<PAGE>
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
__________________________
For Quarter Ended April 30, 1996 Commission File No. 1-7927
-------------- ------
House of Fabrics, Inc.
---------------------
(Exact Name of Registrant as specified in its charter)
Delaware 95-3426136
- - ----------------------------------------------------------------------------
(State or other jurisdiction) (I.R.S. Employer I.D. Number)
13400 Riverside Drive, Sherman Oaks, CA 91423
- - ------------------------------------------- ----------
Post Office Box 9110, Van Nuys, CA 91409
- - ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 995-7000
--------------
No Change
________________________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities & Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been the subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 31, 1996
Common Stock 13,697,107 Shares
<PAGE>
HOUSE OF FABRICS, INC.
INDEX
-----
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 1996
and January 31, 1996 2 - 3
Consolidated Statements of Operations
for the three months ended April 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the three
months ended April 30, 1996 and 1995 5 - 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Part II. Other Information
Item 6. Exhibits 16
Signature 17
1
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN POSSESSION)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- - --------------------------------------------------------------------------------------------------------
ASSETS APRIL 30, 1996 JANUARY 31, 1996
<S> <C> <C>
Current Assets:
Cash $ 19,157,000 $ 16,634,000
Receivables, net 7,349,000 24,322,000
Merchandise Inventories, net 104,396,000 107,140,000
Prepaid Expenses and Other Current Assets 5,740,000 5,651,000
Refundable Income Taxes 377,000 377,000
Deferred Income Taxes 25,000 25,000
------------ ------------
Total Current Assets 137,044,000 154,149,000
Property:
Land 1,011,000 1,011,000
Buildings 1,709,000 1,707,000
Furniture & Fixtures 38,637,000 39,333,000
Leasehold Improvements 18,033,000 21,255,000
------------ ------------
59,390,000 63,306,000
Less Accumulated Depreciation and Amortization (34,993,000) (36,198,000)
------------ ------------
Property, net 24,397,000 27,108,000
Deferred Income Taxes 254,000 254,000
Property Held for Sale 9,551,000 9,590,000
Other Assets 1,304,000 1,386,000
Goodwill, net 37,799,000 38,067,000
------------ ------------
$210,349,000 $230,554,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
- - ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT APRIL 30, 1996 JANUARY 31, 1996
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 10,063,000 $ 9,754,000
Accrued Liabilities 34,140,000 32,297,000
Restructuring Reserve 12,949,000 12,949,000
D.I.P. Bank Loan 1,000,000
------------ ------------
Total Current Liabilities 58,152,000 55,000,000
Deferred Income Taxes 279,000 279,000
Liabilities Subject to Compromise under
Reorganization Proceedings 173,232,000 190,618,000
------------ ------------
Total Liabilities 231,663,000 245,897,000
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.10 Par Value;
Authorized 1,000,000 Shares; Outstanding, None
Common Stock, $.10 Par Value;
Authorized 29,000,000 Shares; 13,697,107 Shares
Issued and Outstanding at April 30, 1996
and January 31, 1996 1,370,000 1,370,000
Paid-In Capital 46,880,000 46,880,000
Accumulated Deficit (69,564,000) (63,593,000)
------------ ------------
Total Stockholders' Deficit (21,314,000) (15,343,000)
------------ ------------
$210,349,000 $230,554,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN POSSESSION)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- - -------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
-------------------
APRIL 30, 1996 APRIL 30, 1995
<S> <C> <C>
Sales $ 56,515,000 $ 73,759,000
Expenses:
Cost of Sales 31,174,000 36,875,000
Selling, General and Administrative 26,881,000 37,368,000
Interest 2,509,000 3,928,000
----------- ------------
Total Expenses 60,564,000 78,171,000
Loss Before Income Taxes
and Reorganization Costs (4,049,000) (4,412,000)
Reorganization Costs 1,898,000 3,522,000
----------- ------------
Loss Before Income Taxes (5,947,000) (7,934,000)
Income Taxes 24,000 50,000
----------- ------------
Net Loss $(5,971,000) $(7,984,000)
=========== ============
Loss Per Share $(0.44) $(0.58)
=========== ============
Weighted Average Number of
Shares Outstanding 13,697,107 13,697,107
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- - ---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 30, 1996 APRIL 30, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (5,971,000) $ (7,984,000)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used In) Operating Activities:
Depreciation and Amortization 1,453,000 2,168,000
Changes in Assets and Liabilities:
Receivables 16,973,000 (997,000)
Merchandise Inventories 2,744,000 (18,263,000)
Prepaid Expenses, Refundable Income Taxes and Other Assets (7,000) 14,755,000
Accounts Payable and Accrued Liabilities 5,001,000 (7,967,000)
Restructuring Reserve 0 (1,554,000)
Operating Payables subject to compromise under
Reorganization Proceedings (38,000) 1,379,000
------------ ------------
Net Cash Provided by (Used In) Operating Activities 20,155,000 (18,463,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,284,000) (111,000)
Proceeds from Sale of Property 0 323,000
------------ ------------
Net Cash (Used In) Provided by Investing Activities (1,284,000) 212,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under D.I.P. Line of Credit 6,000,000 0
Repayment of Long-Term Debt 0 (14,000)
Net Repayments Under Line of Credit Agreements (22,348,000) (6,000,000)
------------ ------------
Net Cash Used In by Financing Activities (16,348,000) (6,014,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH 2,523,000 (24,265,000)
CASH AT BEGINNING OF PERIOD 16,634,000 47,381,000
------------ ------------
CASH AT END OF PERIOD $ 19,157,000 $ 23,116,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- - --------------------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 30, 1996 APRIL 30,1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 2,503,000 $3,533,000
Income Taxes Paid (Refunded) $(9,363,000) $ 96,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES-
During the three months ended April 30, 1995, loss on disposal of property
charged to the restructuring reserve amounted to $1,631,000.
See accompanying notes to consolidated financial statements.
6
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - --------------------------------------------------------------------------------
NOTE 1: REORGANIZATION, BASIS OF REPORTING, STORE CLOSURES AND RESTRUCTURING
PLANS:
House of Fabrics, Inc. and subsidiaries (Debtors-in-Possession) (the "Company")
is one of the largest home sewing/craft retailers in the United States,
operating 269 stores in 28 states as of April 30, 1996. The Company's stores
are located throughout the United States and operate under the names "House of
Fabrics," "So-Fro Fabrics," "Fabricland" or "Fabric King." The Company operates
most of its stores in leased premises principally in neighborhood shopping
centers or stand-alone locations.
