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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
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Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of The
Securities Exchange Act of 1934
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GERBER CHILDRENSWEAR, INC.
(Name of Subject Company)
GERBER CHILDRENSWEAR, INC.
(Name of Person Filing Statement)
Common Stock, par value $.01 per share
and
Class B Common Stock, par value $.01 per share
(Title of Classes of Securities)
373701-10-1 (Common Stock)
(CUSIP Number of Class of Securities)
Edward Kittredge
Chairman, Chief Executive Officer and President
Gerber Childrenswear, Inc.
7005 Pelham Road
Greenville, SC 29615
(864) 987-5200
(Name, Address, and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person Filing Statement)
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With Copies To:
Andrew E. Nagel
Kirkland & Ellis
Citigroup Center
153 East 53rd Street
New York, New York 10022-4611
(212) 446-4800
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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Item 1. Security and Subject Company Information.
(a), (b) Name and Address; Securities. The name of the subject company is
Gerber Childrenswear, Inc. (the "Company"). The address of the principal
executive offices of the Company is 7005 Pelham Road, Greenville, SC 29615. The
telephone number of the principal executive offices of the Company is (864)
987-5200. The titles of the classes of equity securities to which this
statement relates are the Common Stock, par value $.01 per share, of the
Company (the "Voting Common Stock") and the Class B Common Stock, par value
$.01 per share, of the Company (the "Class B Common Stock," and together with
the Voting Common Stock, the "Company Common Stock"). As of March 25, 2002,
there were 8,414,660 shares of Voting Common Stock outstanding and 11,396,046
shares of Class B Common Stock outstanding.
Item 2. Identity and Background of Filing Person.
(a) Name and Address. The name, business address and business telephone
number of the Company, which is the person filing this
Solicitation/Recommendation Statement (the "Statement"), are set forth in Item
1 above.
(b) Tender Offer. This Statement relates to the tender offer by Cradle,
Inc., a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of
Kellwood Company, a Delaware corporation (the "Parent"), disclosed in a Tender
Offer Statement on Schedule TO, dated May 24, 2002 and filed by the Purchaser
and the Parent (the "Schedule TO"), to purchase all issued and outstanding
shares of the Company Common Stock for consideration consisting of a
combination of cash and the Parent's common stock, par value $.01 per share
(the "Parent Common Stock"), with a total value of $6.85 per share, comprised
of at least $3.42 in cash (the "Cash Consideration"), net without interest, and
up to $3.43 in value of shares of Parent Common Stock (the "Stock
Consideration"), calculated as described under the heading "The Offer" in the
Parent's Preliminary Prospectus and Offer to Purchase, dated May 23, 2002 (the
"Preliminary Prospectus") and filed as Exhibit (a)(1)(i) to the Schedule TO, in
exchange for each of the shares of Company Common Stock (such Cash
Consideration and Stock Consideration, the "Offer Consideration"). The actual
value of the shares of Parent Common Stock that you will receive will likely
have a value of more or less than $3.43 for each share of Company Common Stock
validly tendered and not properly withdrawn because the actual Stock
Consideration will be calculated using the measurement period described under
the heading "The Offer" in the Preliminary Prospectus. The payment of the Offer
Consideration depends upon the terms and is subject to the conditions set forth
in the Preliminary Prospectus and in the related Letter of Transmittal (which,
together with any amendments or supplements, collectively constitute the
"Offer").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of May 15, 2002, by and among the Parent, the Purchaser and the Company (as
such agreement may be amended or supplemented from time to time, the "Merger
Agreement"). As soon as practicable after the completion of the Offer and
satisfaction or waiver, if permissible, of all conditions of the Merger (as
defined below), the Company will be merged with and into the Purchaser (or, if
certain events relating to the U.S. federal income tax treatment of the Offer
and the merger do not occur, then the Purchaser will be merged with and into
the Company, with the Company surviving as a wholly-owned subsidiary of the
Parent) (in either case, the "Merger"). Following the date and time the Merger
becomes effective (the "Effective Time"), the separate corporate existence of
the Company (or, if the Purchaser is merged into the Company, the Purchaser)
shall cease, and the Purchaser (or the Company, as the case may be) shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation") and a wholly-owned subsidiary of the Parent.
At and as of the Effective Time, by virtue of the Merger and without any
action on the part of the Parent, the Purchaser, the Company or the holders of
any of the following securities, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares
owned by the Company (whether or not owned as treasury stock) or any subsidiary
of the Company, (ii) shares owned by the Parent, the Purchaser or any other
subsidiary of the Parent or the Purchaser, if any, and (iii) shares held by a
person immediately prior to the Effective Time who complies with all the
provisions of the Delaware General
Corporation Law (the "DGCL") concerning the right of holders of shares to
demand appraisal of their shares in accordance with Section 262 of the DGCL (a
"Dissenting Stockholder")) shall be canceled and, subject to certain rights of
Dissenting Stockholders in the Merger Agreement, shall be converted
automatically into the right to receive, for each share of Company Common Stock
(x) the Cash Consideration, and (y) the Stock Consideration.
A copy of the Merger Agreement has been filed with the Securities and
Exchange Commission (the "Commission") by the Parent, and is incorporated
herein by reference. The Parent has also filed with the Commission a
Registration Statement on Form S-4, dated May 23, 2002 (the "Form S-4"),
including the Preliminary Prospectus and covering the offer and sale of the
shares of Parent Common Stock being issued in connection with the Offer and the
Merger.
For a discussion of the material United States federal income tax
consequences of the Offer and the Merger, see the discussion contained in the
Preliminary Prospectus under the heading "The Offer--Material United States
Federal Income Tax Consequences," which is incorporated herein by reference.
Concurrently with the execution of the Merger Agreement, the Parent entered
into a Voting and Tender Agreement, dated as of May 15, 2002 (as such agreement
may be amended or supplemented from time to time, the "Voting and Tender
Agreement"), with the following stockholders of the Company: Citicorp Venture
Capital Ltd. ("CVC"), CCT Partners III, L.P. and Citicorp Mezzanine Partners,
L.P. ("CMP") (each such stockholder, a "Tendering Stockholder"). Pursuant to
the Voting and Tender Agreement, each Tendering Stockholder has agreed to
tender all of its shares of Company Common Stock owned as of the date of the
commencement of the Offer into the Offer as promptly as practicable, and in no
event later than the twentieth business day, following the commencement of the
Offer. As of May 23, 2002, the Tendering Stockholders have agreed to tender an
aggregate of 849,255 shares of Voting Common Stock and 11,396,046 shares of
Class B Common Stock Common Stock pursuant to the Voting and Tender Agreement,
which aggregate amount of shares represents approximately 61.8% of the Company
Common Stock outstanding on May 23, 2002. Each Tendering Stockholder also has
agreed not to withdraw any of its shares of Company Common Stock so tendered
unless the Offer is terminated, or the Offer has expired, without the Purchaser
or the Parent purchasing all of the Company Common Stock validly tendered in
the Offer and not withdrawn. In addition, during the period from the date of
execution of the Voting and Tender Agreement until the earlier of the date of
termination of the Merger Agreement or the date of the closing of the
transactions contemplated thereby, each Tendering Stockholder has agreed to
vote each of its shares of Company Common Stock at every annual, special or
adjourned meeting of the stockholders (including any consent in lieu of a
meeting) of the Company (i) in favor of the approval of the Merger Agreement
and the transactions contemplated by the Merger Agreement, (ii) against any
Acquisition Proposal (as defined in the Merger Agreement) involving the
Company, or any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement or which could result in any of the
conditions to the Company's obligations under the Merger Agreement not being
fulfilled, and (iii) in favor of any other matter relating to the consummation
of the transactions contemplated by the Merger Agreement.
A copy of the Voting and Tender Agreement has been filed with the Commission
by the Parent, and is incorporated herein by reference.
As set forth in the Schedule TO, the principal executive offices of the
Purchaser are located at 600 Kellwood Parkway, P.O. Box 14374, St. Louis,
Missouri 63017, and the principal executive offices of the Parent are located
at 600 Kellwood Parkway, P.O. Box 14374, St. Louis, Missouri 63017.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Conflicts of Interest
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule
14f-1 thereunder
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(the "Information Statement") that is attached as Annex B to this Statement and
is incorporated herein by reference. Except as set forth in this Statement
(including in the Exhibits hereto and in Annex B hereto) or as incorporated by
reference herein, to the knowledge of the Company, there are no material
agreements, arrangements or understandings and no actual or potential conflicts
of interest between the Company or its affiliates and (i) the Company's
executive officers, directors or affiliates or (ii) the Parent, the Purchaser
or their respective executive officers, directors or affiliates.
Merger Agreement
The summary of the Merger Agreement and the description of the conditions of
the Offer contained under the headings "The Merger Agreement" and "The
Offer--Conditions of Our Offer," respectively, in the Preliminary Prospectus,
which has been filed as an exhibit to the Schedule TO and is being mailed to
Company's stockholders together with this Statement, are incorporated herein by
reference. Such summary and description are qualified in their entirety by
reference to the Merger Agreement, which is incorporated herein by reference.
Voting and Tender Agreement
The summary of the Voting and Tender Agreement contained under the heading
"The Voting and Tender Agreement" in the Preliminary Prospectus, which has been
filed as an exhibit to the Schedule TO and is being mailed to Company's
stockholders together with this Statement, is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Voting and Tender
Agreement, which is incorporated herein by reference.
Stock Options
The Merger Agreement provides that, on or prior to the Effective Time, the
Company shall take all actions necessary to cause, pursuant to and consistent
with the Company's 1998 Long-Term Performance Incentive Plan (the "Company
Stock Option Plan") to the extent permissible under applicable law, all
outstanding options to acquire shares of Voting Common Stock that were granted
under the Company Stock Option Plan (the "Company Options") to be exercisable
in full immediately prior to the Effective Time. On or prior to the Effective
Time, the Company shall take all actions necessary to cause each Company Option
to be converted into and become the right to receive: (i) an amount in cash
(the "Cash Option Amount") determined by dividing (x) the product of (A) the
excess, if any, of $6.85 over the applicable exercise price per share of such
Company Option and (B) the number of shares of Voting Common Stock into which
such Company Option would have been exercised had the holder thereof exercised
such Company Option in full immediately prior to the Effective Time, by (y) 2;
and (ii) a number of validly issued, fully paid and non assessable shares of
Parent Common Stock determined by dividing (x) the Cash Option Amount by (y)
the Average Parent Stock Price. As used herein, the "Average Parent Stock
Price" shall be equal to the average closing price of one share of Parent
Common Stock on The New York Stock Exchange ("NYSE") as reported in The Wall
Street Journal, for the 18 trading days immediately preceding the second
trading day prior to the initial scheduled expiration date of the Offer.
Each such Company Option shall thereafter be canceled and be of no further
force or effect except for the right to receive the Cash Option Amount and the
shares of Parent Common Stock described in clause (ii) of the immediately
preceding paragraph (such cash and number of shares, the "Option
Consideration"). Promptly following the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of Company Options the
Option Consideration payable with respect to all Company Options held by such
holder reduced by all amounts required to be withheld on account of the
holder's exercise of such Company Options, which shall be cancelled and of no
further force and effect after such payment and all rights thereto shall be
deemed assigned to the Purchaser.
Executive Deferral Plan Payments
The Company currently maintains an Executive Deferral Plan (the "Deferral
Plan"), which is an unfunded, nonqualified deferred compensation plan that
provides deferred compensation to selected members of management and certain
other highly-compensated employees. The Deferral Plan allows employees to
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voluntarily defer from 5% to 50% of their salary and/or bonus compensation
until termination, retirement or the occurrence of certain specific future
events. Compensation that is deferred under the Deferral Plan bears interest at
a rate specified in the Deferral Plan.
In the event of a change of control of the Company, the Deferral Plan shall
terminate and the Company shall pay all deferred compensation and earnings in
lump sums to the Deferral Plan's participants. The consummation of the Offer
would constitute a change of control under the Deferral Plan. The aggregate
amount to be paid-out under the Deferral Plan to executive officers of the
Company upon the consummation of the Offer, assuming a closing date of June 29,
2002, will be approximately $989,000, of which Edward Kittredge, the Chairman,
Chief Executive Officer and President of the Company, Richard L. Solar, the
Chief Financial Officer, Senior Vice President and Assistant Secretary of the
Company, and David E. Uren, the Vice President of Finance, Secretary and
Treasurer of the Company, would receive approximately $882,000, $42,000 and
$65,000, respectively. However, in lieu of receiving such payouts, Messrs.
Kittredge, Solar and Uren each may elect to transfer his account under the
Deferral Plan to the Parent for it to maintain such account.
Long-Term Bonus Plan Payments
The Company currently maintains a Long-Term Bonus Plan (the "Bonus Plan")
under which the Compensation Committee of the Board (the "Compensation
Committee") may accrue amounts to be paid to the Company's executive and senior
officers as bonuses during future years for past service. During 1997 and 1998,
the Company accrued $515,000 and $500,000, respectively, for future payments to
a certain group of senior executives for past service, with final allocation to
be determined later by the Compensation Committee. Under the terms of the Bonus
Plan, these amounts accrue interest until they are paid. Interest only was
accrued under the Bonus Plan in 1999, 2000 and 2001.
The Compensation Committee has determined that, upon the consummation of the
Merger, the aggregate amount accrued under the Bonus Plan will be awarded to
certain executive and senior officers of the Company. The aggregate amount to
be paid-out under the Bonus Plan upon the consummation of the Merger, assuming
a closing date of June 29, 2002, will be approximately $1,370,000, of which
Messrs. Kittredge, Solar and Uren would receive approximately $754,000,
$456,000 and $160,000, respectively.
Retention Bonus Program
The Board has approved a Retention Bonus Program (the "Retention Bonus
Program") under which up to $200,000 in bonuses may be paid to certain of the
Company's employees who remain employed by the Company through the consummation
of the Merger. The Company's senior management will determine the specific
recipients and amounts of bonuses to be granted pursuant to the Retention Bonus
Program. David E. Uren is the only executive officer who is eligible to receive
a bonus under the Retention Bonus Program.
Prochaska Employment Agreement
The Company has an employment agreement with Bobby J. Prochaska, the
President and Chief Operating Officer of the Company's Apparel Division. The
employment agreement provides that the Company pay Mr. Prochaska a bonus of
$100,000 upon the closing of the sale of the Company. The consummation of the
Merger would constitute the closing of a sale of the Company and, upon the
occurrence of such event, the Company will be obligated to pay Mr. Prochaska a
bonus of $100,000.
Indemnification and Insurance
Pursuant to the Merger Agreement, the Parent and the Purchaser have agreed
that all rights to indemnification or exculpation by the Company now existing
in favor of each present and former director,
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officer, employee and agent of the Company (the "Indemnified Parties") as
provided in the Company's certificate of incorporation or bylaws, in each case
as in effect on the date of the Merger Agreement, or pursuant to any other
agreements specifically identified on the disclosure schedules delivered by the
Company to the Parent and the Purchaser concurrently with the execution of the
Merger Agreement, shall survive the Merger and shall continue in full force and
effect. To the maximum extent permitted by the DGCL, such indemnification shall
be mandatory rather than permissive, and the Surviving Corporation shall
advance expenses incurred in connection with such proceedings in advance of the
final disposition thereof. The indemnification or exculpation provisions of the
Company's certificate of incorporation and bylaws shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who, at the date of the Merger Agreement and prior to the Effective
Time were directors, officers, employees or agents of the Company, in respect
to actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modifications are required by applicable law.
