Xxxxxx Corporation
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
March 2, 1998
Magten Asset Management Corp.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. Xxxxx
Apollo Apparel Partners, L.P.
c/o Apollo Management, L.P.
0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xx Xxxxx
Mr. Xxxxxx Xxxx
Re: Xxxxxx Corporation ("Salant")
-----------------------------
Gentlemen:
The purpose of this letter agreement (this "Letter Agreement") is
to set forth the agreement among Magten Asset Management Corp. ("Magten"),
in its capacity as holder of those certain 10-1/2% Senior Secured Notes due
December 31, 1998 (the "Senior Notes") of Xxxxxx that were issued pursuant
to an Indenture, dated September 20, 1993, as amended (the "Senior Note
Indenture"), Xxxxxx and Apollo Apparel Partners, L.P. ("Apollo", and
together with Xxxxxx and Xxxxxx, the "Parties"), in its capacity as the
holder of approximately 40.1% of Xxxxxx'x issued and outstanding shares of
common stock, regarding the basic terms and conditions of a restructuring
(the "Restructuring") of Xxxxxx pursuant to a comprehensive consensual
plan.
1. Restructuring.
-------------
The basic terms and conditions of the Restructuring as agreed
among the Parties are set forth in the Summary of Terms and Conditions (the
"Term Sheet") attached hereto as Exhibit A (including Annex I attached
hereto), which is incorporated herein and made a part of this Letter
Agreement (it being agreed that neither Magten nor Apollo expresses any
opinion as to the accuracy of any of the information set forth on Annex I
to the Term Sheet, including, without limitation, the enterprise value of
Xxxxxx).
2. Magten Agreements.
-----------------
Magten represents to Xxxxxx that it is (i) the beneficial owner
of no less than $70 million in aggregate face amount of the Senior Notes
(the "Relevant Notes") and/or the investment adviser or manager for the
beneficial owners of the Relevant Notes having the power to vote and
dispose of Relevant Notes on behalf of such beneficial owners, and (ii)
entitled (for its own account or the account of other persons claiming
through it) to all of the rights and economic benefits of the Relevant
Notes. Magten agrees and represents to Xxxxxx that, subject to Sections 4
and 5 hereof and subject to its receipt of solicitation materials in
respect of the Restructuring that are consistent with the terms of this
Letter Agreement (it being recognized that, until such solicitation
materials have been received and Magten has reviewed them, this Letter
Agreement shall not constitute an agreement by Magten to take any step or
action that would violate any provision of applicable federal or state
securities laws, and to the extent any provision hereof shall be construed
as constituting such a violation, such provision shall be deemed stricken
herefrom and of no force and effect without liability to any of the
Parties):
(a) in connection with the component of the Restructuring
consisting of an exchange offer (the "Exchange Offer")
for the Senior Notes, Magten will, as promptly as
practicable, tender (or, with respect to managed
accounts, use its reasonable best efforts to cause to
be tendered) the Relevant Notes in acceptance of the
Exchange Offer, provided that (i) all applicable
federal and state securities laws have been complied
with and (ii) the terms of the Exchange Offer and the
remaining components of the Restructuring are
consistent with the terms of the Exchange Offer and the
Restructuring described on the Term Sheet, unless
revised terms have been previously agreed to in writing
by Magten, it being recognized and agreed by the
Parties that the Term Sheet does not purport to include
all of the material terms with respect to the
Restructuring;
(b) so long as it is the beneficial owner of, and/or
investment adviser or manager with respect to, the
Relevant Notes, Magten will not at any time prior to
the termination of this Letter Agreement support or
encourage, directly or indirectly, any financial
restructuring concerning Xxxxxx other than the
Restructuring;
(c) Magten will not sell, transfer or assign any of the
Relevant Notes or any voting interest therein during
the term of this Letter Agreement, except to a
purchaser who agrees prior to such acquisition to be
bound by all the terms of this Letter Agreement as if
such purchaser had originally executed this Letter
Agreement with respect to the Relevant Notes being
acquired by such purchaser, which agreement shall
subsequently be confirmed in writing (which writing may
include a trade confirmation issued by a broker or
dealer, acting as principal or agent for the purchaser,
stating that such agreement to be bound hereby is a
term of such transfer), in which event, Xxxxxx shall be
deemed to have acknowledged that each of its
obligations to Magten hereunder shall be deemed to
constitute obligations in favor of such purchaser, and
Xxxxxx shall confirm that acknowledgment in writing. At
Xxxxxx'x request, Magten shall use reasonable efforts
to cause such purchaser to acknowledge in writing its
obligations to Xxxxxx and Apollo hereunder; and
(d) Magten shall cause to be provided written instructions
to the trustee (the "Indenture Trustee") under Section
6.05 of the Senior Note Indenture, promptly following
the date of the Letter Agreement, directing the
Indenture Trustee to forbear during the term of this
Letter Agreement from taking any action in connection
with the failure by Xxxxxx to make the interest payment
on the Senior Notes that is payable on March 2, 1998,
including, without limitation, the exercise of any of
the Indenture Trustee's rights under the Senior Note
Indenture arising by virtue of such failure; provided,
that, Magten shall not be required to provide any
indemnities to the Indenture Trustee in connection
therewith and shall not be liable for any failure by
the Indenture Trustee to comply with such instructions.