Reorganization:
As a result of certain events in fiscal 1995, the Company filed for protection
under Chapter 11 of the United States Bankruptcy Code (Chapter 11) on November
2, 1994. The Company continues to conduct normal business operations as
Debtors-in-Possession subject to the jurisdiction of the Bankruptcy Court. As
Debtors-in-Possession, the Company may not engage in transactions outside the
ordinary course of business without approval of the Bankruptcy Court, after
notice and hearing.
Under Chapter 11, actions to enforce claims against the Company are stayed if
the claims arose, or are based on events that occurred, on or before the
petition date of November 2, 1994, and such claims cannot be paid or
restructured prior to the conclusion of the Chapter 11 proceedings or approval
of the Bankruptcy Court. Other liabilities may arise or be subject to compromise
as a result of rejection of executory contracts, including leases, or the
Bankruptcy Court's resolution of claims for contingencies and other disputed
amounts. Liabilities subject to compromise (see Note 2) in the accompanying
consolidated balance sheet represent the Company's estimates of liabilities as
of April 30, 1996 and January 31, 1996, subject to adjustment in the
reorganization process. The Company is continuing to pay interest on secured
debt although principal payments have generally been suspended.
In August 1995 the Company filed a Disclosure Statement and Plan of
Reorganization (the Plan) with the Bankruptcy Court which was amended in May
1996. A disclosure hearing was held on May 23, 1996, and court approval was
obtained to present the Plan of Reorganization to the Company's impaired
creditors. The Plan has an effective date of not later than July 31, 1996.
Under the Plan, the Company will issue 13,700,000 shares of newly reorganized
House of Fabrics, Inc. common stock ("new common stock") as well as additional
shares, as necessary, to satisfy the warrants, equity incentive plans and
additional bank group stock requirements as contemplated by the Plan. The Plan
also contemplates the successful negotiation of a new line of credit and the
sale of real property assets to provide the cash that along with certain income
tax refunds and funds generated by the Company's business will allow the Company
to fund the Plan. In Addition, the Plan generally provides for the following:
the secured bank group will receive $76,500,000 plus 685,000 shares (or 5%) of
new common stock. In addition, if the aggregate market value of the 685,000
shares of new common stock during a certain period after the effective date of
the Plan, as defined, is less than $2,000,000, the secured bank group will
receive additional stock or cash to bring the aggregate value up to $2,000,000.
Generally, defaults under other secured obligations will be cured and the
maturities reinstated or converted to longer term obligations at market rates of
interest. Reclamation claims will receive 25% in cash on the effective date of
the Plan and will receive the balance in 12 equal monthly installments. Holders
of general unsecured claims that are not covered by insurance will receive a pro
rata distribution of 93% of new common stock. Holders of existing House of
Fabrics, Inc. common stock will receive a pro rata distribution of 2% of new
common stock (subject to dilution) plus warrants to purchase additional shares
of new common stock. In addition,
7
<PAGE>
the Company will reserve 1,781,000 shares of new common stock for equity
incentive plans for the Company's officers, directors and employees.
The Plan is dependent on the successful resolution of certain contingencies
detailed in the disclosure statement filed with the Bankruptcy Court in May
1996. Adoption of the Plan requires approval of all impaired classes of
creditors and affirmation by the Bankruptcy Court. There can be no assurance
that the Plan will be approved in its present form.
On May 24, 1996, the New York Stock Exchange (the "Exchange") suspended trading
of the Company's common stock and applied to delist the issue. The suspension
and subsequent action to delist the Company resulted from the Company's failure
to meet certain financial standards established by the Exchange. The Company is
currently exploring other options to list the newly reorganized House of
Fabrics, Inc. new common stock to be issued on the effective date of the Plan.
Basis of Reporting:
The accompanying consolidated financial statements have been prepared in
conformity with principles of accounting applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As a result of the Chapter 11 filing and
circumstances relating to this event, realization of assets and satisfaction of
liabilities are subject to uncertainty. The plan of reorganization, if approved,
could materially change the amounts reported in the accompanying consolidated
financial statements, which do not give effect to adjustments to the carrying
values of assets and liabilities which may be necessary as a consequence of a
plan of reorganization. The Company's ability to continue as a going concern is
contingent upon, among other things, its ability to obtain Bankruptcy Court
confirmation and creditor approval of the plan of reorganization, to achieve
satisfactory levels of profitability and cash flow from operations, maintain
compliance with the Debtors-in-Possession financing agreement (see Note 3) and
obtain financing sources to meet future obligations.
The consolidated financial statements included herein do not include all the
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles, although the Company believes that the disclosures are adequate to
make the information not misleading. Certain reclassifications have been made
to prior year amounts to conform to the current years reporting classification.
(Refer to the Notes to Consolidated Financial Statements contained in the
Company's 1996 Annual Report). In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation for the interim periods have been included in the consolidated
financial statements.
The results of operations for the interim periods presented, are not necessarily
indicative of the operating results to be expected for the full fiscal year.
The accompanying consolidated financial statements have been presented in
accordance with Statement of Position 90-7 - Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code.
STORE CLOSURES AND RESTRUCTURING PLANS:
In both fiscal 1994 and fiscal 1995, the Company implemented restructuring plans
that involved the closing of a significant number of stores and significant
revisions to the Company's marketing and merchandising strategies. At April 30
1996, the restructuring reserve of $12,949,000 relates primarily to lease
terminations and occupancy costs for the fiscal 1994 and 1995 restructuring
plans. In fiscal 1996, the Company closed stores pursuant to its Debtors-in-
Possession financing agreement and to facilitate its ability to negotiate exit
financing prior to emerging from Chapter 11.
In anticipation of the Company filing the Plan of Reorganization to exit Chapter
11 with the Bankruptcy Court and to facilitate the Company's ability to
negotiate exit financing prior to emergence from Chapter 11, the Company
8
<PAGE>
agreed to close 86 underperforming stores and use the proceeds to permanently
reduce the secured debt of the Company's prepetition bank loan. In January 1996,
with approval of the Bankruptcy Court, the Company entered into an agency
agreement with an unrelated partnership formed to liquidate the 86 stores. The
partnership assumed control of the 86 stores and assumed substantially all of
the expenses of operating the stores through liquidation. The liquidation was
completed in April 1996. In addition to the 86 stores, the Company's D.I.P.
Financing agreement covenants required the closing of 8 other stores, during
fiscal 1996, that did not meet certain profitability requirements.