In addition, pursuant to the Merger Agreement, the Parent will provide, or
cause the Surviving Corporation to provide, for a period of six (6) years after
the Effective Time, the coverage provided by the policies of directors and
officers liability and fiduciary insurance most recently maintained by the
Company (the "D&O Insurance"); provided, that the Surviving Corporation may
substitute therefor policies that are no less favorable in any material respect
than the Company's existing D&O Insurance policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage, so
long as the substitution does not result in gaps or lags in coverage with
respect to matters occurring prior to the Effective Time; and, provided,
further, that the Parent and the Surviving Corporation shall not be required to
pay an annual premium for the D&O Insurance in excess of 300% of the aggregate
annual premium currently paid by the Company for such insurance, but in that
case shall purchase as much coverage as possible for the amount.
The provisions of the Merger Agreement described in the preceding two
paragraphs are intended to benefit the Parent, the Purchaser, the Surviving
Corporation and the Indemnified Parties and their respective estates, and shall
be binding on all successors and assigns of the Parent, the Purchaser, and the
Surviving Corporation.
The Surviving Corporation's Board of Directors and Officers
The Merger Agreement provides that promptly after the payment by the
Purchaser for the shares of Company Common Stock pursuant to the Offer and, if
required pursuant to the terms thereof, the effectiveness of the Purchaser's
conversion of the Class B Common Stock into shares of Voting Common Stock
contemplated under the Merger Agreement to effect a short-form merger pursuant
to Section 253 of the DGCL, the Parent and the Purchaser shall be entitled to
designate such number of directors on the Board of Directors of the Company
(the "Board"), rounded down, as will give the Purchaser representation on the
Board equal to the product of (i) the number of directors on the Board
multiplied by (ii) the percentage that the number of shares of Company Common
Stock paid for by the Purchaser pursuant to the Offer (including the number of
shares of Voting Common Stock received by the Purchaser upon conversion of the
Class B Common Stock, if any), bears to the total number of then outstanding
shares of Voting Common Stock. The Company shall use reasonable best efforts
to, upon the request of the Purchaser, either increase the size of the Board or
secure the resignation of the number of directors as is necessary to enable the
Purchaser's designees to be elected to the Board and to cause the Purchaser's
designees to be so elected. The Company's obligations to appoint designees to
the Board shall be subject to Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). At the request of the Purchaser, the
Company shall take all action necessary to effect any such election, and shall
include in this Schedule 14D-9 the information required by Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. At the request of the
Purchaser, the Company has included certain of such information in this
Schedule 14D-9. The Parent has supplied to the Company in writing, and is
solely responsible for, any information with respect to itself and its
nominees, directors and affiliates that is required by Section 14(f) and Rule
14f-1. Notwithstanding the foregoing, the parties to the Merger Agreement shall
use their respective best efforts to ensure that at least two (2) members of
the Board shall at all times prior to the Effective Time be Continuing
Directors (as described below).
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Following the election or appointment of the Purchaser's designees pursuant
to the preceding paragraph and prior to the Effective Time, any amendment of
the Merger Agreement or the certificate of incorporation or bylaws of the
Company, any termination of the Merger Agreement by the Company, any extension
by the Company of the time for the performance of any of the obligations or
other acts of the Parent or the Purchaser, and waiver of any of the Company's
rights under the Merger Agreement, or any transaction between the Parent (or
any affiliate or associate thereof) and the Company shall require (i) that
there be in office at least one Continuing Director and (ii) the concurrence of
a majority of the Company's directors (or the concurrence of the sole remaining
director if there is only one remaining) then in office who are directors of
the Company on the date of the Merger Agreement, or are directors designated by
such persons or person (the "Continuing Directors"). The Continuing Directors
shall have the authority to retain counsel and other advisors at the expense of
the Company as are reasonably appropriate to assist them in the exercise of
their duties in connection with the Merger Agreement. In addition, the
Continuing Directors shall have the authority to institute any action on behalf
of the Company to enforce performance of the Merger Agreement.
From and after the Effective Time, until the earlier of their resignation or
removal or until their respective successors are duly elected or appointed and
qualified in accordance with applicable law, (i) the directors of the Purchaser
at the Effective Time shall be the directors of the Surviving Corporation, and
(ii) the officers of the Purchaser at the Effective Time shall be the officers
of the Surviving Corporation.
Third-Party Beneficiaries
Other than the indemnification provisions of the Merger Agreement (which are
discussed in part under the heading "Indemnification and Insurance" above),
nothing in the Merger Agreement shall confer any rights or remedies upon any
person other than the parties to the Merger Agreement.
Purchaser Stock Option
Pursuant to the Merger Agreement, the Company has granted to the Purchaser
an irrevocable option (the "Purchaser Option") to purchase up to 875,000 shares
of Voting Common Stock for a per share exercise price equal to $6.85. The
Purchaser Option is exercisable only after the purchase of and payment for
shares of Company Common Stock pursuant to the Offer by the Parent or the
Purchaser as a result of which the Parent, the Purchaser and their affiliates
own beneficially at least 50% of the outstanding shares of Company Common
Stock. The Purchaser Option shall terminate automatically upon the termination
of the Merger Agreement in accordance with its terms.
Registration Rights of Citicorp Venture Capital, Ltd. and Its Affiliates
Pursuant to the Merger Agreement, the Parent has agreed, to the extent
permitted by any United States federal, state or local or any foreign statute,
law, rule, regulation, ordinance, code, order, judgment, decree or any other
requirement or rule of law (a "Law"), to register the resale of all of the
Consideration Shares to be received by CVC and its affiliates pursuant to the
Offer or Merger in the registration statement on Form S-4 used to register the
offer and sale of Parent Common Stock pursuant to the Offer. In the event such
registration is not permitted by Law, within 30 days after the consummation of
the Offer, the Company shall file with the Commission a registration statement
on Form S-3 under the Securities Act of 1933, as amended (together with the
rules and regulations promulgated thereunder, the "Securities Act") for the
registration pursuant to Rule 415 of the Securities Act of the resale of all of
such Consideration Shares.
Confidentiality Agreements
On August 1, 2000, the Company and the Parent entered into a Confidentiality
Agreement (the "Company Confidentiality Agreement"). The Company
Confidentiality Agreement provides that for one year following the date of such
agreement the Parent will keep confidential any information concerning the
Company that is
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provided to the Parent, subject to certain exceptions, and that the Parent will
use such information solely for the purpose of evaluating a possible
transaction with the Company. Pursuant to the Company Confidentiality
Agreement, the Parent further agreed that, for one year following the date of
the Company Confidentiality Agreement, the Company and the Parent, without the
prior written consent of the other party, will not disclose to any person that
such information has been made available to the Parent, that discussions or
negotiations are taking place concerning a possible transaction between the
Company and the Parent, or any terms, conditions or facts with respect to any
such possible transaction. In addition, the Parent also agreed that, for a
period of one year following the date of the Company Confidentiality Agreement,
its representatives involved in this transaction will not solicit to employ any
of the officers or key managerial employees of the Company with whom the Parent
had substantial contact during the transaction, without obtaining the prior
written consent of the Company.
On February 7, 2002, the Company and the Parent entered into a No-Shop
Agreement (the "No-Shop Agreement") pursuant to which the Company and the
Parent agreed that the Company Confidentiality Agreement would remain in full
force and effect as of the date of the No-Shop Agreement, and that the
provisions of the Company Confidentiality Agreement shall survive for a period
of one year from the date of the No-Shop Agreement.
On March 25, 2002, the Company and the Parent entered into another
Confidentiality Agreement (the "Parent Confidentiality Agreement"). Pursuant to
the Parent Confidentiality Agreement, the Company agreed that, for two years
from the date of such agreement, the Special Committee (as defined below) will
keep confidential any information concerning the Parent that is provided to the
Company, subject to certain exceptions, and that the Special Committee will use
such information solely for the purpose of evaluating on behalf of the
Company's stockholders the then-proposed transaction with the Parent.
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Board. At a meeting of the Board held on May 14,
2002, acting upon the May 13, 2002 recommendation of the Special Committee
described below, the Board, by unanimous vote of all directors, has (i)
determined that each of the Offer and the Merger, taken together as integral
steps of a single plan of reorganization, is fair to, and in the best interests
of, the stockholders of the Company, (ii) approved the Merger Agreement and the
transactions contemplated thereby, and (iii) recommended acceptance of the
Offer and adoption of the Merger Agreement by the stockholders of the Company.
(b) Background; Reasons for the Recommendations of the Board
Background
During the second half of 1999, the Board discussed the desirability of
pursuing strategic alternatives designed to enhance the Company's stockholder
value, believing that the market was no longer affording the appropriate level
of value to the Company's stock. As a result of these discussions, the Company
and its representatives identified several potential strategic and financial
partners with whom a business combination might have been desirable and
contacted a number of companies to gauge their level of interest in a potential
transaction with the Company. Over approximately the next nine months, the
Company and its representatives met or spoke with representatives of these
companies to discuss the possibility of a combination transaction. However, no
agreements were ultimately reached with any of these companies during this
period, and no plans to consider such a combination in the future were agreed
upon.
One of the companies that the Company contacted during this period was the
Parent. In July 1999, Edward Kittredge, Chairman, Chief Executive Officer and
President of the Company, contacted James C. Jacobsen, Vice Chairman of the
Parent, to discuss the Parent's interest in meeting to discuss a potential
transaction with the Company. Mr. Kittredge and Mr. Jacobsen had known each
other previously due to their involvement in various industry organizations.
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In August 1999, Mr. Kittredge and Richard L. Solar, Senior Vice President,
Chief Financial Officer and Assistant Secretary of the Company, met twice in
New York with Mr. Jacobsen, Hal J. Upbin, Chairman, Chief Executive Officer and
President of the Parent, and Gerald M. Chaney, then Vice President and Chief
Financial Officer of the Parent. The meetings resulted in the Company and the
Parent agreeing to continue conversations regarding a potential combination
transaction.
Between October 1999 and January 2000, the Company and the Parent continued
to discuss the merits of a potential transaction. In February 2000, the two
parties executed a confidentiality agreement, and the Parent was supplied with
certain information that it had requested in order to perform further analysis
of a potential transaction involving the Company.
The principals involved in the August 1999 meetings between the Company and
the Parent met again at the Company's New York office in March 2000, with the
addition of W. Lee Capps III, then the Parent's Vice President of Corporate
Development. This meeting, together with subsequent conversations between the
parties following the meeting, led to a mutual agreement that the time was not
right to continue further conversations regarding a potential combination
transaction between the Company and the Parent.
Shortly thereafter, the Board decided to retain a financial advisor to
assist the Company in considering its full range of strategic alternatives to
enhance stockholder value, including a possible merger or sale of the Company.
Representatives of the Company and the Board met with several potential
financial advisors to discuss their views regarding the Company's strategic
alternatives.
On May 16, 2000, the Board decided to retain First Union Securities, Inc.
(currently acting under the trade name Wachovia Securities ("Wachovia
Securities")), to serve as its financial advisor for the strategic alternatives
process. On May 22, 2000, the Company and Wachovia Securities entered into the
Engagement Letter (as described below).
On May 24, 2000 after the close of trading on the NYSE, the Company issued a
press release announcing that it had retained Wachovia Securities to assist the
Company in maximizing stockholder value and, in particular, to explore
strategic alternatives for the Company, including a possible merger or
acquisition of the Company. On that date, the Company's Voting Common Stock
closed at a price of $4.31 per share on the NYSE.
Beginning the week of June 5, 2000 and continuing through the early summer
of 2000, Wachovia Securities contacted 79 parties to determine their level of
interest in a potential transaction with the Company. Of those contacts, 45
parties indicated an interest in exploring the potential opportunity and were
sent packages containing publicly-available information related to the Company.
After reviewing such information, 33 parties (including potential strategic
and financial buyers, both domestic and foreign) expressed a continuing
interest in exploring the opportunity. Each of these interested parties was
asked to sign a confidentiality agreement prior to receiving a Confidential
Information Memorandum ("CIM") on the Company containing non-public information.
Beginning the week of July 31, 2000, CIMs were sent to each of these 33
parties. The Parent was one of the parties that requested information about the
Company and was sent a CIM in August 2000, following the execution of the
Company Confidentiality Agreement. Following review of the CIM, each of the
parties was asked to submit to Wachovia Securities a non-binding, preliminary
indication of interest related to a potential transaction with the Company.
Wachovia Securities ultimately received initial indications of interest from
seven (including the Parent) of the 33 parties who received a CIM. Two of these
indications expressed an interest in purchasing only a portion of the Company's
operations, and the remaining five (including the Parent) expressed an interest
in a transaction involving the entire Company. The value of the five
indications of interest for the entire Company ranged from $4.73 per share to
$8.50 per share.
8
At a meeting on August 10, 2000, the Board reviewed the status of the
Wachovia Securities strategic alternatives process, including the parties who
had expressed indications of interest in a transaction. After discussing these
indications of interest, the Board determined to proceed with further
discussions with the four parties (including the Parent) who submitted the
highest indications of value for a transaction involving the entire Company.
Each of these four parties was invited to meet with the Company's senior
management and conduct preliminary due diligence investigations on the Company.
These visits and due diligence investigations were conducted during September
and October 2000. Following preliminary due diligence and management visits,
each of the four parties was asked to submit to Wachovia Securities by October
12, 2000 a firm proposal related to a potential transaction with the Company.
In October 2000, Mr. Kittredge proposed several transaction structures to
Mr. Upbin. After review of the information received from the Company and
discussions with Wachovia Securities and representatives of the Company, the
Parent informed Mr. Kittredge that the timing was not right for the Parent to
pursue a transaction with the Company. None of the other three parties
submitted a firm proposal for a potential transaction with the Company.
Also in October 2000, the Company was contacted by a representative of a
financial buyer group organized by an apparel industry advisor familiar to Mr.
Solar ("Buyer A"). Buyer A had not previously been contacted by the Company or
Wachovia Securities. Buyer A expressed interest in learning more about the
Company and the opportunity for a potential transaction. On October 12, 2000,
Buyer A executed a confidentiality agreement and, during October and November
2000, the Company's management held several discussions with a representative
of Buyer A.
At a meeting on November 9, 2000, the Board discussed, among other things,
the status of the Wachovia Securities strategic alternatives process.
On November 20, 2000, Buyer A submitted a written indication of interest to
acquire all of the shares of the Company at a price to be negotiated that would
not be less than four times the Company's adjusted EBITDA as of the twelve
months ended September 30, 2000. In addition, Buyer A indicated that in the
proposed transaction the Company would be capitalized by an equity investment
of approximately $30 million, and that a financing source had expressed
interest in providing the senior secured financing required to complete the
transaction. After discussing Buyer A's indication of interest with the Company
and CVC, Wachovia Securities informed Buyer A that the Company was interested
in continuing discussions with respect to a potential transaction.
On December 5, 2000, the Company conducted a management visit with
representatives of Buyer A, its potential debt and equity financing sources and
its accountants.
On December 29, 2000, Wachovia Securities received a revised written
indication of interest from Buyer A that specified a purchase price of $120
million in cash for all of the approximately 16,950,000 outstanding shares of
Company Common Stock, but that neglected to account for the warrant to purchase
2,958,503 shares of Class B Common Stock then held by CMP (and subsequently
exercised in August 2001), an affiliate of CVC. After discussing this proposal
with the Company and CVC, Wachovia Securities instructed Buyer A to submit a
revised proposal to fully account for all outstanding options and warrants and
to increase the $120 million purchase price.
On January 16, 2001, Wachovia Securities received from Buyer A a revised
written proposal to acquire all of the outstanding common stock, warrants and
other equity securities of the Company for $130 million in cash, which implied
a purchase price of $6.50 per share. After discussing this revised offer with
the Company and CVC, Wachovia Securities again instructed Buyer A to resubmit
its proposal with a higher purchase price.
