BPW Bpw Acqu Corp

 

     

     

 

The following is a summary which highlights selected information contained in this document. It may not contain all of the information that is important to you. We urge you to carefully read this entire document and the other documents to which we refer in order to fully understand the merger and related transactions, including “Where You Can Find More Information” on page 104 and “Risk Factors” on page 30.

 

The Merger Agreement (See page 62)

 

A copy of the merger agreement is attached as Appendix A to this document. Talbots and BPW encourage you to read the entire merger agreement carefully because it is the principal document governing the merger.

 

Structure of the Merger (See page 62)

 

Subject to the terms and conditions of the merger agreement and in accordance with the DGCL, at the effective time of the merger, Merger Sub will be merged with and into BPW, with BPW surviving the merger and becoming a wholly owned subsidiary of Talbots. The effect of the merger will be that BPW will be acquired by Talbots and shares of BPW common stock will no longer be publicly traded.

 

Reasons for the Merger (See pages 47 and 56)

 

BPW has been in search of a business combination partner since its initial public offering in February 2008. BPW’s board of directors believes that the merger with Talbots presents a unique opportunity for BPW because of, among other factors, its attractive valuation, strong management team and turnaround business plan, in addition to the terms and conditions of the merger agreement and related transaction documents and the results of BPW’s legal, technology, accounting and other due diligence review of Talbots.

 

The Talbots board of directors, acting solely through the members of the Talbots audit committee after each of Trudy F. Sullivan and the Talbots directors nominated by AEON recused themselves from the vote, concluded that the merger agreement, the merger, the stock issuance in connection therewith, the AEON agreement, the GE Capital commitment letter and the other transaction documents, and the transactions contemplated thereby or undertaken in connection therewith are advisable and in the best interests of Talbots and its public stockholders because, among other factors, the transactions provide Talbots with access to a large pool of capital that will, among other things, provide a complete exit for AEON, permit Talbots to strengthen its balance sheet, reduce its outstanding indebtedness by approximately $330 million and eliminate negative stockholder equity prior to the April 17, 2010 maturity of the AEON debt and no alternative financings were available to Talbots in the current economic environment and within the time constraints imposed by the December 31, 2009 maturity of certain debt.

 

Consideration to be received in the Merger (See page 62)

 

Upon completion of the merger, each share of BPW common stock outstanding immediately prior to completion of the merger (other than shares of BPW common stock held by BPW common stockholders that have validly exercised their conversion rights described in this document) will automatically be converted into the right to receive a number of shares of Talbots common stock equal to the quotient (rounded to the nearest ten-thousandth) obtained by dividing $11.25 by the average Talbots closing price, subject to a maximum of 1.3235 shares of Talbots common stock and a minimum of 0.9000 shares of Talbots common stock for each share of BPW common stock.

 

Based on the closing price of Talbots common stock on the NYSE on December 8, 2009, the date on which the merger was publicly announced, the exchange ratio represented $10.89 in value for each share of BPW common stock. Based on the closing price of Talbots common stock on the NYSE on January 25, 2010, the latest practicable date before the date of this document, the exchange ratio represented $11.25 in value for each share of BPW common stock. Talbots will not issue any fractional shares of Talbots common stock in the merger. Holders of BPW common stock who would otherwise be entitled to a fractional share of Talbots common stock will receive a cash payment in lieu of fractional shares. Other than with respect to shares of common stock held by AEON, Talbots’ majority stockholder, which will be purchased by Talbots at the completion of the merger for an aggregate of one

million warrants to purchase shares of Talbots common stock on the terms and conditions described below, shares of Talbots common stock outstanding before the merger is completed will remain outstanding and will not be exchanged, converted or otherwise changed in the merger.

 

The Pre-closing Certificate Amendment Proposal (See page 42)

 

BPW’s certificate of incorporation provides that BPW’s corporate existence will terminate on February 26, 2010, unless this date is extended by a vote of BPW stockholders. BPW is proposing the pre-closing certificate amendment to extend BPW’s corporate existence by two months to reduce the likelihood that BPW’s corporate existence will terminate prior to the completion of the merger.

 

The Post-closing Certificate Amendment Proposal (See page 42)

 

BPW’s certificate of incorporation requires BPW, in connection with the merger proposal, to submit to its stockholders a proposal to amend its certificate of incorporation to provide for BPW’s perpetual existence. Approval of the post-closing certificate amendment proposal would result in the amendment and restatement of BPW’s certificate of incorporation to provide for BPW’s perpetual existence. Approval of the post-closing certificate amendment proposal would also result in the elimination of provisions in BPW’s certificate of incorporation relating to its operation as a blank check company, as reflected in the amended and restated certificate of incorporation attached to this document as Appendix C.

 

Material United States Federal Income Tax Consequences of the Merger (See page 88)

 

If you are a BPW stockholder, the merger is generally expected to be treated as a taxable transaction to you, and you are generally expected to recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between (i) the sum of the fair market value of the Talbots common stock received in the merger plus the amount of any cash received instead of fractional shares of Talbots common stock and (ii) your adjusted tax basis in the shares of BPW common stock exchanged in the merger.

 

The United States federal income tax consequences described above may not apply to all holders of BPW common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you, including the applicability and effect of state, local and non-United States tax laws.