NOTE 2: LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consist of the following as of April 30, 1996
and January 31, 1996:
APRIL 30, 1996 JANUARY 31, 1996
-------------- ----------------
Secured Liabilities:
Notes payable to banks $ 85,475,000 $102,823,000
Long term debt 941,000 941,000
Unsecured Liabilities:
Accounts payable, trade 71,276,000 71,309,000
Other payables, trade 15,396,000 15,400,000
Other 145,000 145,000
------------ ------------
$173,232,000 $190,618,000
============ ============
The plan of reorganization if approved by the Company's impaired prepetition
creditors and stockholders and confirmed by the Bankruptcy Court may materially
change the amounts and terms of these prepetition liabilities. Such amounts
were estimated as of April 30, 1996, and January 31, 1996, and the Company
anticipates that claims filed with the Bankruptcy Court by the Company's
creditors will be reconciled to the Company's financial records. The additional
liability arising from this reconciliation process, if any, is not subject to
reasonable estimation, and accordingly, no provision has been recorded for these
possible claims. The termination of other contractual obligations and the
settlement of disputed claims may create additional prepetition liabilities.
Such amounts, if any, will be recognized in the consolidated balance sheet as
they are identified and become subject to reasonable estimation.
The Company has a credit agreement (Credit Agreement) for which Bank of America
NT & SA acts as agent bank. As a result of the Chapter 11 filing, all required
repayments of principal on the notes payable under the Credit Agreement have
been suspended, except for certain principal repayments that have been approved
by the Bankruptcy Court and are required by the Company's Debtors-in-Possession
financing agreement and amendments (see Note 3). Under such agreements
$17,348,000 of permanent reductions have been made in the quarter ended April
30, 1996, and $41,191,000 of permanent principal reductions have been made from
the date of the bankruptcy filing through April 30, 1996, primarily from the
proceeds of liquidating underperforming stores. The Company has continued to
accrue and pay interest at the contractual rate on these notes and has
classified these notes as subject to compromise in the accompanying consolidated
balance sheets.
By authorization of the Bankruptcy Court, the Company has continued to pay
interest at the contractual rate on certain long term debt. Such obligations
have been classified as subject to compromise in the accompanying consolidated
balance sheets.
9
<PAGE>
NOTE 3: DEBTORS-IN-POSSESSION FINANCING
In March 1995, the Company entered into, and the Bankruptcy Court approved, an
agreement with Bank of America NT & SA, acting as agent bank, to provide
Debtors-in-Possession financing in the form of a $20 million line of credit (The
"D.I.P. Financing") that expired on January 31, 1996. The D.I.P. Financing
agreement provides for a combination of cash borrowings and the issuance of up
to $10 million in letters of credit. Interest and fees are payable monthly.
Cash borrowings bear interest at the bank reference rate plus 1.5% per annum,
and a commitment fee of .5% per annum on unused availability. Fees for letters
of credit are generally .25% per annum. This agreement is collateralized by a
first priority lien on generally all assets of the Company, as defined. The
Company is required to follow a formula for sequestration of excess cash, as
defined in the D.I.P. Financing agreement, for permanent principal reductions
of notes payable under the Credit Agreement. The Company is also required to
permanently reduce all or a portion of the borrowings under the D.I.P. Financing
agreement by an amount equal to the net proceeds from asset dispositions which
occur outside the normal course of business and, under certain circumstances, a
portion of the funds derived from store liquidations.
On January 29, 1996, the D.I.P. Financing agreement was extended through April
30, 1996, with Bankruptcy Court approval. The amended and restated D.I.P.
agreement was reduced to a $17.3 million line of credit with a provision for up
to $10 million in letters of credit and any unused portion of the loan available
for cash borrowings. The amended and restated D.I.P. Financing agreement
required the closure of at least 86 stores with the proceeds therefrom to be
used to permanently reduce the prepetition secured bank loan. On May 1, 1996,
the amended and restated D.I.P. Financing agreement was extended through June
28, 1996.
The D.I.P. Financing agreement includes certain other restrictive covenants that
are computed monthly and related to, among other things, cash and inventory
level requirements in comparison to planned levels. As of April 30, 1996, the
Company had direct borrowings of $1,000,000 and had drawn letters of credit in
the total amount of $256,000. Available credit at April 30, 1996 totaled
$16,044,000, of which $9,744,000 was available for letters of credit.
The Company was in compliance with all financial covenants as of April 30, 1996.
NOTE 4: REORGANIZATION COSTS
Professional fees and expenditures directly related to the Chapter 11 filing are
classified as reorganization costs and are expensed as incurred. Reorganization
costs during the three months ended April 30, 1996, and 1995, consisted
primarily of professional fees.
NOTE 5: STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning February 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair market value of the equity instrument
awarded. Companies are permitted, however, to continue to apply APB Opinion No.
25, which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB Opinion No.
25 to its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
10
<PAGE>
NOTE 6: INCOME TAXES
In March 1996, the Company received approximately $9,300,000 pursuant to a claim
for refund filed on form 1139. At April 30, 1996, the Company had outstanding
additional claims on form 1139 of approximately $11,865,000 which were collected
in June of 1996. Income tax refunds received on form 1139 are subject to later
review and audit by the Internal Revenue Service. Although the Company believes
it will ultimately prevail on any Internal Revenue Service audit of claims filed
on form 1139, it has reserved against amounts received and receivable at April
30, 1996, and will record the respective tax benefits upon successful completion
of such audits.
11
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- - --------------------------------------------------------------------------------
The Company is one of the largest home sewing/craft retailers in the United
States, operating 269 stores in 28 states as of April 30, 1996. The following
discussion explains material changes in the results of operations for the first
quarter of fiscal years 1997 and 1996 and significant developments affecting
financial condition since the end of fiscal 1996.
CHAPTER 11 REORGANIZATION
- - -------------------------
On November 2, 1994, the Company and subsidiaries filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (Chapter 11).
The consolidated financial statements have been presented on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
a result of the Chapter 11 filing and circumstances relating to this event,
realization of assets and satisfaction of liabilities is subject to uncertainty.
The plan of reorganization, if approved, could materially change the amounts
reported in the accompanying consolidated financial statements, which do not
reflect all adjustments to the carrying values of assets and liabilities which
may be necessary as a consequence of a plan of reorganization. The ability of
the Company to continue as a going concern is dependent on, among other things,
its ability to obtain Bankruptcy Court confirmation and creditor approval of the
plan of reorganization, to achieve satisfactory levels of profitability and
cash flow from operations, maintain compliance with the Debtors-in-Possession
financing agreement (see Note 3) and obtain financing sources to meet future
obligations.