9
On January 30, 2001, Wachovia Securities received a letter from Buyer A
regarding its proposed transaction. In this iteration, the purchase price
provided that holders of the Company's equity securities would receive (a)
$6.50 per share in cash, (b) an aggregate of $10 million in the form of
subordinated promissory notes that would accrue interest at 10% per annum to be
payable in kind and be due on the one-year anniversary of the repayment of the
term indebtedness used to effect the transaction (the "Subordinated Promissory
Notes") and (c) warrants to purchase a number of shares of common stock of the
Company equal to 3% of the Company's issued and outstanding common stock after
the transaction at an exercise price of no less than $7.00 (the "New
Warrants"). This proposal implied an aggregate purchase price of approximately
$140 million. After discussing this proposal with the Company and CVC, Wachovia
Securities instructed Buyer A to withdraw this offer in favor of a revised
structure that would provide full liquidity for all of the Company's public
stockholders.
On February 6, 2001, Wachovia Securities received a term sheet from Buyer A
summarizing the principal terms of a revised proposal for the acquisition of
the Company. The term sheet provided that holders of the Company's equity
securities (other than CVC and its affiliates) would receive $7.00 per share in
cash, and that CVC and its affiliates would receive (a) $6.15 per share in
cash, (b) $10 million of Subordinated Promissory Notes and (c) the New
Warrants. This proposal also implied an aggregate purchase price of
approximately $140 million. After discussing this proposal with the Company and
CVC, Wachovia Securities informed Buyer A that an offer in which all
stockholders would not receive the same consideration would be unacceptable to
the Company and CVC, and that Buyer A should resubmit its offer accordingly.
On February 14, 2001, the Board met and discussed, among other things, the
status of negotiations with Buyer A. The Board resolved, among other things,
that the Company was authorized and directed to continue with negotiations
involving Buyer A. In addition, in order to streamline the decision-making
process and to exclude members of management who might have had contact, and
contemplated participating in a transaction, with potential buyers, the Board
also resolved to form a special committee of the Board (the "Special
Committee") to evaluate, negotiate and approve of the terms and conditions of
any proposed acquisition of the Company, but did not appoint any directors to
the Special Committee at that time.
On February 21, 2001, after further negotiations and consultation, the
Company, CVC and Buyer A executed an exclusivity agreement that contemplated an
acquisition of the Company by Buyer A based on a purchase price of $6.79 per
share in cash to all stockholders, which implied an aggregate purchase price of
$135 million. The exclusivity agreement provided Buyer A with a 45-day period
of exclusivity to complete its due diligence, finalize its financing, and
negotiate the terms and conditions of a merger agreement.
Buyer A's exclusivity period expired on April 7, 2001 without Buyer A making
a definitive proposal, and thereafter the Company and Wachovia Securities
continued to work toward a definitive agreement with Buyer A on a non-exclusive
basis.
In April 2001, after discussions between Mr. Kittredge and a financial buyer
group organized by a private equity investor familiar to Mr. Kittredge ("Buyer
B"), Wachovia Securities received an oral indication of interest in acquiring
the Company from Buyer B. Buyer B had not previously been contacted by the
Company or Wachovia Securities. Following the execution of a confidentiality
agreement on April 27, 2001, Buyer B conducted numerous due diligence visits
with the Company's senior management over the next several months.
On May 15, 2001, the Board met and appointed the following three
non-management directors to the Special Committee: John Weber, a representative
of CVC, who was appointed Chairman of the Special Committee; Lawrence R. Glenn;
and James P. Manning.
On June 13, 2001, Wachovia Securities and Mr. Weber met with representatives
of Buyer B to discuss a possible transaction. Buyer B's representatives
preliminarily indicated that they contemplated paying a cash purchase price of
$6.52 per share to the Company's stockholders, other than CVC and its
affiliates. Under this preliminary proposal, CVC and its affiliates would
receive $15 million of non-redeemable, non-voting preferred
10
stock that would accrue interest at 12% per annum to be payable in kind (the
"Preferred Stock"), plus an amount of cash equal to $6.52 per share times the
number of shares held by CVC and its affiliates less the aggregate face value
of the Preferred Stock. At that meeting, Wachovia Securities informed Buyer B
that it should submit a written proposal if it had a serious interest in a
transaction.
On July 18, 2001, the Company publicly announced that as a result of
deteriorating economic conditions and short-term business trends, it expected
revenue and earnings per share for the second quarter and full year to be lower
than it had previously anticipated. As a result of this change, the Company
revised its internal financial estimates for the periods beyond fiscal year
2000.
These revised estimates were delivered to Buyer A and Buyer B on July 2,
2001, along with a request for each party to submit a definitive proposal to
acquire the Company. The deadline for such definitive proposals was set for
July 20, 2001, and such proposals were submitted by Buyer A and Buyer B by that
date. After receiving the proposals of Buyer A and Buyer B, Wachovia Securities
contacted each of Buyer A and Buyer B to determine the proposed timetable,
status of financing, due diligence and other contingencies with respect to
their respective proposed transactions. Wachovia Securities also talked with
each of the institutions that Buyer A and Buyer B listed as potential financing
sources for their respective proposals.
Buyer B proposed a one-step merger and offered two consideration
alternatives: (a) $6.25 per share in cash to all stockholders or (b) $6.00 per
share to CVC and its affiliates and $6.70 per share to the Company's other
stockholders. Both alternatives implied an aggregate purchase price of
approximately $125 million for the Company. In addition, under both scenarios,
CVC and its affiliates would be required to take the Preferred Stock as a
portion of its merger consideration instead of cash. In response to Buyer B's
proposal, Wachovia Securities requested that Buyer B submit an additional
proposal that would provide for all of the Company's stockholders to receive
the same consideration in the transaction, but Buyer B declined to submit such
a proposal.
Buyer A's proposal reiterated its purchase price of $135 million, or
approximately $6.79 per share, structured as a cash tender offer followed by a
second step merger. The proposed transaction provided for all stockholders to
receive identical consideration.
On July 24, 2001, the Company received a letter from Buyer A evidencing the
interest of its investor group to participate in Buyer A's proposed transaction
with up to $30 million in equity financing.
On July 27, 2001, the Board met and decided to remove Mr. Glenn from the
Special Committee because he was not available at that time due to other
commitments, and to appoint Richard M. Cashin, Jr. to the Special Committee in
replacement of Mr. Glenn.
Later on July 27, 2001, the Special Committee met to consider the respective
proposals of Buyer A and Buyer B. Based on the higher price of Buyer A's
proposal, the fact that CVC had indicated that it was unwilling to accept
different consideration than the Company's other stockholders, the Special
Committee's belief that Buyer A had a greater likelihood of obtaining the
requisite equity and debt financing for its proposal than Buyer B, and the fact
that Buyer A had completed more of its due diligence than Buyer B, the Special
Committee instructed Wachovia Securities and Kirkland & Ellis, legal counsel to
the Special Committee ("K&E"), to proceed toward the negotiation of a
definitive merger agreement with Buyer A.
On August 16, 2001, Buyer B withdrew its proposal.
During August, September and October 2001, K&E and Buyer A's legal counsel
negotiated the terms of a definitive merger agreement, and Buyer A and its
financing sources conducted their due diligence reviews of the Company.
On November 8, 2001, Buyer A approached Wachovia Securities regarding a
reduction in the $6.79 per share purchase price it would be willing to pay for
the Company. Specifically, Buyer A proposed to pay $6.29
11
per share or an aggregate purchase price not to exceed $125 million. This new
proposal was accompanied by a proposal letter from a recognized financial
institution evidencing interest in providing up to $95 million in senior
secured debt financing for Buyer A's proposed transaction, and confirmation
that Buyer A's investors were still interested in providing up to $30 million
in equity financing.
On November 9, 2001, Wachovia Securities informed Buyer A of the Special
Committee's interest in continuing discussions toward the negotiation of a
definitive merger agreement under the revised proposal of $6.29 per share.
During November and December 2001, negotiations on the definitive merger
agreement and due diligence by Buyer A continued, with Buyer A and its
financing sources making numerous due diligence visits to the Company.
On November 20, 2001, Wachovia Securities contacted Buyer A and, at the
instruction of the Special Committee, requested that Buyer A's senior lenders
promptly inform Wachovia Securities and the Special Committee of the specific
areas of due diligence remaining and the timeframe in which they proposed to
complete their investigation and provide Buyer A with an unconditional
financing commitment.
On November 27, 2001, Buyer A forwarded to Wachovia Securities a letter from
Buyer A's senior lenders providing a status update on such lender's due
diligence and indicating the additional areas of due diligence that such
lenders needed to complete.
On December 14, 2001, Buyer B communicated to Wachovia Securities that it
would be willing to submit a new proposal similar in price and structure to its
earlier proposal of July 19, 2001, but only on the following conditions: (a)
its bid would be subject to financing to be arranged within 45 days, and (b) it
would require a break-up fee of $250,000 if the Company solicited or accepted
another bid during the 45-day financing period, which break-up fee would be
increased to $1.5 million after notice to the Company that Buyer B's financing
was in place. Wachovia Securities subsequently informed Buyer B that the
Special Committee had not accepted its conditions for submitting a new
proposal, but that the Special Committee would consider any proposal from Buyer
B that was not subject to the payment of a break-up fee.
On December 21, 2001, the Special Committee met to discuss Buyer A's
proposed timeline for the completion of its transaction.
In January 2002, Buyer A informed Wachovia Securities that the financial
institution with whom it was working declined to provide the senior secured
financing on terms acceptable to Buyer A. At that time, Buyer A informed
Wachovia Securities that it was still interested in acquiring the Company and
would continue to pursue other financing alternatives.
Also in January 2002, Mr. Kittredge contacted Mr. Upbin to determine if the
Parent would be interested at that time in pursuing a possible strategic
transaction with the Company, and the two met in New York on January 28, 2002
to discuss the matter, during which meeting Mr. Kittredge delivered to Mr.
Upbin updated internal financial estimates of the Company for the periods
beyond fiscal year 2000. In a letter dated January 31, 2002, Mr. Upbin
indicated to Mr. Kittredge that the Parent was interested in pursuing a
transaction with the Company at a purchase price of $6.70 per share, payable
50% in cash and 50% in shares of newly-issued Parent Common Stock.
On February 1, 2002, Mr. Kittredge relayed this information to the Special
Committee and, later that day, the Special Committee met to discuss this
proposal and to discuss Buyer A's inability to obtain senior secured financing
for its transaction. The Special Committee decided to proceed with discussions
with the Parent to ascertain the reliability of its proposal and the level of
due diligence completed, and to request that the purchase price be increased.
On February 4, 2002, Mr. Kittredge contacted Mr. Upbin and informed him that
the Special Committee requested that the Parent increase its proposed purchase
price.
12
On February 5, 2002, Mr. Upbin agreed to raise the purchase price to $6.85
per share, paid in cash and shares of Parent Common Stock as described above,
subject to the Company entering into an exclusivity agreement with the Parent.
On February 6, 2002, the Special Committee met and authorized the Company to
enter into an exclusivity agreement with the Parent that contemplated an
acquisition of the Company at a purchase price of $6.85 per share.
On February 7, 2002, with the approval of the Special Committee, the Company
and the Parent entered into the No-Shop Agreement, which provided the Parent
with a 30-day term of exclusivity and extended the term of the Company
Confidentiality Agreement.
The Parent and its representatives subsequently conducted numerous due
diligence visits to the Company, including two formal management presentations
in February 2002 that were attended by senior officers of the Purchaser and the
Parent. In addition, the Parent and its advisors conducted extensive business,
legal, financial and environmental due diligence investigations of the Company
and its operations during this period. The Parent's legal counsel and K&E also
began negotiations of the definitive merger agreement during this period.
On March 7, 2002, the Parent advised the Company that its board of directors
unanimously voted to proceed with the transaction, subject to satisfactory
negotiation of a definitive merger agreement. In addition, the Parent requested
an extension of the No-Shop Agreement for an additional 30 days to complete its
due diligence and negotiations. Based on the Parent's progress to that date,
the Special Committee granted a 30-day extension to the No-Shop Agreement on
March 11, 2002.
On March 25, 2002, the Company and the Parent entered into the Parent
Confidentiality Agreement.
On April 1, 2002, Wachovia Securities and Mr. Weber attended a management
presentation held by the Parent at the Parent's headquarters in St. Louis, MO
for the purpose of performing certain due diligence investigations of the
Parent.
On April 8, 2002, the March 11, 2002 extension to the No-Shop Agreement
expired. Also on that date, representatives of the Company and the Parent,
along with their advisors, participated in a conference call, during which the
Parent communicated its need to complete certain due diligence items as well as
the negotiation of certain business issues, and requested a further extension
of exclusivity.
On April 9, 2002, the Special Committee met to discuss the status of the
Parent's due diligence review, and declined the Parent's request to extend
exclusivity until such time as the scope and timing of Parent's additional due
diligence could be determined. The Special Committee determined that any
additional extension of exclusivity should coincide with the time period
necessary for the Parent's completion of its due diligence and the negotiation
of a definitive merger agreement.
On April 22, 2002, the Parent again requested a further extension of the
No-Shop Agreement to finalize its due diligence and negotiations of the
definitive merger agreement and presented a definitive timetable for the
completion of its due diligence and the negotiation and execution of the
definitive merger agreement. On April 24, 2002, the Special Committee agreed to
extend the No-Shop Agreement to May 10, 2002.
On May 8, 2002, the Parent requested a further extension of the No-Shop
Agreement until May 15, 2002. Such extension was granted that same day.
On May 10, 2002, the Special Committee discussed the open issues concerning
the Merger Agreement, and K&E and the counsel to the Parent continued to
finalize the documentation.
During the afternoon of May 13, 2002, the Special Committee held a meeting
regarding the proposed merger agreement and fairness opinion from Wachovia
Securities. At that meeting, K&E reviewed the directors'
13
fiduciary duties in considering the proposed transaction and reviewed the
material terms and conditions of the Merger Agreement. Wachovia Securities
reviewed a detailed financial presentation and provided its oral opinion to the
Special Committee that, as of the date of its opinion and based upon and
subject to certain matters, the Offer Consideration to be received by the
unaffiliated stockholders of the Company in the Offer and the Merger pursuant
to the Merger Agreement is fair to such stockholders, from a financial point of
view. After further discussion and consideration, the Special Committee
determined that each of the Offer and the Merger are fair to, and in the best
interests of, the stockholders of the Company, and recommended to the Board
that it approve the Merger Agreement and the transactions contemplated thereby
and recommend acceptance of the Offer and adoption of the Merger Agreement by
the stockholders of the Company. Mr. Weber abstained from the vote of the
Special Committee to allow independent, non-CVC, non-management directors to
determine the Special Committee's recommendations to the Board and the
Company's stockholders.
In the afternoon of May 14, 2002, the Board held a meeting to consider the
recommendations of the Special Committee. At that meeting, K&E gave its legal
presentation, and Wachovia Securities reviewed a detailed financial
presentation and provided its oral opinion (subsequently confirmed in writing)
to the Board that, as of the date of its opinion and based upon and subject to
certain matters, the Offer Consideration to be received by the unaffiliated
stockholders of the Company in the Offer and the Merger pursuant to the Merger
Agreement is fair to such stockholders, from a financial point of view. After
further discussion and consideration, the Board unanimously determined that
each of the Offer and the Merger are fair to, and in the best interests of, the
stockholders of the Company, approved the Merger Agreement and the transactions
contemplated thereby, and recommended acceptance of the Offer and adoption of
the Merger Agreement by the stockholders of the Company.
On May 15, 2002, the Merger Agreement was signed and delivered, and the
Company and the Parent each issued a press release announcing the transaction.
On May 24, 2002, the Purchaser commenced the Offer.