3. Apollo Agreements.
-----------------
Xxxxxx represents to Xxxxxx that it is (i) the beneficial owner
of approximately 40.1% of Xxxxxx'x issued and outstanding shares of common
stock (the "Relevant Common Stock"), and (ii) entitled to all of the rights
and economic benefits of the Relevant Common Stock. Xxxxxx agrees and
represents to Xxxxxx that, subject to Sections 4 and 5 hereof and subject
to its receipt of proxy or other solicitation materials in respect of the
Restructuring that are consistent with the terms of this Letter Agreement,
in connection with the component of the Restructuring requiring the vote of
the holders of Xxxxxx'x issued and outstanding common stock (the "Existing
Common Stock") with respect to certain of the transactions contemplated by
the Restructuring, Xxxxxx will enter into a voting agreement with Xxxxxx
which will provide that (i) Apollo will vote all of its shares of Relevant
Common Stock in favor of each of such transactions; (ii) so long as it is
the beneficial owner of the Relevant Common Stock, Apollo will not at any
time prior to the termination of this Letter Agreement, support or
encourage, directly or indirectly, any financial restructuring concerning
Xxxxxx other than the Restructuring; and (iii) Apollo will not sell,
transfer or assign any of the Relevant Common Stock or any voting interest
therein during the term of this Letter Agreement except to a purchaser who
agrees in writing prior to such acquisition to be bound by the terms of the
voting agreement with Apollo and by all the terms of this Letter Agreement
with respect to the Relevant Common Stock being acquired by such purchaser.
4. Termination of Agreement.
------------------------
Magten's obligations hereunder shall terminate upon the
occurrence of any Agreement Termination Event, unless the occurrence of
such Agreement Termination Event is waived in writing by Magten. Apollo's
obligations hereunder shall terminate upon the occurrence of any Agreement
Termination Event set forth in subparagraphs (c), (e) and (f) of this
Section 4, unless the occurrence of such Agreement Termination Event is
waived in writing by Xxxxxx.
For the purposes hereof an "Agreement Termination Event" shall
mean any of the following:
(a) Xxxxxx shall not have obtained the requisite
shareholder consent at the Special Meeting (as such
term is defined in the Term Sheet) on or before July
31, 1998;
(b) the Exchange Offer shall not have commenced on or
before June 15, 1998;
(c) the Effective Date (as such term is defined in the Term
Sheet) shall not have occurred on or before July 31,
1998;
(d) Xxxxxx or Apollo shall have disclaimed publicly in
writing (or in a writing sent to Magten) its intention
to pursue the Restructuring;
(e) there occurs any material change in the terms or the
feasibility of the Restructuring that materially and
adversely affects the holders of the Senior Notes, in
the case of Magten, or the holders of the Existing
Common Stock, in the case of Apollo, not previously
consented to by Magten;
(f) Xxxxxx shall be the subject of a voluntary or
involuntary petition under title 11 of the Untied
States Code (the "Bankruptcy Code") prior to the
occurrence of the Effective Date, other than a
voluntary petition filed in connection with a
prepackaged or prenegotiated chapter 11 case to
effectuate the Restructuring; provided, however, that
the filing of an involuntary petition under the
Bankruptcy Code will only be deemed to constitute an
Agreement Termination Event when and if such
involuntary petition for relief has continued
undismissed for 60 days or an order or decree approving
the involuntary petition has continued unstayed and in
effect for 60 days;
(g) to the extent the right of Magten to vote or direct the
disposition of the Relevant Notes results from an
arrangement in existence on the date hereof under which
Magten has been engaged to perform investment
management services on behalf of a beneficial owner of
the Relevant Notes, (i) such engagement shall be
terminated by such beneficial owner or as the result of
any statutory, regulatory or bona fide business
requirement or condition not related to the subject
matter of this Letter Agreement, or (ii) such
beneficial holder on its own (without any direct or
indirect influence from Magten) directs Magten to
dispose of some or all of the Relevant Notes
beneficially owned by such beneficial owner; provided
that, in any case, the Agreement Termination Event
shall only apply to Senior Notes held by the beneficial
owner as to which the engagement has been terminated or
as to which such disposal direction has been issued.