In August 1995, the Company filed a Disclosure Statement and Plan of
Reorganization (the Plan) with the Bankruptcy Court which was amended in May
1996. A disclosure hearing was held on May 23, 1996, and court approval was
obtained to present the Plan of Reorganization to the Company's impaired
creditors. The Plan has an effective date of not later than July 31, 1996.
Under the Plan, the Company will issue 13,700,000 shares of newly reorganized
House of Fabrics, Inc. common stock ("new common stock") as well as additional
shares, as necessary, to satisfy the warrants, equity incentive plans and
additional bank group stock requirements as contemplated by the Plan. The Plan
also contemplates the successful negotiation of a new line of credit and the
sale of real property assets to provide the cash that along with certain income
tax refunds and funds generated by the Company's business will allow the Company
to fund the Plan. In addition, the Plan generally provides for the following:
the secured bank group will receive $76,500,000 plus 685,000 shares (or 5%) of
new common stock. In addition, if the aggregate market value of the 685,000
shares of new common stock during a certain period after the effective date of
the Plan, as defined, is less than $2,000,000, the secured bank group will
receive additional stock or cash to bring the aggregate value up to $2,000,000.
Generally, defaults under other secured obligations will be cured and the
maturities reinstated or converted to longer term obligations at market rates of
interest. Reclamation claims will receive 25% in cash on the effective date of
the Plan and will receive the balance in 12 equal monthly installments. Holders
of general unsecured claims that are not covered by insurance will receive a pro
rata distribution of 93% of new common stock. Holders of existing House of
Fabrics, Inc. common stock will receive a pro rata distribution of 2% of new
common stock (subject to dilution) plus warrants to purchase additional shares
of new common stock. In addition, the Company will reserve 1,781,000 shares of
new common stock for equity incentive plans for the Company's officers,
directors and employees.
The Plan is dependent on the successful resolution of certain contingencies
detailed in the disclosure statement filed with the Bankruptcy Court in May
1996. Adoption of the Plan requires approval of all impaired classes of
12
<PAGE>
creditors and affirmation by the Bankruptcy Court. There can be no assurance
that the Plan will be approved in its present form.
On May 24, 1996 the New York Stock Exchange (the "Exchange") suspended trading
of the Company's common stock and applied to delist the issue. The suspension
and subsequent action to delist the Company resulted from the Company's failure
to meet certain financial standards established by the Exchange. The Company is
currently exploring other options to list the newly reorganized House of
Fabrics, Inc. new common stock to be issued on the effective date of the Plan.
Store Closures:
In both fiscal 1994 and fiscal 1995, the Company implemented restructuring plans
that involve the closing of a significant number of stores and significant
revisions to the Company's marketing and merchandising strategies. At April 30
1996, the restructuring reserve of $12,949,000 relates primarily to lease
terminations and occupancy costs for the fiscal 1994 and 1995 restructuring
plans. In fiscal 1996, the Company closed stores pursuant to its Debtors-in-
Possession financing agreement and to facilitate its ability to negotiate exit
financing prior to emerging from Chapter 11.
In anticipation of the Company filing the Plan of Reorganization to exit Chapter
11 with the Bankruptcy Court and to facilitate the Company's ability to
negotiate exit financing prior to emergence from Chapter 11, the Company agreed
to close 86 underperforming stores and use the proceeds to permanently reduce
the secured debt of the Company's prepetition bank loan. In January 1996, with
approval of the Bankruptcy Court, the Company entered into an agency agreement
with an unrelated partnership formed to liquidate the 86 stores. The
partnership assumed control of the 86 stores and assumed substantially all of
the expenses of operating the stores through liquidation. The liquidation was
completed in April 1996. In addition to the 86 stores, the Company's D.I.P.
Financing agreement covenants required the closing of 8 other stores during
fiscal 1996 that did not meet certain profitability requirements.
RESULTS OF OPERATIONS
- - ---------------------
Sales for the quarter ended April 30, 1996, decreased 23.4 % to $56,515,000 from
$73,759,000 for the quarter ended April 30, 1995. The decrease in sales of
$17,244,000 was primarily due to various store closures in fiscal 1996 offset by
a 0.5 % increase in store for store sales. The increase in store for store
sales reflects the ability of the Company to restock the merchandise levels of
the stores during fiscal 1996 and the closure of weaker stores with declining
sales patterns. During the quarter ended April 30, 1996, the Company did not
close any stores.
Gross profit as a percentage of sales decreased to 44.8% for the quarter ended
April 30, 1996, from 50.0% for the quarter ended April 30, 1995. The decrease
is primarily due to higher markdowns compared to those generated in the quarter
ended April 30, 1995. In accordance with the Company's merchandising
strategies, seasonal merchandise is marked down at the end of the spring and
fall seasons. It is anticipated that gross margins will be affected in the
second and fourth quarters of the fiscal year.
Selling, general and administrative expenses as a percent of sales decreased to
47.6 % for the quarter ended April 30, 1996, from 50.7% for the quarter ended
April 30, 1995. Expense reduction programs have been implemented to reduce
total costs, and the Company has closed stores that had higher cost structures.
Expense reduction programs are ongoing and should favorably impact the Company
in future periods.
Interest expense for the quarter ended April 30, 1996, decreased $1,419,000 from
the quarter ended April 30, 1995, as a result of a decrease in the Company's
average effective borrowing rate to 11.0 % in the quarter ended April 30, 1996,
from 11.5% in the quarter ended April 30, 1995, and a reduction in the Company's
average loan balance.
13
<PAGE>
Reorganization costs associated with the Company's Chapter 11 filing amounted to
$1,898,000 for the 3 months ended April 30, 1996, and are comprised primarily of
professional fees. The Company anticipates that additional reorganization costs
will be incurred throughout the Chapter 11 reorganization.
The Company recorded a tax expense of $24,000 for the three months ended April
30, 1996, for minimum state income taxes compared to a $50,000 tax expense for
the quarter ended April 30, 1995. The net loss incurred during the quarter
increased the net operating loss carryforward that existed as of January 31,
1996.
During the quarter ended April 30, 1996, the Company incurred a net loss of
$5,971,000, compared to a net loss $7,984,000 for the same period last year.