Reasons for the Recommendations of the Company's Board
A copy of the letter to the Company's stockholders communicating the
recommendation of the Board is filed as Exhibit 7 hereto and is incorporated by
reference herein.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending acceptance of the Offer and adoption of the Merger Agreement
by the stockholders of the Company, the Board considered a number of factors
including:
1. The presentation to the Board and the opinion of Wachovia Securities,
the Board's financial advisor, to the effect that, as of the date of its
opinion and based upon and subject to certain matters stated therein, the
Offer Consideration to be received by the unaffiliated stockholders of the
Company in the Offer and the Merger pursuant to the Merger Agreement is fair
to such stockholders, from a financial point of view. The full text of such
written opinion of Wachovia Securities is attached as Annex A hereto, and is
incorporated herein by reference. Such opinion should be read in its
entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and limitations of the review
undertaken by Wachovia Securities in connection with such opinion.
2. The Board's familiarity with, and management's view of, the Company's
business, financial condition, results of operations, current business
strategy and future prospects, the nature of the markets in which the
Company operates, including their growth prospects, the Company's positions
in such markets and the historical and current market prices for the Company
Common Stock.
3. A comparison of the risks and benefits of the Merger with the risks
and benefits of the other strategic alternatives available to the Company,
including continuing as an independent entity, as well as a
14
consideration of the long term interests of the Company. Of the alternatives
available to the Company, the Merger was determined by the Board to be the
alternative that would yield the best results to the Company's public
stockholders from a financial point of view. The Merger was determined to be
more favorable to the public stockholders because the Merger would provide
the Company's public stockholders with the opportunity to receive cash and
Parent Common Stock for their Company Common Stock, which is currently less
liquid than the Parent Common Stock.
4. The view of the Board, based in part upon the presentation of Wachovia
Securities outlining the scope of its efforts to explore strategic
alternatives for the Company, regarding the likelihood of a superior offer
arising, the efforts of Wachovia Securities and the Company over the last 24
months to locate other potential merger candidates, the fact the Company had
held discussions with other parties, including all of the parties it
reasonably considered to be potential interested parties, and that such
discussions had resulted in only two other parties making serious proposals,
which both involved terms that were less favorable than those of the Offer.
5. The financial and other terms and conditions of the Offer, the Voting
and Tender Agreement, the Merger and the Merger Agreement, including the
provisions of the Merger Agreement that, subject to the terms and conditions
of the no solicitation provisions and the termination fee that are described
in the summary of the Merger Agreement contained in the Preliminary
Prospectus under the heading "The Merger Agreement" and incorporated herein
by reference, (i) permit the Company to respond to certain unsolicited,
written, bona fide proposals relating to an acquisition of the Company by
furnishing information and participating in discussions or negotiations if,
at any time the Board determines in good faith, after consultation with
independent legal counsel, that the failure to do so would be inconsistent
with its fiduciary duties to the Company or the Company's stockholders under
applicable law, and (ii) permit the Board or any committee thereof to cause
the Company to enter into an agreement with a third party whereby such third
party would acquire for consideration consisting of cash and/or securities,
more than 20% of the shares of Company Common Stock then outstanding or all
or substantially all the assets of the Company and otherwise on terms that
the Board determines in its good faith judgment (after consultation with a
financial advisor of nationally recognized reputation) to be more favorable
to the Company's stockholders than the Offer and the Merger and is
reasonably capable of being completed and financed in a timely manner, in
the event that the Board or any committee thereof determines in good faith,
after consultation with outside legal counsel, that the failure to do so
would be inconsistent with its fiduciary duties to the Company or the
Company's stockholders under applicable law.
6. The fact that the Offer and the Merger provide for a prompt tender
offer for all shares of Company Common Stock to be followed by the Merger
for the same consideration, thereby enabling the Company's stockholders, at
the earliest possible time, to obtain the benefits of the transaction in
exchange for their shares of Company Common Stock.
7. The opportunity for the Company's stockholders to participate, as
holders of Parent Common Stock, in a larger apparel company that is more
diversified with respect to product, brand and customer base, including
participating in the value that may be generated through the combination of
the two companies.
8. The arm's-length negotiations between the Company on the one hand, and
the Parent and the Purchaser on the other hand, that resulted in the Offer
Consideration.
9. The fact that the Parent's and the Purchaser's obligations under the
Offer are not subject to any financing condition.
10. The impact of the Offer and the Merger on existing stock options and
other benefits of Company personnel.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Offer, the Board
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors.
15
Opinion of the Company's Financial Advisor
On May 22, 2000, the Board retained Wachovia Securities to act as its
financial advisor in connection with exploring various strategic alternatives
to enhance the Company's stockholder value. On May 13, 2002, the Special
Committee held a meeting, in which Wachovia Securities participated, to
evaluate the proposed Merger Agreement. At that meeting, Wachovia Securities
rendered its oral opinion that, as of that date and based upon and subject to
factors and assumptions to be set forth in its opinion, the Offer Consideration
to be received by the unaffiliated stockholders of the Company in the Offer and
the Merger pursuant to the Merger Agreement is fair to such stockholders, from
a financial point of view. On May 14, 2002, the Board held a meeting, in which
Wachovia Securities participated, to evaluate the proposed Merger Agreement. At
that meeting, Wachovia Securities rendered its oral opinion (subsequently
confirmed in writing) that, as of that date and based upon and subject to
factors and assumptions to be set forth in its opinion, the Offer Consideration
to be received by the unaffiliated stockholders of the Company in the Offer and
the Merger pursuant to the Merger Agreement is fair to such stockholders, from
a financial point of view.
In determining the value of the Offer Consideration for purposes of its
analysis, Wachovia Securities assumed that each share of Company Common Stock
would be purchased for a price of $6.85, payable in cash consideration of $3.42
per share (subject to certain adjustments as set forth in the Merger
Agreement), and in stock consideration of $3.43 per share, consisting of a
certain number of shares of Common Stock, par value $0.01 per share of the
Parent, calculated as set forth in the Merger Agreement. Wachovia Securities
further assumed, as set forth in the Merger Agreement, that following purchase
of the Company Common Stock pursuant to the Offer, the Company will merge with
and into Purchaser and each of the shares of Company Common Stock not acquired
in the Offer will be converted into the right to receive the Offer
Consideration.
The full text of Wachovia Securities' opinion, which describes, among other
things, the assumptions made, matters considered, and qualifications and
limitations on the review undertaken by Wachovia Securities, is attached as
Annex A hereto, and is incorporated herein by reference. Wachovia Securities'
opinion is directed solely to the Company's Board and addresses only the
fairness to the unaffiliated stockholders of the Company, from a financial
point of view, of the Offer Consideration to be received pursuant to the Merger
Agreement by such stockholders in the Offer and the Merger. The opinion does
not address any other aspect of the Offer and the Merger or any related
transaction, nor does the opinion address the merits of the underlying decision
by the Company and the Board to enter into the Merger Agreement nor the
relative merits of the Offer and the Merger compared with other business
strategies that may have been considered by the Company and the Board. The
opinion shall not constitute a recommendation to any stockholder of the Company
as to whether or not such stockholder should tender such stockholder's shares
of Company Common Stock in connection with the Offer. The Company's
stockholders are urged to, and should, read Wachovia Securities' opinion
carefully and in its entirety.
In arriving at its opinion, Wachovia Securities, among other things:
. Reviewed the Merger Agreement, including the financial terms of the Offer
and the Merger;
. Reviewed certain publicly available business, financial and other
information regarding the Company and the Parent;
. Reviewed certain business, financial and other information regarding the
Company and its prospects that was furnished to Wachovia Securities by,
and that Wachovia Securities discussed with, management of the Company;
. Reviewed certain business, financial and other information regarding the
Parent and its prospects that was furnished to Wachovia Securities by,
and that Wachovia Securities discussed with, management of the Parent;
. Reviewed the current and historical market prices and trading activity of
the Company Common Stock and the Parent Common Stock;
16
. Compared the publicly available business, financial and other information
regarding the Company and the Parent with similar information regarding
certain other publicly traded companies that Wachovia Securities deemed
to be relevant;
. Compared the proposed financial terms of the Offer and the Merger with
the financial terms of certain other business combinations and
transactions that Wachovia Securities deemed to be relevant;
. Developed discounted cash flow models of the Company and the Parent;
. Reviewed the potential pro forma impact of the Offer and the Merger on
the Parent's financial statements;
. Analyzed the premiums paid for certain other business combinations and
transactions that Wachovia Securities deemed to be relevant; and
. Considered other information such as financial studies, analyses and
investigations, as well as financial and economic and market criteria
that Wachovia Securities deemed to be relevant.
In rendering its opinion, Wachovia Securities assumed and relied, without
independent verification, upon the accuracy and completeness of the foregoing
financial and other information and data publicly available or furnished to, or
otherwise reviewed or discussed with, it. With respect to the Company's
financial projections, Wachovia Securities assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgments of management as to the expected future financial performance of the
Company. Wachovia Securities discussed the Company's financial projections with
its management but assumed no responsibility for and expressed no view as to
the Company's financial projections or the assumptions upon which they were
based. With respect to the Parent's financial forecasts, Wachovia Securities
assumed that they had been reasonably prepared and reflected the best currently
available estimates and judgments of management as to the expected future
financial performance of the Parent. Wachovia Securities discussed the Parent's
financial projections with its management but assumed no responsibility for and
expressed no view as to the Parent's financial projections or the assumptions
upon which they were based. In arriving at its opinion, Wachovia Securities did
not engage in any physical inspections of the facilities of the Company or the
Parent or incorporate any conclusions with respect thereto. Wachovia Securities
has not made or been provided with any evaluations or appraisals of the assets
or liabilities of the Company or the Parent.
For purposes of rendering its opinion, Wachovia Securities assumed that the
Offer and the Merger will be consummated on the terms described in the Merger
Agreement, without waiver of any material terms or conditions, and that in the
course of obtaining any necessary legal, regulatory or third party consents
and/or approvals, no restrictions will be imposed that will have a material
adverse effect on the Offer and the Merger or other actions contemplated by the
Merger Agreement. Wachovia Securities further assumed that the Average Parent
Stock Price would not exceed $38.00. Wachovia Securities' opinion was
necessarily based on economic, market, financial and other conditions and the
information made available to it as of the date thereof. Although subsequent
developments may affect the opinion, Wachovia Securities does not have any
obligation to update, revise or reaffirm the opinion. Wachovia Securities did
not consider, nor did it express any opinion with respect to, the prices at
which the Company Common Stock or the Parent Common Stock will trade following
the announcement of the Offer or the price at which the Parent Common Stock
will trade following the consummation of the Offer and the Merger.
The consideration to be received by the Company's stockholders pursuant to
the Merger Agreement was determined by arms-length negotiations between the
Company and the Parent.
Analyses of Wachovia Securities
In performing its analyses, Wachovia Securities made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which
17
were beyond the control of Wachovia Securities, the Company and the Parent. Any
estimates contained in the analyses performed by Wachovia Securities are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which those businesses or
securities might actually be sold. Accordingly, these analyses and estimates
are inherently subject to substantial uncertainty. Wachovia Securities' opinion
was one of a number of qualitative and quantitative factors taken into
consideration by the Board in making its determination to enter into the Merger
Agreement. In addition, the Board did not rely on any single analysis in making
its determination. Consequently, the analyses described below should not be
viewed as determinative of the decision of the Board or the Company's
management with respect to the Offer and the Merger.
The summary that follows is not a complete description of the analyses
underlying Wachovia Securities' opinion or the presentation made by Wachovia
Securities to the Board but summarizes the material analyses performed and
presented in connection with its opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. Therefore, a fairness opinion is
not readily susceptible to partial analysis or summary description.
In arriving at its opinion, Wachovia Securities did not attribute any
particular weight to any analysis or factor that it considered, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. The financial analyses summarized below include information presented
in tabular format. Accordingly, Wachovia Securities believes that its analyses
and the summary of its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on the information
presented below in tabular format, without considering all analyses and factors
or the full narrative description of the financial analysis, including the
methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the process underlying its analyses and
opinion. The tables alone do not constitute a complete description of the
financial analyses.
The Company
Comparable Public Companies Trading Multiples Comparison. Wachovia
Securities compared financial, operating and stock market data of the Company
to the following publicly traded companies in the apparel industry:
Delta Apparel, Inc.
Delta Galil Industries, Inc.
Garan, Inc.
Haggar Corp.
OshKosh B'Gosh, Inc.
Oxford Industries, Inc.
Salant Corp.
Tropical Sportswear International Corp.
Utilizing publicly available information for each of the comparable
companies, Wachovia Securities calculated, among other things, the multiples,
based on closing stock prices on May 8, 2002, of:
Adjusted market value (defined as equity market value plus net debt) to sales
for the Company's latest twelve month ("LTM") period;
Adjusted market value to LTM earnings before interest and taxes ("EBIT");
Adjusted market value to LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"); and
Equity market value to calendar 2002 estimated net income.
18
The high multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 1.1x
Adjusted market value to EBIT.... 10.9x
Adjusted market value to EBITDA.. 8.5x
Equity market value to net income 15.1x
The low multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.3x
Adjusted market value to EBIT.... 6.5x
Adjusted market value to EBITDA.. 3.7x
Equity market value to net income 9.1x
The median multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.5x
Adjusted market value to EBIT.... 9.9x
Adjusted market value to EBITDA.. 6.1x
Equity market value to net income 10.0x
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Company Common Stock of $5.62 to $11.51. This
compares with the Offer Consideration of $6.85.
With regard to the comparable public companies analysis summarized above,
Wachovia Securities selected comparable public companies on the basis of
various factors, including the size of the public company and the similarity of
the lines of business. No public company used as a comparison, however, is
identical to the Company. Accordingly, these analyses are not purely
mathematical, but also involve complex considerations and judgments concerning
the differences in financial and operating characteristics of the comparable
companies and other factors. These factors could affect the public trading
value of the comparable companies to which the Company is being compared. Such
qualitative judgments are reflected in the Wachovia Securities opinion.
Comparable Transactions Analysis. Using publicly available information,
Wachovia Securities considered selected transactions in the apparel industry
that it deemed to be relevant. Specifically, Wachovia Securities reviewed the
following transactions:
Acquiror Target
-------- ------
Berkshire Hathaway, Inc. Fruit of the Loom, Ltd.
Heartland Industrial Partners Springs Industries
Berkshire Partners William Carter Co.
Tropical Sportswear International Corp. Duck Head Apparel Co.
Jones Apparel Group, Inc. McNaughton Apparel Group, Inc.
LVMH Donna Karan International
Delta Galil Industries Wundies Industries, Inc.
New England Business Services, Inc. PremiumWear, Inc.
Sara Lee Corporation Courtaulds Textiles PLC
H.I.G. Capital Management Happy Kids, Inc.
Warnaco Group Authentic Fitness Corp.
Tefron Ltd. Alba-Waldensian, Inc.
19
Using publicly available information concerning each of the target
companies, Wachovia Securities calculated, based on historical financial
information for the latest reported twelve months immediately preceding the
announcement of each of the transactions, the following multiples.
The high multiples for the selected comparable transactions were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 1.3x
Adjusted market value to EBIT.... 9.7x
Adjusted market value to EBITDA.. 7.7x
Equity market value to net income 17.7x
The low multiples for the selected comparable transactions were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.3x
Adjusted market value to EBIT.... 4.6x
Adjusted market value to EBITDA.. 3.5x
Equity market value to net income 7.3x
The median multiples for the selected comparable transactions were as
follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.6x
Adjusted market value to EBIT.... 8.0x
Adjusted market value to EBITDA.. 5.2x
Equity market value to net income 11.2x
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Company Common Stock of $3.59 to $10.65. This
compares with the Offer Consideration of $6.85.
No company utilized in the comparable transactions analysis is identical to
the Company, nor is any transaction identical to the Offer and the Merger.
Therefore, a purely quantitative comparable transaction analysis would not be
dispositive in the context of the Offer and the Merger and an appropriate use
of such analysis involves qualitative judgments concerning the differences
between the characteristics of these transactions and the Offer and the Merger
that would affect the value of the target companies and of the Company. Such
qualitative judgments are reflected in the Wachovia Securities opinion.