 

Accounting Treatment (See page 87)

 

Talbots prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which are referred to as GAAP. The merger will be accounted for using the acquisition method of accounting. As discussed under “Accounting Treatment” on page 86, based upon the terms of the exchange and other factors, such as the composition of the combined company’s board and senior management, Talbots is considered to be the acquirer of BPW for accounting purposes. This means that Talbots will allocate the purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. Acquisition-related costs, which include advisory, legal, accounting, valuation, and other professional or consulting fees, will be expensed in the period incurred. The costs to issue equity securities will be recognized against the proceeds. Deferred financing fees will be amortized over the term of the new financing.

 

Opinion of Financo Securities, LLC (See page 48)

 

At a meeting of BPW’s board of directors on December 8, 2009, Financo Securities, LLC, which we refer to as Financo, rendered its opinion to the board of directors that, as of the date of that opinion, and based upon and subject to the various assumptions, methodologies, limitations and considerations described in such opinion, the merger consideration to be paid to the public holders of BPW common stock in the merger is fair to the public holders of BPW common stock from a financial point of view. See “The Merger Proposal — Opinion Rendered by Financo to the BPW Board of Directors” for a summary of such opinion and a summary of the material financial analyses performed by Financo in connection with rendering its opinion. The full text of the written opinion of Financo

which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Appendix E to this document. BPW’s stockholders are urged to read the opinion in its entirety.

 

See “The Merger Proposal — Opinion Rendered by Financo to the BPW Board of Directors.”

 

Interests of Certain BPW Directors and Officers in the Merger (See page 58)

 

When you consider the recommendations of BPW’s board of directors in favor of approval of the merger proposal, you should keep in mind that the directors and officers of BPW have interests in the merger as individuals that are different from, or in addition to, your interests as a stockholder. The BPW board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions it contemplates.

 

 

 

 

 

Interests of Certain Talbots Directors and Officers in the Merger (See page 60)

 

When you consider the merger proposal, you should also keep in mind that the directors and officers of Talbots have interests in the merger, including in certain cases as individuals, that are different from, or in addition to, your interests as a stockholder of BPW.

 

Following entry into the merger agreement, Talbots management and BPW began discussions concerning possible 2009 annual incentive and retention arrangements for management. Based on these discussions and the agreement of BPW, Talbots management intends to propose a 2009 annual incentive and retention program for certain key employees, including executive officers. The proposed 2009 annual incentive and retention arrangements are subject to review and approval by the applicable Talbots board committee. A portion of the 2009 annual incentive awards for these key employees is proposed to be made contingent on the completion of the merger, and a separate portion of the 2009 annual incentive program would be based on achieving certain 2009 operating financial results (and not contingent on the closing of the merger). In addition, the key employees would receive a special grant of restricted stock units. The aggregate anticipated 2009 annual bonus and retention payments to Talbots executive officers that would be proposed to be made contingent on the completion of the merger is $5,000,000, one-third of which would be expected to be awarded in cash and two-thirds of which would be awarded in the form of a grant of special restricted stock units. Approximately $4,000,000 of such payments are currently proposed to be made to Talbots named executive officers, with the specific allocations yet to be determined.

Board of Directors of Talbots Following Completion of the Merger (See page 57)

 

Upon completion of the merger, the board of directors of Talbots will consist of seven members, comprised of:

 

 

Regulatory Approvals Required for the Merger (See page 58)

 

Talbots and BPW have agreed to cooperate and use reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. The parties have determined that the merger transaction is not reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder, referred to in this document as the HSR Act. Thus, the merger transaction is not subject to the termination or expiration of any waiting period under the HSR Act.

 

Conditions That Must Be Satisfied or Waived for the Merger to Occur (See page 62)

 

We currently expect to complete the merger by the first quarter of 2010. However, as more fully described in this document and in the merger agreement, each party’s obligation to complete the merger depends on a number of conditions being satisfied or, where legally permissible, waived, including the following:

 

 

The obligation of Talbots to close the merger is subject to the following additional conditions:

 

 

 

The obligation of BPW to close the merger is subject to the following additional conditions:

 

 

Termination of the Merger Agreement (See page 66)

 

The merger agreement may be terminated without completing the merger, whether before or after the meeting of the BPW stockholders, as follows:

 

 

 

 

 

 

Expenses and Termination Fees (See pages 67 and 76)

 

Generally, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses, except that Talbots and BPW will each pay one-half of the costs and expenses incurred in connection with the filing, printing and mailing of this document and all filings pursuant to the HSR Act. Following termination of the merger agreement under

specified circumstances, Talbots or BPW may be required to pay the other a termination fee of $10 million plus the other party’s reasonably incurred transaction expenses up to a maximum of $3 million.

 

The Rights of BPW Stockholders Will Be Governed by the Talbots Governing Documents after the Merger (See page 90)

 

The rights of BPW stockholders will change as a result of the merger due to differences between the governing documents of Talbots and BPW. BPW stockholders will become Talbots stockholders and their legal rights as stockholders will, following completion of the merger, be governed by the Talbots amended and restated certificate of incorporation and the Talbots amended and restated bylaws.

