. On October 8, 2002, the Company
14
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
voluntarily reduced the amount of borrowing available to the Company under the
Amended DIP to $275,000.
All outstanding borrowings under the Amended DIP had been repaid as of July
6, 2002. Amounts outstanding under the Amended DIP at January 5, 2002 were
$155,915. In addition, the Company had stand-by and documentary letters of
credit outstanding under the Amended DIP at July 6, 2002 and January 5, 2002 of
approximately $64,008 and $60,031 respectively. The total amount of additional
credit available to the Company at July 6, 2002 and January 5, 2002 was $143,954
and $159,054 respectively. As of October 1, 2002, the Company had repaid all
outstanding borrowings under the Amended DIP and had approximately $60,835 of
cash available as collateral against outstanding trade and stand-by letters of
credit.
The Amended DIP is secured by substantially all of the domestic assets of
the Company.
GECC Settlement
On June 12, 2002, the Bankruptcy Court approved the Company's settlement of
certain operating lease agreements with General Electric Capital Corporation
("GECC"). The leases had original terms of from three to seven years and were
secured by certain equipment, machinery, furniture, fixtures and other assets.
GECC's total claims under the leases were approximately $51,152. Under the terms
of the settlement agreement, the Company will pay GECC $15,200 of which $5,600
had been paid by the Company through June 12, 2002. The Company will pay the
balance of $9,600 (net present value of $9,071 at June 12, 2002) in equal
installments of $550 through the date of the consummation of a confirmed plan
of reorganization and $750 per month thereafter until the balance is fully paid.
The net present value of the remaining GECC payments of $8,581 is classified
as long-term debt not subject to compromise at July 6, 2002. All other amounts
claimed by GECC under the leases of $35,952 (including $13,045 previously
accrued and charged to operating expense by the Company) are classified as
liabilities subject to compromise at July 6, 2002. Amounts not previously
accrued by the Company but included in the GECC claim of $22,907 were charged
to reorganization items in the second quarter of fiscal 2002.
The assets acquired pursuant to the terms of the settlement agreement were
recorded at their estimated fair value, which was estimated to be equal to the
present value of payments due to GECC under the terms of the settlement
agreement. Such assets are being depreciated using the straight-line method over
their estimated remaining useful lives of 2 to 4 years.
Pre-Petition Debt Agreements--Subject to Compromise
The Company was in default of substantially all of its U.S. pre-petition
credit agreements as of July 6, 2002. All pre-petition debt of the Debtors has
been classified as liabilities subject to compromise in the consolidated
condensed balance sheet at July 6, 2002 and January 5, 2002. In addition, the
Company stopped accruing interest on all domestic pre-petition credit facilities
and outstanding balances on June 11, 2001, except for interest on certain
foreign credit agreements that are subject to standstill and inter-creditor
agreements. Total interest accrued on foreign debt agreements was $1,630 in the
second quarter of fiscal 2002. Total interest accrued on foreign debt agreements
since the Petition Date totaled $7,328, which is included in liabilities subject
to compromise at July 6, 2002. The Company's proposed plan of reorganization
requires the payment of such interest.
15
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Interest expense, net
Interest expense included in the consolidated condensed statement of
operations is as follows:
Interest expense
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
------- ------- -------- --------
Interest expense $ 6,018 $40,523 $ 12,982 $104,463
Interest income (2,923) -- (2,923) --
------- ------- -------- --------
Interest expense, net $ 3,095 $40,523 $ 10,059 $104,463
======= ======= ======== ========
Note 7 - Liabilities Subject to Compromise
The principal categories of obligations classified as liabilities subject
to compromise are identified below. The amounts set forth below may vary
significantly from the stated amounts of proofs of claim as filed with the
Bankruptcy Court and may be subject to future adjustments depending on future
Bankruptcy Court action, further developments with respect to disputed claims,
determination as to the value of any collateral securing claims, or other
events. In addition, other claims may result from the rejection of additional
leases and executory contracts by the Debtors. The following summarizes
liabilities subject to compromise at July 6, 2002 and January 5, 2002:
July 6, 2002 January 5, 2002
------------ ---------------
Current liabilities :
Accounts payable $ 385,718 $ 386,711
Accrued liabilities, including GECC claim 106,431 66,071
Debt :
$600 million term loan (a) 585,050 587,548
Revolving credit facilities (a) 1,014,386 1,018,719
Term loan agreements (a) 27,045 27,161
Capital lease obligations 3,862 5,582
Foreign credit facilities (a) (b) 143,702 143,439
Equity Agreement Notes (a) 56,520 56,677
Company-obligated mandatorily redeemable convertible 120,000 120,000
preferred securities
Other liabilities 27,485 27,485
---------- ----------
$2,470,199 $2,439,393
========== ==========
(a) Reduction in the amount outstanding reflects repayments of certain amounts
under the Company's pre-petition credit facilities from the proceeds
generated by the sale of GJM and Penhaligon's.
(b) Reflects the impact of foreign currency translation.
Note 8 - Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities.
In 1996, the Company's wholly owned subsidiary, Designer Holdings Ltd.
("Designer Holdings") issued 2.4 million Company-obligated mandatorily
redeemable convertible preferred securities with an aggregate nominal value of
$120,000 (the "Preferred Securities"). Each Preferred Security is convertible
16
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
into 0.6888 of a share of the Company's common stock, or an aggregate of
1,653,177 shares. The nominal value of the Preferred Securities is included in
liabilities subject to compromise at July 6, 2002 and January 5, 2002. Holders
of Preferred Securities will receive a distribution under the Company's proposed
plan of reorganization equal to 0.60% of the newly issued common stock in the
Company if such holders do not vote to reject the Company's proposed plan of
reorganization, see Note 1.
The following summarizes the unaudited financial information of Designer
Holdings, as of July 6, 2002 and January 5, 2002 and for the three month and six
month period ended July 6, 2002 and July 7, 2001.
The information below may not be indicative of future operating results.
Balance sheet summary:
July 6, January 5,
2002 2002
-------- ----------
Current assets $ 73,090 $ 96,536
Noncurrent assets 161,156 421,955
Current liabilities 29,905 24,684
Noncurrent liabilities 49,085 39,562
Liabilities subject to compromise:
Current liabilities 8,551 8,564
Redeemable preferred securities 120,000 120,000
Stockholders' equity 18,547 325,681
Statement of operations summary:
Three months ended Six months ended
--------------------------- --------------------------
July 6, July 7, July 6, July 7,
2002 (a) (b) 2001 (a) (b) 2002 (a) (b) 2001 (a) (b)
------------ ------------ ------------ ------------
Net revenues $ 59,986 $ 45,898 $ 130,462 $ 126,224
Cost of goods sold 45,377 51,477 98,700 112,436
Net loss (7,963) (68,989) (307,134)(c) (88,841)
(a) Excludes Retail Store Division's net revenues of $9,977 and $18,802 and
$13,125 and $24,465 for the three and six month periods ended July 6, 2002
and July 7, 2001, respectively. As a result of the integration of Designer
Holdings into the operations of the Company, cost of goods sold and net
income associated with these net revenues cannot be separately identified.
(b) Net loss includes a charge of $3,801 and $7,924 and $6,031 and $22,985 of
general corporate expenses for the three and six month periods,
respectively.
(c) Includes the cumulative effect of a change in accounting principle of
$302,655 in the first six months of fiscal 2002 related to the adoption of
SFAS No. 142.
17
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Note 9 - Supplemental Cash Flow Information
Three Months Ended Six Months Ended
------------------ -------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- ------- -------- --------
Cash paid (received) for:
Interest $ 2,600 $62,213 $ 5,802 $120,196
Income taxes, net of refunds received (13,743) (284) (12,037) 4,938
Supplemental non-cash investing and financing
activities:
Debt issued for purchase of fixed assets (a) 9,071 -- 9,071 --
(a) Represents debt incurred and assets purchased under the GECC lease
settlement - Note 6.
Note 10 - Business Segments
The Company operates in three segments: Sportswear and Swimwear, Intimate
Apparel, and Retail Stores.
The Sportswear and Swimwear segment designs, manufactures, imports and
markets moderate to premium priced men's, women's, junior's and children's
sportswear and jeanswear, men's accessories and men's, women's, junior's and
children's swimwear and active apparel under the Chaps by Ralph Lauren'r',
Calvin Klein'r', Catalina'r', A.B.S. by Allen Schwartz'r', Speedo'r', Speedo'r'
Authentic Fitness'r', Anne Cole'r', Cole of California'r', Sandcastle'r', Sunset
Beach'r', Lauren'r'/Ralph Lauren'r', Ralph'r'/Ralph Lauren'r', Ralph Lauren'r',
Polo Sport Ralph Lauren'r' and Polo Sport-RLX'r' brand names.
The Intimate Apparel segment designs, manufactures, imports and markets
moderate to premium priced intimate apparel for women under the Warner's'r',
Olga'r', Calvin Klein'r', White Stag'r', Lejaby'r', Rasurel'r' and
Bodyslimmers'r' brand names, and men's underwear under the Calvin Klein'r' brand
name.
The Retail Stores segment which is comprised of both outlet retail as well
as full-price retail stores, principally sells the Company's products to the
general public through stores under the Speedo'r' Authentic Fitness'r' name as
well as Company retail outlet stores for the disposition of excess and irregular
inventory. At January 5, 2002 the Company operated 95 Speedo Authentic Fitness
retail stores and 86 outlet retail stores. Through July 6, 2002 the Company
closed 24 Speedo Authentic Fitness stores and 38 domestic outlet retail stores
leaving 71 Speedo Authentic Fitness and 48 outlet retail stores as of July 6,
2002. Through October 14, 2002 the Company had closed 23 additional Speedo
Authentic Fitness Stores leaving 48 stores operating on October 14, 2002. The
Company expects to close its remaining 26 domestic outlet retail stores by the
end of fiscal 2002.
Net revenues for the 38 outlet retail stores closed in the first half of
fiscal 2002 for the six months ended July 6, 2002 and July 7, 2001 were $9,662
and $19,231, respectively. Net revenues for the 26 outlet retail stores to be
closed in the fourth quarter of fiscal 2002 for the six months ended July 6,
2002 and July 7, 2001 were $18,583 and $21,826, respectively.
Net revenues for the 24 Authentic Fitness stores closed in the first half
of fiscal 2002 for the six months ended July 6, 2002 and July 7, 2001 were
$1,936 and $2,863, respectively. Net revenues for the 23 Authentic Fitness
stores closed in the third quarter of fiscal 2002 for the six months ended
July 6, 2002 and July 7, 2001 were $3,998 and $4,529, respectively.
The accounting policies of the segments are the same as those of the
Company. Transfers to the Retail Stores segment occur at standard cost and are
not reflected in the net revenues of the Intimate Apparel or Sportswear and
Swimwear segments. The Company evaluates the performance of its segments based
upon operating income (loss) before general corporate expenses not allocated and
reorganization items. Information by business segment is set forth below.
18
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Sportswear
and Intimate Retail
Swimwear Apparel Stores Total
---------- -------- -------- ---------
Three months ended July 6, 2002:
Net revenues $208,769 $145,277 $ 27,721 $ 381,767
Segment operating income (loss) 13,010 19,735 (438) 32,307
Three months ended July 7, 2001:
Net revenues $201,094 $113,468 $ 47,708 $ 362,270
Segment operating loss (68,977) (93,214) (9,698) (171,889)
Six months ended July 6, 2002:
Net revenues $445,713 $289,444 $ 56,662 $ 791,819
Segment operating income (loss) 39,698 32,241 (4,648) 67,291
Six months ended July 7, 2001:
Net revenues $492,610 $276,347 $ 92,532 $ 861,489
Segment operating loss (36,291) (84,684) (13,286) (134,261)
The reconciliation of total segment operating income (loss) to total
consolidated loss before taxes and cumulative effect of a change in accounting
principle for the periods ended July 6, 2002 and July 7, 2001, respectively, is
as follows:
Three Months Ended Six Months Ended
-------------------- --------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- -------- ---------
Segment operating income (loss) $ 32,307 $(171,889) $ 67,291 $(134,261)
General corporate expenses not allocated 17,038 40,896 35,728 72,316
-------- --------- -------- ---------
Operating income (loss) before
reorganization items 15,269 (212,785) 31,563 (206,577)
Reorganization items 42,554 78,202 58,085 78,202
-------- --------- -------- ---------
Operating loss (27,285) (290,987) (26,522) (284,779)
Investment loss -- 3,708 -- 6,672
Interest expense, net 3,095 40,523 10,059 104,463
-------- --------- -------- ---------
Loss before provision for income taxes
and cumulative effect of change in
accounting principle $(30,380) $(335,218) $(36,581) $(395,914)
======== ========= ======== =========
19
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Note 11 - Comprehensive (Loss)
The components of comprehensive loss are as follows:
Three Months Ended Six Months Ended
-------------------- ---------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- --------- ---------
Net loss $(31,989) $(338,418) $(889,741) $(402,036)
-------- --------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation adjustments 126 (314) 1,856 482
Change in unfunded minimum pension liability (2,000) (2,000) (4,000) (3,530)
Transition adjustment for SFAS No. 133 adoption -- (20,328) -- --
Change in fair value of cash flow hedge,
interest rate swaps -- 202 -- --
Unrealized deferred loss on marketable securities 67 44 22 30
-------- --------- --------- ---------
Total other comprehensive loss (1,807) (22,396) (2,122) (3,018)
-------- --------- --------- ---------
--
Comprehensive loss $(33,796) $(360,814) $(891,863) $(405,054)
======== ========= ========= =========
The transition adjustment relates to the reclassification of a gain on the
termination of certain interest rate swaps from other liabilities to other
comprehensive income and the subsequent reclassification of the gain to
reorganization items in the second quarter of fiscal 2001.
The components of accumulated other comprehensive loss are as follows:
July 6, January 5,
2002 2002
-------- ----------
Unfunded minimum pension liability $(36,494) $(32,494)
Foreign currency translation adjustments (18,705) (20,561)
Unrealized holding losses, net 61 39
-------- --------
Total accumulated other comprehensive loss $(55,138) $(53,016)
======== ========
Note 12 - Income Taxes
The provision for income taxes of $1,609 for the second quarter of fiscal
2002 reflects accrued income taxes on foreign earnings. The provision for income
taxes for the first half of fiscal 2002 of $51,538 reflects accrued income taxes
of $5,480 on foreign earnings and an increase in the Company's valuation
allowance of $46,058. The increase in the valuation allowance resulted from an
increase in the Company's deferred tax assets that may not be realized. The tax
benefit associated with impairment losses was recorded by the Company in
connection with the adoption of SFAS No. 142 during the first quarter of fiscal
2002. The Company has not provided any tax benefit for domestic losses and
certain foreign losses incurred during the first half of fiscal 2002.
The provision for income taxes for the second quarter of fiscal 2001 and
first six months of fiscal 2001 reflects accrued taxes of $3,200 and $6,122,
respectively on foreign earnings. The Company has not provided any tax benefit
for domestic losses and certain foreign losses incurred in the first half of
fiscal 2001.
20
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, expect share amounts)
(Unaudited)
Note 13 - Equity
Three Months Ended Six Months Ended
-------------------- ---------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- --------- ---------
Numerator for basic and diluted earnings per share:
Loss before cumulative effect of change
in accounting principle $(31,989) $(338,418) $ (88,119) $(402,036)
Cumulative effect of change in accounting
principle -- -- 801,622 --
-------- --------- --------- ---------
Net loss $(31,989) $(338,418) $(889,741) $(402,036)
======== ========= ========= =========
Denominator for basic and diluted loss per share
-- weighted average number of shares 52,936 52,898 52,936 52,886
======== ========= ========= =========
Basic and diluted loss per share before cumulative
effect of change in accounting principle (a) (b) $ (0.60) $ (6.40) $ (1.66) $ (7.60)
======== ========= ========= =========
(a) The effect of potentially dilutive securities has been excluded from the
computation of loss per share for all periods presented because the effect
would have been anti-dilutive. Dilutive securities at July 6, 2002 and July
7, 2001 included options to purchase 5,293,342 shares and 15,699,796 shares
of common stock, respectively; unvested restricted stock of 19,424 shares
and 260,950 shares, respectively, and; 5,200,000 shares issuable pursuant
to the Equity Agreements, respectively.
(b) There were no outstanding, in-the-money options at July 6, 2002.
Options to purchase shares of common stock outstanding at July 6, 2002 and
July 7, 2001 were not included in the computation of diluted earnings per share
because the option exercise price was greater than the average market price of
the common shares as shown below:
July 6, July 7,
2002 2001
------------ ------------
Number of shares under option 5,293,342 15,699,796
Range of exercise prices $0.67-$42.88 $0.67-$42.88
Incremental shares issuable on the assumed conversion of the Preferred
Securities amounting to 1,653,177 shares were not included in the computation of
diluted earnings per share for any of the periods presented, as the impact would
have been anti-dilutive.