Discounted Cash Flow Analysis. Wachovia Securities performed discounted
cash flow analyses to estimate a range of present values per share of the
Company Common Stock, assuming the Company continued to operate as a
stand-alone entity. Wachovia Securities determined the range of present values
of the Company by calculating the sum of (i) the present value of projected
free cash flows of the Company over the five year period 2002 through 2006, and
(ii) the present value of the estimated terminal value of the Company in year
2006. In calculating a terminal value for the Company, Wachovia Securities
applied multiples of the Company's projected 2006 EBITDA ranging from 3.5x to
5.5x. The projected free cash flows and EBITDA of the Company used by Wachovia
Securities in its analysis were provided by management (the "Management Case").
In addition, Wachovia Securities amended the projections provided by management
of the Company to create a sensitivity case (the "Sensitivity Case"). In the
Sensitivity Case, revenue growth was assumed to be zero and margins were held
constant. The free cash flows and terminal value were discounted to present
value using discount rates ranging from 10% to 14%. Wachovia Securities viewed
this range of discount rates as appropriate for companies with the risk
characteristics of the Company and confirmed the reasonableness of such
assumptions with the Company's management.
20
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Company Common Stock under the Management Case of
$7.41 to $10.20, and an implied value per share of Company Common Stock under
the Sensitivity Case of $6.01 to $7.95. These compare with the Offer
Consideration of $6.85.
The discounted cash flow analysis of the Company does not necessarily
indicate actual values or actual future results and does not purport to reflect
the prices at which any securities may trade at the present or at any time in
the future. The range of discount rates applied to the Company referred to in
the above paragraph was based on several factors, including Wachovia
Securities' knowledge of the Company and the industry in which it operates, the
business risk of the Company, and the overall interest rate environment as of
May 8, 2002. Discounted cash flow analysis is a widely used valuation
methodology, but the results of this methodology are highly dependent on the
numerous assumptions that must be made, including earnings growth rates,
terminal values, and discount rates.
Leveraged Buyout Analysis. Using the same financial projections employed in
the Management Case discounted cash flow analysis described above, Wachovia
Securities performed a leveraged buyout analysis for the Company. Wachovia
Securities assumed that a financial sponsor investing in the Company would
expect an annual internal rate of return for five years on its invested equity
of between 30% to 50%. Wachovia Securities also assumed that the leveraged
buyout of the Company could be financed with senior debt (at a 7% interest
rate) in a range of 2.0x to 3.0x the LTM EBITDA of the Company.
Based on the foregoing, Wachovia Securities determined an implied value per
share of Company Common Stock of $5.14 to $7.05. This compares with the Offer
Consideration of $6.85.
The leveraged buyout analysis of the Company does not necessarily indicate
actual values or actual future results and does not purport to reflect the
prices at which any securities may trade at the present or at any time in the
future. The expected annual internal rates of return and leverage ratios
referred to in the above paragraph were based on several factors, including
Wachovia Securities' knowledge of the Company and the industry in which it
operates, the business risk of the Company, and the overall lending and private
equity markets as of May 8, 2002. The results of this methodology are highly
dependent on the numerous assumptions that must be made, including earnings
growth rates, expected internal rates of return, and leverage ratios.
Premiums Paid Analysis. Wachovia Securities prepared a premiums paid
analysis by multiplying various of the Company's historical closing stock
prices by the median premium paid in 37 transactions involving publicly traded
U.S. targets in the non-technology manufacturing sector announced between
January 1, 1998 and May 8, 2002 with adjusted market values between $100
million and $200 million. For the Company and each of the 37 U.S. targets,
Wachovia Securities determined the premium paid by comparing the consideration
offered to the Company and each of the 37 U.S. targets with the closing stock
price of each such company one day, one week, 30 days, 60 days and 90 days
prior to the announcement date of each transaction, respectively. For the
Company, Wachovia Securities assumed two separate dates in which to calculate
the implied value per share of Company Common Stock. The first date was May 8,
2002, which was assumed to be the last full trading day prior to announcement
of the signing of the Merger Agreement. The second date was May 24, 2000, which
was the day the Company publicly announced that it had retained Wachovia
Securities to explore strategic alternatives.
The median premiums paid in the 37 transactions analyzed by Wachovia
Securities were as follows:
Premium to: Median
----------- ------
One Day Prior to Announcement. 30.5%
One Week Prior to Announcement 39.0%
30 Days Prior to Announcement. 44.1%
60 Days Prior to Announcement. 44.8%
90 Days Prior to Announcement. 38.4%
21
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Company Common Stock of $9.95 to $11.55 based on
the May 8, 2002 date and $5.59 to $6.48 based on the May 24, 2000 date. This
compares to the Offer Consideration of $6.85.
No target company utilized in the premiums paid analysis is identical to the
Company, nor is any transaction identical to the Offer and the Merger.
Therefore, a purely quantitative premiums paid analysis would not be
dispositive in the context of this merger and an appropriate use of such
analysis involves qualitative judgments concerning the differences between the
characteristics of these transactions and the Offer and the Merger that would
affect the value of the target companies and the Company. Such qualitative
judgments are reflected in Wachovia Securities' opinion.
Historical Stock Price Performance Analysis. Wachovia Securities analyzed
the closing stock prices of the Company Common Stock at various periods since
the Company's initial public offering on June 10, 1998. Based on this analysis,
Wachovia Securities calculated the following values of the Company Common Stock
during this period.
High................ $16.19
Low................. $ 4.00
Average............. $ 6.60
Close on May 8, 2002 $ 6.80
These compare with the Offer Consideration of $6.85.
Wachovia Securities analyzed the closing stock prices of the Company Common
Stock at various periods since the announcement of the engagement of Wachovia
Securities by the Board on May 24, 2000. Based on this analysis, Wachovia
Securities calculated the following values of the Company Common Stock during
this period.
High................ $7.63
Low................. $4.31
Average............. $5.96
Close on May 8, 2002 $6.80
These compare with the Offer Consideration of $6.85.
The Parent
Comparable Public Companies Trading Multiples Comparison. Wachovia
Securities compared financial, operating and stock market data of the Parent to
the following publicly traded companies in the apparel industry:
Guess?, Inc.
Jones Apparel Group, Inc.
Liz Claiborne, Inc.
Nautica Enterprises, Inc.
Oxford Mills
Philips Van Heusen Corp.
POLO Ralph Lauren
Russell Corp.
Tommy Hilfiger Corp.
Tropical Sportswear International Corp.
VF Corporation
Utilizing publicly available information for each of the comparable
companies, Wachovia Securities calculated, among other things, the multiples,
based on closing stock prices on May 8, 2002, of:
Adjusted market value to LTM sales;
Adjusted market value to LTM earnings before interest and taxes;
Adjusted market value to LTM earnings before interest, taxes, depreciation and
amortization; and
Equity market value to calendar 2002 estimated net income.
22
The high multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 1.4x
Adjusted market value to EBIT.... 13.5x
Adjusted market value to EBITDA.. 8.6x
Equity market value to net income 15.5x
The low multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.4x
Adjusted market value to EBIT.... 8.2x
Adjusted market value to EBITDA.. 5.6x
Equity market value to net income 10.0x
The median multiples for the selected comparable companies were as follows:
Valuation Metric
----------------
Adjusted market value to sales... 0.9x
Adjusted market value to EBIT.... 10.5x
Adjusted market value to EBITDA.. 7.4x
Equity market value to net income 14.5x
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Parent Common Stock of $18.00 to $40.98. This
compares with the closing Parent Common Stock Price of $28.00 on May 8, 2002.
With regard to the comparable public company analysis summarized above,
Wachovia Securities selected comparable public companies on the basis of
various factors, including the size of the public company and the similarity of
the lines of business. No public company used as a comparison, however, is
identical to the Parent. Accordingly, these analyses are not purely
mathematical, but also involve complex considerations and judgments concerning
the differences in financial and operating characteristics of the comparable
companies and other factors. These factors could affect the public trading
value of the comparable companies to which the Parent is being compared. Such
qualitative judgments were reflected in the Wachovia Securities opinion.
Discounted Cash Flow Analysis. Wachovia Securities performed discounted
cash flow analyses to estimate a range of present values per share of Parent
Common Stock, assuming the Parent continued to operate as a stand-alone entity
without consummating the Offer and the Merger. Wachovia Securities determined
the range of present values of the Parent by calculating the sum of (i) the
present value of projected free cash flows of the Parent over the five year
period from fiscal 2003 through fiscal 2007, and (ii) the present value of the
estimated terminal value of the Parent in fiscal 2007. In calculating a
terminal value for the Parent, Wachovia Securities applied multiples of the
Parent's projected fiscal 2007 EBITDA ranging from 6.5x to 8.5x. The projected
free cash flows and EBITDA of the Parent used by Wachovia Securities in its
analysis were provided by management of the Parent (the "Parent Case"). In
addition, management of the Parent provided an alternative set of projections
that provided for the benefit of future acquisitions (the "Acquisition Case").
The free cash flows and terminal value were discounted to present value using
discount rates ranging from 9% to 13%. Wachovia Securities viewed this range of
discount rates as appropriate for companies with the risk characteristics of
the Parent and confirmed the reasonableness of such assumptions with the
Parent's management.
Based on the foregoing, Wachovia Securities determined a reference range for
an implied value per share of Parent Common Stock under the Parent Case of
$23.67 to $38.94, and an implied value per share of Parent Common Stock under
the Acquisition Case of $28.01 to $48.79. This compares with the closing Parent
Common Stock price of $28.00 on May 8, 2002.
23
The discounted cash flow analyses of the Parent does not necessarily
indicate actual values or actual future results and do not purport to reflect
the prices at which any securities may trade at the present or at any time in
the future. The range of discount rates applied to the Parent referred to in
the above paragraph was based on several factors, including Wachovia
Securities' knowledge of the Parent and the industry in which it operates, the
business risk of each company, and the overall interest rate environment as of
May 8, 2002. Discounted cash flow analysis is a widely used valuation
methodology, but the results of this methodology are highly dependent on the
numerous assumptions that must be made, including earnings growth rates,
terminal values, and discount rates.
Pro Forma Financial Impact. Wachovia Securities analyzed the pro forma
financial impact of the Merger on the Parent's GAAP earnings per share, among
other things. This analysis was based on the projected financial performance of
the Company for calendar 2002 and 2003 and for the Parent for fiscal 2003 and
fiscal 2004 provided by management of the Company and the Parent. This analysis
assumed an Average Parent Stock Price of $28.00 and did not assume any
synergies or make other operating adjustments. Based on the foregoing, Wachovia
Securities determined that the Offer and the Merger would have been accretive
to the Parent's pro forma GAAP earnings per share for the fiscal year ended
January 31, 2002 and would be accretive to the Parent's pro forma projected
GAAP earnings per share for the fiscal years 2003 and 2004.
Historical Stock Price Performance Analysis. Wachovia Securities analyzed
the closing stock prices of the Parent Common Stock since May 2, 1997. Based on
this analysis, Wachovia Securities calculated the following values of the
Company Common Stock during this period.
High................ $ 38.50
Low................. $ 14.38
Average............. $24.57
Close on May 8, 2002 $28.00
Miscellaneous
The Board retained Wachovia Securities based upon its experience and
expertise. Wachovia Securities is a nationally recognized investment banking
and advisory firm. As part of its investment banking business, Wachovia
Securities is regularly engaged in the valuation of businesses and securities
in connection with mergers, acquisitions, tender offers, divestitures,
leveraged buyouts, negotiated underwritings, secondary distributions of listed
and unlisted securities, and private placements.
Wachovia Securities is a trade name of First Union Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. Pursuant
to the Engagement Letter with Wachovia Securities dated May 22, 2000, the
Company agreed to pay Wachovia Securities (i) a retainer fee of $75,000, which
has already been paid, (ii) a fee of upon completion of the Offer and the
Merger, which fee will approximate $1,275,000, and (iii) a fee of $150,000 for
the rendering of the opinion, which fee is not contingent upon completion of
the Offer and the Merger. In addition, the Company has agreed to reimburse
Wachovia Securities from time-to-time for its reasonable out-of-pocket
expenses, including fees and disbursements of counsel, and to indemnify
Wachovia Securities and certain related parties against certain liabilities,
including certain liabilities under the federal securities laws, relating to,
or arising out of, its engagement. The terms of the fee arrangements with
Wachovia Securities, which the Company and Wachovia Securities believe are
customary in transactions of this nature, were negotiated at arms-length
between the Company and Wachovia Securities, and the Board was aware of the
nature of the fee arrangement, including the fact that a significant portion of
the fees payable to Wachovia Securities is contingent upon completion of the
transaction.
Wachovia Securities and its affiliates provide a full range of financial
advisory, securities and lending services in the ordinary course of business
for which it receives customary fees. In the ordinary course of business,
Wachovia Securities and its affiliates may actively trade or hold the
securities (including derivative securities) of the Company or the Parent for
its own account or for the account of its customers and, accordingly, may at
any time hold long or short positions in such securities. From time to time, in
the ordinary course of business Wachovia Securities may also provide research
coverage for the Company, the Parent and/or their affiliates.
24
(c) Intent to Tender. To the Company's knowledge after reasonable inquiry,
all of the Company's executive officers, directors and affiliates currently
intend to tender all shares of Company Common Stock held of record or
beneficially by them in the Offer, except that John D. Weber, a director of the
Company, intends to donate 7,300 shares of Voting Common Stock to a charitable
trust. The foregoing does not include any shares over which, or with respect to
which, any such executive officer, director or affiliate acts in a fiduciary or
representative capacity or is subject to the instructions of a third party with
respect to such tender or vote. No subsidiary of the Company beneficially owns
any shares of Company Common Stock.
Item 5. Persons/Assets, Retained, Employed, Compensated or Used.
Pursuant to a letter agreement dated May 22, 2000 (the "Engagement Letter"),
the Company retained Wachovia Securities to provide financial advisory services
in connection with several strategic alternatives available to the Company,
including any sale or similar transaction involving the assets or capital stock
of Company, any merger or consolidation involving the Company, or any
recapitalization or reorganization of the Company (each, a "Transaction").
Pursuant to the Engagement Letter, the Company is obligated to pay to Wachovia
Securities (a) a cash financial advisory fee of $75,000 (which was paid upon
the execution of the Engagement Letter) and (b) a transaction fee of 1% of the
aggregate transaction consideration paid by Parent, against which the $75,000
financial advisory fee will be credited. If the Company consummates the
Transaction described in this Statement, Wachovia Securities will receive a
transaction fee of approximately $1,275,000 pursuant to clause (b) of the
immediately preceding sentence.
In addition, pursuant to the Engagement Letter, the Company agreed to pay to
Wachovia Securities (a) a cash fee of $150,000 for the delivery of an opinion
as to the fairness, from a financial point of view, to the unaffiliated
stockholders of the Company of the consideration to be received in a
Transaction, and (b) Wachovia Securities' reasonable out-of-pocket expenses
incurred in connection with its role under the Engagement Letter or otherwise
arising out of or in connection with any actual or potential Transaction.
Pursuant to the Engagement Letter, the Company also agreed to indemnify
Wachovia Securities and certain related persons and entities against certain
liabilities and expenses arising out of Wachovia Securities' engagement or, if
such indemnification is unavailable to Wachovia Securities, then the Company
has agreed to contribute to the amount paid or payable by Wachovia Securities
in connection with the matter.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer or the Merger.
Item 6. Recent Transactions and Interest With Respect to Securities.
Except as set forth below, no transactions in shares of Company Common Stock
have been effected during the past 60 days by the Company or any of its
subsidiaries or, to the best of the Company's knowledge, by any of the
Company's executive officers, directors or affiliates.