Neither Magten nor Xxxxxx shall have any liability to Xxxxxx or
to any other person in respect of any termination of this Letter Agreement
in accordance with the terms hereof.
5. Conditions.
----------
In addition to the provisions of paragraph 4 above with respect
to the Agreement Termination Events, the respective obligations of Magten,
Xxxxxx and Xxxxxx to consummate each of the transactions contemplated by
the Restructuring are also subject to the satisfaction of each of the
following conditions:
(a) neither Xxxxxx, Xxxxxx nor Xxxxxx has failed to comply
with any of its obligations set forth in this Letter
Agreement;
(b) negotiation, preparation and execution of mutually
satisfactory definitive transaction agreements and
other documents incorporating the terms and conditions
of each of the transactions contemplated by the
Restructuring set forth herein and such other terms and
conditions as the parties may reasonably require;
(c) all authorizations, consents and regulatory approvals
required, if any, in connection with the consummation
of the transactions contemplated by the Restructuring
and the continuation of Xxxxxx'x businesses as
currently constituted shall have been obtained; and
(d) the holders of 100% (or such lesser percentage as
agreed upon by Magten) of the Senior Notes shall have
tendered their Senior Notes in connection with the
Exchange Offer.
6. Further Acquisition of Securities.
---------------------------------
This Letter Agreement shall in no way be construed to preclude
(i) Magten from acquiring additional Senior Notes or (ii) Apollo from
acquiring additional shares of Existing Common Stock. However, any such
additional Senior Notes so acquired by Magten or additional shares of
Existing Common Stock so acquired by Apollo shall automatically be deemed
to be Relevant Notes or shares of Relevant Common Stock, as the case may
be, and to be subject to all of the terms of this Letter Agreement. This
Letter Agreement shall in no way be construed to preclude Magten or Apollo
from acquiring any other securities of Xxxxxx. However, Xxxxxx agrees that
it will vote or exercise (or cause to be voted or exercised) any such
additional securities in favor of the Restructuring for so long as this
Letter Agreement remains in effect, and Xxxxxx agrees that it will exercise
or vote (or cause to be exercised or voted) any additional securities in
favor of the Restructuring for so long as this Letter Agreement remains in
effect.
7. Amendments.
----------
This Letter Agreement may not be modified, amended or
supplemented except in writing signed by each of the Parties.
8. Indemnification Obligations.
---------------------------
Xxxxxx agrees that it shall fully indemnify (i) Magten, (ii) each
and every other person by reason of the fact that such person is or was a
director, officer, employee, agent, shareholder, professional (including,
without limitation, Xxxx & Xxxxxx and Xxxxx & Company) or other authorized
representative of Magten, (iii) Apollo, and (iv) each and every other
person by reason of the fact that such person is or was a director,
officer, employee, agent, partner, professional or other authorized
representative of Apollo (all of the foregoing persons and the entities in
(i) through (iv) above, the "Indemnitees") against any claims, liabilities,
actions, suits, damages, fines, judgments or expenses (including reasonable
attorney's fees), brought or asserted by anyone (other than Xxxxxx or any
successor with respect to asserted violations of this Letter Agreement or
any other agreement with Xxxxxx entered into by such Indemnitee in
connection with the Restructuring) arising during the course of, or
otherwise in connection with or in any way related to, the negotiation,
preparation, formulation, solicitation, dissemination, implementation,
confirmation and consummation of the Restructuring, including the Exchange
Offer and the transactions contemplated thereby; provided, however, that
this indemnity shall not extend to any claims asserted by Magten or Apollo
against any other Indemnitee, and provided, further, that the foregoing
indemnification shall not apply to any liabilities arising from the gross
negligence or willful misconduct of any Indemnitee. If any claim, action or
proceeding is brought or asserted against an Indemnitee in respect of which
indemnity may be sought from Xxxxxx, the Indemnitee shall promptly notify
Xxxxxx in writing, and Xxxxxx shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnitee, and
the payment of all expenses. The Indemnitee shall have the right to employ