The decrease in net loss was the result of the decreases in total store sales
and decreased gross margins offset by decreases in selling, general and
administrative costs, interest expense and reorganization costs. The net losses
in 1996 and 1995 were adversely impacted by the additional costs associated
with the Chapter 11 process to close stores and restructure the Company.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's working capital was approximately $78,892,000 as of April 30,
1996, and its current ratio was 2.4 to 1. Net cash provided by operating
activities was approximately $20,155,000 for the quarter ended April 30, 1996,
compared to net cash used in operating activities of approximately $18,463,000
for the quarter ended April 30, 1995. The $38,618,000 increase in net cash
provided by operating activities relates primarily to: i) relatively stable
inventory levels during the quarter ended April 30, 1996, compared to a
significant increase in inventories to fully restock stores during the quarter
ended April 30, 1995, and ii) proceeds from the closure of stores received
during the quarter ended April 30, 1996, that were used to reduce secured debt
of the Company's prepetition bank loan. Total reductions of the Company's
prepetition bank loan were $17,348,000 and $6,000,000 during the quarters ended
April 30, 1996, and April 30, 1995, respectively. Also, during the quarter
ended April 30, 1996, the Company invested cash of $1,284,000 in capital
expenditures primarily related to the implementation of a new computer system.
In March of 1995, the Company entered into, and the Bankruptcy Court approved,
an agreement with Bank of America NT & SA, acting as agent bank, to provide
Debtors-in-Possession financing in the form of a $20 million line of credit (The
"D.I.P. Financing") that expired on January 31, 1996. The D.I.P. Financing
agreement provides for a combination of cash borrowings and the issuance of up
to $10 million in letters of credit. Interest and fees are payable monthly.
Cash borrowings bear interest at the bank reference rate plus 1.5% per annum,
and a commitment fee of .5% per annum on unused availability. Fees for letters
of credit are generally .25% per annum. This agreement is collateralized by a
first priority lien on generally all assets of the Company, as defined. The
Company is required to follow a formula for sequestration of excess cash, as
defined in the D.I.P. Financing agreement, for permanent principal reductions
of notes payable under the Credit Agreement. The Company is also required to
permanently reduce all or a portion of the borrowings under the D.I.P. Financing
agreement by an amount equal to the net proceeds from asset dispositions which
occur outside the normal course of business and, under certain circumstances, a
portion of the funds derived from store liquidations.
On January 29, 1996, the Company's D.I.P. Financing agreement was extended
through April 30, 1996, with Bankruptcy Court approval. The amended and
restated D.I.P. agreement was reduced to a $17.3 million line of credit with a
provision for up to $10 million in letters of credit and any unused portion of
the loan available for cash borrowings. The amended and restated D.I.P.
Financing agreement required the closure of at least 86 stores with the proceeds
therefrom to be used to permanently reduce the prepetition secured bank loan.
On May 1, 1996, the amended and restated D.I.P. Financing agreement was extended
through June 28, 1996.
The D.I.P. Financing agreement includes certain other restrictive covenants that
are computed monthly and related to, among other things, cash and inventory
level requirements in comparison to planned levels. As of April 30, 1996, the
Company had direct borrowings of $1,000,000 and had drawn letters of credit in
the total amount of $256,000. Available credit at April 30, 1996, totaled
$16,044,000, of which $9,744,000 was available for letters of credit.
14
<PAGE>
The Company has received federal income tax refunds totaling approximately
$9,300,000 during the quarter ended April 30, 1996. Additional refunds of
approximately $11,865,000 were received in June 1996. These refunds are largely
the result of the carryback of losses incurred by the Company during the past
two years to prior years in which the Company paid income taxes. The refunds
were received based upon claims filed on form 1139 with the Internal Revenue
Service. As a general matter, income tax refunds on form 1139 are subject to
later review and audit by the Internal Revenue Service. If the Internal Revenue
Service determines that it will disallow the refunds, or any portion of the
refunds, it can demand a return of such refunds and force the Company to sue to
obtain the refunds.
The Company believes that its ongoing operating cash flow, the D.I.P. Financing
agreement, and the refund of income taxes should enable the Company to meet
liquidity requirements in fiscal 1997. However, notwithstanding all of the
events and circumstances described above, there is substantial uncertainty with
respect to the Company's liquidity. The Company's ability to meet its
obligations as they come due and successfully emerge from Chapter 11 is
contingent upon, among other things, its ability to obtain Bankruptcy Court
confirmation and creditor approval of the plan of reorganization, to achieve
satisfactory levels of profitability and cash flow from operations, maintain
compliance with the Debtors-in-Possession financing agreement and obtain
financing sources to meet future obligations.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
- - ----------------------------------------------
The preceding Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events. The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including without limitation, those
associated with the ability of the Company to obtain Bankruptcy Court
confirmation and creditor approval of the plan of reorganization, the ability to
obtain financing sources to meet future obligations and the ability of the
Company to complete the restructuring of the Company and reduce the current
expense levels. In addition, these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including without limitation, decline
in demand for the merchandise offered by the Company, the ability of the Company
to obtain adequate merchandise supply and hire and train employees, management's
ability to manage the Company's planned emergence from Chapter 11 and the effect
of economic conditions.
The foregoing discussion is designed to comply with interim reporting standards
and should be read in conjunction with the more detailed discussion in the
Company's 1996 Annual Report.
15
<PAGE>
Part II. OTHER INFORMATION
Item 6. EXHIBITS
(a) Exhibits.
2.1 Plan of Reorganization
10.1 First Amendment to the Amended and Restated Revolving Credit
Agreement in the Amount of $17,300,000 among House of Fabrics,
Inc., House of Fabrics of South Carolina, Inc., Sofro Fabrics,
Inc. and Metrolina Express, Inc. and The Financial Institutions
party hereto and Bank of America National Trust and Savings
Association, as Issuing Bank and Bank of America National Trust
and Savings Association, as Agent, Dated as of May 1, 1996.
27. Financial Data Schedule
16
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SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
House of Fabrics, Inc.