The Company has reserved 16,132,022 shares of Class A Common Stock for
issuance under its various stock option plans as of July 6, 2002. In addition,
as of July 6, 2002 and January 5, 2002 there were 12,242,629 shares of Class A
Common Stock in treasury stock available for the issuance under certain of the
plans.
Note 14 - Legal Matters
As a consequence of the Chapter 11 Cases, all pending claims and litigation
against the Company and its filed subsidiaries have been automatically stayed
pursuant to Section 362 of the Bankruptcy Code absent further order of the
Bankruptcy Court. Below is a summary of legal proceedings the Company believes
to be material.
21
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, expect share amounts)
(Unaudited)
Speedo Litigation. On September 14, 2000, Speedo International Limited
("SIL") filed a complaint in the U.S. District Court for the Southern District
of New York, styled Speedo International Limited v. Authentic Fitness Corp., et
al., No. 00 Civ. 6931 (DAB) (the "Speedo Litigation"), against The Warnaco
Group, Inc. and various other Warnaco entities (the "Warnaco Defendants")
alleging claims, inter alia, for breach of contract and trademark violations
(the "Speedo Claims"). The complaint seeks, inter alia, termination of certain
licensing agreements, injunctive relief and damages.
On November 8, 2000, the Warnaco Defendants filed an answer and
counterclaims against SIL seeking, inter alia, a declaration that the Warnaco
Defendants have not engaged in trademark violations and are not in breach of the
licensing agreements, and that the licensing agreements in issue (the "Speedo
Licenses") may not be terminated.
The Company believes the Speedo Claims to be without merit and intends to
vigorously dispute them and pursue its counterclaims.
On or about October 30, 2001, SIL filed a motion in Bankruptcy Court
seeking relief from the automatic stay to pursue the Speedo Litigation in the
District Court, and have its rights determined there through a jury trial (the
"Speedo Motion"). The Debtors opposed the Speedo Motion, and oral argument was
held on February 21, 2002. On June 11, 2002, the Bankruptcy Court denied the
Speedo Motion on the basis that inter alia, (i) the Speedo Motion was premature
and (ii) the Bankruptcy Court has core jurisdiction over resolution of the
Speedo Claims. Pursuant to, and in conjunction with, confirmation of the
Company's proposed plan of reorganization, the Debtors will assume the Speedo
Licenses. The Debtors believe that all issues raised by SIL with respect to the
assumption of the Speedo licenses can be resolved by the Bankruptcy Court or
otherwise resolved in a manner which will not preclude assumption of the Speedo
Licenses as of the effective date of the proposed plan.
Wachner Claim. On January 18, 2002, Mrs. Linda J. Wachner, former President
and Chief Executive Officer of the Company, filed a proof of claim in the
Chapter 11 Cases related to the post-petition termination of her employment with
the Company asserting an administrative priority claim in excess of $25 million
(the "Wachner Claim"). The Debt Coordinators for the Company's pre-petition
lenders, the Official Committee of Unsecured Creditors and the Company have
objected to the Wachner Claim. Discovery with respect to the Wachner Claim is
proceeding and a hearing will be scheduled in the Bankruptcy Court regarding the
Wachner Claim. Confirmation and effectiveness of the Debtors' proposed plan of
reorganization are not conditioned upon or otherwise dependent upon a resolution
of the Wachner Claim.
Shareholder Class Actions. Between August 22, 2000 and October 26, 2000,
seven putative class action complaints were filed in the U.S. District Court for
the Southern District of New York against the Company and certain of its
officers and directors (the "Shareholder I Class Action"). The complaints, on
behalf of a putative class of shareholders of the Company who purchased Company
stock between September 17, 1997 and July 19, 2000 (the "First Class Period"),
allege, inter alia, that the defendants violated the Securities Exchange Act of
1934, as amended (the "Exchange Act") by artificially inflating the price of the
Company's stock and failing to disclose certain information during the First
Class Period.
On November 17, 2000, the Court consolidated the complaints into a single
action, styled In Re The Warnaco Group, Inc. Securities Litigation, No.
00-Civ-6266 (LMM), and appointed a lead plaintiff and approved a lead counsel
for the putative class. A second amended consolidated complaint was filed on May
31, 2001. On October 5, 2001, the defendants other than the Company filed a
motion to dismiss based upon, among other things, the statute of limitations,
failure to state a claim and failure to plead
22
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, expect share amounts)
(Unaudited)
fraud with the requisite particularity. On April 25, 2002, the District Court
granted the individual defendant's motion to dismiss this action based on the
statute of limitations. On May 10, 2002, the plaintiffs filed a motion for
reconsideration in the District Court. On May 24, 2002, the plaintiffs filed a
notice of appeal with respect to such dismissal. On July 23, 2002, plaintiffs'
motion for reconsideration was denied. On July 30, 2002, the plaintiffs'
voluntarily dismissed, without prejudice, their claims against the Company. On
October 2, 2002, plaintiffs filed a notice of appeal with respect to the
District Court's entry of final judgement in favor of the individual defendants.
Between April 20, 2001 and May 31, 2001, five putative class action
complaints, against the Company and certain of its officers and directors were
filed in the U.S. District Court for the Southern District of New York (the
"Shareholder II Class Action"). The complaints, on behalf of a putative class of
shareholders of the Company who purchased Company stock between September 29,
2000 and April 18, 2001 (the "Second Class Period"), allege, inter alia, that
defendants violated the Exchange Act by artificially inflating the price of the
Company's stock and failing to disclose negative information during the Second
Class Period.
On August 3, 2001, the District Court consolidated the actions into a
single action, styled In Re The Warnaco Group, Inc. Securities Litigation (II),
No. 01 CIV 3346 (MCG), and appointed a lead plaintiff and approved a lead
counsel for the putative class. A consolidated amended complaint was filed
against certain current and former officers and directors of the Company, which
expanded the Second Class Period to encompass August 16, 2000 to June 8, 2001.
The amended complaint also dropped the Company as a defendant, but added as
defendants certain outside directors. On April 18, 2002, the District Court
dismissed the amended complaint, but granted plaintiffs leave to replead. On
June 7, 2002, the plaintiffs filed a second amended complaint, which again
expanded the Second Class Period to encompass August 15, 2000 to June 8, 2001.
On June 24, 2002, the defendants filed motions to dismiss the second amended
complaint, which motions are pending. On August 21, 2002, plaintiffs filed a
third amended complaint adding the Company's current independent auditors as a
defendant.
SEC Investigation. As previously disclosed, the staff of the Securities and
Exchange Commission (the "SEC") has been conducting an investigation to
determine whether there have been any violations of the Exchange Act in
connection with the preparation and publication of various financial statements
and other public statements. On July 18, 2002, the SEC staff informed the
Company that it intends to recommend that the SEC authorize a civil enforcement
action against the Company and certain persons who have been employed by or
affiliated with the Company since prior to January 3, 1999 alleging violations
of the federal securities laws. The SEC staff invited the Company to make a
Wells Submission describing the reasons why no such action should be brought. On
September 3, 2002, the Company filed its Wells Submission. The Company does not
expect the resolution of this matter as to the Company to have a material effect
on the Company's financial condition, results of operations or its business.
Note 15 - Supplemental Condensed Financial Information.
The following condensed financial statements of The Warnaco Group, Inc., 36
of its 37 U.S. subsidiaries and Warnaco Canada (the "Debtors") represent the
condensed consolidated financial position as of July 6, 2002 and January 5,
2002, results of operations and cash flows for the Debtors for the periods ended
July 6, 2002 and July 7, 2001:
23
THE WARNACO GROUP, INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, expect share amounts)
(Unaudited)
July 6, January 5,
2002 2002
----------- -----------
ASSETS
Current assets $ 530,809 $ 624,623
Net property, plant and equipment 172,005 191,117
Intercompany accounts, net 21,055 44,532
Intangible and other assets, net 76,683 869,659
Investment in affiliates 116,328 181,212
----------- -----------
$ 916,880 $ 1,911,143
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities not subject to compromise:
Current Liabilities:
Amended DIP $ -- $ 155,915
Current portion of long-term debt 6,825 --
Other current liabilities 146,698 135,383
----------- -----------
Total current liabilities 153,523 291,298
Other long-term liabilities 34,332 31,736
Long-term debt 1,756 --
Liabilities subject to compromise 2,470,199 2,439,393
Stockholders' deficiency:
Class A Common Stock, $0.01 par value
130,000,000 shares authorized, 65,232,594 issued 654 654
Additional paid-in-capital 909,054 909,054
Accumulated other comprehensive loss (55,138) (53,016)
Deficit (2,283,415) (1,393,674)
Treasury stock, at cost 12,242 629 shares (313,889) (313,889)
Unearned stock compensation (196) (413)
----------- -----------
Total stockholders' deficiency (1,742,930) (851,284)
----------- -----------
$ 916,880 $ 1,911,143
=========== ===========
24
THE WARNACO GROUP,INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
-------------------- ---------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- --------- ---------
Net revenues $320,337 $ 301,816 $ 667,108 $ 728,992
Cost of goods sold 231,541 339,724 492,348 660,704
-------- --------- --------- ---------
Gross profit (loss) 88,796 (37,908) 174,760 68,288
Selling, general and administrative expenses 78,176 150,622 156,040 264,008
-------- --------- --------- ---------
Operating income (loss) before reorganization items 10,620 (188,530) 18,720 (195,720)
Reorganization items 41,228 78,202 55,619 78,202
Equity in (income) loss of unconsolidated
subsidiaries 1,235 25,514 (3,708) 13,983
-------- --------- --------- ---------
Operating loss (31,843) (292,246) (33,191) (287,905)
Interest expense, net 3,021 43,946 9,944 112,254
Other income (583) (358) (1,074) (730)
-------- --------- --------- ---------
Loss before provision for income taxes
and cumulative effect of change in accounting
principle (34,281) (335,834) (42,061) (399,429)
Provision (benefit) for income taxes (2,292) 2,584 46,058 2,607
-------- --------- --------- ---------
Loss before cumulative effect of
change in accounting principle (31,989) (338,418) (88,119) (402,036)
Cumulative effect of change in accounting
principle net of income tax benefit -- -- 801,622 --
-------- --------- --------- ---------
Net loss $(31,989) $(338,418) $(889,741) $(402,036)
======== ========= ========= =========
25
THE WARNACO GROUP,INC.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except share amounts)
(Unaudited)
For the Six Months Ended
------------------------
July 6, July 7,
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $(889,741) $(402,036)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 25,845 47,558
(Gain) loss on sales of fixed assets (105) 4,510
Amortization of deferred financing costs 4,731 10,345
Cumulative effect of the change in accounting 801,622 --
Increase in deferred income tax valuation allowance 46,058 --
Loss on sale of GJM and Penhaligon's 2,100 --
Market value adjustments to Equity Agreements -- 6,672
Amortization of interest rate swap gain -- (2,468)
Amortization of unearned stock compensation 217 1,994
Non-cash reorganization costs and other items 31,994 82,506
Changes in operating assets and liabilities:
Accounts receivable 68,363 (144,877)
Inventories 85,029 51,878
Accounts payable and accrued liabilities 20,474 (69,604)
Prepaid expenses and other current assets and liabilities 15,975 870
Change in other long-term assets and liabilities (1,383) (784)
Net change in intercompany and investment accounts 10,293 (52,927)
--------- ---------
Net cash provided by (used in) operating activities 221,472 (466,363)
Cash flows from investing activities:
Proceeds from the sale of GJM and Penhaligon's 20,459 --
Capital expenditures, net of disposals (1,818) (16,833)
--------- ---------
Net cash provided by (used in) investing activities 18,641 (16,833)
Cash flows from financing activities:
Net borrowings (repayments) under pre-petition credit facilities (10,032) 329,490
Net borrowings (repayments) under Amended DIP (155,915) 183,922
Repayments of GECC debt (490) --
Increase in deferred financing costs -- (17,344)
--------- ---------
Net cash provided by (used in) financing activities (166,437) 496,068
Translation adjustments 1,811 (223)
--------- ---------
Net increase in cash and cash equivalents 75,487 12,649
Cash at beginning of period 18,758 5,355
--------- ---------
Cash at end of period $ 94,245 18,004
========= =========
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is subject to certain risks and uncertainties that could cause
its future results of operations to differ materially from its historical
results of operations and those expected in the future. The Company generally is
subject to certain risks that could affect the value of the Company's common
stock. Please refer to Item 1. Business included in the Company's Annual Report
on Form 10-K for the year ended January 5, 2002 for a discussion of the
Company's business operations.
Proceedings under Chapter 11 of the Bankruptcy Code
On the Petition Date the Company, 36 of its 37 U.S. subsidiaries and
Warnaco Canada (the "Debtors") each filed a petition for relief under Chapter 11
of the Bankruptcy Code. The remainder of the Company's foreign subsidiaries are
not debtors in the Chapter 11 Cases, nor are they subject to foreign bankruptcy
or insolvency proceedings. The Debtors are managing their businesses and
properties as debtors-in-possession.
The Company filed its proposed plan of reorganization on October 1, 2002
and is in the process of seeking the acceptance and confirmation of the plan by
the Bankruptcy Court in accordance with the provisions of the Bankruptcy Code.
During the course of the Chapter 11 Cases, the Debtors may seek Bankruptcy
Court authorization to sell assets and settle liabilities for amounts other than
those reflected in the consolidated condensed financial statements. The Debtors
continue to evaluate the Company's operations and may identify additional assets
for potential disposition. However, there can be no assurance that the Company
will be able to consummate such transactions at prices the Company or the
Company's creditor constituencies will find acceptable. Since the Petition Date,
through July 6, 2002, the Company sold certain assets including its GJM and
Penhaligon's business and the inventory of certain of its retail outlet stores
generating proceeds of approximately $43 million in the aggregate. In October
2002, the Company made a strategic decision to close the remaining 26 outlet
retail stores it was then operating. The Company expects that the stores will be
closed before the end of fiscal 2002. At July 6, 2002, the Company has
classified certain assets as assets held for sale. The assets held for sale of
$1,310 primarily represent remaining land and buildings that were sold by the
Company in the third quarter of fiscal 2002. Such assets were previously
written-down to estimated net realizable value in fiscal 2001.
The administrative and reorganization expenses resulting from the Chapter
11 Cases will unfavorably affect the Debtors and consequently, the Company's
consolidated results of operations. Future results of operations may also be
adversely affected by other factors relating to the Chapter 11 Cases.
Basis of Presentation
The Company's consolidated condensed financial statements included in this
Quarterly Report have been prepared on a "going concern" basis in accordance
with accounting principles generally accepted in the United States of America.
The "going concern" basis of presentation assumes that the Company will continue
in operation for the foreseeable future and will be able to realize upon its
assets and discharge its liabilities in the normal course of business. Because
of the Chapter 11 Cases and the circumstances leading thereto, there is
substantial doubt about the appropriateness of the use of the "going concern"
assumption. Furthermore, the Company's ability to realize the carrying value of
its assets and discharge its liabilities is subject to substantial doubt. If the
"going concern" basis was not used in the preparation of the Company's
consolidated condensed financial statements significant adjustments would be
necessary in the carrying value of assets and liabilities, the classification of
assets and liabilities and the amount of revenue and expenses reported.
Continuation of the Company as a "going concern" is contingent upon, among other
things its ability to (i) formulate a plan of reorganization that will gain the
approval of the parties required by the Bankruptcy Code and the Bankruptcy
Court, (ii) comply with the terms of the Amended DIP, (iii) return to
profitability, and (iv) generate sufficient cash flows from
27
operations and obtain financing sources to meet future obligations. These
matters create substantial doubt about the Company's ability to continue as a
"going concern".
Discussion of Critical Accounting Policies
SEC Financial Reporting Release No. 60 encourages companies to include a
discussion of critical accounting policies or methods used to prepare financial
statements in its quarterly and annual reports. In addition, Financial Reporting
Release No. 61 encourages companies to include a discussion addressing, among
other matters, liquidity, off-balance sheet arrangements and contractual
obligations and commercial commitments. The following are the Company's critical
accounting policies and a brief discussion of each.
Use of estimates. The Company uses estimates and assumptions in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated condensed
financial statements. These estimates and assumptions also affect the reported
amounts of revenues and expenses. Actual results could materially differ from
these estimates. The estimates the Company makes are based upon historical
factors, current circumstances and the experience and judgment of the Company's
management. The Company evaluates its assumptions and estimates on an on-going
basis and may employ outside experts to assist in the Company's evaluations. The
Company believes that the use of estimates affects the application of all of the
Company's accounting policies and procedures.
The Company has estimated the amounts that its creditors will be entitled
to claim in the Chapter 11 Cases as liabilities subject to compromise. The
determination of the amount of these claims is subject to the provisions of
various contracts, license agreements and leases. In addition, the amount of
claims is subject to review and approval by the Bankruptcy Court. The ultimate
amount of claims that will be allowed by the Bankruptcy Court and the amount
that the claims will ultimately be settled for cannot be determined at this
time.