separate counsel in any such claim, action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of the Indemnitee unless and until (a) Xxxxxx has agreed to
pay the fees and expenses of such counsel, or (b) Xxxxxx shall have failed
promptly to assume the defense of such claim, action or proceeding and
employ counsel reasonably satisfactory to the Indemnitee in any such claim,
action or proceeding or (c) the named parties to any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee
and Xxxxxx, and the Indemnitee believes, in the exercise of its business
judgment and in the opinion of its outside legal counsel, reasonably
satisfactory to Xxxxxx, that the joint representation of Xxxxxx and the
Indemnitee will likely result in a conflict of interest (in which case, if
the Indemnitee notifies Xxxxxx in writing that it elects to employ separate
counsel at the expense of Xxxxxx, Xxxxxx shall not have the right to assume
the defense of such action or proceeding on behalf of the Indemnitee). In
addition, Xxxxxx shall not effect any settlement or release from liability
in connection with any matter for which the Indemnitee would have the right
to indemnification from Xxxxxx, unless such settlement contains a full and
unconditional release of the Indemnitee, or a release of the Indemnitee
reasonably satisfactory in form and substance to the Indemnitee.
Notwithstanding anything contained herein to the contrary, the provisions
of this Section 8 shall not be deemed to limit any other indemnification
obligation of Xxxxxx in effect to any Indemnitee whether by agreement or in
accordance with Xxxxxx'x bylaws.
9. Publicity.
---------
This Letter Agreement and each of the transactions contemplated
by the Restructuring shall be kept confidential until the Parties agree
upon the language and timing of a press release to be issued by Xxxxxx.
10. No Third Party Beneficiaries; Separate Responsibilities.
-------------------------------------------------------
This Letter Agreement is only for the benefit of the undersigned
parties and nothing herein, expressed or implied, is intended or shall be
construed to confer upon any person or entity, other than such persons or
entities, any rights or remedies under or by reason of, and no person or
entity, other than such persons or entities, is entitled to rely in any way
upon, this Letter Agreement. Magten shall not have or acquire any liability
or responsibility for Xxxxxx's performance or non-performance under this
Letter Agreement, and Apollo shall not have or acquire any liability or
responsibility for Magten's performance or non-performance under this
Letter Agreement
11. Governing Law; Jurisdiction.
---------------------------
This Letter Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard
to any conflicts of law provision which would require the application of
the law of any other jurisdiction. By its execution and delivery of this
Letter Agreement, each of the Parties hereby irrevocably and
unconditionally agrees for itself that any legal action, suit or proceeding
against it with respect to any matter under or arising out of or in
connection with this Letter Agreement or for the recognition or enforcement
of any judgment rendered in any such action, suit or proceeding, may be
brought in any Federal or State court in the Borough of Manhattan, the City
of New York, but for that purpose only, and, by execution and delivery of
this Letter Agreement, each of the Parties hereby irrevocably accepts and
submits itself to the nonexclusive jurisdiction of each such court,
generally and unconditionally, with respect to any such action, suit or
proceeding.
12. Specific Performance.
--------------------
It is understood and agreed by the Parties that money damages
would not be a sufficient remedy for any breach of this Letter Agreement by
any of the Parties and the non-breaching Party shall be entitled to
specific performance and injunctive or other equitable relief as a remedy
of any such breach.
13. Survival.
--------
Notwithstanding (i) the sale of the Relevant Notes in accordance
with Section 2(c) hereof, (ii) the sale of the Relevant Common Stock in
accordance with Section 3(c) hereof, or (iii) the termination of Magten's
and Xxxxxx's obligations hereunder in accordance with Section 4 hereof, the
agreements and obligations of Xxxxxx in Sections 8 and 11-13 shall survive
such termination and shall continue in full force and effect for the
benefit of Magten and Apollo in accordance with the terms hereof.
14. Headings.
--------
The headings of the Sections, paragraphs and subsections of this
Letter Agreement are inserted for convenience only and shall not affect the
interpretation hereof.