The Company purchased from former employees shares of Voting Common Stock
that were subject to repurchase rights of the Company upon the termination of
the employment of such employees in the following private transactions in
Greenville, SC:
Date Number of Shares Price Per Share
---- ---------------- ---------------
1/17/2002 23,203 $ 6.29
5/15/2002 381 $0.065
On April 8, 2002, Richard M. Cashin, Jr., a director of the Company, donated
all of his 303,257 shares of Voting Common Stock to a charitable trust in a
private transaction in New York, NY.
25
On May 17, 2002, Bobby J. Prochaska, the President and Chief Operating
Officer of the Company's Apparel Division, sold 500 shares of Voting Common
Stock at a price of $6.75 per share through a brokerage transaction. On May 20,
2002, Mr. Prochaska sold 3,000 shares of Voting Common Stock at a price of
$6.74 per share through a brokerage transaction.
Item 7. Purposes of the Transaction and Plans or Proposals.
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (i) a tender offer for or other acquisition of the Company's securities by
the Company, any subsidiary of the Company or any other person; (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) a purchase, sale,
or transfer of a material amount of assets of the Company or any subsidiary of
the Company; or (iv) any material change in the current dividend rate or policy
or in the indebtedness or capitalization of the Company.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board, agreements in principle, or signed contracts in
response to the Offer that relate to one or more of the events referred to in
this Item 7.
Item 8. Additional Information.
Section 14(f) Information Statement
The Information Statement attached as Annex B hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders.
Item 9. Exhibits.
The following Exhibits are filed herewith or incorporated by reference
herein:
Exhibit 1 Preliminary Prospectus and Offer to Purchase (incorporated by reference to the Parent's
Form S-4).*
Exhibit 2 Letter of Transmittal (incorporated by reference to Exhibit 99.2 to the Parent's Form S-4).*
Exhibit 3 Notice of Guaranteed Delivery (incorporated by reference to Exhibit 99.3 to the Parent's
Form S-4).*
Exhibit 4 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
(incorporated by reference to Exhibit 99.4 to the Parent's Form S-4).*
Exhibit 5 Letter to Clients (incorporated by reference to Exhibit 99.5 to the Parent's Form S-4).*
Exhibit 6 Press Release issued by the Company on May 15, 2002.
Exhibit 7 Letter to Stockholders of the Company, dated May 24, 2002.*
Exhibit 8 Opinion of Wachovia Securities, dated May 15, 2002 (included as, and incorporated by
reference to, Annex A attached hereto).*
Exhibit 9 Information Statement of the Company, dated May 24, 2002 (included as, and incorporated
by reference to, Annex B attached hereto).*
Exhibit 10 Agreement and Plan of Merger, dated as of May 15, 2002, by and among the Parent, the
Purchaser and the Company (incorporated by reference to Exhibit 2.1 to the Parent's Current
Report on Form 8-K filed on May 16, 2002).
26
Exhibit 11 Voting and Tender Agreement, dated as of May 15, 2002, by and among the Parent, Citicorp
Venture Capital, Ltd., CCT Partners III, L.P., and Citicorp Mezzanine Partners, L.P.
(incorporated by reference to Exhibit 2.2 to the Parent's Current Report on Form 8-K filed
on May 16, 2002).
Exhibit 12 1998 Long-Term Performance Incentive Plan, dated as of March 3, 1998 (incorporated by
reference to Exhibit 4.5 to the Company's annual report on Form 10-K for the year ended
December 31, 1998).
Exhibit 13 Executive Deferral Plan, dated as of December 29, 1997 (incorporated by reference to
Exhibit 10.28 to the Company's annual report on Form 10-K for the year ended December
31, 2000).
Exhibit 14 Employment Agreement, dated January 22, 2002, by and between the Company and Bobby
J. Porchaska (incorporated by reference to Exhibit 10.30 to the Company's annual report on
Form 10-K for the year ended December 31, 2001).
Exhibit 15 Form of Amended and Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Amendment No. 3 to Form S-1 Registration
Statement filed on June 8, 1998 with the Commission).
Exhibit 16 Form of Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Amendment No. 3 to Form S-1 Registration Statement filed on
June 8, 1998 with the Commission).
Exhibit 17 Confidentiality Agreement, dated as of August 1, 2000, by and between the Company and
the Parent.
Exhibit 18 No-Shop Agreement, dated February 7, 2002, by and between the Company and the Parent.
Exhibit 19 Confidentiality Agreement, dated March 25, 2002, by and between the Parent and the
Company.
- --------
* Included in documents mailed to stockholders.
27
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
GERBER CHILDRENSWEAR, INC.
/s/ Edward Kittredge
By: Edward Kittredge
Chairman, Chief Executive Officer and
President
Dated: May 24, 2002
28
ANNEX A
[GRAPHIC]
WACHOVIA 301 South College Street
SECURITIES Charlotte, NC 28288
May 15, 2002
Board of Directors
Gerber Childrenswear, Inc.
1333 Broadway, Suite 700
New York, NY 10018
Gentlemen:
You have asked First Union Securities, Inc., acting under the trade name
Wachovia Securities ("Wachovia Securities"), to advise you with respect to the
fairness, from a financial point of view, to the unaffiliated stockholders(1)
of the outstanding shares of Common Stock, par value $0.01 per share (the
"Shares"), of Gerber Childrenswear, Inc. (the "Company"), of the consideration
to be paid in the Tender Offer and the Merger (each as defined below) pursuant
to the Agreement and Plan of Merger dated May 15, 2002 (the "Agreement"), among
Kellwood Company ("Parent"), Cradle, Inc., a wholly-owned subsidiary of Parent
("Purchaser"), and the Company. Subject to the terms of the Agreement, Parent
will cause Purchaser to commence a tender offer (the "Tender Offer") for all of
the Shares at a price equal to $6.85 per share, payable in cash and in a
certain number of validly issued, fully paid and nonassessable shares of Common
Stock, par value $0.01 per share, of Parent, such cash amount and number of
shares of Parent's Common Stock each as determined in accordance with the
Agreement. The Agreement further provides that, following purchase of the
Shares pursuant to the Tender Offer, Purchaser will be merged into the Company
(the "Merger," and together with the Tender Offer, the "Transaction") and each
outstanding Share not acquired by Purchaser in the Tender Offer will be
converted into the right to receive the same consideration to be received in
the Tender Offer. The terms and conditions of the Transaction are more fully
set forth in the Agreement.
In arriving at our opinion, we have, among other things:
Reviewed the Agreement, including the financial terms of the Transaction.
Reviewed certain publicly available business, financial and other
information regarding the Company and Parent.
Reviewed certain business, financial and other information regarding the
Company and its prospects that was furnished to us by and that we have
discussed with management of the Company.
Reviewed certain business, financial and other information regarding
Parent and its prospects that was furnished to us by and that we have
discussed with management of Parent.
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(1) An "affiliate" of the Company is any person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, the Company. We have assumed for purposes of
this opinion that the Company's directors, executive officers and
beneficial owners of more than 10% of the outstanding shares of Common
Stock of the Company are affiliates of the Company.
Wachovia Securities is the trade name under which Wachovia Corporation conducts
its investment banking, capital markets and institutional securities business
through First Union Securities, Inc. ("FUSI"), member NYSE, NASD, SIPC, and
through other bank and non-bank and broker-dealer subsidiaries of Wachovia
Corporation.
The person named herein is a registered employee of FUSI.
A-1
Reviewed the current and historical market prices and trading activity
of the Company's Common Stock and Parent's Common Stock.
Compared the publicly available business, financial and other
information regarding the Company and Parent with similar information
regarding certain other publicly traded companies that we deemed to be
relevant.
Compared the proposed financial terms of the Transaction with the
financial terms of certain other business combinations and transactions
that we deemed to be relevant.
Developed discounted cash flow models of the Company and Parent.
Reviewed the potential pro forma impact of the Transaction on Parent's
financial statements.
Analyzed the premiums paid for certain other business combinations and
transactions that we deemed to be relevant.
Considered other information such as financial studies, analyses and
investigations, as well as financial and economic and market criteria
that we deemed to be relevant.
In connection with our review, we have relied upon the accuracy and
completeness of the foregoing financial and other information, and we have not
assumed any responsibility for any independent verification of such
information. With respect to the Company's financial projections, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgments of management as to the expected future
financial performance of the Company. We have discussed the Company's financial
projections with its management, but we assume no responsibility for and
express no view as to the Company's financial projections or the assumptions
upon which they are based. With respect to Parent's financial forecasts, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgments of management as to the expected
future financial performance of Parent. We have discussed Parent's financial
projections with its management, but we assume no responsibility for and
express no view as to Parent's financial projections or the assumptions upon
which they are based. In arriving at our opinion, we have not engaged in any
physical inspections of the facilities of the Company or Parent nor
incorporated any conclusions with respect thereto. We have not made nor been
provided with any evaluations or appraisals of the assets or liabilities of the
Company or Parent.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Agreement, without waiver of any
material terms or conditions, and that in the course of obtaining any necessary
legal, regulatory or third party consents and/or approvals, no restrictions
will be imposed that will have a material adverse effect on the Transaction or
other actions contemplated by the Agreement. Our opinion is necessarily based
on economic, market, financial and other conditions and the information made
available to us as of the date hereof. Although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or
reaffirm this opinion. Our opinion does not address the relative merits of the
Transaction compared with other business strategies that may have been
considered by the Company's management and/or Board of Directors.
Wachovia Securities is a trade name of First Union Securities, Inc., an
investment banking subsidiary and affiliate of Wachovia Corporation. Wachovia
Securities has rendered financial advisory services to the Company in
connection with the Transaction for which we will receive a fee, a significant
portion of which is contingent upon the consummation of the Transaction. We
will also receive a fee for rendering this opinion, which fee is not contingent
upon consummation of the Transaction. Wachovia Securities and our affiliates
provide a full range of financial advisory, securities and lending services in
the ordinary course of business for which we receive customary fees. In the
ordinary course of business we and our affiliates may actively trade or hold
the securities (including derivative securities) of the Company or Parent for
our own account or for the account of our customers and, accordingly, may at
any time hold long or short positions in such securities. From time to time, in
the ordinary course of business we may provide research coverage for the
Company, Parent and/or their affiliates.
A-2
It is understood that this opinion is solely for the information and use of the
Board of Directors of the Company in connection with its consideration of the
Transaction. Our opinion does not address the merits of the underlying decision
by the Company to enter into the Agreement and does not and shall not
constitute a recommendation to any stockholder of the Company as to whether or
not such stockholder should tender such stockholder's Shares in connection with
the Tender Offer. Our opinion must be treated as confidential and may not be
summarized, excerpted from, or otherwise publicly disclosed, referred to, or
communicated in whole or in part to any third party for any purpose whatsoever
without our prior written consent, except that this letter may be reproduced in
full in the Schedule 14D-9 or registration statement to be filed with the
Securities and Exchange Commission in connection with the Tender Offer and any
proxy statement, information statement or prospectus to be distributed to the
stockholders of the Company and Parent in connection with the Merger.
We have not considered, nor are we expressing any opinion herein with respect
to, the prices at which the Company's Common Stock or Parent's Common Stock
will trade following the announcement of the Transaction or the price at which
Parent's Common Stock will trade following the consummation of the Transaction.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above, and other factors we deem to be relevant, we are
of the opinion that, as of the date hereof, the consideration to be received by
the unaffiliated stockholders of the Company in the Transaction pursuant to the
Agreement is fair to such stockholders, from a financial point of view.
Very truly yours,
/s/ WACHOVIA SECURITIES
WACHOVIA SECURITIES
A-3
ANNEX B
GERBER CHILDRENSWEAR, INC.
7005 Pelham Road
Greenville, South Carolina 29615
Information Statement Pursuant to
Section 14(f) of the Securities Exchange
Act of 1934 and Rule 14f-1 Thereunder
This Information Statement is being mailed on or about May 24, 2002 as part
of the Solicitation/Recommendation Statement on Schedule 14D-9 (the "Statement
on Schedule 14D-9") of Gerber Childrenswear, Inc. (the "Company"). You are
receiving this Information Statement in connection with the possible election
of persons designated by Kellwood Company, a Delaware corporation ("Parent"),
and Cradle, Inc., a Delaware corporation ("Purchaser") and a wholly-owned
subsidiary of the Parent, to the board of directors (the "Board of Directors")
of the Company. On May 15, 2002, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with the Parent and the Purchaser, pursuant
to which the Purchaser is required to commence a tender offer to purchase all
issued and outstanding shares of (i) the Company's common stock, par value $.01
per share (the "Common Stock"), and (ii) the Company's Class B Common Stock,
par value $.01 per share (the "Class B Common Stock," and together with the
Common Stock, the "Company Common Stock"), for consideration consisting of a
combination of cash and the Parent's common stock, par value $.01 per share
(the "Parent Common Stock"), with a total value of $6.85 per share, comprised
of at least $3.42 in cash (the "Cash Consideration"), net without interest, and
up to $3.43 in value of shares of Parent Common Stock (the "Stock
Consideration"), calculated as described under the heading "The Offer" in the
Parent's Preliminary Prospectus and Offer to Purchase, dated May 23, 2002 (the
"Preliminary Prospectus"), in exchange for each of the shares of Company Common
Stock (such Cash Consideration and Stock Consideration, the "Offer
Consideration"). The actual value of the shares of Parent Common Stock that you
will receive will likely have a value of more or less than $3.43 for each share
of Company Common Stock validly tendered and not properly withdrawn because the
actual Stock Consideration will be calculated using the measurement period
described under the heading "The Offer" in the Preliminary Prospectus. The
payment of the Offer Consideration depends upon the terms and is subject to the
conditions set forth in the Preliminary Prospectus and in the related Letter of
Transmittal (which, together with any amendments or supplements, collectively
constitute the "Offer"). Copies of the Preliminary Prospectus and the Letter of
Transmittal have been mailed to the Company's stockholders and are filed as
Exhibits (a)(1)(i) and (a)(1)(ii) respectively, to the Tender Offer Statement
on Schedule TO (as amended from time to time, the "Schedule TO") filed by the
Purchaser and the Parent with the Securities and Exchange Commission (the
"Commission") on May 24, 2002.
The Merger Agreement provides that, subject to the satisfaction or waiver of
certain conditions, following completion of the Offer, and in accordance with
the relevant provisions of the Delaware General Corporation Law (the "DGCL"),
the Company will be merged with and into the Purchaser (or, if certain events
relating to the U.S. federal income tax treatment of the Offer and the merger
do not occur, then the Purchaser will be merged with and into the Company, with
the Company surviving as a wholly-owned subsidiary of the Parent) (in either
case, the "Merger"). Following the date and time the Merger becomes effective
(the "Effective Time"), the separate corporate existence of the Company (or, if
the Purchaser is merged with and into the Company, the Purchaser) shall cease,
and the Purchaser (or the Company, as the case may be) shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") and a
wholly-owned subsidiary of the Parent.
At and as of the Effective Time, by virtue of the Merger and without any
action on the part of the Parent, the Purchaser, the Company or the holders of
any of the following securities, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than (i) shares
owned by the Company (whether or not owned as treasury stock) or any subsidiary
of the Company, (ii) shares owned by the Parent, the Purchaser or any other
subsidiary of the Parent or the Purchaser, if any, and (iii) shares held by a
person immediately prior to the Effective Time who complies with all the
provisions of the DGCL concerning the right
B-1
of holders of shares to demand appraisal of their shares in accordance with
Section 262 of the DGCL (a "Dissenting Stockholder")) shall be canceled and,
subject to certain rights of Dissenting Stockholders in the Merger Agreement,
shall be converted automatically into the right to receive, for each share of
Company Common Stock (x) an amount in cash equal to the Cash Consideration, and
(y) the Stock Consideration.
The Offer, the Merger, and the Merger Agreement are more fully described in
the Schedule 14D-9 to which this Information Statement is attached as Annex B,
which was filed by the Company with the Commission on May 24, 2002 and which is
being mailed to stockholders of the Company along with this Information
Statement.