The Company has identified reorganization items related to the Company's
Chapter 11 Cases. The determination of certain of the amounts included in
reorganization items involves the estimation of amounts that will ultimately be
realized from the sales of assets and the amount of liabilities that will
ultimately be claimed by certain of the Company's creditors in the Chapter 11
Cases. The actual amounts that will ultimately be realized or claimed differ
significantly from the amounts originally estimated by the Company. The Company
reviews its estimates of reorganization items on a monthly basis and adjustments
to the previously estimated amounts are recorded when it becomes evident that a
particular item will be settled for more or less than was originally estimated.
In fiscal 2000, the Company recorded special charges related to the closing
of facilities, discontinuing under-performing product lines, write-down of
assets and reduction of its production, distribution and administrative
workforce. The determination of the amount of these special items involved the
estimation of amounts that will be realized from the sales of assets and the
amount of liabilities that will be incurred in the future. The actual amounts
that will ultimately be realized from asset sales or incurred may differ
significantly from the amounts originally estimated by the Company. The Company
reviews its estimates of special items on an on-going basis. Adjustments to the
previously estimated amounts are recorded when it becomes evident that a
particular item will be settled for more or less than was originally estimated.
In the first quarter of fiscal 2002, the Company recorded a charge of
$801,622, net of income tax benefit of $53,513, for the cumulative effect of a
change in accounting related to the adoption of SFAS No. 142. The determination
of the amount of the charge for the cumulative effect involved significant
judgment and the use of estimates of the future earnings of the Company and its
various business units and the fair value assigned to the Company's various
assets and liabilities. The amount that the Company and its various business
units will ultimately earn and the future fair value of the Company's assets and
business units could differ significantly from these estimates.
28
Revenue recognition. The Company recognizes revenue when goods are shipped
to customers and title has passed, net of allowances for returns and other
discounts. The Company recognizes revenue from its retail stores when goods are
sold to customers. The Company maintains an allowance for estimated amounts that
the Company does not expect to collect from its trade customers. The allowance
for doubtful accounts includes amounts the Company expects its customers to
deduct for trade discounts, other promotional activity, amounts for accounts
that go out of business or seek the protection of the Bankruptcy Code and
amounts related to charges in dispute with customers. The Company's estimate of
the allowance amounts that are necessary includes amounts for specific
deductions the Company has authorized and a general amount for estimated losses.
The amount of the provision for accounts receivable allowances is impacted by
the overall economy, the financial condition of the Company's customers and many
other factors most of which are not controlled by the Company or its management.
The determination of the amount of the allowance accounts is subject to
significant levels of judgment and estimation by the Company's management. If
circumstances change or economic conditions deteriorate, the Company may need to
increase the allowance for doubtful accounts significantly. The Company has
purchased credit insurance to help mitigate the potential losses it may incur
from the bankruptcy, reorganization or liquidation of certain of its customers.
Inventories. The Company values its inventories at the lower of cost,
determined on a first-in first- out basis, or market value. The Company
evaluates all inventories to determine excess units or slow moving styles based
upon quantities on hand, orders in house and expected future orders. For those
items of which the Company believes it has an excess supply or for styles or
colors that are out-of-date, the Company estimates the net amount that the
Company expects to realize from the sale of such items. The Company's objective
is to recognize projected inventory losses at the time the loss is evident
rather than when the goods are ultimately sold. As of July 6, 2002, the Company
had identified inventory with a carrying value of approximately $49.7 million as
potentially excess and/or obsolete. Based upon the estimated recoveries related
to such inventory, as of July 6, 2002, the Company had approximately $38.9
million of inventory reserves for excess, obsolete and other inventory
adjustments. As of January 5, 2002, the Company had identified inventory with a
carrying value of approximately $88.2 million as potentially excess and/or
obsolete. Based upon the estimated recoveries related to such inventory, as of
January 5, 2002, the Company had approximately $50.1 million of inventory
reserves for excess, obsolete and other inventory adjustments.
Long-Lived Assets. The Company reviews its long-lived assets for possible
impairment when events or circumstances indicate that the carrying value of the
assets may not be recoverable. Assumptions and estimates used in the evaluation
of impairment may affect the carrying value of long-lived assets, which could
result in impairment charges in future periods. In addition, depreciation and
amortization expense is affected by the Company's determination of the estimated
useful lives of the related assets.
Income taxes. The provision for income taxes, income taxes payable and
deferred income taxes are determined using the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
enacted tax rates and laws to taxable years in which such differences are
expected to reverse. A valuation allowance is provided when the Company
determines that it is more likely than not that a portion of the deferred tax
asset balance will not be realized.
Reorganization items
In connection with the Chapter 11 Cases, the Company initiated several
strategic and organizational changes during fiscal 2001 to streamline the
Company's operations, focus on its core businesses, and return the Company to
profitability. Many of the strategic actions are long-term in nature and, though
initiated in fiscal 2001, will not be completed until the end of fiscal 2002 or
later. In connection with these strategies, the Company reorganized its Retail
Stores Division by closing 141 of the 267 stores it operated at the beginning of
fiscal 2001. The Company closed 23 stores in the second and third quarters of
fiscal 2002 and expects to close additional stores by the end of fiscal 2002.
The Company wrote-off $6.4 million of fixed assets and accrued $2.5 million of
lease termination costs related to rejected leases
29
of the closed stores in the second and third quarters of fiscal 2002. Lease
termination costs are included in liabilities subject to compromise.
On June 12, 2002, the Bankruptcy Court approved the Company's settlement of
certain operating lease agreements with General Electric Capital Corporation
("GECC"). The leases had original terms of from three to seven years and were
secured by certain equipment, machinery, furniture, fixtures and other assets.
GECC's total claims under the leases totaled approximately $51.2 million. Under
the terms of the settlement agreement, GECC will receive $15.2 million payable
in installments of $0.55 million per month until the Company's plan of
reorganization is consummated and $0.75 million per month thereafter until the
balance is paid in full. Through July 6, 2002, the Company had previously paid
GECC $5.6 million of the $15.2 million. The present value of the remaining cash
payments to GECC under the settlement agreement of $8.6 million are included in
long-term debt not subject to compromise at July 6, 2002. The remaining amount
of the GECC claim of approximately $36.0 million is included in liabilities
subject to compromise at July 6, 2002. The Company had recorded accrued
liabilities related to the GECC leases of approximately $13.0 million prior to
the settlement and, recorded approximately $22.9 million as reorganization items
in the second quarter of fiscal 2002. See Note 6 of Notes to Consolidated
Condensed Financial Statements.
The Debtors continue to evaluate the assets of the Company for potential
disposition. However, there can be no assurance that the Company will be able to
consummate any such transactions at prices the Company or the Company's creditor
constituencies will find acceptable.
In the first quarter of fiscal 2002, the Company sold the assets of
Penhaligon's and GJM for net proceeds of approximately $20.5 million in the
aggregate. In fiscal 2001 the Company recorded an impairment loss related to the
goodwill of GJM of approximately $26.8 million.
The amount of proceeds that will be realized, if any, and the effect of any
additional asset sales on the Company's proposed plan or plans of reorganization
cannot presently be determined. The Company has recorded asset impairment losses
for those assets that the Company believes will not be fully realized when they
are sold or abandoned.
As a direct result of the Chapter 11 Cases, the Company has recorded
certain liabilities, incurred certain legal and professional fees, written-down
certain assets and accelerated the recognition of certain deferred charges. The
transactions were recorded consistent with the provisions SOP 90-7.
Reorganization items included in the consolidated condensed statement of
operations in the first six months of fiscal 2002 are $58.1 million. Included in
reorganization items are certain non-cash asset impairment provisions and
accruals for items that have been, or will be, paid in cash. In addition,
certain accruals are subject to compromise under the provisions of the
Bankruptcy Code. The Company has recorded these accruals at the estimated amount
the creditor is entitled to claim under the provisions of the Bankruptcy Code.
The ultimate amount of and settlement terms for such liabilities are subject to
determination in the bankruptcy process including the terms of a confirmed plan
or plans of reorganization and accordingly are not presently determinable. The
Company's proposed plan of reorganization, as filed with the Bankruptcy Court on
October 1, 2002, identifies the Company's plan for the settlement of
pre-petition liabilities. The Company is currently seeking approval and
confirmation of the plan by its creditor constituencies and the Bankruptcy
Court. Under the terms of the Company's proposed plan of reorganization,
pre-petition liabilities will be settled for substantially less than face value.
30
Results of Operations.
STATEMENT OF OPERATIONS (SELECTED DATA)
Three Months Ended Six Months Ended
--------------------- ---------------------
July 6, July 7, July 6, July 7,
2002 2001 2002 2001
-------- --------- -------- ---------
(Amounts in thousands of dollars)
(Unaudited)
Net revenues $381,767 $ 362,270 $791,819 $ 861,489
Cost of goods sold 265,919 386,583 557,559 740,525
-------- --------- -------- ---------
Gross profit (loss) 115,848 (24,313) 234,260 120,964
% of net revenue 30.3% -6.7% 29.6% 14.0%
Selling, general and administrative expenses 100,579 188,472 202,697 327,541
-------- --------- -------- ---------
Operating income (loss) before reorganization 15,269 (212,785) 31,563 (206,577)
items % of net revenue 4.0% -58.7% 4.0% -24.0%
Reorganization items 42,554 78,202 58,085 78,202
-------- --------- -------- ---------
Operating loss (27,285) (290,987) (26,522) (284,779)
% of net revenue -7.1% -80.3% -3.3% -33.1%
Investment loss -- 3,708 -- 6,672
Interest expense, net 3,095 40,523 10,059 104,463
Provision for income taxes 1,609 3,200 51,538 6,122
-------- --------- -------- ---------
Loss before cumulative effect of a
change in accounting $(31,989) $(338,418) $(88,119) $(402,036)
======== ========= ======== =========
The Company's results of operations for the first half of fiscal 2001
included 27 weeks of operations based on a 52/53 week fiscal year compared to 26
weeks in the first half of fiscal 2002.
Net Revenues
Net revenues are as follows:
Three months ended Six months ended
--------------------------------------- ---------------------------------------
July 6, July 7, Inc. % July 6, July 7, Inc. %
2002 2001 (Dec.) change 2002 2001 (Dec.) change
-------- -------- -------- ------ -------- -------- -------- ------
Sportswear and Swimwear $208,769 $201,094 $ 7,675 3.8% $445,713 $492,610 ($46,897) -9.5%
Intimate Apparel 145,277 113,468 31,809 28.0% 289,444 276,347 13,097 4.7%
Retail Stores 27,721 47,708 (19,987) -41.9% 56,662 92,532 (35,870) -38.8%
-------- -------- -------- ------ -------- -------- -------- ------
$381,767 $362,270 $ 19,497 5.4% $791,819 $861,489 ($69,670) - 8.1%
======== ======== ======== ====== ======== ======== ======== ======
Second Quarter
Net revenues increased $19.5 million, or 5.4%, to $381.8 million in the
second quarter of fiscal 2002 compared to $362.3 million in the second quarter
of fiscal 2001. In the same period, Sportswear and Swimwear Division net
revenues increased $7.7 million, or 3.8%, to $208.8 million, Intimate Apparel
Division net revenues increased $31.8 million, or 28.0%, to $145.3 million and
Retail Stores Division net revenues decreased $20.0 million, or 41.9%, to $27.7
million.
First Half
Net revenues decreased $69.7 million, or 8.1%, to $791.8 million in the
first half of fiscal 2002 compared to $861.5 million in the first half of fiscal
2001. In the same period, Sportswear and Swimwear Division net revenues
decreased $46.9 million, or 9.5%, to $445.7 million, Intimate Apparel Division
net
31
revenues increased $13.1 million, or 4.7%, to $289.4 million and Retail Stores
net revenues decreased $35.9 million, or 38.8%, to $56.7 million.
Sportswear and Swimwear Division.
Sportswear and Swimwear Division net revenues are as follows:
Three months ended Six months ended
--------------------------------------- ---------------------------------------
July 6, July 7, Inc. % July 6, July 7, Inc. %
2002 2001 (Dec.) change 2002 2001 (Dec.) change
-------- -------- -------- ------ -------- -------- -------- ------
Authentic Fitness $104,691 $ 97,302 $ 7,389 7.6% $217,263 $243,505 ($26,242) -10.8%
Chaps Ralph Lauren 24,345 42,376 (18,031) -42.6% 56,900 85,888 (28,988) -33.8%
Calvin Klein Jeans/Kids 67,218 52,694 14,524 27.6% 146,433 141,976 4,457 3.1%
Calvin Klein Accessories 2,700 3,430 (730) -21.3% 6,101 7,443 (1,342) -18.0%
ABS 9,815 5,292 4,523 85.5% 19,016 13,798 5,218 37.8%
-------- -------- -------- ----- -------- -------- -------- -----
Sportswear and Swimwear Division $208,769 $201,094 $ 7,675 3.8% $445,713 $492,610 ($46,897) -9.5%
======== ======== ======== ===== ======== ======== ======== =====
Second Quarter
The increase in Authentic Fitness net revenues in the second quarter of
fiscal 2002 compared to fiscal 2001 reflects increases in Speedo U.S. shipments
to Gart's and membership clubs partially offset by decreases in smaller Speedo
accounts and by decreases in the Victoria's Secret private label business. The
decrease in Chaps net revenues primarily reflects the elimination of sales to
warehouse clubs $(11.5 million) and the strategic decision to reduce accounts
receivable exposure in Mexico. The increase in Calvin Klein Jeans/Kids net
revenues primarily reflects an increase of $6.5 million in sales to membership
clubs partially offset by the strategic decision to reduce accounts receivable
exposure in Mexico. The decrease in net revenue in Calvin Klein accessories
reflects reductions in the United States associated with the post-September 11
reductions in business and with decreases in business with airport duty free
shops somewhat offset by increases in the European accessories business. ABS net
revenues have benefited from a favorable reception of its new styles at retail.
First Half
The decrease in Authentic Fitness net revenues in the first half of fiscal
2002 compared to the first half of fiscal 2001 reflects decreases in Designer
Swimwear due to the loss of the Victoria's Secret catalog business and a
strategic decision to reduce accounts receivable exposure with certain swim team
dealers. The decrease in Chaps net revenues reflects lower sales to warehouse
clubs, the loss of the Dillard's business and lower sales in Mexico. The
increase in CK Jeans/Kids net revenues reflects higher sales to membership
clubs. CK Jeans/Kids sales to membership clubs for the full 2002 fiscal year are
expected to be lower than in fiscal 2001. ABS net revenues have benefited from a
favorable reception of its new styles at retail.
32
Intimate Apparel Division.
Net revenues for the Intimate Apparel Division are as follows:
Three months ended Six months ended
---------------------------------------- ---------------------------------------
July 6, July 7, Inc. % July 6, July 7, Inc. %
2002 2001 (Dec.) change 2002 2001 (Dec.) change
-------- -------- -------- ------- -------- -------- -------- ------
Continuing:
Warner's/Olga $ 65,279 $ 33,989 $ 31,290 92.1% $123,797 $ 89,463 $ 34,334 38.4%
Calvin Klein Underwear 50,911 38,177 12,734 33.4% 103,686 91,370 12,316 13.5%
Lejaby 25,887 20,259 5,628 27.8% 50,412 44,659 5,753 12.9%
Mass sportswear licensing 3,121 3,088 33 1.1% 7,953 7,987 (34) -0.4%
-------- -------- -------- ----- ------- -------- -------- -----
Total continuing 145,198 95,513 49,685 52.0% 285,848 233,479 52,369 22.4%
Total discontinued business units 79 17,955 (17,876) -99.6% 3,596 42,868 (39,272) -91.6%
-------- -------- -------- ----- ------- -------- -------- -----
Intimate Apparel Division $145,277 $113,468 $ 31,809 28.0% $289,444 $276,347 $ 13,097 4.7%
======== ======== ======== ===== ======== ======== ======== =====
Second Quarter
Net revenues increased $31.8 million, or 28.0%, to $145.3 million in the
second quarter of fiscal 2002 compared with $113.5 million in the second quarter
of fiscal 2001. Excluding net revenues from sold and discontinued business units
(GJM, Fruit of the Loom and Weight Watchers) Intimate Apparel net revenues
increased $49.7 million, or 52.0%, to $145.2 million in the second quarter of
fiscal 2002 compared to $95.5 million in the second quarter of fiscal 2001.
Warner's/Olga net revenues increased $31.3 million, or 92.1%, primarily through
improved distribution fulfillment and increased business with Kohl's
(approximately $5 million). The increase in Calvin Klein Underwear net revenues
reflects increases in all major accounts, including the international divisions,
due to improved sell-through at retail, particularly in the women's business.
The increase in Calvin Klein Underwear was realized even though the division
made a strategic decision to exit the JC Penney's business in the second quarter
of fiscal 2002. Lejaby net revenues increased $5.6 million or 27.8% primarily
through improved distribution fulfillment.