----------------------
Registrant
Date: June 14, 1996 John E. Labbett
Executive Vice President-Chief
Financial Officer
17
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EXHIBIT 2.1
MICHAEL A. MORRIS (State Bar No. 89842),
MARETA C. HAMRE (State Bar No. 151824),
EVE H. KARASIK (State Bar No. 155356), and
MARTIN R. BARASH (State Bar No. 162314), Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
3699 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
Telephone: (213) 251-5100
Reorganization Counsel for Debtors
and Debtors in Possession
Debtors' Mailing Address:
- - ------------------------
13400 Riverside Drive
Sherman Oaks, California 91423
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re ) Case No. SV 94-50060 KL
)
HOUSE OF FABRICS, INC., ) Chapter 11
a Delaware corporation, dba )
Fabric King; FABRICLAND, INC., ) (Administratively Consolidated
an Oregon corporation; SOFRO ) with Cases No. SV 94-50061 KL;
FABRICS, INC., a Nevada ) SV 94-50062 KL; SV 94-50064 KL;
corporation, dba House of ) and SV 50065 KL)
Fabrics, Inc.; HOUSE OF )
FABRICS OF SOUTH CAROLINA, ) (This Pleading Applies
INC., a South Carolina ) to All Cases)
corporation; METROLINA )
EXPRESS, INC., a South ) DEBTORS' THIRD AMENDED JOINT PLAN OF
Carolina corporation, ) REORGANIZATION DATED MAY 23,
) 1996
Debtors. )
)
(Taxpayer Identification ) (Confirmation Hearing
Numbers: 95-3426136; ) Not Set)
93-0563309; 95-3171310; )
95-2554189; 57-0746612) )
- - -----------------------------------)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
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<S> <C>
I. INTRODUCTION..........................................................1
II. DEFINITIONS, INTERPRETATION, AND RULES OF CONSTRUCTION................2
A. Definitions.......................................................2
B. Interpretation, Rules Of Construction, Computation
Of Time, And Choice of Law......................................18
III. DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS.................21
A. Secured Claims....................................................21
B. Certain Priority Unsecured Claims.................................22
C. Unsecured Claims Without Priority.................................22
D. Equity Interests And Related Rights...............................22
IV. TREATMENT OF CLASSES OF CLAIMS, INTERESTS, AND
UNCLASSIFIED CLAIMS OR INTERESTS....................................23
A. Unclassified Claims...............................................23
1. Administrative Claims.........................................23
a. Generally.................................................23
b. Post-Petition Date Trade Claims...........................23
c. Reclamation Claims........................................23
d. DIP Financing Claims......................................24
e. Administrative Claims Bar Date............................25
2. Treatment Of Priority Tax Claims..............................25
3. Treatment Of Intercompany Claims..............................27
4. Treatment Of Joint Liability Duplicate Claims
Against Multiple Debtors (Including Guarantee
Claims).....................................................27
B. Treatment Of Secured Claims.......................................27
1. Class 1A (Claims Arising Under The Credit Agreement)..........27
</TABLE>
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<TABLE>
<S> <C>
a. Initial Cash Distribution................................27
b. Stock Distributions......................................29
2. Class 1B (Greenville And/Or AmSouth Bank Secured Claims).......31
3. Class 1C (USBO Secured Claims).................................32
4. Class 1D (York Secured Claims).................................33
5. Class 1E (Other Secured Claims)................................34
6. Class 1F (Secured Tax Claims)..................................35
C. Treatment Of Certain Priority Unsecured Claims....................36
D. Treatment Of General Unsecured Claims.............................36
1. General Unsecured Claims.......................................36
2. Insured Claims.................................................36
E. Treatment Of Equity Interests And Certain
Rights Related Thereto..........................................37
1. Holders Of Existing HOF Common Stock..........................37
2. Holders Of Existing Sofro Stock................................37
3. Holders Of Existing Fabricland Stock...........................38
4. Holders Of Existing HOFSC Stock................................38
5. Holders Of Existing Metrolina Stock............................38
V. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.................39
A. Assumption Of Executory Contracts And Unexpired Leases...........39
1. Assumption Generally...........................................39
2. Assumptions Of Executory Contracts And Unexpired
Leases Related To Real Property..............................40
3. Approval Of Assumptions........................................41
4. Objections To Assumption Of Executory Contracts And Unexpired
Leases.......................................................41
5. Objections To Proposed "Cure" Amounts..........................42
</TABLE>
ii
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<TABLE>
<S> <C>
6. Payments Related To Assumption Of Executory Contracts
And Unexpired Leases........................................43
B. Executory Contracts And Unexpired Leases To Be Rejected...........44
C. Bar Date For Rejection Damages....................................45
D. Contracts Entered Into On Or After The Petition Date..............45
VI. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN....................46
A. Corporate Action And Financial Restructuring......................46
1. On The Effective Date:........................................46
2. Prior To The Effective Date:..................................47
B. Funding Of Plan...................................................50
C. Revesting Of Assets...............................................50
D. Management Of Reorganized Debtor..................................51
E. Exemption From Certain Transfer Taxes.............................52
F. Applicability Of Sections 1125 And 1145 Of The Bankruptcy
Code To New HOF Common Stock And Other Securities
Issued Under The Plan...........................................53
G. Objections To Claims..............................................54
H. Discharge Of Debtors And Injunction...............................54
I. Preservation Of Rights Of Action..................................57
J. Limitation Of Liability...........................................58
VII. DISTRIBUTION..........................................................59
A. General...........................................................59
1. Disbursing Agents..............................................59
2. Transmittal Of Distributions To Parties Entitled Thereto.......59
3. No Fractional Shares...........................................60
4. Timing Of Distributions........................................61
5. Compliance With Tax Requirements...............................62
</TABLE>
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<TABLE>
<S> <C>
6. No Distributions On Account Of Disputed Claims Pending
Allowance.....................................................62
7. Initial Distribution Of New HOF Common Stock And Disputed Claims
Reserve.......................................................63
8. Class 3 Distributions After Allowance...........................64
9. Class 3 Subsequent And Final Distributions......................64
10. Treatment Of Contingent Claims.................................64
B. Undeliverable Distributions..........................................65
1. Holding And Investment Of Undeliverable Distributions...........65
2. Failure To Claim Undeliverable Distributions....................66
C. Estimation Of Unliquidated And Disputed Claims.......................66
VIII. EFFECTIVE DATE.........................................................68
IX. CONFIRMATION REQUEST.....................................................70
X. RETENTION OF JURISDICTION.................................................70
XI. MISCELLANEOUS PROVISIONS.................................................72
A. Amendment And Modification Of The Plan...............................72
B. Withdrawal Or Revocation Of The Plan.................................72
C. Section 1111(b)(2) Election..........................................73
D. Creditors' Committee And Equity Committee............................73
E. Successors And Assigns...............................................74
F. Severability Of Provisions Of The Plan...............................75
</TABLE>
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I.