 

No Appraisal Rights (See page 58)

 

Under Delaware law, neither the holders of BPW common stock nor the holders of Talbots common stock are entitled to appraisal rights in connection with the merger.

 

Agreements with an Entity Affiliated with Talbots (See page 83)

 

Talbots’ majority stockholder, AEON, has entered into an agreement with Talbots and BPW, which we refer to as the AEON agreement, under which AEON has agreed, among other things, that at the same time as the merger is completed, shares of Talbots common stock held by AEON will be purchased by Talbots for an aggregate of one million warrants to purchase shares of Talbots common stock on terms and conditions substantially the same as the warrant exchange offer, discussed below. The exercise price of these warrants will be the closing price of Talbots common stock on the date of the completion of the merger. At the same time as the merger is completed, all outstanding indebtedness owed by Talbots to AEON and under Talbots’ third party credit facilities will be paid in full by Talbots, and Talbots will terminate each commitment to extend credit provided for under any of these agreements. As of the date of this document, AEON held approximately 54.4% of the outstanding shares of Talbots common stock.

 

The Warrant Exchange Offer (See page 80)

 

As of the record date for the BPW special meeting of stockholders, there were outstanding warrants held by the public warrantholders of BPW to acquire a total of 35,000,000 shares of BPW common stock at an exercise price of $7.50 per share. The exercise of these warrants is conditioned upon the completion by BPW of a specified business combination transaction (of which the proposed merger with Talbots would be one) on or prior to February 26, 2010. In the merger agreement, Talbots and BPW agreed that Talbots would conduct an exchange offer, to be commenced following the BPW special meeting of stockholders (assuming receipt of the requisite approvals of BPW stockholders at that meeting), for the warrants held by the public warrantholders of BPW.

 

In the warrant exchange offer, holders of BPW warrants may elect to exchange their outstanding BPW warrants for either:

 

 

The completion of the warrant exchange offer is expected to be conditioned, among other things, on the participation in the warrant exchange offer of holders of at least 90% of the BPW warrants that were issued in BPW’s initial public offering. If the warrant exchange offer is completed, the BPW warrants of public warrantholders that did not participate in the warrant exchange offer will, in accordance with the terms of the warrant

agreement, be converted into warrants to purchase the number of shares of Talbots common stock as such warrantholder would have received in the merger had the warrants been converted to shares of BPW common stock immediately prior to the completion of the merger.

 

The warrant exchange offer will be structured to provide that 50% of the BPW warrants held by public warrantholders will be exchanged for new warrants to purchase shares of Talbots common stock, and that the balance of BPW warrants held by public warrantholders participating in the warrant exchange offer would be exchanged for shares of Talbots common stock.

 

The warrant exchange offer is expected to be completed at or immediately prior to the completion of the merger, if the conditions to the warrant exchange offer are satisfied. The completion of the merger is conditioned upon the completion of the warrant exchange offer on the terms and conditions set forth in the merger agreement and described in this document. As discussed above, PWPA, on behalf of itself and BNYH (its then wholly owned subsidiary) has agreed to exchange all of its BPW warrants for shares of Talbots common stock in the warrant exchange offer. The non-sponsor founders have entered into an agreement with BPW and Talbots pursuant to which the non-sponsor founders have agreed to exchange, at the completion of the merger, warrants to purchase shares of BPW common stock for shares of Talbots common stock on the same terms as the sponsors.

 

The BPW Special Meeting (See page 35)

 

The BPW special meeting will be held at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, NY 10019, on February 24, 2010 at 10:00 a.m., local time. At the BPW special meeting, BPW stockholders will be asked to:

 

 

The BPW board of directors has fixed the close of business on January 15, 2010 as the record date for the BPW special meeting. Only BPW stockholders of record at that time are entitled to notice of, and to vote at, the BPW special meeting, or any adjournment or postponement of the BPW special meeting. As of the record date, there were 41,176,471 shares of BPW common stock outstanding and entitled to vote at the BPW special meeting.

 

Each share of BPW common stock outstanding on the record date entitles the holder to one vote on each matter to be voted upon by stockholders at the special meeting. Approval of the pre-closing certificate amendment proposal and the post-closing certificate amendment proposal requires the affirmative vote of a majority of the outstanding shares of BPW common stock. Approval of the merger proposal requires the affirmative vote of a majority of the outstanding shares of BPW common stock, provided that a majority of shares of BPW common stock issued in BPW’s initial public offering and present and entitled to vote at the special meeting are voted in favor of the merger

proposal. In addition, BPW’s certificate of incorporation prohibits BPW from completing the merger if holders of 35% or more of the outstanding shares of BPW common stock issued in BPW’s initial public offering vote, on a cumulative basis, against either the pre-closing certificate amendment proposal or the merger proposal, or both, and properly exercise their rights to convert their shares of BPW common stock to cash. Approval of the adjournment proposal requires the affirmative vote of a majority of the outstanding shares of BPW common stock that are represented at the special meeting and entitled to vote thereon. Failing to vote or abstaining from voting with respect to any proposal other than the adjournment proposal will have the same effect on that proposal as a vote against that proposal. However, you must also take additional steps if you wish to exercise your conversion rights, as described in this document.