First Half
For the first half of fiscal 2002 , Intimate Apparel net revenues increased
$13.1 million or, 4.7%, to $289.4 million compared with $276.3 million in the
first half of fiscal 2001. Excluding net revenues from sold and discontinued
business units (GJM, Fruit of the Loom and Weight Watchers) Intimate Apparel net
revenues increased $52.4 million, or 22.4%, to $285.9 million in the first half
of fiscal 2002 compared to $233.5 million in the first half of fiscal 2001. The
increase in net revenues for continuing businesses primarily is a result of
improved distribution fulfillment, as noted above.
33
Retail Stores Division.
Net revenues are as follows:
Three months ended Six months ended
--------------------------------------- ---------------------------------------
July 6, July 7, Inc. % July 6, July 7, Inc. %
2002 2001 (Dec.) change 2002 2001 (Dec.) change
------- -------- -------- ------ -------- -------- -------- ------
Outlet retail stores $ 17,293 $ 30,529 ($13,236) -43.4% $ 35,398 $ 58,884 ($23,486) -39.9%
Authentic Fitness stores 10,342 14,736 (4,394) -29.8% 20,281 28,529 (8,248) -28.9%
Penhaligon's -- 2,133 (2,133) -100.0% 676 4,441 (3,765) -84.8%
IZKA 86 310 (224) -72.3% 307 678 (371) -54.7%
-------- -------- -------- ------ -------- -------- -------- -----
$ 27,721 $ 47,708 ($19,987) -41.9% $ 56,662 $ 92,532 ($35,870) -38.8%
======== ======== ======== ====== ======== ======== ======== =====
The Company expects to close its 26 remaining domestic outlet retail
stores by the end of fiscal 2002.
Second Quarter
Net revenues decreased $20.0 million, or 41.9%, to $27.7 million in the
second quarter of fiscal 2002 compared to $47.7 million in the second quarter of
fiscal 2001. The decrease in net revenues reflects the reduction in the number
of outlet retail stores and Authentic Fitness stores the Company operates. Same
store sales decreased approximately 14.2% for the outlet retail stores and
approximately 3.4% for Authentic Fitness stores in the second quarter of fiscal
2002 compared to the same period in the prior year. The sale of the Penhaligon's
business and the planned liquidation of IZKA, a French retail subsidiary, in the
third quarter of fiscal 2002 also adversely affected net revenues in the second
quarter of fiscal 2002.
First Half
Net revenues decreased $35.9 million, or 38.8%, to $56.7 million in the
first half of fiscal 2002 compared to $92.5 million in the first half of fiscal
2001. The decrease in net revenues reflects the reduction in the number of
retail outlets and Authentic Fitness stores the Company operates. The
Penhaligon's business was sold in February 2002 and IZKA, a French retail
subsidiary, was liquidated in the third quarter of fiscal 2002.
Net revenues for the 38 outlet retail stores closed in the first half of
fiscal 2002 for the six months ended July 6, 2002 and July 7, 2001 were $9,662
and $19,231, respectively. Net revenues for the 26 outlet retail stores to be
closed in the fourth quarter of fiscal 2002 for the six months ended July 6,
2002 and July 7, 2001 were $18,583 and $21,826, respectively.
Net revenues for the 24 Authentic Fitness stores closed in the first half
of fiscal 2002 for the six months ended July 6, 2002 and July 7, 2001 were
$1,936 and $2,863, respectively. Net revenues for the 23 Authentic Fitness
stores closed in the third quarter of fiscal 2002 for the six months ended
July 6, 2002 and July 7, 2001 were $3,998 and $4,529, respectively.
Gross Profit
Second Quarter
Gross profit increased $140.1 million to $115.8 million in the second
quarter of fiscal 2002 compared with a negative gross profit of $(24.3) million
in the second quarter of fiscal 2001. The increase in gross profit reflects an
improved regular to off-price sales mix due to the Company's improved sales
allowance and markdown experience and improved manufacturing efficiencies. In
the second quarter of fiscal 2001, the Company revised its strategy to dispose
of its excess and obsolete inventory at the end of each selling season and, as a
result, recorded an increase in sales allowances and inventory markdowns of $36
million. Gross margin was 30.3% in the second quarter of fiscal 2002 compared
with a negative gross margin of -6.7% in the second quarter of fiscal 2001.
First Half
Gross profit for the first half of fiscal 2002 increased $113.3 million, or
93.6%, to $234.3 million compared to $121.0 million in the first half of fiscal
2001. Gross profit in the first half of fiscal 2001
34
includes the impact of the unfavorable markdown and allowance experience, as
noted previously. Gross margin for the first half of fiscal 2002 was 29.6%
compared to 14.0% in the first half of fiscal 2001.
Selling, General and Administrative Expenses
Second Quarter
Selling, general and administrative expenses for the second quarter of
fiscal 2002 decreased $87.9 million, or 46.6%, to $100.6 million compared to
$188.5 million in the second quarter of fiscal 2001. Selling, general and
administrative expenses as a percentage of net revenues were 26.3% in the second
quarter of fiscal 2002 compared with 52.0% in the second quarter of fiscal 2001.
Marketing expense for the second quarter of fiscal 2001 includes approximately
$15.7 million of increased cooperative advertising expense related to the
Company's review of the amounts necessary to satisfy customer claims related in
part to the decrease in retail traffic and sales experienced by the Company's
core department and specialty store customers. Amortization expense associated
with goodwill and intangible assets decreased approximately $8.9 million in the
second quarter of fiscal 2002 compared to the second quarter of fiscal 2001
reflecting the adoption of SFAS No. 142. The Retail Stores Division reduced
selling, general and administrative expenses by approximately $8.3 million due
primarily to the reduction in the number of stores the division was operating
during the second quarter of fiscal 2002 compared to the second quarter of
fiscal 2001. Intimate Apparel Division selling, general and administrative
expenses were reduced by approximately $3.5 million related to the sale of GJM
and the discontinuance of Fruit of the Loom and Weight Watchers business units.
Selling and distribution expenses decreased due to the consolidation of certain
of the Company's distribution facilities in Duncansville, PA. Other selling,
general and administrative expenses were reduced by approximately $12.3 million
in the second quarter of fiscal 2002 compared to the second quarter of fiscal
2001 due to cost saving measures implemented as part of the Company's
restructuring efforts.
First Half
Selling, general and administrative expenses for the first half of fiscal
2002 decreased $124.8 million, or 38.1%, to $202.7 million compared to $327.5
million in the first half of fiscal 2001. The decrease in selling, general and
administrative expenses reflects lower marketing expenses, as noted above, lower
amortization expense of $20.2 million, lower retail expenses of $14.9 million
due to the reduction in the number of retail stores the Company operates, lower
expenses in Intimate Apparel of $6.0 million related to the discontinuance of
the Fruit of the Loom and Weight Watchers business units and the sale of GJM,
lower distribution expenses due to the consolidation of certain of the Company's
distribution facilities in Duncansville, PA and lower administrative expenses of
$23.2 million due to cost saving measures implemented as part of the Company's
restructuring efforts.
35
Operating Income before Reorganization Items
Operating income before reorganization items is as follows:
Three months ended Six months ended
--------------------- ---------------------
July 6, July 7, increase percentage July 6, July 7, increase percentage
2002 2001 (decrease) change 2002 2001 (decrease) change
-------- --------- ---------- ---------- -------- --------- ---------- ---------
Sportswear and Swimwear $ 13,010 $ (68,977) $ 81,987 118.9% $ 39,698 $ (36,291) $ 75,989 209.4%
Intimate Apparel 19,735 (93,214) 112,949 121.2% 32,241 (84,684) 116,925 138.1%
Retail Stores (438) (9,698) 9,260 95.5% (4,648) (13,286) 8,638 65.0%
-------- --------- -------- ----- -------- --------- --------- -----
32,307 (171,889) 204,196 118.8% 67,291 (134,261) 201,552 150.1%
General corporate
expenses, not allocated (17,038) (40,896) 23,858 58.3% (35,728) (72,316) (36,588) 50.6%
-------- --------- -------- ----- -------- --------- --------- -----
$ 15,269 $(212,785) $228,054 107.2% $ 31,563 $(206,577) $ 238,140 115.3%
======== ========= ======== ===== ======== ========= ========= =====
Second Quarter
Operating income before reorganization items increased $228.1 million to
$15.3 million (4.0% of net revenues) in the second quarter of fiscal 2002
compared to an operating loss of $(212.8) million (-58.7% of net revenues) in
the second quarter of fiscal 2001. The increase in operating income reflects the
increase in net revenues of $19.5 million, the increase in gross margin to 30.3%
from -6.7% and the decrease in selling, general and administrative expenses to
26.3% of net revenues from 52.0% of net revenues. The improvement in gross
margin reflects the better regular to off-price sales mix, improved management
of customer allowance and markdown deductions and improved manufacturing
efficiencies, as noted above. The decrease in selling, general and
administrative expenses reflects the lower depreciation and amortization, lower
cooperative advertising, lower retail selling and other cost savings, as noted
above.
First Half
Operating income before reorganization items increased $238.2 million to
$31.6 million (4.0% of net revenues) in the first half of fiscal 2002 compared
to an operating loss of $206.6 million (-24.0% of net revenues) in the first
half of fiscal 2001. The increase in operating income reflects the increase in
gross margin to 29.6% from 14.0% and the decrease in selling, general and
administrative expenses to 25.6% of net revenues from 38.0% of net revenues. The
improvement in gross margin reflects the better regular to off-price sales mix,
improved management of customer sales allowance and markdown deductions and
improved manufacturing efficiencies, as noted above. The decrease in selling,
general and administrative expenses reflects the lower depreciation and
amortization, lower cooperative advertising, lower retail selling and other cost
savings, as noted above.
36
Sportswear and Swimwear Division.
Sportswear and Swimwear Division operating profit is as follows:
Three months ended Six months ended
------------------- --------------------
July 6, July 7, increase percentage July 6, July 7, increase percentage
2002 2001 (decrease) change 2002 2001 (decrease) change
------- -------- ---------- ---------- -------- -------- ---------- ----------
Authentic Fitness $12,450 $(19,949) $32,399 162.4% $ 33,371 $ 13,582 $19,789 145.7%
Chaps Ralph Lauren 1,848 (4,964) 6,812 137.2% 5,374 (1,597) 6,971 436.5%
Calvin Klein Jeans/Kids (1,724) (38,292) 36,568 95.5% (66) (41,292) 41,226 99.8%
Calvin Klein Accessories (573) (2,094) 1,521 72.6% (462) (1,695) 1,233 72.7%
ABS 1,009 (3,678) 4,687 127.4% 1,481 (5,289) 6,770 128.0%
------- -------- ------- ----- -------- -------- ------- -----
$13,010 $(68,977) $81,987 118.9% $ 39,698 $(36,291) $75,989 209.4%
======= ======== ======= ===== ======== ======== ======= =====
Second Quarter
The increase in Authentic Fitness operating income for the second quarter
of fiscal 2002 compared to the second quarter of fiscal 2001 reflects higher net
revenues and gross margins and the impact of lower selling, general and
administrative expenses. The gross margin improvements reflect improved sales
mix, more favorable experience related to customer sales allowances and
markdowns and lower selling, general and administrative expenses. The increase
in Chaps operating income reflects higher gross profit and lower selling,
general and administrative expenses. The increase in Calvin Klein Jeans/Kids
operating income reflects higher gross profit and lower selling, general and
administrative expenses. The improved gross profit in Calvin Klein Jeans/Kids
reflects improved regular/off-price sales mix. In addition, in the second
quarter of fiscal 2002, the Company closed two domestic Calvin Klein Jeans
manufacturing facilities. ABS operating income improvement reflects higher sales
volume and gross profit.
First Half
Authentic Fitness operating income for the first half of fiscal 2002
reflects higher operating income in Speedo partially offset by lower operating
income in Designer Swimwear. The decreased Designer Swimwear operating income
primarily reflects lower sales. The improvement in Chaps operating income in the
first half of fiscal 2002 compared to the first half of fiscal 2001 reflects
lower selling, general and administrative expenses due primarily to cost saving
measures (including the consolidation of distribution with intimate apparel)
implemented in the second half of fiscal 2001. Chaps gross margin improved to
30.7% of net revenues from 20.8% in the first half of fiscal 2001. The improved
gross margin in Chaps reflects better markdown and allowance experience. The
increase in Calvin Klein Jeans/Kids operating income reflects higher gross
profit (despite lower sales) and lower selling, general and administrative
expenses. The improvement in ABS operating income reflects higher net revenues
and higher gross margin.
37
Intimate Apparel Division.
Intimate Apparel Division operating income is as follows:
Three months ended Six months ended
------------------ ------------------
July 6, July 7, increase percentage July 6, July 7, increase percentage
2002 2001 (decrease) change 2002 2001 (decrease) change
------- -------- ---------- ---------- ------- -------- ---------- ----------
Warner's/Olga $ 8,434 $(69,688) $ 78,122 112.1% $ 8,584 $(77,490) $ 86,074 111.1%
Calvin Klein Underwear 6,603 (17,222) 23,825 138.3% 10,738 (10,315) 21,053 204.1%
Lejaby 2,153 79 2,074 2625.3% 6,647 3,963 2,684 67.7%
Mass sportswear licensing 2,313 2,258 55 2.4% 6,400 6,468 (68) -1.1%
------- -------- -------- ------ ------- -------- -------- -----
Total continuing 19,503 (84,573) 104,076 -123.1% 32,369 (77,374) 109,743 141.8%
Total discontinued business units 232 (8,641) 8,873 -102.7% (128) (7,310) 7,182 98.2%
------- -------- -------- ------ ------- -------- -------- -----
$19,735 $(93,214) $112,949 -121.2% $32,241 $(84,684) $116,925 138.1%
======= ======== ======== ====== ======= ======== ======== =====
Second Quarter
Warner's/Olga operating income increased $78.1 million, or 112.1%, to $8.4
million in the second quarter of fiscal 2002 compared to an operating loss of
$69.7 million in the second quarter of fiscal 2001 reflecting higher gross
profit and lower selling, general and administrative expenses. The increased
gross profit reflects more favorable experience related to customer sales
allowances and markdowns and improved manufacturing efficiencies. Lower selling,
general and administrative costs reflect the consolidation of Warner's/Olga
distribution in the Company's Duncansville, PA facility as well as other cost
reduction efforts. The increase in Calvin Klein Underwear operating income
reflects higher net revenues, higher gross profit and lower selling, general and
administrative expenses. Losses from the discontinued GJM, Fruit of the Loom and
Weight Watchers business units totaled $8.6 million in the second quarter of
fiscal 2001 compared to operating income of $0.2 million in the second quarter
of fiscal 2002. Operating income in the discontinued business units in the
second quarter of fiscal 2002 relates primarily to sales of inventory and
collection of accounts receivable for more than was originally anticipated.
First Half
Warner's/Olga operating income for the first half of fiscal 2002 increased
$86.1 million, or 111.1%, to $8.6 million compared to an operating loss of $77.5
million in the first half of fiscal 2001 reflecting more favorable experience
related to customer sales allowances and markdowns and improved manufacturing
efficiencies. Warner's/ Olga also benefited from lower selling, general and
administrative expenses reflecting the consolidation of Warner's/Olga
distribution in Duncansville, PA as well as other cost reduction efforts. The
increase in Calvin Klein Underwear operating income reflects higher net revenues
and higher gross profit and lower selling, general and administrative expenses.
Calvin Klein Underwear selling expenses decreased despite an increase in
marketing expenses of approximately $2 million over the first six months of
fiscal 2001 reflecting the launch of the men's "Body" line. The first half of
fiscal 2001 includes the $7.3 million loss from the discontinued/sold GJM,
Weight Watchers and Fruit of the Loom businesses compared to an operating loss
of $0.1 million in the first half of fiscal 2002. The operating loss in the
first half for discontinued units represents operating losses incurred by GJM
prior to its sale and losses on accounts receivable and inventory dispositions.
38
Retail Stores Division.
Retail Stores Division operating loss is as follows:
Three months ended Six months ended
------------------ ------------------
July 6, July 7, increase percentage July 6, July 7, increase percentage
2002 2001 (decrease) change 2002 2001 (decrease) change
------- ------- ---------- ---------- ------- -------- ---------- ----------
Outlet retail stores $(780) $(8,702) $7,922 91.0% $(3,907) $(11,289) $7,382 65.4%
Authentic Fitness stores 906 12 894 7450.0% 264 (400) 664 166.0%
Penhaligon's -- (524) 524 100.0% (125) (712) 587 82.4%
IZKA (564) (484) (80) -16.5% (880) (885) 5 0.6%
----- ------- ------ ------ ------- -------- ------ -----
$(438) $(9,698) 9,260 95.5% $(4,648) $(13,286) 8,638 65.0%
===== ======= ====== ====== ======= ======== ====== =====
Second Quarter
The decrease in the Retail Stores Division's operating loss primarily
reflects the closing of unprofitable and marginally profitable stores, sale of
Penhaligon's and the pending liquidation of IZKA. Authentic Fitness stores
operating profit improved $0.9 million in the second quarter of fiscal 2002
compared to the second quarter of fiscal 2001. Outlet retail stores losses for
the second quarter of fiscal 2001 include $7.1 million of inventory write-downs
to reflect the Company's strategy to close unprofitable and marginally
profitable stores.