15. Successors and Assigns.
----------------------
This Letter Agreement is intended to bind and inure to the
benefit of the Parties and their respective successors, assigns, heirs,
executors, administrators and representatives.
16. Prior Negotiations.
------------------
This Letter Agreement and the Term Sheet supersede all prior
negotiations with respect to the subject matter hereof; provided however,
that the terms and conditions set forth in (i) the confidentiality
agreement, dated January 15, 1998, between Xxxxxx and Magten; (ii) the fee
agreement, dated January 7, 1998, between Xxxxxx and Xxxx & Xxxxxx; and
(iii) the fee agreement, dated as of January 1, 1998, between Xxxxxx and
Xxxxx & Company, shall remain in full force and effect.
17. Counterparts.
------------
This Letter Agreement (and any modifications, amendments,
supplements or waivers in respect hereof) may be executed in counterparts
by manual or facsimile signature of each undersigned party, and all such
counterparts shall be deemed to constitute one and the same instrument.
If the foregoing accurately reflects the agreement among the
parties regarding the matters referred to herein, Xxxxxx requests that you
execute the enclosed copy of this Letter Agreement and return it to the
undersigned.
Very truly yours,
XXXXXX CORPORATION
By:/s/ Xxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chairman
Accepted and Agreed as of the
date first written above.
MAGTEN ASSET MANAGEMENT
CORP., as agent on behalf
of certain of its accounts
By:/s/ Xxxxxx X. Xxxxx
---------------------------
Name: Xxxxxx X. Xxxxx
Title: Chairman
APOLLO APPAREL PARTNERS, L.P.
By: AIF II, L.P., its General Partner
By:/s/ Xxxxxx Xxxx
---------------------------
Name: Xxxxxx Xxxx
Title: Vice President
Exhibit A
---------
Summary of Terms and Conditions
Xxxxxx Corporation ("Xxxxxx")
-----------------------------
This Summary of Terms and Conditions is part of the Letter Agreement, dated
March 2, 1998 (the "Letter Agreement"), addressed to Magten Asset
Management Corp., as agent on behalf of certain of its accounts ("Magten"),
and Apollo Apparel Partners, L.P. ("Apollo") by Xxxxxx, and is subject to
the terms and conditions of the Letter Agreement. Capitalized terms used
herein, which are not otherwise defined herein, shall have the respective
meanings assigned to them in the Letter Agreement.
I. Overview of Restructuring Plan -- The 10-1/2% Senior Secured Notes due
December 31, 1998 of Xxxxxx (the "Senior Notes") and all outstanding
shares of Common Stock of Xxxxxx (the "Existing Common Stock") will be
restructured pursuant to a comprehensive consensual plan (the
"Restructuring Plan"). The material economic terms and assumptions for
the agreed Restructuring Plan are set forth on Annex I hereto:
. Pursuant to the Restructuring Plan, the holders of the
Senior Notes will receive that number of shares of Existing
Common Stock on the date that the restructuring of Xxxxxx is
consummated (the "Effective Date") which represents 92.5% of
the issued and outstanding shares of Existing Common Stock
immediately following the Effective Date, subject to
dilution for new employee stock incentive and/or option
plans (as set forth in paragraph III.B. below) and the
Warrants (as defined below). As set forth on Annex I hereto,
assuming that 15.3 million shares of Existing Common Stock
are outstanding as of the Effective Date, the number of
shares of Existing Common Stock that would be issued to the
holders of the Senior Notes would be approximately 188.7
million shares.
. In order to implement the Restructuring Plan, Xxxxxx will
hold a meeting of stockholders to obtain the approval of the
holders of Existing Common Stock (the "Existing Equity") as
more fully described below.
. Pursuant to the Restructuring Plan, Existing Equity will (i)
retain 7.5% of the issued and outstanding shares of Existing
Common Stock immediately following the Effective Date
(approximately 15.3 million shares of Existing Common
Stock), subject to dilution for new employee stock incentive
and/or option plans of Xxxxxx (as described below) and the
Warrants; and (ii) receive warrants (the "Warrants")
representing the right to purchase up to 10% of the issued
and outstanding shares of Existing Common Stock on a fully
diluted basis (approximately 22.7 million shares of Existing
Common Stock), on the terms described in paragraph III.D.
below.
II. Capitalization of Reorganized Xxxxxx
------------------------------------
. Pursuant to the Restructuring Plan, as of the Effective
Date, the capital structure of reorganized Xxxxxx
("Reorganized Xxxxxx") will consist of: (i) the New Senior
Credit Facility (as discussed in paragraph III.G. below);
(ii) the Existing Common Stock; and (iii) the Warrants.