 

As of the record date for the BPW special meeting, directors and executive officers of BPW and their affiliates have the right to vote 6,176,471 shares of BPW common stock, or approximately 15% of the outstanding BPW common stock entitled to vote at the BPW special meeting.

 

The BPW board of directors believes that the pre-closing certificate amendment, the merger and the post-closing certificate amendment are in the best interests of BPW and its stockholders and has unanimously approved and adopted the merger agreement and the transactions it contemplates. For a discussion of the factors considered by the BPW board of directors in reaching its decision to approve the merger agreement and the transactions it contemplates, see “The Merger Proposal — BPW’s Reasons for the Merger; Recommendation of the BPW Board of Directors.” The BPW board of directors unanimously recommends that the BPW stockholders vote “FOR” each of the pre-closing certificate amendment proposal, the merger proposal, the post-closing certificate amendment proposal and the adjournment proposal.

 

The Companies

 

The Talbots, Inc. (See page 41)

 

The Talbots, Inc. is a leading specialty retailer and direct marketer of women’s apparel, shoes and accessories. At the end of first quarter 2009, Talbots operated 586 Talbots brand stores in 47 states, the District of Columbia, and Canada. As of January 31, 2009, Talbots operated its business in two segments: retail stores and direct marketing. Talbots’ retail stores are located in 47 states, the District of Columbia and Canada under the Talbots brand name. As of January 31, 2009, Talbots operated a total of 587 stores under the Talbots brand name. Talbots’ direct marketing segment includes Talbots’ catalog and Internet channels. Since 1948, Talbots has used its direct marketing business to offer customers convenience in ordering Talbots brand merchandise. As of January 31, 2009, Talbots had approximately 12,100 Talbots brand employees of whom approximately 2,900 were full-time salaried employees, approximately 1,300 were full-time hourly employees and approximately 7,900 were part-time hourly employees.

 

The mailing address of Talbots’ principal executive offices is One Talbots Drive, Hingham, Massachusetts 02043 and its telephone number is (781) 749-7600.

 

BPW Acquisition Corp. (See page 41)

 

BPW is a blank check company that was organized under the laws of the State of Delaware on October 12, 2007. BPW was formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, with one or more operating businesses, which we refer to as an initial business combination or a business combination. In accordance with BPW’s certificate of incorporation, if BPW is unable to complete a business combination by February 26, 2010 (or obtain the approval of an extension by BPW stockholders), its corporate existence will automatically terminate and it will dissolve and liquidate and promptly distribute to its stockholders holding shares issued in its initial public offering the amount then in its trust account. In the event of its liquidation, all warrants to purchase BPW common stock, which we refer to as the BPW warrants, will expire worthless.

The BPW common stock is currently listed on the NYSE Amex under the symbol “BPW.” Following completion of the merger, the BPW common stock will cease trading on the NYSE Amex and BPW will file the appropriate forms with the Securities and Exchange Commission to suspend its reporting obligations under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act.

 

The mailing address of BPW’s principal executive office is 750 Washington Street, Stamford, Connecticut 06901 and its telephone number is (203) 653-5800.

 

Merger Sub (See page 41)

 

Tailor Acquisition, Inc., a Delaware corporation, is a direct, wholly owned subsidiary of Talbots. Merger Sub was formed by Talbots to complete the merger. In the merger, Merger Sub will merge with and into BPW and Merger Sub will cease to exist.

 

The mailing address of Merger Sub’s principal executive office is One Talbots Drive, Hingham, Massachusetts 02043 and its telephone number is (781) 749-7600.

 

Litigation (See page 60)

 

Talbots, the Talbots board of directors, AEON, BPW, Perella Weinberg and three Perella Weinberg partners are named as defendants in a lawsuit brought by an alleged Talbots stockholder asserting claims for, inter alia , breach of fiduciary duties on the part of the director defendants and AEON, aiding and abetting breaches of fiduciary duties, breach of duty arising out of an alleged confidential agency relationship between Talbots and its stockholders, on the one hand, and Perella Weinberg, the individual Perella Weinberg defendants and BPW, on the other hand, and violations of Talbots’ corporate by-laws and sections 141(c), 228 and 251 of the DGCL in connection with the merger agreement between Talbots and BPW and related warrant exchange, debt repayment, stock repurchase and GE Capital credit facility. The complaint seeks injunctive relief, an unspecified amount of damages, disgorgement of benefits purportedly received by defendants in connection with the above transactions, and an award of attorneys’ fees and expenses.

 

Talbots and the Talbots board of directors believe the claims asserted against them in the complaint are entirely without merit and intend to defend against them vigorously.

 

Set forth below are highlights from Talbots’ consolidated financial data as of and for the periods indicated. The selected historical consolidated financial data presented below for each of the five fiscal years through the period ended January 31, 2009, are derived from the selected financial data included in the Talbots’ Annual Report on Form 10-K for the year ended January 31, 2009. Talbots’ consolidated financial data for the nine months ended October 31, 2009 and November 1, 2008 are derived from Talbots’ unaudited interim financial statements, which have been incorporated in this document by reference.