First Half
The decrease in the Retail Stores Division's operating loss for the first
half of fiscal 2002 compared to the first half of fiscal 2001 primarily reflects
the closing of unprofitable and marginally profitable stores, the sale of
Penhaligon's and the liquidation of IZKA. Authentic Fitness stores operating
profit improved $0.7 million in the first half of fiscal 2002 compared to the
first half of fiscal 2001. Retail Stores Division losses for the first half of
fiscal 2001 include $7.1 million of inventory write-downs to reflect the
Company's strategy to close unprofitable and marginally profitable stores.
Investment loss
Second Quarter
Investment loss for the second quarter of fiscal 2001 was $3.7 million. The
investment loss reflects the adjustment of amounts due under the Equity
Agreements based upon changes in the Company's common stock price. No comparable
adjustment was recorded in the second quarter of fiscal 2002 because the Equity
Agreements are liabilities subject to compromise.
First Half
Investment loss for the first half of fiscal 2001 was $6.7 million. The
investment loss reflects the adjustment of amounts due under the Equity
Agreements based upon changes in the Company's common stock price. No comparable
adjustment was recorded in the first half of fiscal 2002 because the Equity
Agreements are liabilities subject to compromise.
Interest Expense
Second Quarter
Interest expense decreased $37.4 million to $3.1 million in the second
quarter of fiscal 2002 compared with $40.6 million in the second quarter of
fiscal 2001. The decrease reflects the impact of the Chapter 11 Cases where the
Company has stopped accruing interest on approximately $2.3 billion of
pre-petition debt (not including certain foreign debt agreements, as noted
below). Interest expense for the second quarter of fiscal 2002 primarily
reflects interest and related fees on the Amended DIP. The
39
Company had repaid all amounts borrowed under the Amended DIP as of July 6,
2002. Certain of the Company's foreign debt agreements are subject to standstill
and inter-creditor agreements with the Company's pre-petition lenders. The
Company has continued to accrue interest on these foreign debt agreements. The
Company's proposed plan of reorganization requires the payment of such interest.
Interest expense for the second quarter fiscal 2002 includes approximately $1.6
million of interest on these foreign debt agreements. In addition, interest
expense for the second quarter of fiscal 2002 includes approximately $2.9
million of interest income related to the investment of cash balances held as
collateral against letters of credit and interest earned on certain income tax
refunds received in June 2002.
First Half
Interest expense decreased $94.4 million to $10.1 million in the first half
of fiscal 2002 compared with $104.5 million in the first half of fiscal 2001.
The decrease reflects the impact of the Chapter 11 Cases where the Company has
stopped accruing interest on approximately $2.3 billion of pre-petition debt
(not including certain foreign debt agreements, as noted below). Interest
expense for the first half of fiscal 2002 primarily reflects interest and
related fees on the Amended DIP. The Company had repaid all amounts borrowed
under the Amended DIP as of July 6, 2002. Certain of the Company's foreign debt
agreements are subject to standstill and inter-creditor agreements with the
Company's pre-petition lenders. The Company has continued to accrue interest on
these foreign debt agreements. The Company's proposed plan of reorganization
requires the payment of such interest. Interest expense for the second quarter
fiscal 2002 includes approximately $3.2 million of interest on these foreign
debt agreements. Interest expense for the first half of fiscal 2002 includes
interest income of approximately $2.9 million as noted above.
Income Taxes
Second Quarter
The provision for income taxes for the second quarter of fiscal 2002 and
fiscal 2001 reflects taxes on certain foreign earnings. The Company has not
provided any tax benefit for its domestic losses and certain foreign losses
incurred in the second quarter of fiscal 2002 and second quarter of fiscal 2001.
First Half
The provision for income taxes for the first half of fiscal 2002 reflects
an increase in the Company's valuation allowance of approximately $46.0 million
primarily related to the tax benefit from the write-off of goodwill and
intangible assets associated with the adoption of SFAS No.142. The increase in
the valuation allowance results from an increase in the Company's deferred tax
assets that may not be realized.
Cumulative Effect of Change in Accounting
As of January 5, 2002, the Company had goodwill and other indefinite lived
intangible assets net of accumulated amortization of approximately $940.1
million. The Company adopted SFAS No. 142 effective with the first quarter of
fiscal 2002. Under the provisions of SFAS No. 142, goodwill may be deemed
impaired if the net book value of a business reporting unit exceeds the fair
value of that business reporting unit. Intangible assets may be deemed impaired
if the carrying amount exceeds the fair value of the assets. The Company
obtained an independent appraisal of its Business Enterprise Value ("BEV") in
connection with the preparation of its plan of reorganization. The Company
allocated the appraised BEV to its various reporting units and determined that
the value of certain of the Company's indefinite lived intangible assets and
goodwill was impaired. As a result, the Company recorded a charge of $801.6
million net of income tax benefit of $53.5 million as a cumulative effect of a
change in accounting from the adoption of SFAS No. 142 in the first quarter of
fiscal 2002.
40
Capital Resources and Liquidity.
Debtor-in-Possession Financing Arrangement
On June 11, 2001, the Company entered into the DIP with a group of banks
which was approved by the Bankruptcy Court in an interim amount of $375.0
million. On July 9, 2001, the Bankruptcy Court approved an increase in the
amount of borrowing available to the Company to $600.0 million. The DIP was
subsequently amended as of August 27, 2001, December 27, 2001, February 5, 2002
and May 15, 2002. In addition, the Administrative Agent granted certain
extensions under the DIP on April 12, 2002, June 19, 2002, July 18, 2002, August
22, 2002 and September 30, 2002. The amendments and extensions, among other
things, amend certain definitions and covenants, permit the sale of certain of
the Company's assets and businesses, extend certain deadlines with respect to
certain asset sales and certain filing requirements with respect to a plan of
reorganization and reduce the size of the facility to reflect the Debtor's
revised business plan.
The Amended DIP (when originally executed) provided for a $375.0 million
non-amortizing revolving credit facility (which includes a letter of credit
facility of up to $200.0 million) (Tranche A) and a $225.0 million reducing
revolving credit facility (Tranche B). On April 19, 2002, the Company elected to
eliminate the Tranche B facility based upon its determination that the Company's
liquidity position had improved significantly since the Petition Date and the
Tranche B facility would not be needed to fund the Company's on-going
operations. On May 28, 2002 the Company voluntarily reduced the amount of
borrowing available under the Amended DIP to $325.0 million. On October 8, 2002,
the Company voluntarily reduced the amount of borrowing available under the
Amended DIP to $275.0 million. The Amended DIP terminates on the earlier of June
11, 2003 or the effective date of a plan of reorganization.
Borrowing under the Amended DIP bears interest at either the London Inter
Bank Offering Rate (LIBOR) plus 2.75% (4.8% at April 6, 2002) or at the Citibank
N.A. Base Rate plus 1.75% (6.5% at April 6, 2002). In addition, the fees for the
undrawn amounts are .50% for Tranche A. During fiscal 2001 and through its
termination on April 19, 2002, the Company did not borrow any funds under
Tranche B. The Amended DIP contains restrictive covenants that require the
Company to maintain minimum levels of EBITDAR (earnings before interest, taxes,
depreciation, amortization, restructuring charges and other items as set forth
in the agreement), restrict investments, limit the annual amount of capital
expenditures, prohibit paying dividends and prohibit the Company from incurring
material additional indebtedness. Certain restrictive covenants are subject to
adjustment in the event the Company sells certain business units and/or assets.
In addition, the Amended DIP requires that proceeds from the sale of certain
business units and/or assets are to be used to reduce the outstanding balance of
Tranche A. The maximum borrowings under Tranche A are limited to 75% of eligible
accounts receivable, 25% to 67% of eligible inventory and 50% of other inventory
covered by outstanding trade letters of credit.
The Company had repaid all amounts outstanding under the Amended DIP at
July 6, 2002. The Company had stand-by and documentary letters of credit
outstanding under the Amended DIP at July 6, 2002 of $64.0 million. The total
amount of additional credit available to the Company at July 6, 2002 was $144.0
million. As of October 1, 2002, the Company had repaid all amounts outstanding
under the Amended DIP and had approximately $60.8 million of cash available as
collateral against outstanding documentary and stand-by letters of credit.
The Amended DIP is secured by substantially all of the domestic assets of
the Company.
Liquidity
The Company is operating under the provisions of the Bankruptcy Code which
has had a direct effect on the Company's cash flows. By operating under the
protection of the Bankruptcy Court, making improvements in the Company's
operations and selling certain assets, the Company has improved its cash
position subsequent to the Petition Date. The Company is not permitted to pay
any pre-petition liabilities
41
without approval of the Bankruptcy Court, including interest or principal on its
pre-petition debt obligations (approximately $2.2 billion of pre-petition debt
outstanding, including approximately $351.4 million of trade drafts) and
approximately $140.0 million of accounts payable and accrued liabilities. Since
the Petition Date through September 30, 2002, the Company sold certain personal
property, certain owned buildings and land and other assets for approximately
$10.2 million approximately $4.0 million of which was recorded in the second
quarter of fiscal 2002. Substantially all of the net proceeds from these sales
were used to reduce outstanding borrowing under the Amended DIP or provide
collateral for outstanding trade and stand-by letters of credit. In the first
quarter of fiscal 2002, the Company sold the business and substantially all of
the assets of GJM and Penhaligon's. The sales of GJM and Penhaligon's generated
approximately $20.5 million of net proceeds in the aggregate. Proceeds from the
sale of GJM and Penhaligon's were used to (i) reduce amounts outstanding under
certain debt agreements of the Company's foreign subsidiaries which are not part
of the Chapter 11 Cases ($4.8 million), (ii) reduce amounts outstanding under
the Amended DIP ($4.2 million), (iii) create an escrow fund for the benefit of
pre-petition secured lenders ($9.8 million) (subsequently disbursed in June
2002) and (iv) create an escrow fund for the benefit of the purchasers for
potential indemnification claims and working capital valuation adjustments ($1.7
million). In the second quarter of fiscal 2002, the Company made a strategic
decision to close 25 of its outlet stores. In May 2002, the Company contracted
with a third party and sold the inventory in these stores generating
approximately $12.0 million of net proceeds which were used to reduce amounts
outstanding under the Amended DIP. The Company expects to close its remaining
26 domestic outlet retail stores by the end of fiscal 2002.
At July 6, 2002, the Company had working capital of $466.1 million,
excluding $2,470.2 million of pre-petition liabilities that are subject to
compromise.
The Debtors continue to review their operations and identify assets for
potential disposition. However there can be no assurance that the Company will
be able to consummate such transactions at prices the Company or the Company's
creditor constituencies will find acceptable.
Cash Flows
For the first half of fiscal 2002 cash provided by operating activities
was $218.4 million compared to cash used in operating activities of $463.8
million in the first half of fiscal 2001. The Company repurchased $185.0
million of accounts receivable previously subject to a securitization
arrangement in June 2001 as part of the completion of the DIP financing. The
improvement in cash flow from operating activities of $497.2 million (not
including the repurchase of accounts receivable of $185.0 million) in the first
half of fiscal 2002 compared to the first half of fiscal 2001 reflects improved
operating income of $258.3 million, (includes reductions in depreciation and
amortization expenses of approximately $20.2 million due to the adoption of
SFAS No. 142), lower interest expense of $94.4 million, the sale of $12.0
million of retail store inventory and improved working capital management.
Better management of inventory and accounts receivable contributed $108.8
million. The reduction in inventory balances reflects improved inventory
management including a reduction in excess and obsolete inventory at July 6,
2002 to approximately $49 million from approximately $88 million at January 5,
2002. Improved accounts receivable collection efforts have resulted in a
reduction in days sales outstanding of 23 days to 53 days at July 6, 2002
compared to 77 days at July 7, 2001. Cash interest expense for the first six
months of fiscal 2002 was $5.8 million, $114.4 million lower than the $120.2
million in the first half of fiscal 2001. The decrease in cash interest is
primarily a result of the Chapter 11 Cases. Depreciation and amortization
expenses decreased approximately $20.2 million in the first half of fiscal
2002 compared to the first half of fiscal 2001 reflecting the adoption of
SFAS No.142 effective with the first quarter of fiscal 2002.
Net cash provided from investing activities was $22.8 million in the first
half of fiscal 2002 compared to cash used in investing activities of
$17.7 million in the first half of fiscal 2002. Cash provided from investing
activities in the first half of fiscal 2002 primarily reflects proceeds from the
sale of GJM and Penhaligon's of $20.5 million and other asset dispositions of
$7.6 million partially offset by capital expenditures of $5.2 million. Cash
used in investing activities in the first half of
42
fiscal 2001 primarily reflects capital expenditures of $20.5 million offset by
the disposition of certain fixed assets of $3.0 million.
Cash used in financing activities of $166.5 million in the first half of
fiscal 2002 reflects the repayment of borrowing under the Amended DIP of
$155.9 million, repayments of other debt of $10.5 million consisting primarily
of repayments of certain pre-petition debt amounts with proceeds from the sale
of GJM and Penhaligon's. In the first half of fiscal 2001, the Company financed
its increase in working capital, as noted above, by borrowing approximately
$340.2 million. Financing activity for the first half of fiscal 2001 includes
the payment of $17.3 million of amendment fees and deferred financing costs
associated with the Company's pre-petition credit agreements and with the
Amended DIP.
There were no amounts outstanding under the Amended DIP at July 6, 2002.
The Company had stand-by and documentary letters of credit outstanding under the
Amended DIP at July 6, 2002 of $64.0 million. The Company had excess cash
available as collateral against outstanding trade and stand-by letters of credit
of $79.1 million at July 6, 2002. The Company also had cash in operating
accounts of approximately $38.7 million at July 6, 2002, including restricted
cash of $1.7 million related to the sale of GJM and Penhaligon's. Cash in
operating accounts primarily represents lock-box receipts not yet cleared or
available to the Company, cash held by foreign subsidiaries and compensating
balances required under various trade, credit and other arrangements. As of
October 1, 2002, the Company had no outstanding amounts borrowed under the
Amended DIP and had approximately $144.0 million of additional credit available
under the Amended DIP, not including $60.8 million of cash collateral available
for letters of credit.
New Accounting Standards
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 specifies criteria for the
recognition of certain intangible assets apart from goodwill. The adoption of
SFAS No. 141 did not have an impact on the Company's financial statements.
SFAS No. 142 eliminates the amortization of goodwill and certain other
intangible assets with indefinite lives effective for the Company's 2002 fiscal
year. SFAS No. 142 requires that indefinite lived intangible assets be tested
for impairment at least annually. SFAS No. 142 further requires that intangible
assets with finite useful lives be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. The Company adopted SFAS No. 142
beginning with the first quarter of fiscal 2002. See Note 3 of Notes to
Consolidated Condensed Financial Statements.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. The Company plans to adopt the provisions of SFAS
No. 143 for its 2003 fiscal year and does not expect the adoption of SFAS No.
143 to have a material impact on the Company's financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. The Company
was required to adopt the provisions of SFAS No. 144 for its 2002 fiscal year.
The adoption of SFAS No. 144 did not have a material impact on the Company's
financial position or results of operations.
43
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds the provisions of SFAS No. 4 that require
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS No. 145 related to the classification of
debt extinguishment are effective for periods beginning after May 15, 2002. The
provisions of SFAS No. 145 related to lease modifications are effective for
transactions occurring after May 15, 2002. The adoption of SFAS 145 did not have
a material impact on the financial position or results of operations of the
Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact, if any, of SFAS No. 146 on its consolidated financial
statements.
In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a Reseller of a
Vendor's Products, which was later codified along with other similar issues,
into EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer or
a Reseller of the Vendor's Products ("EITF 01-09"). EITF 01-09 was effective for
the Company in the first quarter of fiscal 2002. EITF 01-09 clarifies the income
statement classification of costs incurred by a vendor in connection with the
reseller's purchase or promotion of the vendor's products. The adoption of EITF
01-09 did not have a material impact on the Company's financial position or its
results of operations.