INTRODUCTION
This "Debtors' Third Amended Joint Plan of Reorganization Dated May
23, 1996" (the "Plan") is proposed by House of Fabrics, Inc., a Delaware
corporation, Sofro Fabrics, Inc., a Nevada corporation, Fabricland, Inc., an
Oregon corporation, House of Fabrics of South Carolina, Inc., a South Carolina
corporation, and Metrolina Express, Inc., a South Carolina corporation, the
debtors and debtors in possession in the above-captioned, jointly administered
cases pending under chapter 11 of the Bankruptcy Code (collectively, the
"Debtors"), for the resolution of the Debtors' outstanding creditor Claims and
equity security Interests. Reference is made to the "Disclosure Statement to
Accompany Debtors' Third Amended Joint Plan of Reorganization Dated May 23,
1996" (the "Disclosure Statement") for a discussion of the Debtors' history,
business, results of operations, historical financial information, and
projections, and for a summary and analysis of the Plan. All creditors and
equity security holders are encouraged to review the Disclosure Statement and
the Plan before voting to accept or reject the Plan. To any extent the Plan is
inconsistent with the Disclosure Statement, the Plan will govern. See
Subsection II.B.1. In addition, there are other agreements and documents on
file with the Bankruptcy Court or the Securities and Exchange Commission that
may be referenced in the Plan or the Disclosure Statement and are available for
review.
1
<PAGE>
II.
DEFINITIONS, INTERPRETATION,
AND RULES OF CONSTRUCTION
A. DEFINITIONS.
In addition to such other terms as are defined in other sections of
the Plan, the following terms (which appear in the Plan as capitalized terms)
have the following meanings as used in the Plan:
1. "ADDITIONAL BANK GROUP STOCK" shall have the meaning set forth in
Section IV.B.1.
2. "ADMINISTRATIVE CLAIM" means a Claim for costs and expenses of
administration under sections 503(b) or 507(b) of the Bankruptcy Code.
3. "ALLOWED CLAIM" means a Claim against one or more of the Debtors
to the extent that (a) a proof of such Claim was (i) timely Filed; or (ii)
deemed timely Filed under applicable law or by reason of an order of the
Bankruptcy Court; and (b)(i) after the deadline for Filing an objection to the
Claim set forth in Section VI.G of the Plan has passed, the Debtors, Reorganized
Debtors, or any other party in interest entitled to do so has not Filed an
objection or any such objection is withdrawn following the expiration of such
time period(s); (ii) the Claim is allowed (but only to the extent allowed) by a
Final Order; (iii) the Claim is allowed under the Plan; or (iv) the Claim is a
Class 3 Claim that is listed on the Allowed Claims List as of the Effective Date
or any supplement to the Allowed Claims List Filed by the Debtors after the
Effective Date. Prior to the time that an objection has been or may be timely
Filed,
2
<PAGE>
for the purposes of the Plan, a Claim shall be considered an Allowed Claim if
(a) the Claim has been Scheduled; (b) the amount of the Claim specified in any
Filed proof of Claim equals or is less than the amount of the Claim Scheduled by
a Debtor as other than disputed, contingent or unliquidated; (c) the priority of
the Claim specified in any Filed proof of Claim is of an equal or more junior
priority than the priority of the Claim Scheduled by a Debtor; and (d) the Claim
has not been Scheduled as disputed, contingent or unliquidated or as being in
the amount of $0.00. Terms such as "ALLOWED PRIORITY TAX CLAIM" or "ALLOWED
SECURED CLAIM" mean, by way of example, an Allowed Claim that is also a Priority
Tax Claim or Secured Claim, respectively.
4. "ALLOWED CLAIMS LIST" means the list, which the Debtors shall File
on or prior to the Effective Date, as supplemented by the Debtors thereafter, of
all Class 3 Claims to which the Debtors will not File objections and which will
be deemed allowed as of the Effective Date. After the Effective Date, the
Debtors may File supplements to the Allowed Claims List identifying Class 3
Claims that will be deemed Allowed as of the Filing of such Supplements. The
Allowed Claims List shall not include any Claim as to which an objection is
Filed by an entity other than the Debtors prior to the Effective Date.
5. "ALLOWED DIP SECURED BANK GROUP CLAIMS" means the Claims of the
Bank Group in connection with and/or relating to the DIP Financing Agreement,
including all outstanding principal; all issued and outstanding letters of
credit whether or not draws in whole, in part or at all have been made
thereunder; unpaid interest; unreimbursed actual and reasonable costs and
expenses,
3
<PAGE>
including but not limited to actual and reasonable legal fees and costs of the
DIP Agent, reasonable collateral audit fees and travel expenses of the DIP Agent
and each DIP Bank Group participant, and reasonable financial advisory fees of
the DIP Agent and each DIP Bank Group participant, incurred through the
Effective Date in connection with and/or related to the DIP Financing Agreement.
Such Claims are allowed for all purposes.
6. "ALLOWED EQUITY INTEREST" means (a) an equity interest in HOF as
reflected in the official records of the stock transfer agent as of the
Confirmation Date, (b) HOF's 100 percent equity interest in Sofro, Fabricland,
or HOFSC, or (c) HOFSC's 100 percent equity interest in Metrolina. The Debtors
may rely exclusively on the official records of the stock transfer agent without
further inquiry and shall not be liable for any damages resulting from any
errors or omissions therein.
7. "ALLOWED PRIORITY TAX CLAIM" means a Priority Tax Claim that is or
becomes Allowed.
8. "ALLOWED SECURED BANK GROUP CLAIMS" means the Claims of the Bank
Group in connection with and/or related to the Credit Agreement in the principal
amount of $86,078,000.00 as of May 1, 1996, together with all unpaid interest
and unreimbursed costs and expenses, including but not limited to reasonable
legal fees and costs of BofA and each Bank Group participant, reasonable
financial advisory fees of BofA, collateral audit fees and the reasonable travel
expenses of BofA and each Bank Group participant, incurred both prepetition and
postpetition through the Effective Date of the Plan. Such Claims are allowed
for all purposes.
4
<PAGE>
9. "ASSERTED RECLAMATION CLAIM" means a Claim asserted against a
Debtor allegedly arising out of the holder's right to reclaim goods as set forth
in Bankruptcy Code section 546(c), which right is disputed by the Debtors. All
Asserted Reclamation Claims will be listed on the Reclamation Claim List.
10. "BANK GROUP" means the present lenders under the Credit Agreement
comprised of BofA (as Agent, as a bank and as assignee of First Union
Corporation), Custodial Trust Company (assignee of First Interstate Bank of
California and Sanwa Bank California), Citibank, N.A. (assignee of The Fuji
Bank, Limited and the Daiwa Bank, Limited), The Industrial Bank of Japan,
Limited, Istituto Bancario San Paolo Di Torino, NBD Bank, N.A., Societe Generale
and Union Bank of Switzerland (assignee of United States National Bank of
Oregon), or their successors in interest.
11. "BANK GROUP STOCK VALUATION PERIOD" means the period commencing on
the 60th day after the Effective Date and ending on the 120th day after the
Effective Date.
12. "BANKRUPTCY CODE" means title 11 of the United States Code, as the
same was in effect on November 2, 1994, as amended by any amendments applicable
to the Reorganization Cases.