 

You should read this information in conjunction with Talbots’ consolidated financial statements and the related notes to those statements included in Talbots’ Annual Report on Form 10-K for the year ended January 31, 2009 and Talbots’ Quarterly Report on Form 10-Q for the nine-month period ended October 31, 2009 filed with the Securities and Exchange Commission, which are incorporated by reference into this document and from which this information is derived. See “Where You Can Find More Information” on page 104.

 

Interim results are not necessarily indicative of results for the full fiscal year and historical results are not necessarily indicative of results to be expected in any future period.

 

 

 

 

BPW is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the merger. The following selected historical financial data should be read in conjunction with BPW’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and its financial statements and the related notes to those statements which have been incorporated in this document by reference.

 

The statement of operations data for the year ended December 31, 2008 and the period from October 12, 2007 (inception) through December 31, 2007 and the balance sheet data as of December 31, 2008 and 2007 have been derived from BPW’s audited financial statements which have been incorporated in this document by reference. The statement of operations data for the nine months ended September 30, 2009 and from October 12, 2007 (inception) to September 30, 2009, and the balance sheet data as of September 30, 2009 have been derived from BPW’s unaudited interim financial statements which have been incorporated in this document by reference. See “Where You Can Find More Information” on page 104.

 

Interim results are not necessarily indicative of results for the full fiscal year and historical results are not necessarily indicative of results to be expected in any future period.

 

 

 

The following unaudited pro forma condensed combined balance sheet as of October 31, 2009 and the unaudited pro forma condensed combined statements of operations for the year ended January 31, 2009 and the thirty-nine weeks ended October 31, 2009 are based on the separate historical consolidated financial statements of Talbots and BPW after giving effect to the merger.

 

The unaudited pro forma condensed combined balance sheet as of October 31, 2009 combines the balance sheet of Talbots as of October 31, 2009 with the balance sheet of BPW as of September 30, 2009. The unaudited pro forma condensed combined statements of operations for the year ended January 31, 2009 includes Talbots’ results of operations for the year ended January 31, 2009 and BPW’s results of operations for the year ended December 31, 2008. The unaudited pro forma condensed combined statements of operations for the thirty-nine weeks ended October 31, 2009 includes Talbots’ results of operations for the thirty-nine weeks ended October 31, 2009 with BPW’s results of operations for the nine months ended September 30, 2009.

 

The unaudited pro forma condensed combined balance sheet as of October 31, 2009 assumes the merger and related events had been consummated on October 31, 2009. The unaudited pro forma condensed combined statements of operations for the year ended January 31, 2009 and the thirty-nine weeks ended October 31, 2009 give pro forma effect to the merger and related events as if they had been consummated on February 3, 2008, the beginning of Talbots 2008 fiscal year.

 

The merger will be accounted for as an acquisition by Talbots and Talbots was determined to be the accounting acquirer — see the section entitled “Accounting Treatment” for more information. In summary, Talbots has concluded that Talbots is the accounting acquirer based on its evaluation of the facts and circumstances of the acquisition. The purpose of the merger was to assist Talbots with the refinancing and recapitalization of its business and Talbots initiated the transaction. Talbots is the larger of the two entities and is the operating company within the combining companies. Talbots’ continuing board members will continue to hold a majority of the seats on the Talbots board of directors and BPW stockholders will not have any continuing board appointment rights after the initial consent to 3 additional board members appointed to serve after the merger. Talbots’ senior management will be continuing as senior management of the combined company. In addition, the terms of the exchange provide BPW stockholders with a premium (subject to a formula related to Talbots’ common stock price over a defined period) over the market value of shares of BPW common stock prior to the merger announcement. Although a larger portion of the voting rights in the combined entity will be held by former BPW stockholders, this was not considered determinative, as all other important elements considered in determining which party has control, including board of directors representation and management continuity were not aligned with this voting interest. Additionally, the BPW stockholders are expected to represent a diverse group of stockholders at completion of the merger and we are not aware of any voting or other agreements that suggest that they can act as one party.

 

The completion of the merger is subject to various closing conditions, including, among others, (i) approval by the BPW stockholders of the merger proposal, the pre-closing certificate amendment proposal and the post-closing certificate amendment proposal, (ii) the accuracy of the representations and warranties of BPW and Talbots, subject to materiality standards described in the section of this document entitled “Summary of the Merger Agreement” and the performance by BPW and Talbots in all material respects of their respective obligations under the merger agreement and (iii) the effectiveness of the registration statement for the issuance of shares of Talbots common stock in the merger.

 

In addition, the merger is conditioned upon (i) the exercise of conversion rights by holders of less than 35% of the outstanding shares of BPW common stock issued in BPW’s initial public offering, (ii) the completion of the warrant exchange offer (which may be completed at the same time as the merger is completed), and (iii) Talbots having obtained and borrowed under debt financing in an amount sufficient to repay in full all indebtedness owed to AEON and third parties and to have, after such repayment, cash on hand or available to be borrowed in an amount sufficient to fund ordinary course working capital.

 

The unaudited pro forma condensed combined financial statements assume that (i) the merger proposal is approved by 100% of the BPW stockholders; (ii) none of the BPW stockholders exercise conversion rights with respect to their shares of BPW common stock; (iii) all of the funds held in the trust account are available for the

payment of transaction obligations and costs; and (iv) all other merger-related transactions (i.e., the transactions contemplated by the AEON agreement and Talbots having obtained the debt financing as described above) are consummated.