Statement Regarding Forward-looking Disclosure
This Quarterly Report may contain "forward-looking statements" within the
meaning of Section 27A of Securities Act of 1933, as amended and Section 21E of
the Securities Exchange Act of 1934, as amended, that reflect, when made, the
Company's expectations or beliefs concerning future events that involve risks
and uncertainties, including the ability of the Company to satisfy the
conditions and requirements of its credit facilities, the effects of the Chapter
11 Cases on the operation of the Company, the Company's ability to obtain court
approval with respect to motions in the Chapter 11 Cases prosecuted by it from
time to time, the ability of the Company to develop, prosecute, confirm, and
consummate one or more plans of reorganization with respect to the Chapter 11
Cases, the effect of international, national and regional economic conditions,
the overall level of consumer spending, the performance of the Company's
products within the prevailing retail environment, customer acceptance of both
new designs and newly introduced product lines, financial difficulties
encountered by customers, the ability of the Company to attract, motivate and
retain key executives and employees and the ability of the Company to attract
and retain customers. All statements other than statements of historical facts
included in this Quarterly Report, including, without limitation, the statements
under Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements may contain the words
"believe", "anticipate", "expect", "estimate", "project", "will be", "will
continue", "will likely result", or other similar words and phrases.
Forward-looking statements and the Company's plans and expectations
44
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, and the Company's business
in general is subject to certain risks that could effect the value of the
Company's stock.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates. Prior to the Petition Date, the Company
selectively used financial instruments to manage these risks. The Company has
not entered any financial instruments to manage these risks since the Petition
Date and has sold or terminated all such arrangements.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest
rates based primarily on its financing activities. Prior to the Petition Date,
the Company entered into interest rate swap agreements, which had the effect of
converting the Company's variable rate obligations to fixed rate obligations, to
reduce the impact of interest rate fluctuations on cash flow and interest
expense. As of July 7, 2001, the Company had terminated all previously
outstanding interest rate swap agreements. The Company terminated its
outstanding interest rate swap at April 6, 2001 in the second quarter of fiscal
2001 at a loss to the Company of approximately $0.4 million. As of July 6, 2002,
the Company did not have any borrowings outstanding under the Amended DIP,
therefore a hypothetical 10% adverse change in interest rates as of January 5,
2002 would not have had a significant impact on the Company's interest expense
in the second quarter of fiscal 2002.
Foreign Exchange Risk
The Company has foreign currency exposures related to buying, selling and
financing in currencies other than the functional currency in which it operates.
These exposures are primarily concentrated in the Canadian dollar, Mexican peso,
British pound and the Euro. Prior to the Petition Date, the Company entered into
foreign currency forward and option contracts to mitigate the risk of doing
business in foreign currencies. As of July 6, 2002, the Company had no such
financial instruments outstanding.
Equity Price Risk
The Company was subject to market risk from changes in its stock price as a
result of its Equity Agreements with several banks prior to the Petition Date.
The Equity Agreements provided for the purchase by the Company of up to 5.2
million shares of the Company's Common Stock and would have matured on August
12, 2002. As of July 6, 2002 banks purchased the maximum of 5.2 million shares
under the Equity Agreements. Amounts recorded as liabilities subject to
compromise as of July 6, 2002 were approximately $56.5 million. The amount of
equity notes outstanding reflects repayments of Equity Agreements of
approximately $0.2 million in the second quarter of fiscal 2002 from the
proceeds of the Penhaligon's and GJM sales. The ultimate amount that the Company
will pay to its pre-petition lenders related to the Equity Agreements is
included in the Company's proposed plan of reorganization as filed on October 1,
2002. See Note 1 of Notes to Consolidated Condensed Financial Statements.
45
Item 4. Controls and Procedures.
The Company's independent auditors, Deloitte & Touche LLP ("Deloitte") had
advised the Company's management and its Audit Committee of the following
matters noted in connection with its audits of the Company's consolidated
financial statements for Fiscal 2000 and Fiscal 2001 which Deloitte considered
material weaknesses constituting reportable conditions under standards
established by the American Institute of Certified Public Accountants:
(i) certain corporate and U.S. division accounting personnel lacked
appropriate experience and/or technical accounting knowledge
appropriate for their responsibilities and required additional
supervision and review of their work on an ongoing basis;
(ii) there were an insufficient number of qualified accounting
personnel in certain international accounting departments; and
(iii) there was an absence of appropriate reviews and approvals of
transactions and inadequate procedures for assessing and applying
accounting principles resulting in numerous Company-prepared
closing and adjusting entries at the end of fiscal 2001.
Beginning in the second half of Fiscal 2001 and continuing into Fiscal
2002, new management of the Company has taken corrective actions to address each
of these matters including:
(i) replacing certain financial staff and hiring additional
accounting and financial staff with appropriate experience and
technical accounting knowledge in certain domestic divisions and
in corporate finance;
(ii) replacing and upgrading certain financial staff in its
international divisions and assigning personnel with extensive
accounting and internal control experience to provide additional
supervision of its international accounting personnel and review
of its international accounting and financial operations; and
(iii) instituting monthly and quarterly reviews to ensure timely and
consistent application of accounting principles and procedures
and approval and appropriate review of transactional activity by
each of the Company's business units; in addition the Company has
recruited new personnel to create a corporate financial reporting
department with responsibility for financial reporting and the
assessment and application of accounting principles.
The Company continues to evaluate the effectiveness of these actions as
well as the Company's overall disclosure controls and procedures and internal
controls and will take such further actions as dictated by such continuing
reviews.
46
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The information required by Item 1 of Part II is incorporated herein by
reference to Part I, Item I. Financial Statements Note 14 - "Legal Matters".
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
The Company was in default of substantially all of its pre-petition credit
agreements as of July 6, 2002 and January 5, 2002. All pre-petition debt of the
Debtors has been reclassified with liabilities subject to compromise in the
consolidated condensed balance sheets at July 6, 2002 and January 5, 2002. The
additional information required by Item 3 of Part II is incorporated herein by
reference to Part I of Item 1. Financial Statements - Note 6 - "Debt" and Note 7
- - "Liabilities Subject to Compromise".
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certificate of CEO and CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On October 3, 2002, the Company filed a Current Report on Form 8-K dated
October 2, 2002. The Form 8-K reported at Item 5 the financial results of the
Debtors as filed with the Bankruptcy Court for the period commencing August 4,
2002 and ending August 31, 2002.
On October 2, 2002, the Company filed a Current Report on Form 8-K dated
October 2, 2002. The Form 8-K reported at Item 9 the filing of the Company's
proposed plan of reorganization, the Company's disclosure statement related to
its proposed plan of reorganization and the related exhibits.
On October 1, 2002, the Company filed a Current Report on Form 8-K dated
October 1, 2002. The Form 8-K reported at Item 5 the press release announcing
the filing of the Company's proposed plan of reorganization with the Bankruptcy
Court on October 1, 2002.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WARNACO GROUP, INC.
Date: October 24, 2002 By: /s/ ANTONIO C. ALVAREZ II
---------------------------------
Antonio C. Alvarez II
Director, President and
Chief Executive Officer
Date: October 24, 2002 By: /s/ JAMES P. FOGARTY
---------------------------------
James P. Fogarty
Senior Vice President Finance and
Chief Financial Officer
48
I, Antonio C. Alvarez II, as Chief Executive Officer of the Company, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of The Warnaco Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: October 24, 2002 /s/ ANTONIO C. ALVAREZ
-----------------------------
Antonio C. Alvarez II
Chief Executive Officer
I, James P. Fogarty, as Chief Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Warnaco Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: October 24, 2002 /s/ JAMES P. FOGARTY
-----------------------------
James P. Fogarty
Chief Financial Officer
49
Exhibit 99.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of The Warnaco Group,
Inc. (the "Company") for the quarterly period ended July 6, 2002 as filed with
the Securities and Exchange Commission (the "SEC") on the date hereof (the
"Report"), Antonio C. Alvarez II, as Chief Executive Officer of the Company, and
James P. Fogarty, as Chief Financial Officer of the Company, each hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, based upon
a review of the Report, that, subject to the qualifications noted below:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company as of the dates and for the periods presented.
In rendering this certification, we note the following qualifications:
(1) The Report was not filed within 45 days after the end of the Company's
first fiscal quarter as required by General Instruction A to Form 10-Q.
(2) The SEC is currently conducting an investigation to determine whether
there have been any violations of the Securities Exchange Act of 1934, as
amended, in connection with the preparation and publication of various financial
statements and other public statements of the Company. Any determination made by
the SEC in this matter may affect information contained in the Report;
therefore, the certifications set forth above are subject to, and qualified by,
the results of the investigation.
(3) Certain information in the Report relates to periods prior to the
undersigned's affiliation with the Company. Antonio C. Alvarez II joined the
Company on June 11, 2001 and was elected President and Chief Executive Officer
of the Company on November 16, 2001. James P. Fogarty joined the Company as
Senior Vice President Finance on June 11, 2001 and was elected Chief Financial
Officer of the Company on December 20, 2001.
/s/ ANTONIO C. ALVAREZ
- ----------------------
Antonio C. Alvarez II
Chief Executive Officer
October 24, 2002
/s/ JAMES P. FOGARTY
- --------------------
James P. Fogarty
Chief Financial Officer
October 24, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT G
Projected Consolidated Balance Sheet as of the Effective Date
"Fresh Start" - Effect Plan of Reorganization
($ in Millions)
Effect Plan of Reorganization
-----------------------------
Old Co. Pay DIP / New Co.
1/5/03 Reset Distribute Value 1/6/03
--------- --------- ---------------- --------
Cash $ 32.3 $ -- $ -- $ 32.3
Excess Cash 50.8 (50.8)(a) --
Accounts Receivable, net 211.0 -- -- 211.0
Inventories, net 343.4 -- -- 343.4
Prepaid Expenses 17.6 -- -- 17.6
--------- --------- ------- --------
Total Current Assets 655.0 -- (50.8) 604.2
--------- --------- ------- --------
PP&E, net 166.4 -- -- 166.4
Other Investment (Seaway JV) 0.4 -- -- 0.4
Assets Held For Sale -- -- -- --
Intangibles 86.8 (86.8) 237.4 237.4
Deferred Financing Fees -- -- -- --
Deferred Income Taxes 2.3 -- -- 2.3
Other Long-Term Assets 5.7 -- (2.3) 3.3
--------- --------- ------- --------
Total Assets $ 916.5 $ (86.8) $ 184.2 $1,014.0
========= ========= ======= ========
Liabilities & Shareholders' Equity
Liabilities Subject to Compromise:
Liabilities Subject to Compromise 179.9 (164.9) (15.0)(a)(b) --
Debt Subject to Compromise 2,297.3 (2,207.3) (90.1)(a)(b) --
--------- --------- ------- --------
2,477.2 (2,372.1) (105.1) --
Current Liabilities
Accounts Payable 98.1 -- -- 98.1
Accrued Expenses 83.9 3.7 (2.0)(a) 85.6
Taxes Payable 13.1 -- -- 13.1
--------- --------- ------- --------
Total Current Liabilities 195.0 3.7 (2.0) 196.7
Deferred Tax Liability -- -- 17.6 17.6
Other Long-Term Liabilities 43.7 6.0 -- 49.7
Debt:
DIP Facility -- -- --(a) --
New Revolver -- -- 56.3(a) 56.3x
GE Debt 5.4 -- -- 5.4x
Capital Leases 1.7 -- -- 1.7x
Sr. Sub Debt -- -- 201.0(c) 201.0x
--------- --------- ------- --------
Total Liabilities 2,723.0 (2,362.5) 167.8 528.3
--------- --------- ------- --------
Shareholders Equity (1,806.5) 2,275.7 16.4 485.6x
--------- --------- ------- --------
Total Liab. & S/H's Equity $ 916.5 $ (86.8) $ 184.2 $1,014.0
========= ========= ======= ========
Enterprise Value (Sum of "x") $ 750.0
--------
(a) "First Day" draw on Newco Revolver to pay Foreign Debt ($100.8), Priority /
Admin Claims ($4.3), A. Alvarez Incentive - Cash ($1.95), partially offset
by Excess Cash ($50.8).
(b) Foreign Debt paydown ($100.8) will eliminate $90.1 of debt subject to
compromise and $10.7 of liabilities subject to compromise (Accrued interest
on Foreign Debt).
(c) Rounded from $200.94.
EXHIBIT H
A. Liquidation Analysis Summary (By Asset Class)
($ Millions)
Liquidation
1/6/03 Realization % Proceeds Comments
------ ------------- ----------- -----------------------------------
Proceeds
Cash $ 32.2 100.0% $ 32.2
Excess Cash 50.8 100.0% 50.8
Accounts Receivable, net 211.0 69.9% 147.6 See Exhibit 1
Inventories, net 343.4 39.8% 136.8 See Exhibit 2
Prepaid Expenses 17.6 16.7% 2.9 See Exhibit 3
------ ----- ------
Total Current Assets 655.0 56.5% 370.4
------ ----- ------
PP&E, net 166.4 16.2% 27.0 See Exhibit 4
Other Investment (Seaway JV) 0.4 0% -- No value absent Warnaco utilization
Intangible Assets 86.8 172.0% 149.3 See Exhibit 5
Other Long-Term Assets 8.0 -- --
------ ----- ------
Proceeds 916.5 59.6% 546.7
====== ===== ======
Disbursements
Chapter 7 Trustee and Professional Fees (40.1) See Exhibit 6
Wind-Down Expenses (82.4) See Exhibit 7
------
Adjusted Gross Proceeds From Liquidation 424.2
------
Less: DIP Facility --
------
Net Cash Available to Creditors $424.2
------
B. EXHIBITS
(1) Accounts Receivable
($ Millions)
Below is a summary of the estimated liquidation value of AR based
on the advance rate on gross collateral that Warnaco receives
under the asset based DIP agreement. The July 22, 2002 borrowing
base utilized is an indication of liquidation value in the open
market. Warnaco received an effective advance rate of 50.5% of
gross collateral, $106.5 was made available on $211.0 of gross
accounts receivables.
Domestic AR
The Domestic gross accounts receivable is valued at a 50.5% effective
advance rate. This advance rate is equivalent to the July 22, 2002
borrowing base rate.
Foreign AR
The Foreign gross accounts receivable is valued at a 25.0%
effective advance rate. The discount is applied to account for
foreign creditor leakage and a greater uncertainty with regard to
collecting foreign receivables.
Liquidation Proceeds
---------------------------
Domestic Foreign Total
-------- ------- ------
Gross AR
Dec '02 Gross AR $268.4 $48.2 $316.6
Effective Advance Rate 50.5% 25.0% 46.6%
------ ----- ------
AR Proceeds $135.5 $12.1 $147.6
====== ===== ======
Dec '02 Net AR $178.9 $32.1 $211.0
Liquidation Value as a % of Net AR 75.8% 37.5% 69.9%
====== ===== ======
(2) Inventory
($ Millions)
Below is a summary of the estimated liquidation value of the Inventory
based on the advance rate on gross collateral that Warnaco receives
under the asset based DIP agreement. The July 22, 2002 borrowing base
utilized is an indication of liquidation value in the open market.
Warnaco received an effective advance rate of 44.1% of gross
collateral, $86.8 was made available on $196.9 of gross inventory.
Domestic Inventory
The Domestic gross inventory is valued at a 44.1% effective advance
rate. This advance rate is equivalent to the July 22, 2002 borrowing
base rate.
Domestic At Foreign Plants Inventory
The Domestic At Foreign Plants gross inventory is valued at a 10.0%
effective advance rate. The significant discount is applied to account
for a higher percentage of WIP and raw materials located at Foreign
Plants.
Foreign Inventory
The Foreign gross inventory is valued at a 20.0% effective advance
rate. The discount is applied to account for foreign creditor leakage,
fewer closeout distribution channels and lower quality of Foreign
inventory.
Liquidation Proceeds
--------------------------------------------
Domestic At
Domestic Foreign Plants Foreign Total
-------- -------------- ------- ------
Gross Inventory
Dec'02 Gross Inventory $266.3 $35.8 $64.9 $367.0
Effective Advance Rate 44.1% 10.0% 20.0% 36.5%
------ ----- ----- ------
Inventory Proceeds $117.4 $ 3.6 $13.0 $134.0
====== ===== ===== ======
Dec'02 Net Inventory $235.6 $35.8 $64.9 $336.3
Liquidation value as a % of Net Inventory 49.8% 10.0% 20.0% 39.8%
====== ===== ===== ======
(3) Prepaid Expenses
($ Millions)
Realization Liquidation
1/5/03 % Proceeds Comments
------ ----------- ----------- ------------------------------------------------
Professional Fees $2.4 100.0% $2.4
Insurance 2.1 25.0% 0.5
Taxes -- 0.0% --
Royalty 4.0 0.0% --
Rent 1.7 0.0% --
Advertising 1.4 0.0% --
Design 1.1 0.0% --
Samples 1.0 0.0% --
IT 0.6 0.0% --
Deposits 0.5 0.0% --
Sales Conferences 0.4 0.0% --
Other 2.4 0.0% --
----- ----- ----
$17.6 16.7% $2.9 Most value inherent in the prepaid expenses
===== ===== ==== is assumed utilized in the liquidation
operations.
(4) PP&E Analysis
($ Millions)
Realization Liquidation
1/5/03 % Proceeds Comments
------ ----------- ----------- ------------------------------------------------
Buildings, Land and Land Improvements
Duncansville 2.5 169% 4.4
Thomasville 1.3 123% 1.6
Bandini 0.3 93.8% 0.3
Grecia 1.9 67.5% 1.3
French Manufacturing Facilities 1.4 83.5% 1.2
Abbeville 0.3 43.9% 0.1
Other 0.9 0.0% --
------ ------ -----
8.8 101.9% 8.9 Based on current market estimates.