This Information Statement is being mailed to you in accordance with Section
14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-l
promulgated thereunder. The information set forth herein supplements certain
information set forth in the Statement on Schedule 14D-9. You are urged to read
the Statement on Schedule 14D-9 and this Information Statement carefully. You
are not, however, required to take any action in connection with the matters
set forth herein.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on May
24, 2002. The Offer is currently scheduled to expire at 12:00 midnight, New
York City time, on June 21, 2002, unless the Purchaser extends it.
The information set forth in this Information Statement concerning the
Parent, the Purchaser and the Designees (as defined herein) has been provided
to the Company by the Parent, and the Company assumes no responsibility for the
accuracy or completeness of any such information.
GENERAL
The Common Stock is the only class of equity securities of the Company
outstanding that is entitled to vote at a meeting of the stockholders of the
Company. The Class B Common Stock is non-voting, but one share of Class B
Common Stock is convertible at any time into one share of Common Stock. As of
March 25, 2002, there were 8,414,660 shares of Common Stock outstanding and
11,396,046 shares of Class B Common Stock outstanding, of which the Parent and
the Purchaser own no shares as of the date hereof.
RIGHTS TO DESIGNATE DIRECTORS
The Merger Agreement provides that promptly after the payment by the
Purchaser for the shares of Company Common Stock pursuant to the Offer and, if
required pursuant to the terms thereof, the effectiveness of the Purchaser's
conversion of the Class B Common Stock into shares of Common Stock contemplated
under the Merger Agreement to effect a short-form merger pursuant to Section
253 of the DGCL, the Parent and the Purchaser shall be entitled to designate
such number of directors (the "Designees") on the Board of Directors, rounded
down, as will give the Purchaser representation on the Board of Directors equal
to the product of (i) the number of directors on the Board of Directors
multiplied by (ii) the percentage that the number of shares of Company Common
Stock paid for by the Purchaser pursuant to the Offer (including the number of
shares of Common Stock received by the Purchaser upon conversion of the Class B
Common Stock, if any), bears to the total number of then outstanding shares of
Common Stock.
The Merger Agreement provides that the Company shall use reasonable best
efforts to, upon the request by the Purchaser, either increase the size of the
Board of Directors or secure the resignation of such number of directors as is
necessary to enable the Designees to be elected to the Board of Directors and
to cause the Designees to be so elected. The Company's obligations to appoint
Designees to the Board of Directors shall be subject to Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Notwithstanding the foregoing, the parties to the Merger Agreement shall use
their respective best efforts to ensure that at least two (2) members of the
Board of Directors shall at all times prior to the Effective Time be directors
who were directors of the Company on the date of the Merger Agreement, or are
directors designated by such persons or person.
B-2
The Designees will be selected by the Parent and the Purchaser from among
the individuals listed below. Each of the following individuals has consented
to serve as a director of the Company if appointed or elected. None of the
Designees currently is a director of, or holds any position with, the Company.
The Parent and the Purchaser have advised the Company that, to the best of
their knowledge, except as set forth below, none of the Designees or any of
their affiliates beneficially owns any equity securities or rights to acquire
any such securities of the Company nor has any such person been involved in any
transaction with the Company or any of its directors, executive officers or
affiliates that is required to be disclosed pursuant to the rules and
regulations of the Commission other than with respect to transactions between
the Parent or the Purchaser and the Company that have been described in the
Preliminary Prospectus or the Statement on Schedule 14D-9.
The name, age, present principal occupation or employment and employment
history of each of the individuals who may be selected as Designees are set
forth below. Unless otherwise indicated, each such individual has held his or
her present position as set forth below for the past five years. Unless
otherwise indicated, each such person is a citizen of the United States and the
business address of each person listed below is 600 Kellwood Parkway, P.O. Box
14374, St. Louis, Missouri 63017.
Name, Age, Principal Occupation and Employment History
W. Lee Capps III, age 54, has been the Parent's Senior Vice President
Finance and Chief Financial Officer since March 2002. He previously served as
the Parent's Vice President Finance and Chief Financial Officer from 2000 to
March 2002, the Parent's Vice President Corporate Development from 1998 to
2000, and the Parent's Director of Corporate Development from 1996 to 1998.
Lawrence E. Hummel, age 59, has been the Parent's Vice President Controller
since 1992.
Thomas H. Pollihan, age 52, has been the Parent's Senior Vice President,
Secretary and General Counsel since March 2002. He served as the Parent's Vice
President, Secretary and General Counsel from 1993 to March 2002.
Robert C. Skinner, age 48, has served as the Parent's Vice President and
President Menswear since March 2002. Prior to that time, he served as the
Parent's President Kellwood Menswear from 2000 to March 2002, Vice President of
Oxford Industries from 1999 to 2000, and President of Oxford Shirt Group from
1987 to 1999.
Hal J. Upbin, age 63, has served as a member of the Parent's board of
directors since 1995, and has been Chairman of the Board, President and Chief
Executive Officer of the Parent since 1999. He served as President and Chief
Executive Officer of the Parent from 1997 to 1999, President and Chief
Operating Officer from 1994 to 1997, Executive Vice President Corporate
Development from 1992 to 1994, and Vice President Corporate Development from
1990 to 1992. Previous to that time, he was President of American Recreation
Products, Inc., the Parent's wholly-owned subsidiary, from 1989 to 1992, and
has been a director of that entity from 1991 to present. He has also served as
a director of First Banks, Inc., and has been a member of its audit committee,
since July 2001.
B-3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding beneficial
ownership of Common Stock and Class B Common Stock as of March 29, 2002 by (i)
each person or entity who owns of record or beneficially 5% or more of any
class of the Company's voting securities, (ii) each director, nominee and named
executive officer and (iii) all executive officers and directors as a group.
The Class B Common Stock is non-voting, but one share of Class B Common Stock
is convertible, at the option of the holder at any time, into one share of
Common Stock.
Number of Shares of Percentage of
Name and Address of Beneficial Owner Common Stock (a) Common Stock (b)
------------------------------------ ------------------- ----------------
5% HOLDERS
Citicorp Venture Capital, Ltd.(c)...................... 12,288,622 62.03
CCT III, L.P.(c)....................................... 12,288,622 62.03
Citicorp Mezzanine Partners, L.P.(c)................... 12,288,622 62.03
Dimensional Fund Advisors Inc.(d)...................... 424,700 5.05
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES(e)
Edward Kittredge(f).................................... 1,487,556 17.68
Richard L. Solar(g).................................... 482,051 5.73
Richard M. Cashin, Jr.................................. 303,257 3.60
Lawrence R. Glenn...................................... 38,673 *
Bobby J. Prochaska..................................... 17,500 *
James P. Manning....................................... 20,000 *
Joseph Medalie(h)...................................... 38,673 *
David E. Uren.......................................... 229,587 2.73
John D. Weber(i)....................................... 12,288,622 62.03
Executive officers and directors as a group (9 persons) 14,905,919 75.24
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*Less than one percent.
(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission"). As of March 29,
2002, (a) 8,414,660 shares of Common Stock and (b) 11,396,046 shares of
Class B Common Stock were issued and outstanding. Except as otherwise set
forth below, each named owner has the sole voting power and investment
power of the shares indicated.
(b) For purposes of computing the percentage of outstanding shares held by each
person or group of persons named above, shares of Common Stock that such
person or group of persons has the right to acquire within 60 days is
deemed to be outstanding with respect to that person or group of persons,
but is not deemed to be outstanding for purposes of computing the
percentage ownership of any other person or group of persons.
(c) The address of each of these entities is 399 Park Avenue, New York, New
York 10022. Each entity's beneficial ownership consists of 385,966 shares
of Common Stock and 7,511,883 shares of Class B Common Stock held by CVC;
213,289 shares of Common Stock and 1,180,432 shares of Class B Common Stock
held by CCT III, L.P.; 250,000 shares of Common Stock and 2,703,731 shares
of Class B Common Stock held by CMP; and 43,321 shares of Common Stock held
by John D. Weber. See "Certain Relationships and Related
Transactions--Transactions with CVC and its Affiliates."
(d) The address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401
(e) The address of each of the directors and executive officers is c/o Gerber
Childrenswear, Inc., 7005 Pelham Road, Greenville, South Carolina 29615.
(f) 232,039 of Mr. Kittredge's shares of Common Stock are held in a family
trust. Mr. Kittredge disclaims beneficial ownership of these shares.
(g) 46,407 of Mr. Solar's shares of Common Stock are held by his immediate
family members. Mr. Solar disclaims beneficial ownership of these shares.
(h) All of Mr. Medalie's shares are held in a family trust.
(i) Consists of the ownership described in footnote (c) above.
B-4
BOARD OF DIRECTORS
Terms of Directors
The directors are elected to serve until the next annual meeting.
Directors and Executive Officers
The current executive officers of the Company are as follows:
Edward Kittredge, age 64, led a group of investors in the purchase of the
Company from Gerber Products Company ("GPC") in January 1996 and has served as
Chairman, Chief Executive Officer and President of the Company and a director
since that time. From 1990 to 1996, Mr. Kittredge was a consultant with EKI
Investments, Inc. Mr. Kittredge served as Chairman and Chief Executive Officer
of Denton Mills, manufacturer of Dr. Denton children's pajamas, from 1984 to
1990. From 1980 to 1984, he was President of Royal Manufacturing Company, a
privately owned men's underwear and active sportswear company. Prior to that,
he held a variety of senior sales and marketing management positions at Union
Underwear Company (Fruit of the Loom), including national director of all
Branded and Private Label Sales and as head of its BVD Division.
Richard L. Solar, age 62, has been Senior Vice President, Chief Financial
Officer and Assistant Secretary of the Company and a director since January
1996. Prior to joining the Company, Mr. Solar held various positions at Bankers
Trust Company, including managing director positions. From 1971 to 1975, he
served as Treasurer of Val D'Or Industries Inc., a publicly held apparel
company, and Diamondhead Corporation, a publicly held real estate development
company.
David E. Uren, age 58, is Vice President of Finance, Secretary and
Treasurer. Mr. Uren has been Vice President of Finance of the Company and its
predecessor since 1987. He has been Secretary and Treasurer of the Company
since 1990. Prior to joining the Company, he was Chief Financial Officer of
Borg Textile Corporation and also held various senior financial positions at
Buster Brown Apparel, Inc. between 1972 and 1987. Mr. Uren worked at Ernst &
Young LLP from 1967 to 1971, including as a certified public accountant from
1969 to 1971.
Bobby J. Prochaska, age 61, is President and Chief Operating Officer,
Apparel Division. Mr. Prochaska has been President and Chief Operating Officer
of the Company's Apparel Division since June 2000. From January 2000 to May
2000, he had been the General Manager and Senior Vice President of Operations
of the Company's Apparel Division. Prior to joining the Company, he was
President of the management consulting firm of Santa Rosa Resources, Inc. and
its predecessor from June 1996 to December 1999 and also held various senior
management positions with Kayser--Roth Corporation between 1989 and 1996.
During his earlier professional career, Mr. Prochaska served over 15 years with
Milliken & Company in various management positions.
The current directors of the Company are as follows:
Richard M. Cashin, Jr, age 49, has been a director since January 1996.
Currently, Mr. Cashin is the Chairman of One Equity Partners, the private
equity arm of Bank One Corporation. From April 2000 to April 2001, he was a
partner in Cashin Capital Partners, a private equity investment firm. From 1994
to April 2000, he served as President of Citicorp Venture Capital, Ltd., an
affiliate of the Company ("CVC"). Prior to that time, Mr. Cashin served as a
managing director of CVC. He is also a director of Fairchild Semiconductor
Corporation and Titan Wheel International, Inc.
Lawrence R. Glenn, age 63, has been a director since January 1996. He
retired as a senior corporate officer at Citicorp in 1995 after over 30 years
of service. Currently Mr. Glenn is the Chairman of J.W. Goddard and Company, a
private investment company. Mr. Glenn is also a director of Holborn Corporation.
James P. Manning, age 75, has been a director since 1998. He was formerly
the Chairman, President and Chief Executive Officer of Auburn Hosiery Mills,
Inc., a subsidiary of the Company, where he had been employed from 1965 to 1997.
B-5
Joseph Medalie, age 80, has been a director since February 1997. He retired
as Vice Chairman of Fruit of the Loom in December 1993, and was a director of
Transfinancial Bank from 1994 until 1998. Mr. Medalie also served as a director
of the Commonwealth Health Corporation.
John D. Weber, age 38, Mr. Weber has been a director since January 1996. He
has been a Vice President of CVC since 1994, and worked at Putnam Investments
from 1992 through 1994. Mr. Weber is a director of Advanced Cast Products,
Inc., Anvil Knitwear, Inc., Neenah Foundry Company, Sleepmaster, LLC, Lifestyle
Furnishings and Rhodes Inc.
Edward Kittredge. See Mr. Kittredge's biography above.
Richard L. Solar. See Mr. Solar's biography above.
Director Compensation
Messrs. Glenn, Manning and Medalie are the only members of the Board of
Directors who currently receive compensation for their services as directors.
During 2001, Messrs. Glenn, Manning and Medalie each received $20,000 for
attendance at meetings of the Board of Directors and reimbursement for their
reasonable out-of-pocket expenses incurred in connection with board meetings.
Certain Information Concerning Meetings and Committees of the Board
The Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee.
Audit Committee. The Audit Committee is composed of Mr. Glenn (Chairman)
and Messrs. Manning and Medalie, each of whom is an independent director. The
duties of the Audit Committee include meeting with the independent auditors,
management and certain personnel of the Company to discuss, among other things,
the planned scope of their audits and the adequacy of internal controls and
financial reporting, reviewing and discussing the results of the annual audit
of the consolidated financial statements and periodic internal audit
examinations, reviewing the services and fees of the Company's independent
auditors, authorizing special investigations and studies, and performing any
other duties or functions deemed appropriate by the Board of Directors. The
Audit Committee met two times during 2001.
Compensation Committee. The Compensation Committee is composed of Mr.
Manning (Chairman) and Messrs. Glenn and Medalie. The Compensation Committee
has overall responsibility for compensation actions affecting the Company's
executive and senior officers. The Compensation Committee's responsibilities
include approving base salaries, setting incentive targets and administering
and granting awards to executive and senior officers under all executive
compensation plans. The Compensation Committee did not meet during 2001.
Nominating Committee. The Nominating Committee is composed of Messrs.
Glenn, Kittredge and Weber. The Nominating Committee recommends to the Board of
Directors the individuals to be elected as directors to fill any vacancies or
additional directorships which may arise from time to time on the Board of
Directors. The Nominating Committee considers nominations made in accordance
with the procedures provided in the DGCL and in the Company's Certificate of
Incorporation and Bylaws, a copy of which may be obtained from the Secretary of
the Company. The Nominating Committee did not meet during 2001.
During 2001, the Board of Directors met six times. In 2001, each incumbent
director served on the Board of Directors and attended at least 75% of the
total number of Board of Directors meetings and the total number of meetings
held by all committees of the Board of Directors on which each served during
such period, except that Mr. Cashin attended only three board meetings.
Compensation Committee Interlocks and Insider Participation
In 2001, Mr. Manning (Chairman) and Messrs. Glenn and Medalie served as
members of the Compensation Committee of the Board of Directors. In addition,
Messrs. Manning, Glenn and Medalie owned shares of the Company in 2001. Other
than compensation received by Messrs. Manning, Glenn and Medalie for serving as
directors and attending board meetings, they received no additional
compensation from the Company in 2001.
B-6
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of the Forms 3, 4, and 5 and any amendments
thereto furnished to the Company pursuant to Rule 16a-3(c) promulgated under
the Exchange Act, the Company is not aware of any failure of any officer,
director or beneficial owner of more than 10% of the Common Stock to timely
file with the Commission any Form 3, 4 or 5 in respect of the Company during
2001.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation of the Company's Chief
Executive Officer (who also serves as Chairman and President) and three other
executive officers as of December 31, 2001 for services rendered in all
capacities to the Company during 2001, 2000 and 1999, as applicable. The
foregoing four individuals are referred to herein as the "Named Executive
Officers."