 

If the merger is approved by the BPW stockholders, but less than 100% of the those stockholders holding shares of BPW common stock issued in the initial public offering vote in favor of the merger, Talbots will be required to redeem the shares held by those stockholders for cash. The cash redemption payments would range from a minimum of $0 (with approval of 100% of the stockholders holding shares of BPW common stock issued in the BPW initial public offering) to a maximum of $122.0 million (with approval of 65% of the stockholders holding shares of BPW common stock issued in the BPW initial public offering). If stockholders holding approximately 82.5%, or the midpoint of the range between the minimum and the maximum, of BPW common stock issued in the initial public offering vote in favor of the merger, the cash redemption payments would approximate $61.0 million.

 

There are a number of factors that may affect the liquidity position of Talbots following the consummation of the merger, assuming the merger is consummated. Under circumstances where Talbots has the right under the merger agreement not to consummate the merger, Talbots would make such determination taking into account various relevant factors as of that time, such as Talbots’ stock price, the expected consequences of not consummating the merger, the availability and terms of third party financing, the status of the credit markets, general economic conditions, the results of operations and cash on hand, upcoming debt maturities and other obligations, and other material variables. Depending on such factors, Talbots may determine to consummate the transaction under circumstances where Talbots would have to devote a substantial amount of its cash from operations to meet its obligations and there is no assurance that such cash on hand together with other available sources of funding would be sufficient to meet its obligations for any minimum period of operation following the closing. For more information, see “The Debt Commitment Letter.”

 

We present the unaudited pro forma condensed combined financial statements for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the merger as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company. You should read this information together with the following:

 

THE TALBOTS, INC. AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

OCTOBER 31, 2009

 

THE TALBOTS, INC. AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009

 

THE TALBOTS, INC. AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JANUARY 31, 2009

 

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

 

 

On December 8, 2009, Talbots and BPW entered into the merger agreement, pursuant to which BPW will merge with and into a wholly owned subsidiary of Talbots, with BPW continuing as the surviving corporation and a wholly-owned subsidiary of Talbots after the merger. The transaction is to be accounted for using the acquisition method of accounting — see the section entitled “Accounting Treatment” for more information. For purposes of these unaudited pro forma condensed combined financial statements, Talbots has assumed that (i) the merger is approved by 100% of BPW’s stockholders and the total purchase consideration in the merger is equal to the fair value of BPW’s net assets acquired in the merger, or $342.2 million after adjusting the deferred underwriting fees to their fair value of $7.7 million and (ii) the total transaction costs and payments related to the merger, financing and acquisition to be paid by Talbots or BPW will approximate $47.3 million, of which approximately $29.6 million are estimated to be expensed as transaction costs, $2.0 million are estimated to be charged against additional paid-in capital as costs of raising equity, $8.0 are estimated to be capitalized as debt issuance costs and $7.7 million relates to the payment of BPW’s deferred underwriting liabilities. The pro forma adjustments to the unaudited pro forma condensed combined financial statements reflect Talbots management’s estimates based on information available as of the time this proxy statement was prepared and are subject to revision as actual costs become known.

 

Under the terms of the merger agreement, the shares of BPW common stock held by BPW stockholders that do not exercise their conversion rights will be converted into the right to receive the number of shares of Talbots common stock equal to the quotient (rounded to the nearest ten-thousandth) obtained by dividing:

 

 

In addition, the BPW warrantholders hold an aggregate of 49.8 million warrants to purchase shares of BPW common stock, of which 14.8 million are held by the sponsors and the non-sponsor founders and 35.0 million are held by public warrantholders. In the warrant exchange offer, the 14.8 million warrants held by the sponsors and non-sponsor founders and 50% of the warrants held by the public warrantholders (including for these purposes warrants held by the public warrantholders that are not exchanged in the warrant exchange offer) will be converted into shares of Talbots common stock at an exchange ratio of one warrant to purchase shares of BPW common stock for one tenth of the stock consideration received for each share of BPW common stock based on the floating exchange ratio in the merger. The remaining 50% of the warrants held by the public warrantholders will be exchanged for new warrants to purchase Talbots common stock, which new warrants will have an exercise price equal to the product of 1.30 and the average Talbots closing price. The warrants will be immediately exercisable, have a stated term of 5 years from the completion of the merger, and will expire and thereafter represent solely the right to receive $0.01 per warrant if the trading price of shares of Talbots common stock exceeds the product of 1.75 and the average Talbots closing price for any 20 trading days within a 30-trading-day period. The number of new Talbots warrants will be determined by multiplying the remaining 50% of the warrants held by the public BPW warrantholders by the floating exchange ratio in the merger.

 

The number of shares of Talbots common stock to be issued to BPW stockholders will change based on changes in the Talbots common stock price through application of the exchange ratio. Depending upon the calculated exchange ratio, Talbots will issue a minimum of 38.3 million shares of common stock and 15.8 million warrants (e.g., if the Talbots share price is $12.50 or more per share) and a maximum of 56.3 million shares of common stock and 23.2 million warrants to the BPW shareholders (e.g., if the Talbots share price is $8.50 or less per share). Changes in the fair value of the assets acquired and liabilities assumed are not expected to change in a way that affects merger consideration given.