III. Implementation and Basic Terms of Restructuring Plan
----------------------------------------------------
A. Stockholder Approval
--------------------
. To effectuate the Restructuring Plan, Xxxxxx will hold a
special meeting (the "Special Meeting") of shareholders at
which the Existing Equity will vote upon the following
matters (a majority vote of the Existing Equity would be
required):
- (i) the issuance of shares of Existing Common Stock to
effectuate the Restructuring Plan as described below;
and
- (ii) as described below, an amendment to Xxxxxx'x
Certificate of Incorporation to effectuate the reverse
stock split.
. In order to ensure that stockholder approval of the
Restructuring Plan is obtained, Apollo Apparel Partners,
L.P. ("Apollo"), the holder of 40.1% of the Existing Common
Stock, has agreed to enter into a voting agreement with
Xxxxxx pursuant to which Xxxxxx will agree with Xxxxxx to
vote their shares of Existing Common Stock at the Special
Meeting in favor of the proposed reverse stock split and
issuance of shares of Existing Common Stock in accordance
with the terms hereof. In addition, Xxxxxx and Xxxxxx will
attempt to obtain the agreement of DDJ Capital Management,
LLC, the holder of 12.2% of the Existing Common Stock, to
enter into a similar voting agreement, and Magten will
cooperate with Xxxxxx and Apollo in such effort.
B. Existing Common Stock
---------------------
Issuer: Reorganized Xxxxxx.
-------
Holders of the
Senior Notes: Pursuant to the Exchange Offer (as defined below),
------------- on the Effective Date, holders of the Senior Notes
will receive 92.5% of the issued and outstanding
shares of Existing Common Stock immediately
following the Effective Date (approximately 188.7
million shares of Existing Common Stock), subject
to dilution for new employee stock incentive
and/or option plans of Xxxxxx (as described below)
and the Warrants. The allocation of the
distributions of the Existing Common Stock under
the Restructuring Plan to the holders of the
Senior Notes will be pro rata based on the amount
of their respective claims relating to the Senior
Notes held by them. Under the Restructuring Plan,
the aggregate allowed amount of the claim in
respect of the Senior Notes will be $104.9
million, plus accrued and unpaid interest through
the Effective Date (including the aggregate amount
of $5.5 million of interest payable on March 2,
1998).
Holders of the Pursuant to the Restructuring Plan, on the Effective
Common Stock: Date, holders of the Existing Common Stock will
-------------- retain 7.5% of the issued and outstanding shares
of Existing Common Stock immediately following the
Effective Date (approximately 15.3 million shares
of Existing Common Stock), subject to dilution for
new employee stock incentive and/or option plans
of Xxxxxx (as described below) and the Warrants.
Employee Stock Pursuant to the Restructuring Plan, Reorganized
and Stock Option Xxxxxx will reserve 10% of the outstanding Existing
Plans: Common Stock, on a fully diluted basis, as of the
---------------- Effective Date, in order to create new employee
stock and stock option plans for the benefit of
the members of management and the other employees
of Reorganized Xxxxxx. On the Effective Date, a
management stock option plan will be authorized
pursuant to which options to acquire a certain
percentage of such 10% reserve will be granted to
(1) the directors of Reorganized Xxxxxx and (2)
those members of management of the Xxxxxx selected
by management and approved by the non-management
members of the board of directors of Reorganized
Xxxxxx. The decision to grant any additional stock
options from the balance of the 10% reserve
referred to above and the administration of the
stock option plans will be in the discretion of
the non-management members of the board of
directors of Reorganized Xxxxxx. In addition, by
agreement between Xxxxxx and its employees, all
existing employee stock options and other equity
based plans will be adjusted so that such options
and equity based plans will be part of the
above-referenced new employee stock and/or stock
option plans (i.e., subsumed within the 10%) as
agreed upon between Apollo and Xxxxxx, subject to
consultation with Magten.
Existing Pursuant to the Restructuring Plan, as of the
Shareholders' Effective Date, Xxxxxx'x existing shareholders'
Rights Plan: rights plan will be amended to permit the
------------- transactions contemplated by the Restructuring Plan.