Leasehold Improvements
Warnaco Group Total 23.5 0.0% -- No recovery.
Furniture, Fixtures & Fittings
Store Fixtures & Display Racks 14.4 0.0% -- No recovery.
Office Equipment & Fixtures 10.0 13.0% 1.3
------ ------ -----
24.4 5.3% 1.3
Machinery & Equipment
Sewing Equipment 22.6 65.1% 14.7 Based on recovery experience.
Other Equipment 0.7 26.1% 0.2 Includes distribution equipment, vehicles, etc.
Office Equipment 2.3 13.3% 0.3
------ ------ -----
25.6 59.3% 15.2
Computers & Software
AS 400 and Related Equipment 4.1 26.5% 1.1
PC's and Other Computer Equipment 7.7 6.6% 0.5
Software 5.1 0.0% --
IT Projects 67.2 0.0% --
------ ------ -----
84.1 1.9% 1.6 Per MIS Director assesment of Liquidation Value.
Construction in Progress 1.5 0.0% -- No value.
------ ------ -----
Total Company $167.9 $ 1.7 $27.0
====== ====== =====
(5) Intangibles - Licenses and Trademarks
Following is an estimate of the liquidation value of Warnaco's
Licenses and Trademarks. This value is derived by first calculating
the going concern value of the organization, and intangibles. Going
concern value of the organization and intangibles is the Enterprise
Value less the going concern value of working capital and PP&E. While
not necessarily indicative of the results at auction, it is estimated
that licenses and trademarks would yield 50% of the going concern
value of the organization and intangibles at auction.
Enterprise Value $750.0
Working Capital - Going Concern
Inventory, net 336.2
Accounts Receivable, net 211.0
AP and Accrued Liabilities (Post-Petition / Foreign) (179.0)
------
368.2
PP&E, net 166.4
PP&E - Going Concern Value (50%) 50%
------
83.2
------
Going Concern Value of Organization and Intangibles (Licenses & Trademarks) $298.6
Liquidation Value of Licenses and Trademarks
(at 50% of overall going concern value in excess of WC and PP&E) 50%
------
149.3
======
(6) Chapter 7 Trustee and Professional Fees
($ Millions)
Based on an 18 month Liquidation Analysis.
Total
Expense Comments
------- -------------------------------------------------------------
Trustee
Chapter 7 Trustee $16.4 Represents 3% of Gross Liquidation Proceeds.
US Trustee 1.3 Maximum quarterly fee of $10K at 22 legal entities.
-----
17.7
Legal
Legal - Debtor 6.3 Estimated Legal Costs of $350K a month for 18 months.
Commissions
Commissions - PP&E 1.9 Represents 7% of Gross Proceeds from the sale of the PP&E
Commissions - Inventory 6.7 Represents 5% of Gross Proceeds from the sale of Inventory.
Commissions - Intangibles 7.5 Represents 5% of Gross Proceeds from the sale of Intangibles.
-----
16.1
-----
$40.1
=====
(7) Wind-Down Expenses
($ Millions)
Warnaco Inc. inventory is assumed to be liquidated over six months out
of the Distribution Centers. The wind-down expenses were forecasted
using selling, general and administrative expenses from the FY '03
Stand-alone Plan.
Selling
Selling expenses are primarily composed of distribution, sales force,
sales administration and customer service. Selling expenses are
necessary primarily in the first six months to sell and distribute the
inventory in an efficient manner.
The liquidation scenario requires selling expenses of 50% of prior
going concern levels in the first 3 months, 25% during months 4 - 6,
and 5% during months 7 - 9 (to help collect receivables).
Marketing
Marketing expenses include co-op advertising, national advertising,
promotions, royalty and administration. A reduced marketing effort
will be necessary in the first six months in order to sell inventory
and pay necessary royalty expenses.
The liquidation scenario requires marketing expenses of 20% of prior
going concern levels during the first six months.
Administration
Administration expenses include Milford Corporate, the office of the
President, Division Financial Officers and MIS. A higher level of
administrative expenses will be necessary during the first six months
to facilitate the inventory and asset liquidation and collect accounts
receivables, thereafter, administrative expenses will gradually
decrease throughout the end of the case.
The liquidation scenario requires administrative expenses of 60% of
prior going concern levels during the first 3 months, and 40% during
the 4 - 6 month periods. After the first 6 months, a much lower level
of administrative expense will be necessary, starting at 25% during
the 7 - 9 month time frame winding down to 10% at the end of the case.
Wind-Down Time Frame In Months
---------------------------------------
FY '03 Total
Plan 1-3 4-6 7-9 10-12 13-15 16-18 Expense
------ --- --- --- ----- ----- ----- -------
Selling $177.0 50% 25% 5% -- -- -- $35.4
Marketing 104.0 20% 20% -- -- -- -- 10.4
Administrative 86.0 60% 40% 25% 20% 15% 10% 36.6
------ -----
$367.0 $82.4
EXHIBIT I
EXHIBIT I
Hearing Date: ________ __, 2002 at 9:45 a.m. (Prevailing Eastern Time)
Objection Deadline: ________ __, 2002 at 4:00 p.m. (Prevailing Eastern Time)
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
SIDLEY AUSTIN BROWN & WOOD LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Counsel for Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
:
THE WARNACO GROUP, INC., :
Federal Tax I.D. No. 95-4032739 :
:
184 BENTON STREET INC. :
Federal Tax I.D. No. 06-1045343 :
:
A.B.S. CLOTHING COLLECTION, INC. :
Federal Tax I.D. No. 95-3799247 :
: Chapter 11
ABBEVILLE MANUFACTURING COMPANY, :
Federal Tax I.D. No. 13-3779229 : Case Nos. 01-41643 (RLB)
: through 01-41680 (RLB)
AEI MANAGEMENT CORPORATION, :
Federal Tax I.D. No. 95-4355518 : (Jointly Administered)
:
AUTHENTIC FITNESS CORPORATION, :
Federal Tax I.D. No. 95-4268251 :
:
AUTHENTIC FITNESS ON-LINE, INC. :
Federal Tax I.D. No. 95-4741962 :
:
AUTHENTIC FITNESS PRODUCTS INC. :
Federal Tax I.D. No. 95-4267322 :
:
AUTHENTIC FITNESS RETAIL INC. :
Federal Tax I.D. No. 95-4442062 :
:
BLANCHE INC. :
Federal Tax I.D. No. 06-1290226 :
:
:
CCC ACQUISITION CORP. :
Federal Tax I.D. No. 95-4456443 :
:
CCC ACQUISITION REALTY CORP. :
Federal Tax I.D. No. 95-4456445 :
:
C.F. HATHAWAY COMPANY :
Federal Tax I.D. No. 01-0263592 :
:
CALVIN KLEIN JEANSWEAR COMPANY, :
Federal Tax I.D. No. 13-3779381 :
:
CKJ HOLDINGS, INC. :
Federal Tax I.D. No. 13-3928129 :
:
CKJ SOURCING, INC. :
Federal Tax I.D. No. 13-3928016 :
:
DESIGNER HOLDINGS LTD. :
Federal Tax I.D. No. 13-3818542 :
:
GREGORY STREET, INC. :
Federal Tax I.D. No. 06-1469376 :
:
JEANSWEAR HOLDINGS, INC. :
Federal Tax I.D. No. 13-3779227 :
:
KAI JAY MANUFACTURING COMPANY, :
Federal Tax I.D. No. 13-3779231 :
:
MYRTLE AVENUE, INC. :
Federal Tax I.D. No. 06-1469379 :
:
OUTLET HOLDINGS, INC. :
Federal Tax I.D. No. 13-3907558 :
:
OUTLET STORES, INC. :
Federal Tax I.D. No. 13-3907560 :
:
PENHALIGON'S BY REQUEST, INC. :
Federal Tax I.D. No. 13-4076879 :
:
RIO SPORTSWEAR, INC. :
Federal Tax I.D. No. 13-3779228 :
:
UBERTECH PRODUCTS, INC. :
Federal Tax I.D. No. 06-1577619 :
:
VENTURES LTD. :
Federal Tax I.D. No. 06-1559945 :
:
WARMANA LIMITED, :
Federal Tax I.D. No. 06-0902642 :
:
WARNACO INC. :
Federal Tax I.D. No. 22-1897478 :
2
:
WARNACO INTERNATIONAL, INC. :
Federal Tax I.D. No. 06-0967709 :
:
WARNACO INTERNATIONAL LLC :
Federal Tax I.D. No. 06-1442942 :
:
WARNACO MEN'S SPORTSWEAR INC. :
Federal Tax I.D. No. 25-1141063 :
:
WARNACO OF CANADA COMPANY :
Federal Tax I.D. No. 98-0201311 :
Canada Business No. 105586911 :
:
WARNACO PUERTO RICO, INC. :
Federal Tax I.D. No. 66-0585156 :
:
WARNACO SOURCING INC. :
Federal Tax I.D. No. 06-1172666 :
:
WARNACO U.S., INC. :
Federal Tax I.D. No. 06-1519997 :
:
WARNACO VENTURES LTD. :
Federal Tax I.D. No. 06-1559941 :
:
WARNER'S DE COSTA RICA INC. :
Federal Tax I.D. No. 06-0937741 :
:
Debtors. :
x
- - - - - - - - - - - - - - - - - - - - - - - - - -
NOTICE OF HEARING TO CONSIDER CONFIRMATION
OF DEBTORS' FIRST AMENDED JOINT PLAN OF REORGANIZATION
TO ALL HOLDERS OF CLAIMS AND INTERESTS
AND OTHER PARTIES IN INTEREST:
APPROVAL OF DISCLOSURE STATEMENT
PLEASE TAKE NOTICE that by Order dated [insert date], the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") approved the Debtors' Disclosure Statement to Debtors' First Amended
Joint Plan of Reorganization (the "Disclosure Statement") as containing adequate
information within the meaning of Section 1125 of the Bankruptcy Code.
3
CONFIRMATION HEARING
PLEASE TAKE FURTHER NOTICE that on [insert date at _:_ _.m.]
(Prevailing Eastern Time), or as soon thereafter as counsel may be heard, a
hearing (the "Confirmation Hearing") will commence before the Honorable Richard
L. Bohanon, United States Bankruptcy Judge, at the United States Bankruptcy
Court for the Southern District of New York, Alexander Hamilton Custom House,
One Bowling Green, New York, New York 10004-1408 to consider confirmation of the
Debtors' First Amended Joint Plan of Reorganization (the "Plan"), as the same
may be further amended or modified.
PLEASE TAKE FURTHER NOTICE that the Confirmation Hearing may be
adjourned from time to time without further notice to creditors or other parties
in interest other than by an announcement of such an adjournment in open court
at the Confirmation Hearing or any adjournment thereof. Additionally, the Plan
may be modified in accordance with the Bankruptcy Code, the Federal Rules of
Bankruptcy Procedure and other applicable law, without further notice, prior to,
at or as a result of the Confirmation Hearing.
SUMMARY OF PLAN TREATMENT OF CLAIMS AND INTERESTS
PLEASE TAKE FURTHER NOTICE that the Plan proposes to modify the rights
of certain creditors and equity securities holders of the Debtors. The Plan
establishes the following classes of Claims(1) and Interests with the following
treatment:
o Class 1 -- Priority Non-Tax Claims. Unless otherwise agreed by
the holder of an Allowed Priority Non-Tax Claim (in which event
such agreement will govern), each holder of an Allowed Class 1
Claim will be paid in full in Cash on the later of the Initial
Distribution Date and a date that is as soon as practicable after
the date upon which such Claim becomes an Allowed Priority
Non-Tax Claim.
o Class 2 -- Senior Secured Bank Claims. On the Effective Date,
each holder of a Senior Secured Bank Claim will receive in full
satisfaction of its Senior Secured Bank Claim its pro rata share
of the following, to be distributed by the Administrative Agent
in accordance with the Pre-Petition Facility and Intercreditor
Agreements: (i) Cash equal to the amount of the balance due on
the Original Foreign Facilities Guaranty Claims, which will be
applied to repay in full satisfaction of any outstanding amounts
owing by the Debtors under the Original Foreign Facilities as of
the Petition Date; (ii) New Warnaco Second Lien Notes in the
aggregate principal amount of $200 million; and (iii) 96.263% of
the New Warnaco Common Shares, subject to Dilution. In the event
that holders of Class 6 Claims are not entitled to receive a
distribution as provided in Section 2.9.(C) of the Plan, on the
Effective Date, each holder of a Class 2 Senior Secured Bank
Claim will receive its pro rata share of an additional 0.581% of
the New Warnaco Common Shares, subject to Dilution.
o Class 3 -- GE Capital Secured Claims Under the 1997 MLA. The GE
Capital Settlement Agreement and the GE Capital Settlement Order
and each of their provisions will be deemed to be a part of the
Plan and the Confirmation Order. As provided in the GE Capital
Settlement Agreement, in satisfaction of obligations arising
under the 1997 MLA, GE Capital will receive an amount equal to
$15.2 million (the "GE Settlement Amount"), less all amounts paid
by the Debtors to GE Capital with respect to the 1997 MLA from
the Petition Date
- ----------
(1) Capitalized terms used but not defined herein shall have the meaning
ascribed to such terms in the Plan.
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through and including the Effective Date, which amount will be
payable without interest at the rate of $750,000 per month from
and after the Effective Date until the GE Settlement Amount is
paid in full. GE Capital will retain its first priority perfected
security interest in and to all of the 1997 Equipment (as that
term is defined in the GE Capital Settlement Agreement) all as
more particularly set forth in the GE Capital Settlement
Agreement. To the extent of a conflict between the GE Capital
Settlement Agreement and/or the GE Settlement Order on the one
hand, and the plan and/or the Confirmation Order on the other
hand, the terms of the GE Capital Settlement Agreement and the GE
Settlement Order will govern and control.
o Class 4 -- Other Secured Claims. Other Secured Claims against the
Debtors will, at the sole option of the Debtors, be: (i) paid in
full in Cash on the Initial Distribution Date; (ii) reinstated
according to the terms of the relevant instrument; (iii) paid on
such other terms as the Debtors and the holder of such Claim may
agree; or (iv) satisfied through the surrender by the applicable
Debtors of the collateral securing the Claim to the holder
thereof.
o Class 5 -- Unsecured Claims. Each holder of an Allowed Unsecured
Claim will receive its pro rata share of 2.549% of the New
Warnaco Common Shares, subject to Dilution. In the event that
holders of Class 6 Claims are not entitled to receive a
distribution as provided in Section 2.9.(C) of the Plan, each
holder of an Allowed Unsecured Claim will receive its pro rata
share of an additional 0.015% of the New Warnaco Common Shares,
subject to Dilution.
o Class 6 -- TOPrS Claims. In the event that the holders of the
TOPrS Claims vote as a Class to reject the Plan, the holders of
TOPrS Claims will not receive or retain any interest or property
under the Plan, and no distribution will be made on account of
the TOPrS Claims, and the New Warnaco Common Shares that would
otherwise be distributed on account of the TOPrS Claims as set
forth in the next sentence will instead be distributed pro rata
to holders of Allowed Class 2 and Allowed Class 5 Claims in the
following percentages: 0.581% to the holders of Allowed Class 2
Claims and 0.015% to the holders of Allowed Class 5 Claims,
subject to Dilution. Otherwise, in full satisfaction of the TOPrS
Claims, on the Initial Distribution Date, the Reorganized Debtors
will distribute to the TOPrS Trustee, subject to the right of the
TOPrS Trustee to assert its TOPrS Trustee Charging Lien against
the distributions to the holders of the TOPrS to the extent the
TOPrS Trustee Fee remains unpaid, or such persons as the TOPrS
Trustee will designate at least ten days prior to the
Confirmation Hearing, for redelivery to the holder(s) of the
TOPrS Claims, a stock certificate evidencing ownership of 0.596%
of the New Warnaco Common Shares, subject to Dilution, and in
addition will pay the amount of up to $300,000 to the TOPrS
Trustee on account of the TOPrS Trustee Fee, subject to receipt
and review by the Debtors of invoices detailing such fees and
expenses.
o Class 7 -- Intercompany Claims. Subject to Section 5.10. of the
Plan, Intercompany Claims will be discharged, and the holders of
Intercompany Claims will not be entitled to receive or retain any
property on account of such Claims.
o Class 8 -- Common Stock Claims and Interests. Interests will be
cancelled, and the holders of Common Stock Claims and Interests
will not be entitled to receive or retain any property on account
of such Claims and Interests.
PLEASE TAKE FURTHER NOTICE that, in accordance with Section 1123(a)(1)
of the Bankruptcy Code, the Plan does not classify Administrative Claims, the
DIP Facility Claim and Priority Tax Claims, but the treatment afforded such
Claims under the Plan is as follows:
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o Administrative Claims.