In conjunction with the merger, Talbots will utilize net cash proceeds from the BPW trust account, borrowings under the debt financing described above and other available cash balances to fund the repayment in full of all amounts due or outstanding in respect of (i) all financing agreements between AEON and Talbots, (ii) the Support Letter (Financial), dated as of April 9, 2009, from AEON to Talbots, and the Letter of Support, dated as of April 9, 2009, from AEON to Talbots and (iii) all Third Party Credit Facilities (as defined in the AEON agreement in Appendix D to this document), and to pay related fees and expenses. Under the AEON agreement, AEON has also agreed to sell to Talbots all of the shares of Talbots common stock owned by AEON for an aggregate of one million warrants to purchase shares of Talbots common stock on terms and conditions substantially the same as the warrant exchange offer; provided, that the exercise price of such warrants will be the closing price of Talbots common stock on the date of the completion of the merger (or, if not available on such date, the closing price on the business day immediately preceding such date).

 

The unaudited pro forma condensed combined financial statements have been prepared assuming (i) the average Talbots closing price equals its recent closing market price of $7.96 per share on December 18, 2009; (ii) the BPW common stock and BPW warrants to be converted into shares of Talbots common stock and new warrants to purchase shares of Talbots common stock are converted at an exchange ratio based on the $7.96 per share price of Talbots common stock; and (iii) the new warrants to be issued to AEON under the AEON agreement have an assumed exercise price of $7.96 per share.

 

BPW, which is a special purpose acquisition company, is merging with and into a wholly owned subsidiary of Talbots, and Talbots was determined to be the acquirer for accounting purposes. The accounting for the transaction will be similar to that of a capital infusion as the only significant pre-combination asset of BPW is the cash and cash equivalents, which are already recognized by BPW at fair value, obtained from BPW’s investors. No intangibles or goodwill will arise through the accounting for the transaction. The accounting is the equivalent of Talbots issuing shares of common stock for the net monetary assets of BPW. Accordingly, Talbots will record the equity issued in exchange for BPW based on the value of the net monetary assets received as of the closing date. For purposes of these unaudited pro forma condensed combined financial statements, the estimated purchase price paid by Talbots has been allocated to BPW’s asset and liabilities based on their fair values as of September 30, 2009 as follows (in thousands):

 

 

 

Adjustments included in the column under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed combined financial statements correspond to the following descriptions:

 

Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet

 

(A) To record the release of BPW’s restricted cash equivalents held in a trust account and transfer to cash and cash equivalents. This pro forma presentation assumes that no stockholder of BPW exercises their conversion rights, which would convert their common shares for a pro rata share of the cash then held in the trust account, including their pro rata portion of the deferred underwriters’ fee and other adjustments, prior to the effectiveness of the merger. The holders of up to 35% (minus one share) of the outstanding BPW common stock could properly exercise this conversion right and the merger could still be approved by the BPW stockholders.

(B) To remove the historical equity accounts of BPW and common stock subject to possible redemption.

 

(C) To record the payment of $7.7 million and adjustment of $2.3 million (see pro forma adjustment (D) below) to additional paid-in capital related to deferred underwriters’ fees related to BPW’s initial public offering which is payable upon completion of the merger at a lower amount than the amount accrued in the historical BPW balance sheet.

 

(D) To record the issuance of Talbots common stocks and warrants to BPW stockholders and warrantholders as a result of the merger and warrant exchange offer. The exchange ratio in the merger was assumed to be based on 1.325 shares of Talbots common stock for each share of BPW common stock. Adjustments also assumed the exchange of 50% of the outstanding public BPW warrants for Talbots common stock, and the exchange of 50% of the outstanding public BPW warrants for new warrants to purchase Talbots common stock. The terms of the new Talbots warrants were accounted for based on an agreed term sheet, which does not indicate any further adjustments to the number of shares of Talbots common stock underlying the new Talbots warrants, and indicates that new Talbots warrants will be immediately exercisable upon completion of the merger, and will settle only in shares of Talbots common stock.

 

Based on the assumptions in the paragraph above and the approval by 100% of BPW’s stockholders, approximately 56.3 million shares of Talbots’ common stock with a par value of $0.01 per share would be issued in the merger. As described above, the estimated purchase price is equal to the net monetary assets of BPW, or $342.2 million. Accordingly, the 56.3 million shares of Talbots’ common stock would be estimated at $342.2, with $0.6 million recorded as common stock and $341.6 recorded as an increase in paid-in capital.

 

(E) To record the payment to AEON for its existing debt arrangements with Talbots, deferred financing costs, accrued interest, third party borrowings, and repurchase of Talbots common stock held by AEON.

 

(F) To record the cash paid for merger transaction costs.

 

(G) To record a valuation allowance on the deferred tax assets of BPW (see pro forma adjustment (D) above).

 

(H) To record the borrowing by Talbots in immediately available funds under the revolving credit facility contemplated by the GE Capital commitment letter.

 

(I) To record the payment of related financing costs associated the revolving credit facility contemplated by the GE Capital commitment letter.