Long-Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------- ---------------------- -------
Other Annual Restricted Securities LTIP All Other
Salary Bonus Compensation Stock Underlying Payouts Compensation
Name and Principal Position Year ($) ($) ($)(a) Awards ($) Options/SAR(s) ($) ($)
- --------------------------- ---- ------- ----- ------------ ---------- -------------- ------- ------------
Edward Kittredge............. 2001 400,000 0 72,590 0 0 0 18,319(c)
Chairman, CEO and 2000 400,000 0 54,452 0 0 0 17,733(c)
President 1999 400,000 0 36,212 0 0 0 23,988(c)
Richard L. Solar............. 2001 225,000 0 3,702 0 0 0 8,268(c)
Senior Vice President and 2000 225,000 0 3,021 0 0 0 8,078(c)
CFO 1999 225,000 0 2,519 0 0 0 7,745(c)
David E. Uren................ 2001 150,450 0 11,745 0 0 0 6,231(c)
Vice President of Finance, 2000 150,450 0 10,636 0 0 0 6,411(c)
Secretary and Treasurer 1999 150,450 0 9,764 0 0 0 6,116(c)
Bobby J. Prochaska(b)........ 2001 290,197 0 0 0 12,500(d) 0 11,898(e)
President and Chief 2000 253,092 0 0 0 25,000(d) 0 44,243(e)
Operating Officer, Apparel
Division
- --------
(a) For each Named Executive Officer, this column consists of interest earned
by the officer on compensation voluntarily deferred pursuant to the
Executive Deferral Plan. See "Executive Compensation--Executive Deferral
Plan." Additionally, Mr. Uren's amounts include car allowances in 1999,
2000 and 2001.
(b) Mr. Prochaska commenced his employment with the Company in January 2000.
(c) Reflects life insurance premiums and 401(k) contributions paid on behalf of
the Named Executive Officer.
(d) Reflects options granted as part of Mr. Prochaska's employment agreement,
which are subject to vesting over a five year period.
(e) Reflects life insurance premiums, 401(k) contributions and certain payments
relating to moving costs paid on behalf of the Named Executive Officer.
Option Grants in Last Fiscal Year
The following table sets forth the grants of options on Common Stock to the
Named Executive Officers during 2001:
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
------------------------------------------- --------------------
% Of Totl
Options
Granted To Exercise Or
Options Employees In Base Price Expiration
Name Granted Fiscal year Per Share Date 5% 10%
---- ------- ------------ ----------- ---------- ------- -------
Bobby J. Prochaska 12,500 100.00% $4.6875 01/3/11 $36,849 $93,384
B-7
Aggregate Option Exercises in 2001 and December 31, 2001 Option Values
The following table sets forth information with respect to the exercise of
options on Common Stock by the Named Executive Officers during 2001 and the
value of unexercised options on Common Stock held by the Named Executive
Officers as of December 31, 2001:
Value Realized ($) Shares of Common Stock Value of Unexercised In-
Shares of Common (Market Price at Underlying Options at The-Money Options at
Stock Acquired on Exercise less 12/31/01 (#) 12/31/01 ($)
Name Exercise (#) Exercise Price) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------- ------------------ ------------------------- -------------------------
Bobby J. Prochaska 0 0 5,000/32,500 $11,313/$70,406
Employment Agreements
In connection with the purchase of Gerber Childrenswear, Inc. from GPC in
January 1996, the Company entered into employment agreements with Messrs.
Kittredge, Solar and Uren (such agreements are collectively referred to herein
as the "Executive Agreements"). The Executive Agreements expired on January 22,
2001 and Messrs. Kittredge, Solar and Uren do not currently have employment
agreements with the Company. Mr. Prochaska entered into an employment agreement
when he joined the Company, which expired on December 31, 2001. He has entered
into a new employment agreement with the Company which expires on December 31,
2002.
Messrs. Kittredge, Solar, Uren and Prochaska currently receive an annual
base salary of $400,000, $225,000, $150,450 and $310,000, respectively. Messrs.
Kittredge, Solar, Uren and Prochaska may receive annual incentive bonuses based
upon the achievement of pre-determined objectives tied to the performance of
the Company, including criteria related to growth and profitability.
Mr. Prochaska's current employment agreement provides that if he is
terminated without cause or his responsibility or reporting relationship
changes during the term of the agreement, he will receive the balance of the
term of the employment agreement with a minimum severance compensation of six
months.
Each of Messrs. Kittredge, Solar and Uren also hold shares of Common Stock
acquired pursuant to certain Executive Stock Purchase Agreements (these
agreements are collectively referred to as the "Stock Purchase Agreements").
Long-term Performance Incentive Plan
Participants in the Company's Long-Term Performance Incentive Plan may be
granted stock options, stock appreciation rights ("SARs"), restricted stock,
performance units, performance grants and other types of awards that the
Compensation Committee deems to be consistent with the purposes of the
Incentive Plan. An aggregate of 66,500 shares of Common Stock have been
reserved for issuance under the Incentive Plan. No more than 25,000 shares may
be issued to any single participant in any calendar year. In 1999, the Company
granted options to purchase 48,600 shares of Common Stock under the Incentive
Plan. In 2000, the Company granted options to purchase 25,000 shares of Common
Stock under the Incentive Plan. In 2001, the Company granted options to
purchase 12,500 shares of Common Stock under the Incentive Plan.
The Compensation Committee may select participants, determine the type, size
and terms of each award, modify the terms of awards, determine when awards will
be granted and paid and make all other determinations which it deems necessary
or desirable in the interpretation and administration of the Incentive Plan.
The Incentive Plan is scheduled to terminate in June 2008, unless it is
extended for up to an additional five years by action of the Board of
Directors. Rights to contingent compensation granted under the Incentive Plan
will vest in equal amounts on each anniversary of the initial grant date over a
five year period, and will vest in the event of the merger of the Company with
or into another corporation unless otherwise provided by the Compensation
Committee.
B-8
Executive Deferral Plan
The Executive Deferral Plan is an unfunded, nonqualified deferred
compensation plan that provides deferred compensation to selected members of
management and certain other highly-compensated employees. The Executive
Deferral Plan allows employees to voluntarily defer from 5% to 50% of their
salary and/or bonus compensation until termination, retirement or the
occurrence of certain specific future events. Compensation which is deferred
under this plan bears interest at a rate specified in the Executive Deferral
Plan.
Long-Term Bonus Plan
Pursuant to the Long-Term Bonus Plan, the Compensation Committee may accrue
amounts to be paid as bonuses during future years for past service. During 1997
and 1998, the Company accrued $515,000 and $500,000, respectively, for future
payment to a certain group of senior executives for past service, with final
allocation to be determined later by the Compensation Committee. Under the
terms of the Long-Term Bonus Plan, these amounts accrue interest until they are
paid. Interest only was accrued under this Plan in 1999, 2000 and 2001.
Pension Plan
The Retirement Plan for Gerber Childrenswear, Inc. is a defined benefit
pension plan qualified pursuant to Section 401(a) of the Internal Revenue Code.
The Retirement Plan covers all salaried and full-time hourly employees of the
Company in its apparel division and some other officers in its other divisions.
The following table indicates monthly estimated amounts to be paid to
eligible salaried employees for the Retirement Plan, based upon years of
service and final average pay (as determined under the Retirement Plan):
Years of Service
-------------------------------------------------
15 20 25 30 35
--------- --------- --------- --------- ---------
$125,000........ $2,047.92 $2,730.56 $3,413.20 $4,095.84 $4,778.48
150,000........ 2,516.67 3,355.56 4,194.45 5,033.34 5,872.23
175,000........ 2,985.42 3,980.56 4,975.70 5,970.84 6,965.98
200,000........ 3,454.17 4,605.56 5,756.95 6,908.34 8,059.73
225,000........ 3,454.17 4,605.56 5,756.95 6,908.34 8,059.73
250,000........ 3,454.17 4,605.56 5,756.95 6,908.34 8,059.73
275,000 or more 3,454.17 4,605.56 5,756.95 6,908.34 8,059.73
Generally, an eligible salaried employee in the Retirement Plan is eligible
to receive benefits upon "Normal Retirement Age", which is the later of the
Social Security retirement age or the fifth anniversary of the date that
employee commenced participation in the Retirement Plan. An eligible salaried
employee may elect an early retirement benefit at "Early Retirement Age", which
is the later of ten years prior to the eligible salaried employee's Social
Security retirement age and the fifth anniversary of the date the eligible
salaried employee commenced participation in the Retirement Plan. Early
retirement benefits are reduced for those eligible salaried employees who
retire more than three years prior to their Normal Retirement Age according to
a formula established in the Retirement Plan. If a vested eligible salaried
employee terminates his or her employment, the employee is entitled to a
deferred, unreduced benefit if requested within three years of such employee's
Normal Retirement Age, or a reduced benefit if requested earlier.
The amount of an eligible salaried employee's benefit under the Retirement
Plan is based upon the employee's final average pay and years of participation
in the Retirement Plan. Payments to eligible salaried employees under the
Retirement Plan are made in equal monthly installments for the remainder of the
employee's life, although married eligible salaried employees may elect to
receive a 50% joint and survivor benefit providing a reduced monthly benefit to
the employee during his or her lifetime, with 50% of that benefit to the
employee's spouse for his or her lifetime following the employee's death. Other
optional forms of payment include a 100% survivorship annuity, a 50%
survivorship annuity and a life and period certain annuity option. An eligible
salaried employee's benefits may be offset by the amount of any workers'
compensation or similar benefits payable because of an employment related
injury or illness.
B-9
The Retirement Plan is funded entirely by voluntary Company contributions
that are held in trust for the benefit of the participants. Although the
Company intends to continue the Retirement Plan indefinitely, it can terminate
the plan at any time, upon which all eligible salaried employees will become
100% vested in any benefit accrued to the extent funds are available in trust.
The years of accredited service for each of the named executive officers
under the Retirement Plan as of December 31, 2001 are: Mr. Kittredge, 6 years;
Mr. Solar, 6 years; Mr. Uren, 15 years; and Mr. Prochaska, 2 years.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Overview
During 2001, the Compensation Committee consisted of Mr. Manning (Chairman)
and Messrs. Glenn and Medalie, each of whom is an independent director of the
Company. This Compensation Committee is guided by the following objectives: to
provide to the Company's executives competitive levels of compensation, to
integrate management pay with the achievement of the Company's annual and
long-term performance goals, to reward above-average corporate performance, to
recognize individual initiative and achievement and to assist the Company in
attracting and maintaining qualified management. The Compensation Committee
views stock-based compensation as an important element in any compensation
package, as it has the effect of aligning the interests of the executives with
those of the stockholders and providing a balance between short-term and
long-term perspectives.
Management compensation is set at levels that the Compensation Committee
believes are consistent with those of other leading branded consumer apparel
companies. In determining competitive levels of compensation, the Committee
reviews salary and bonus levels, as well as long-term compensation elements, of
other publicly-traded apparel companies which it considers comparable to the
Company. The Compensation Committee retained the services of an independent
compensation consultant to aid it in its work.
Annual Compensation
Executive Salaries. The Committee reviews and approves base salaries
annually for the Company's executive officers, considering the responsibilities
of their positions, their individual performances and their competitive
positions relative to comparable companies. The 2001 salaries of Messrs.
Kittredge, Solar and Uren were established by the Executive Agreements and
modified by the Compensation Committee. Mr. Prochaska's compensation was
established when he joined the Company in 2000 based on the compensation levels
set at other companies for similar positions, and was reevaluated in 2002 based
on similar criteria.
Annual Cash Incentive Bonuses. No bonuses were paid to Messrs. Kittredge,
Solar and Uren in 2001. Mr. Prochaska received a bonus of $50,000 in 2001 based
on a management recommendation which was approved by the Compensation Committee.
The Compensation Committee has not been presented salary review and bonus
levels for 2002 by the Company. The Compensation Committee expects to define
performance goals for each executive related to areas of responsibility, with
amounts available for payout predicated upon Company and individual
performance. Target award levels are expected to be established for each
executive and incentive awards for 2002 will be granted based upon Company
performance and the achievements of the executive against agreed-upon criteria.
Long-Term Bonus Plan. Interest only was accrued under this Plan in 1999,
2000 and 2001.
B-10
Long-Term Compensation
The Compensation Committee administers the Incentive Plan. The Compensation
Committee considers stock option awards on an annual basis or on such other
basis as it deems appropriate. In determining the amount of options awarded,
the Compensation Committee establishes a level of award based on the position
held by the individual and his or her level of responsibility, both of which
reflect the executive's ability to influence the Company's long-term
performance. The number of options previously awarded to and held by executives
will also be reviewed but will not be an important factor in determining the
size of a current award. In 2001, the Company granted options to purchase
12,500 shares of Common Stock under the Incentive Plan to Mr. Prochaska which
were negotiated with him at the time he joined the Company. There were no other
options issued in 2001.
Other Benefit Programs
The executive officers participate in various health, life and disability
insurance programs, a pension plan and a 401(k) plan that are generally made
available to all salaried employees. Executive officers also receive certain
perquisites that are customary for their positions. See "Executive
Compensation."
Company Policy on Qualifying Compensation
Section 162(m) of the Internal Revenue Code provides that publicly-held
companies may not deduct in any taxable year compensation in excess of
$1,000,000 paid to executive officers which is not "performance based" as
defined in Section 162(m). The Compensation Committee intends generally to
comply with the requirements of Section 162(m) so that compensation is
deductible, unless the Committee determines that it is not appropriate to do so.
Submitted by the Compensation
Committee
of the Board of Directors
James P. Manning, Chairman
Lawrence R. Glenn
Joseph Medalie
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Directors
On January 22, 2001, all of the then unvested shares issued to Messrs.
Kittredge, Mr. Solar and Mr. Uren as part of their compensation prior to the
Company's initial public offering vested. As of March 29, 2002, Messrs.
Kittredge, Mr. Solar and Mr. Uren beneficially held 1,487,556 shares, 482,051
shares and 229,587 shares of Common Stock, respectively.
Transactions with CVC and its Affiliates
During August 2001, the Company issued 2,953,731 shares of Common stock to
Citicorp Mezzanine Partners, L.P. ("CMP"). These shares were issued in a
cashless exercise of all of CMP's warrants to purchase shares of Class B Common
Stock. Simultaneously, CMP converted 250,000 shares of Class B Common Stock
into an equal number of shares of Common Stock.
B-11
PERFORMANCE COMPARISON
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Common Stock of the Company against the cumulative total returns of the Russell
2000 Index and the Dow Jones Clothing & Fabrics Index during the period
commencing on June 11, 1998, the date on which the Common Stock commenced
trading on the New York Stock Exchange, and ending on December 31, 2001. The
comparison assumes $100 was invested on June 11, 1998 in the Common Stock of
the Company, the Russell 2000 Index and the Dow Jones Clothing & Fabrics Index,
and assumes the reinvestment of all dividends, if any.
[CHART]
GERBER CHILDRENSWEAR, INC. RUSSELL 2000 DOW JONES US CLOTHING/FABRICS
6/11/98 100 100 100
12/98 59.91 94.21 70.83
12/99 34.48 114.24 58.00
12/00 31.47 110.79 64.79
12/01 46.21 113.54 70.22
Cumulative Total Return
------------------------------------
6/11/1998 12/98 12/99 12/00 12/01
--------- ----- ------ ------ ------
GERBER CHILDRENSWEAR, INC. 100.00 59.91 34.48 31.47 46.21
RUSSELL 2000.............. 100.00 94.21 114.24 110.79 113.54
DOW JONES CLOTHING/FABRICS 100.00 70.83 58.00 64.79 70.22
B-12