(i) General. Subject to the provisions of Section 6.6.(A) of the
Plan and unless otherwise agreed by the holder of an Allowed
Administrative Claim (in which event such other agreement will
govern), and except with respect to the Alvarez Incentive Bonus
(see below), the Designated Post-Petition Loans (see below), and
claims of the Debt Coordinators and the Pre-Petition Collateral
Trustee payable under Paragraph 22 of the DIP Approval Orders,
each holder of an Allowed Administrative Claim will be paid in
full in Cash (i) at the sole option of the Debtors (before the
Effective Date) or the Reorganized Debtors (on or after the
Effective Date), (a) in the ordinary course of business as the
Claim becomes due and owing or (b) on the Initial Distribution
Date or (ii) on such other date as the Bankruptcy Court may
order.
(ii) Alvarez Incentive Bonus. On the Effective Date, the
Reorganized Debtors will make the payments in Cash and the
distributions of New Warnaco Second Lien Notes and New Warnaco
Common Shares, as set forth in Plan Schedule 1.6, in satisfaction
of the Alvarez Incentive Bonus.
(iii) Designated Post-Petition Loans. The Designated
Post-Petition Loans will be satisfied in full by the payments and
distributions to be made to the Pre-Petition Secured Lenders as
set forth in Section 2.5.(C) of the Plan.
o DIP Facility Claim. On the Effective Date, the DIP Facility Claim
will be paid in full in Cash, or otherwise satisfied in a manner
acceptable to the DIP Lenders; provided, however, that all
letters of credit under the DIP Facility as of the Effective Date
will remain outstanding as of the Effective Date and will be
paid, in the event drawn, through a borrowing by the Reorganized
Debtors under the Exit Financing Facility.
o Priority Tax Claims. Unless otherwise agreed by the holder of an
Allowed Priority Tax Claim (in which event such other agreement
will govern), each holder of an Allowed Priority Tax Claim will
receive, on the Initial Distribution Date, at the Reorganized
Debtors' option, (a) Cash equal to the amount of such Allowed
Priority Tax Claim, or (b) Cash in six equal annual installments,
together with interest thereon at the legal rate required for
such claims in chapter 11 cases, which interest will be paid
annually in arrears pursuant to Section 1129(a)(9)(C) of the
Code.
SUMMARY OF TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
PLEASE TAKE FURTHER NOTICE that Article III of the Plan proposes the
following treatment of pre-petition executory contracts and unexpired leases to
which any of the Debtors are a party:
o Rejected Contracts and Leases: Each executory contract and
unexpired lease to which any of the Debtors is a party will be
deemed automatically rejected as of the Effective Date, except
with respect to Intellectual Property Contracts, which will be
deemed automatically assumed as of the Effective Date, unless
such executory contract or unexpired lease (a) will have been
previously been rejected or assumed by order of the Bankruptcy
Court, or (b) is the subject of a motion to assume or reject
filed on or before the Confirmation Date, or (c) is listed on the
schedule of contracts and leases to be rejected or assumed
pursuant to the Plan, annexed as Plan Schedules 3.1 and 3.2,
respectively, (and as the same may be modified or supplemented,
if at all, pursuant to Section 3.3.(B) of the Plan). The
Confirmation Order will constitute an order of the Bankruptcy
Court approving such deemed rejection or assumption (with respect
to Intellectual Property Contracts only), as applicable, as of
the Effective Date. All executory contracts and unexpired leases
specifically listed on the schedule of rejected
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executory contracts and unexpired leases, annexed as Plan
Schedule 3.1, will be deemed automatically rejected pursuant to
the Plan by the applicable Debtor as of the Effective Date.
o Assumed Contracts and Leases: All executory contracts and
unexpired leases specifically listed on the schedule of assumed
executory contracts and unexpired leases, annexed as Plan
Schedule 3.2 and modified or supplemented, if at all, pursuant to
Section 3.3.(B) of the Plan, will be deemed automatically assumed
pursuant to the Plan by the applicable Debtor as of the Effective
Date. Each executory contract and unexpired lease that is assumed
under the Plan and relates to the use, ability to acquire or
occupancy of real property will include (a) all modifications,
amendments, supplements, restatements or other agreements made
directly or indirectly by any agreement, instrument or other
document that in any manner affect such executory contract or
unexpired lease and (b) all executory contracts or unexpired
leases appurtenant to the premises, including all easements,
licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, reciprocal easement
agreements and any other interests in real estate or rights in
rem related to such premises, unless any of the foregoing
agreements has been rejected pursuant to a Final Order of the
Bankruptcy Court or is otherwise rejected as part of the Plan.
o The Debtors reserve the right to file a motion on or before the
Confirmation Date to assume or reject any executory contract or
unexpired lease. Notwithstanding any other provision of the Plan,
each of the Debtors will retain the right to, at any time prior
to the Confirmation Hearing, modify or supplement Plan Schedule
3.1 and Plan Schedule 3.2, including, without limitation, the
right to add any executory contract or unexpired lease to, or
delete any executory contract or unexpired lease from, Plan
Schedule 3.1 or Plan Schedule 3.2. Listing an executory contract
or unexpired lease on Plan Schedule 3.1 or Plan Schedule 3.2 will
not constitute an admission by any of the Debtors or the
Reorganized Debtors that such contract or lease (including any
related agreements that may exist) is an executory contract or
unexpired lease or that the applicable Debtor or Reorganized
Debtor has any liability thereunder.
o Payments Related to Assumption of Executory Contracts and
Unexpired Leases. Any monetary amounts by which each executory
contract and unexpired lease to be assumed under the Plan may be
in default will be satisfied by Cure in the amount, if any, set
forth in Plan Schedule 3.2, or, in the event of an objection to
such Cure amount or if no such Cure amount is listed, in the
amount agreed between the parties or as ordered by the Bankruptcy
Court or another court of competent jurisdiction. To the extent
the non-Debtor party to the unexpired lease or executory contract
does not object to the amount of Cure set forth in Plan Schedule
3.2 on or before the Voting Deadline, such non-Debtor party will
be deemed to accept such Cure amount. In the event of a dispute
regarding (a) the nature or the amount of any Cure, (b) the
ability of the applicable Reorganized Debtor or any assignee to
provide "adequate assurance of future performance" (within the
meaning of Section 365 of the Code) under the contract or lease
to be assumed or (c) any other matter pertaining to assumption,
such dispute will be determined by the Bankruptcy Court or
another court of competent jurisdiction, or as the parties may
otherwise agree. To the extent the Debtor who is a party to the
unexpired lease or executory contract is to be merged pursuant to
Section 5.4. of the Plan, upon assumption as contemplated
therein, the Reorganized Debtor that is the surviving entity
after such merger will be the party to the unexpired lease or
executory contract.
o Post-Petition Contracts and Leases. All contracts, agreements and
leases that were entered into by the Debtors or assumed by the
Debtors after the Petition Date will be deemed assigned by the
Debtors to the Reorganized Debtors on the Effective Date.
7
o Rejection Damages Bar Date. If the rejection by a Debtor,
pursuant to the Plan or otherwise, of an executory contract or
unexpired lease results in a Claim, then such Claim will be
forever barred and will not be enforceable against any Debtor or
Reorganized Debtor or the properties of any of them unless a
proof of claim is filed with the clerk of the Bankruptcy Court
and served upon counsel to the Debtors within thirty (30) days
after service of the earlier of (a) notice of the Confirmation
Date, or (b) other notice that the executory contract or
unexpired lease has been rejected pursuant to an order of the
Bankruptcy Court.
CONSEQUENCES OF CONFIRMATION AND INJUNCTION
PLEASE TAKE FURTHER NOTICE that if the Bankruptcy Court confirms the
Plan, the Plan will bind all holders of Claims and Interests against the
Debtors, whether or not they are entitled to vote or did vote on the Plan and
whether or not they receive or retain any distributions or property under the
Plan, wherever located. The Plan provides for an injunction against holders of
certain Claims and Interests against the Debtors from taking certain actions on
account of such Claims and Interests, including, but not limited to: (i)
commencing or continuing in any manner any action or other proceeding against
the Debtors or the Reorganized Debtors or their respective property; (ii)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtors or the Reorganized Debtors or their
respective property; (iii) creating, perfecting or enforcing any lien or
encumbrance against the Debtors or the Reorganized Debtors or their respective
property; (iv) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability or obligation due to the Debtors or the
Reorganized Debtors or their respective property; and (v) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
As more particularly described in the Plan, the Plan also provides for
certain exculpations and releases by, and injunctions against, the Debtors in
favor of (i) each of the Debtors' directors who served at any time during the
Cases, (ii) each of the Debtors' officers employed as of the Effective Date,
(iii) the members of the Creditors' Committee, (iv) the members of the Post-
Effective Date Committee, (v) the DIP Lenders, (vi) the Pre-Petition Secured
Lenders, (vii) the TOPrS Trustee, and (viii) the attorneys, investment bankers,
restructuring consultants and financial advisors of the foregoing from any and
all claims, obligations, suits, judgments, damages, rights, causes of action
and liabilities whatsoever (including, without limitation, those arising under
the Code), whether known or unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise, based in whole or in part on any
act, omission, transaction, event or other occurrence taking place on or after
the Petition Date through and including the Effective Date in connection with,
relating to or arising out of the Cases, the management and operation of the
Debtors, the formulation, negotiation, implementation, confirmation or
consummation of the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created in connection with the Plan.
8
Finally, the Plan provides for certain releases by, and injunctions
against, the Debtors and holders of Claims entitled to vote on the Plan in favor
of, (i) each of the Debtors' former and present officers and directors, (ii) the
Pre-Petition Secured Lenders, (iii) the TOPrS Trustee, and (iv) the attorneys,
investment bankers, restructuring consultants and financial advisors of the
foregoing from any and all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever (including, without
limitation, those arising under the Code), whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, based in
whole or in part on any act, omission, transaction, event or other occurrence
taking place before the Petition Date in connection with or relating to The
Warnaco Group, Inc. or any of its direct or indirect subsidiaries; provided,
however, that the foregoing releases will not apply to any current or former
officers or directors of any of the Debtors who, as of November 13, 2002, has
been invited by the SEC to make a Wells Submission describing the reasons why no
enforcement proceedings should be brought against them with respect to potential
violations of the Securities and Exchange Act of 1934 in connection with the
preparation and publication of various financial statements and other public
statements of Group (each, a "Wells Recipient"); and provided, further, that
notwithstanding the foregoing proviso, the release set forth in the foregoing
release will apply to a Wells Recipient as of the first day that either (i) the
SEC has determined not to commence an enforcement proceeding against such Wells
Recipient, or (ii) the SEC has commenced an enforcement proceeding and such
proceeding has been concluded with no finding against, or concession by, such
Wells Recipient that he or she (a) committed fraud, intentional or negligent
misrepresentation, or gross negligence in connection with the matters
investigated, or (b) may not serve in the future as an officer or director of
any public company, provided, further, that each holder of a Claim entitled to
vote on the Plan may elect, by checking the box provided on the Ballot, not to
grant such release.
CLASSES OF CLAIMS ENTITLED TO VOTE ON THE PLAN
PLEASE TAKE FURTHER NOTICE that in accordance with the terms of the
Plan and the Bankruptcy Code, holders of Priority Non-Tax Claims in Class 1, GE
Capital Secured Claims under the 1997 MLA in Class 3 and Other Secured Claims in
Class 4 are unimpaired, are conclusively presumed to have accepted the Plan and
are not entitled to vote on the Plan. Additionally, holders of Impaired Claims
and Interests in Class 7 and Class 8 are deemed to have rejected the Plan and
are not entitled to vote on the Plan. Only the holders of Senior Secured Bank
Claims in Class 2, Unsecured Claims in Class 5 and the holders of TOPrS Claims
in Class 6 are entitled to vote to accept or to reject the Plan.
9
BAR DATE FOR CERTAIN ADMINISTRATIVE CLAIMS
PLEASE TAKE FURTHER NOTICE that all applications for final
compensation of professional persons employed by the Debtors or the Creditors'
Committee pursuant to orders entered by the Bankruptcy Court and on account of
services rendered prior to the Effective Date, and all other requests for
payment of Administrative Claims (except for the Alvarez Incentive Bonus, the
Designated Post-Petition Loans, claims of the Debt Coordinators and the
Pre-Petition Collateral Trustee payable under paragraph 22 of the DIP Approval
Orders, claims for taxes, ordinary course trade debt and customer deposits and
credits incurred in the ordinary course of business after the Petition Date)
will be served on the Reorganized Debtors in accordance with Section 8.10. of
the Plan and filed with the Bankruptcy Court, no later than 25 days after the
Effective Date. Any such claim that is not served and filed within this time
period will be discharged and forever barred. Objections to any such application
must be filed within 15 days after filing thereof.
DEADLINE FOR OBJECTIONS TO CONFIRMATION OF THE PLAN
PLEASE TAKE FURTHER NOTICE that objections, if any, to confirmation of
the Plan, including, without limitation, objections to the assumption or
rejection of any executory contract or unexpired lease under the Plan, including
any supporting declarations, memoranda or other documentation, must be in
writing, filed with the Clerk of the Bankruptcy Court together with proof of
service thereof, and shall (a) state the name and the address of the objecting
party, and the amount of its Claim or the nature of its Interest in the Debtors'
Cases, (b) if applicable, identify the executory contract or unexpired lease to
be assumed or rejected under the Plan that is the subject of the objection, (c)
state with particularity the provision or provisions of the Plan, including,
without limitation, the assumption or rejection of any executory contract or
unexpired lease under the Plan, objected to and, for any objection asserted, the
legal and factual basis for such objection and (d) be served upon: (i) Sidley
Austin Brown & Wood LLP, 787 Seventh Avenue, New York, New York 10019,
Attention: Kelley A. Cornish, Esq., counsel to the Debtors, (ii) Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153, Attention: Brian S.
Rosen, Esq., counsel to the Debtors' post-petition secured lenders, (iii)
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, Attention:
James L. Garrity, Jr., Esq., counsel to the Debt Coordinators for the Debtors'
pre-petition banks, (iv) the Office of the United States Trustee for the
Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New
York 10004, Attention: Mary Tom, Esq., and (v) Otterbourg, Steindler, Houston &
Rosen, P.C., 230 Park Avenue, New York, New York 10169, Attention: Scott L.
Hazan, Esq., counsel to the Official Committee of Unsecured Creditors so as to
be received on or before 4:00 p.m. (Prevailing Eastern Time) on [insert date].
Any objection not filed and served as set forth above shall be deemed
waived and will not be considered by the Bankruptcy Court.
10
VOTING DEADLINE
PLEASE TAKE FURTHER NOTICE that the deadline for receipt by the
Debtors of ballots to accept or reject the Plan is [insert date] at 4:00
p.m. (prevailing Eastern time) (the "Voting Deadline"). In order for a ballot to
be counted, it must be properly completed, signed and returned, so as to be
actually received by the Voting Deadline at: Warnaco Ballot Processing, P.O. Box
5014, FDR Station, New York, NY 10150-5014, for ballots sent by regular mail, or
Warnaco Ballot Processing, c/o Bankruptcy Services LLC, 70 East 55th Street, 6th
Floor, New York, New York, 10022-3222 for ballots sent by messenger or overnight
mail. Copies of ballots and facsimile ballots will not be accepted.
If you believe you are entitled to vote on the Plan and did not
receive a ballot, if your ballot is damaged or lost, or if you have questions
concerning balloting procedures, you should contact Debtors' counsel, Elizabeth
R. McColm, Esq., at (212) 839-5985.
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COPIES OF THE PLAN AND DISCLOSURE STATEMENT
PLEASE TAKE FURTHER NOTICE that copies of the Plan and Disclosure
Statement will be available for inspection by interested parties (a) during
regular business hours in the Office of the Clerk of the Bankruptcy Court,
Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004,
and (b) on the Court's electronic docket for the Debtors' chapter 11 cases,
which is posted on the Internet at (www.nysb.uscourts.gov). A PACER password is
required to access case information, which can be obtained at
(www.pacer.psc.uscourts.gov) or by calling 1-800-676-6856. If it is
impracticable for an interested party to obtain access to the Plan and
Disclosure Statement by either of the foregoing methods, such party should
contact Ms. Brooke Filler at Sidley Austin Brown & Wood LLP, 787 Seventh Avenue,
New York, New York 10019, Telephone: (212) 839-5603, Telecopier: (212) 839-5599,
Email: bfiller@sidley.com.
Dated: New York, New York SIDLEY AUSTIN BROWN & WOOD LLP
________ __, 2002
By:
-----------------------------------------
(A Member of the Firm)
J. Ronald Trost (JT-4745)
Kelley A. Cornish (KC-0754)
Shalom L. Kohn (SK-2626)
Elizabeth R. McColm (EM-8532)
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 839-5300
Telecopier: (212) 839-5599
Counsel for Debtors and Debtors-in-Possession
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