 

(J) To record the cash paid for registering and issuing new securities.

 

Notes to the Unaudited Condensed Combined Statement of Operations

 

(K) In connection with the merger, Talbots anticipates incurring non recurring merger expenses of $29.6 million (see pro forma adjustment (F) above), which are not reflected in the pro forma adjustments in the statement of operations.

 

(L) To reverse interest expense and amortization of deferred financing cost related to the AEON related party term loan and third party debt eliminated upon the completion of the merger and related transactions. To reflect interest expense and amortization of deferred financing cost related to the new credit facility based on the initial borrowing under this facility upon the merger. Interest expense under the new credit facility will be at a floating rate based on LIBOR or the prime rate at the Company’s option. The pro forma interest expense is based on the prime rate option of 3.25% and 6.12%, respectively, in 2009 and 2008. A one-eighth (1/8) fluctuation in the interest rate will result in an increase or decrease of $200,000 in annual interest expense based on the assumed borrowing of $160.0 million at closing.

 

(M) To reverse the effect of interest income due associated with the BPW assets used to repay debt obligations upon completion of the merger.

 

(N) To provide a valuation allowance on deferred tax benefit for the period.

 

(O) To adjust the weighted average shares outstanding for the 56,316,483 shares issued to BPW’s common stockholders (assuming 100% of BPW’s stockholders approve the merger), net of the 29,921,829 shares repurchased from AEON. As a result of the loss from continuing operations, the 23.2 million warrants to purchase shares

of Talbots common stock assumed to be issued in the merger did not impact the loss from continuing operations per share, as these securities would be antidilutive for all periods presented.

 

 

On December 28, 2009, Talbots executed an Amended and Restated Secured Revolving Loan Agreement with AEON, Co., Ltd., the Company’s indirect majority shareholder (“AEON”), which amends and restates the $150 million secured revolving loan agreement with AEON dated April 10, 2009. Pursuant to the agreement, the principal amount of the earlier $150 million secured credit facility has been increased to $250 million (“Amended Facility”).

 

On December 29, 2009, Talbots borrowed $245 million under the Amended Facility which was used to repay all of the Company’s outstanding third party bank indebtedness, related interest, and other costs and expenses.

 

The Amended Facility has a scheduled maturity date of the earlier to occur of (i) April 16, 2010 or (ii) the consummation of the merger with BPW, the repurchase of AEON’S equity interest in the Talbots and repayment of all outstanding debt owed to AEON, provided that the merger transaction together with any concurrent financing result in sufficient net cash proceeds to enable the Talbots to make full repayment of its AEON debt.

 

Interest on the loan made pursuant to the Amended Facility remains at a variable rate equal to LIBOR plus 6.00%. LIBOR refers to the one-month London interbank offer rate expressed as a percentage rate per annum. Interest on the loan will be payable monthly in arrears.

 

Talbots common stock is quoted on the NYSE under the symbol “TLB.” BPW common stock is quoted on the NYSE Amex under the symbol “BPW.” The following table shows the closing prices of Talbots common stock and BPW common stock as reported on December 7, 2009, the last trading day prior to public announcement of the merger, on December 8, 2009, the date of the public announcement of the merger, and on January 25, 2010, the last practicable date prior to the date of this document. This table also shows the implied value of the merger consideration proposed for each share of BPW common stock, which was calculated by multiplying the closing price of Talbots common stock on the relevant date by the exchange ratio.

 

 

The market price of Talbots common stock and BPW common stock will fluctuate prior to the special meeting and before the merger is completed, which will affect the implied value of the merger consideration to BPW stockholders. You should obtain current market quotations for the shares.

 

The following table shows, for the nine months ended September 30, 2009 and the year ended December 31, 2008, selected per share information for BPW common stock on a historical and pro forma equivalent basis, and for the thirty-nine weeks ended October 31, 2009 and the year ended January 31, 2009, selected per share information for Talbots common stock on a historical and pro forma combined basis. Except for the historical information as of and for the year ended December 31, 2008, in the case of BPW, and as of and for the year ended January 31, 2009, in the case of Talbots, the information in the table is derived from unaudited information. You should read the data with the historical consolidated financial statements and related notes of Talbots and the historical financial statements and related notes of BPW contained in their respective Annual Reports on Form 10-K for the year ended January 31, 2009, in the case of Talbots, and December 31, 2008, in the case of BPW, which have been incorporated in this document by reference, as well as the unaudited pro forma condensed combined financial statements and related notes contained in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 19. The following data is not necessarily indicative of future operations of the combined company.

 

The pro forma equivalent data for BPW are calculated by multiplying the pro forma combined (loss) income from continuing operations per share, pro forma dividends declared per share and pro forma book value by the exchange ratio so that the per share amounts are equated to the respective values for one share of BPW common stock. Based on the recent closing market price of Talbots common stock on December 18, 2009, the assumed exchange ratio in the merger is 1.3235 shares of Talbots common stock for one (1) share of BPW common stock. The pro forma combined statement of operations data assumes the merger and related events were consummated on February 3, 2008, the beginning of Talbots’ 2008 fiscal year. The pro forma combined balance sheet data assumes the merger was consummated on the respective balance sheet date.