C. The Exchange Offer
------------------
. Pursuant to an exchange offer (the "Exchange Offer") by
Xxxxxx, the holders of the Senior Notes will receive 92.5%
of the issued and outstanding shares of Existing Common
Stock immediately following the Effective Date
(approximately 188.7 shares of Existing Common Stock),
subject to dilution for new employee stock incentive and/or
option plans of Xxxxxx (as described below) and the
Warrants.
. The shares of Existing Common Stock to be issued pursuant to
the Exchange Offer will be registered pursuant to a Form S-4
registration statement under the Securities Act of 1933 (the
"'33 Act").
. Xxxxxx will enter into a registration rights agreement for
the benefit of holders of 10% or more of the Existing Common
Stock as of the Effective Date upon terms and conditions
reasonably acceptable to Magten and Xxxxxx.
D. Warrants
--------
Issuer: Reorganized Xxxxxx.
-------
Exercisable For: 10% of the issued and outstanding shares of
---------------- Existing Common Stock on a fully diluted basis
(approximately 22.7 million shares of Existing
Common Stock).
Warrants will be entitled to standard
anti-dilution protection.
Exercise Price: $0.6127 per share of Existing Common Stock.
---------------
Exercise Period: From and including the Effective Date until the
---------------- seventh anniversary of the Effective Date.
Holders of Pursuant to the Restructuring Plan, the Existing
Existing Common Equity will receive all of the Warrants. The
Stock: allocation of the distributions of the Warrants
--------------- under the Restructuring Plan to the Existing
Equity will be pro rata based on the number of
shares of Existing Common Stock held by them.
Warrant Agreement: On the Effective Date, Xxxxxx will enter into
------------------ a warrant agreement for the Warrants on terms
and conditions reasonably satisfactory to Magten,
Apollo and Xxxxxx.
E. Reverse Stock Split
-------------------
In order to effect the Restructuring Plan, Xxxxxx is
required to issue a significant number of shares of Existing
Common Stock. Absent any corporate action, such as a reverse
stock split, the shares of Existing Common Stock would have
a value of less than $1.00 per share. In order to
"normalize" the post-restructuring trading of the Existing
Common Stock by reducing the float and thereby increasing
the per share stock price, under the Restructuring Plan, a
reverse stock split would be effectuated. In order to effect
the reverse stock split, Existing Equity would be asked to
approve the split at the Special Meeting described above.
The numbers used in this Term Sheet are prior to giving
effect to a reverse stock split.
F. Corporate Governance
--------------------
. The certificate of incorporation and the by-laws of
Reorganized Xxxxxx will contain those terms and conditions
that are reasonably satisfactory to the holders of the
Senior Notes, the holders of the Existing Common Stock and
Xxxxxx. Under the certificate of incorporation for
Reorganized Xxxxxx, all shares of Existing Common Stock will
have equal rights on voting and distributions.
. Pursuant to the Restructuring Plan, on the Effective Date,
the board of directors of Reorganized Xxxxxx will be
reconstituted and will have between five and seven members.
The composition of the initial reconstituted board will be
as follows: (i) Xxxxxx Xxxxxxxx (Chairman); (ii) between
three and five members nominated by Xxxxxx, subject to
consultation with Xxxxxx and with other holders of Senior
Notes who may come forward; and (iii) one member designated
by the current board of directors of Xxxxxx.
G. New Senior Credit Facility
--------------------------
. The terms of the new senior secured credit facility in
effect as of the Effective Date (the "New Senior Credit
Facility") will be on terms and conditions that are
reasonably satisfactory to Magten, Apollo and Xxxxxx.
H. Additional Assumptions
----------------------
. As of the Effective Date, the minimum availability under the
New Senior Credit Facility will be at a level that is
satisfactory to Magten, Apollo and Xxxxxx.
. No payments will be made to the members of management under
existing severance, employment and/or change of control
agreements or arrangements solely by reason of the
transactions contemplated under the Restructuring Plan.
. Xxxxxx and Xxxxxx recognize that Magten and its professional
advisors (including Xxxxx & Company and Xxxx & Xxxxxx) are
acting solely in the interest of Magten and that they have
not consulted with, and do not and will not acquire any
duties, responsibilities or liabilities to, any other holder
of Senior Notes.
. If 100% of the holders of the Senior Notes do not consent to
the Restructuring, Xxxxxx shall take such actions as are
necessary to bind such holders to the terms of the
Restructuring and the Effective Date shall not occur unless
such action by Xxxxxx has been taken.
