On June 30, 2024 (the “Petition Date”), Delta Apparel, Inc. (the “Company”) and its domestic direct and indirect subsidiaries (collectively with the Company, the “Debtors”), including Salt Life Beverage, LLC and Salt Life, LLC (“Salt Life”), filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors have requested that the Bankruptcy Court administer the Chapter 11 Cases jointly under the caption, In re: Salt Life Beverage, LLC, et al, Case No. 24-11468 (LSS).

The Debtors will continue to operate their businesses as a debtor-in-possession and pursue a structured sale of their assets pursuant to one or more competitive bidding processes or other strategic arrangements involving such assets. The Debtors are seeking approval of “first day” motions containing customary relief intended to enable the Debtors to continue their ordinary course operations during the Chapter 11 Cases. In addition, the Debtors expect to file with the Bankruptcy Court a motion seeking approval of a senior secured super-priority debtor-in-possession post-petition financing arrangement (the “DIP Financing”) with Wells Fargo Bank (“Wells Fargo”) and the other lenders party to the Pre-Petition Credit Agreement (as defined below) (collectively with Wells Fargo, the “DIP Lenders”), the Company’s existing senior secured lenders, to help fund operations during the pendency of the Chapter 11 Cases, the terms of which will be disclosed if the DIP Financing is approved by the Bankruptcy Court and entered into between the Debtors, Wells Fargo and the DIP Lenders.

Additional information about the Chapter 11 Cases, including access to Bankruptcy Court documents, is available online at https://dm.epiq11.com/Delta-SaltLife, a website administered by Epiq Corporate Restructuring, LLC, a third party bankruptcy claims and noticing agent. The information on this website is not incorporated by reference into, and does not constitute part of, this Report.

Asset Purchase Agreement

On June 28, 2024, prior to the filing of the Chapter 11 Cases, the Company and Salt Life (together, the “Sellers”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with FCM Saltwater Holdings, Inc., a Delaware corporation (“Buyer”), pursuant to which, subject to the terms and conditions set forth in the Asset Purchase Agreement, Buyer agreed to acquire certain assets related to the Sellers’ business of marketing, sourcing, licensing, and selling of Salt Life® branded products (collectively, the “Salt Life Assets”) and assume certain specified liabilities of the Sellers (collectively, the “Liabilities” and such acquisition of the Salt Life Assets and assumption of the Liabilities together, the “Salt Life Transaction”), for a total purchase price of approximately $28.03 million in cash (the “Purchase Price”). The Purchase Price is subject to adjustment after closing of the Salt Life Transaction based on final net accounts receivable and certain inventory calculations. Following entry into the Asset Purchase Agreement, 10% of the Purchase Price was paid by Buyer into an escrow account (the “Deposit”).

Upon Bankruptcy Court approval, Buyer is expected to be designated as the “stalking horse” bidder in connection with a sale of the Salt Life Assets under section 363 of the Bankruptcy Code. The Salt Life Transaction will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy Court-approved bidding procedures and is subject to the receipt of higher or better offers from competing bidders at an auction, approval of the sale by the Bankruptcy Court, and the satisfaction of certain conditions. Subject to Bankruptcy Court approval, in the event that Buyer is not the successful bidder at the auction, Buyer may be entitled to a break-up fee equal to approximately 3% of the Purchase Price plus reimbursement of expenses up to 1.5% of the Purchase Price.

The Asset Purchase Agreement contains customary representations, warranties and covenants of the parties for a transaction involving the acquisition of assets from a debtor in bankruptcy, and the completion of the Salt Life Transaction is subject to a number of customary conditions, which, among others, include the entry of an order of the Bankruptcy Court authorizing and approving the Salt Life Transaction, the performance by each party of its obligations under the Asset Purchase Agreement and the accuracy of each party’s representations, subject to certain materiality qualifiers.

The Asset Purchase Agreement may be terminated, subject to certain exceptions: (i) by the mutual written consent of the parties or (ii) by either party, (a) if any court or other competent governmental entity issues a final, non-appealable order restraining, enjoining, or otherwise prohibiting the Salt Life Transaction; (b) if the closing has not occurred on or prior to September 13, 2024 (the “Outside Date”); (c) if the Chapter 11 Cases are dismissed or converted to a case under Chapter 7 of the Bankruptcy Code or if a trustee or examiner with expanded powers to operate or manage the financial affairs or reorganization of the Sellers is appointed in the Chapter 11 Cases; or (d) for certain material breaches by the other party of its representations and warranties or covenants that remain uncured following a specified cure period, in each case only if the party seeking to terminate is not then in material breach of the Asset Purchase Agreement. Upon termination of the Asset Purchase Agreement, the Deposit will be returned to Buyer, except in the event of certain specified termination triggers, including due to the Buyer’s material breach of the Asset Purchase Agreement such that the closing conditions specified therein could not be satisfied by the Outside Date.

The foregoing summary of the Asset Purchase Agreement is not complete and is qualified in its entirety by reference to the full text of the Asset Purchase Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

The representations, warranties and covenants set forth in the Asset Purchase Agreement have been made only for purposes of the Asset Purchase Agreement and solely for the benefit of the parties thereto, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Asset Purchase Agreement instead of establishing these matters as facts. In addition, information regarding the subject matter of the representations and warranties made in the Asset Purchase Agreement may change after the date of the Asset Purchase Agreement and do not purport to be accurate as of the date of this Report. Accordingly, investors should not rely upon the representations and warranties in the Asset Purchase Agreement as statements of factual information.

Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

The filing of the Chapter 11 Cases constitutes an event of default that accelerated the Company’s obligations under the Fifth Amended and Restated Credit Agreement, dated as of May 10, 2016, by and among the Debtors and the DIP Lenders (the “Pre-Petition Credit Agreement”). The Pre-Petition Credit Agreement provides that as a result of the Chapter 11 Cases, all outstanding amounts thereunder shall be immediately due and payable. Any efforts to enforce payment obligations under the Pre-Petition Credit Agreement are automatically stayed as a result of the filing of the Chapter 11 Cases and the holders’ rights of enforcement in respect of the Pre-Petition Credit Agreement are subject to the applicable provisions of the Bankruptcy Code.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Resignation of Officer

On June 27, 2024, Nancy P. Bubanich notified the Company of her decision to resign from her position as Vice President, Chief Accounting Officer, and Treasurer. Ms. Bubanich’s resignation will be effective as of July 26, 2024, and she will continue serving in her current position and capacity through such date.

Resignation of Directors

On June 28, 2024, Glenda E. Hood submitted her resignation from service on the Company’s Board of Directors (“Board”) and all subcommittees of the Board, effective as of June 30, 2024.

On June 29, 2024, Sonya E. Medina resigned from service on the Board and all subcommittees of the Board effective immediately.

Delta Apparel Seeks Bankruptcy Protection, Restructures with Major Asset Sale