13. "BANKRUPTCY COURT" means the United States Bankruptcy Court for
the Central District of California or, in the event such court ceases to
exercise jurisdiction over the Reorganization Cases, such other court or adjunct
thereof that exercises jurisdiction over the Reorganization Cases.
14. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy
Procedure, the Local Bankruptcy Rules of the United
5
<PAGE>
States Bankruptcy Court for the Central District of California, and the
guidelines and requirements of the Office of the United States Trustee for the
Central District of California, as the same may from time to time be in effect
and applicable to the Reorganization Cases and proceedings therein.
15. "BAR DATE ORDER" means the "Order (1) Establishing Procedures and
Deadlines for Filing Proofs of Claims and Interests; (2) Establishing Sanctions
for Failure to Comply Therewith; and (3) Approving Form and Scope of Notice
Thereof" entered by the Bankruptcy Court on March 14, 1995, as may be
subsequently amended, modified, or supplemented.
16. "BOFA" means The Bank of America National Trust and Savings
Association in its capacities as agent for and member of the Bank Group.
17. "CASH" means lawful currency of the United States and equivalents
thereof, including, but not limited to, bank deposits, wire transfers, checks,
and other similar items.
18. "CLAIM" means a claim as such term is defined in section 101(5)
and construed in section 102(2) of the Bankruptcy Code, as supplemented by the
Bar Date Order.
19. "CLASS" means one of the classes of Claims or Equity Interests
established under Article III of the Plan pursuant to section 1122 of the
Bankruptcy Code.
20. "CONFIRMATION" means the entry of the Confirmation Order.
21. "CONFIRMATION HEARING" means the hearing to be held by the
Bankruptcy Court to consider confirmation of the Plan.
6
<PAGE>
22. "CONFIRMATION DATE" means the date of Confirmation.
23. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan.
24. "CREDIT AGREEMENT" means that certain credit agreement entered
into between the Obligated Debtors and the Bank Group and dated as of November
30, 1993, and as amended by the five amendments dated February 16, 1994, March
22, 1994, May 12, 1994, August 25, 1994, and September 1, 1994.
25. "CREDITORS' COMMITTEE" means the Official Unsecured Creditors'
Committee in the Reorganization Cases, as appointed by the Office of the United
States Trustee.
26. "DATE OF ASSESSMENT" of an Allowed Priority Tax Claim means (a) if
the governmental unit holding such Allowed Priority Tax Claim assessed such
Claim prior to the Petition Date, the date of such assessment, or (b) otherwise,
the Effective Date.
27. "DEBTORS" means House of Fabrics, Inc., a Delaware corporation,
Sofro Fabrics, Inc., a Nevada corporation, Fabricland, Inc., an Oregon
corporation, House of Fabrics of South Carolina, Inc., a South Carolina
corporation, and Metrolina Express, Inc., a South Carolina corporation, the
debtors in the above-captioned, jointly administered chapter 11 Reorganization
Cases.
28. "DEBTORS IN POSSESSION" means the Debtors, when acting in the
capacity of representatives of the Estates in the Reorganization Cases.
7
<PAGE>
29. "DIP AGENT" means The Bank of America National Trust and Savings
Association in its capacity as agent for the DIP Bank Group.
30. "DIP BANK GROUP" means the lenders that comprise the Bank Group
or, respectively, their successors in interest, but excluding Custodial Trust
Company (Assignee of First Interstate Bank of California and Sanwa Bank
California) and Istituto Bancario San Paolo Di Torino.
31. "DIP FINANCING AGREEMENT" means the Revolving Credit Agreement
dated March 31, 1995 among the Debtors and certain members of the Bank Group, as
amended and restated.
32. "DISBURSING AGENT" means any qualified Person that is designated
under the Plan, the Confirmation Order, or by the Debtors or the Reorganized
Debtor (including, if appropriate, the Reorganized Debtor) to disburse property
pursuant to the Plan.
33. "DISCLOSURE STATEMENT" means the "Disclosure Statement to
Accompany Debtors' Third Amended Joint Plan of Reorganization Dated May 23,
1996" (and all annexes attached thereto or referenced therein) which relates to
the Plan and is approved pursuant to section 1125 of the Bankruptcy Code in an
order entered by the Bankruptcy Court, as such Disclosure Statement may be
amended, modified, or supplemented.
34. "DISPUTED CLAIM" or "DISPUTED EQUITY INTEREST" means a Claim or
Equity Interest, respectively, as to which a proof of Claim or Equity Interest
has been Filed or deemed Filed and that is not an Allowed Claim or Allowed
Equity Interest.
8
<PAGE>
35. "DISPUTED CLAIMS RESERVE" means the property that may be reserved
by the Disbursing Agent for the benefit of holders of Disputed Claims pursuant
to Article VII of the Plan.
36. "EFFECTIVE DATE" means the date specified as the Effective Date of
the Plan in Article VIII.
37. "EQUITY COMMITTEE" means the Official Committee of Equity Security
Holders in HOF's Reorganization Case, as appointed by the Office of the United
States Trustee.
38. "EQUITY INTEREST" means an equity security as defined in section
101(16) of the Bankruptcy Code, including but not limited to any rights
associated therewith, and any Claims arising from or relating to such Equity
Interest, including but not limited to Claims for rescission.
39. "ESTATES" means the estates created in the Reorganization Cases by
section 541 of the Bankruptcy Code.
40. "EXISTING HOF COMMON STOCK" means the common stock of HOF issued
and outstanding prior to the Effective Date, and any rights incident thereto.
41. "EXIT LOAN AGREEMENT" means the agreement to provide financing to
the Reorganized Debtor effective as of the Effective Date. The Exit Loan
Agreement will provide for a revolving loan to the Reorganized Debtor having the
terms and conditions substantially as set forth in the Exit Loan Agreement
documents to be filed with the Court no later than twenty-one (21) days prior to
the Confirmation Hearing, which shall not be inconsistent with the following
terms:
a. The amount of the commitment shall be no more than $65
million. The Debtors shall be able to borrow an
9
<PAGE>
amount equal to no less than fifty-five percent (55%) of the cost of the
Debtors' inventory.
b. The Exit Loan Agreement shall have a maturity date of three
years following the Effective Date.
c. The interest rate shall be no greater than prime plus one and
one-quarter percent (1.25%) (or an alternative rate at the option of the
Debtors).
d. The loans made pursuant to the Exit Loan Agreement shall be
secured by substantially all of the assets of the Reorganized Debtor,
provided, however, that such security interest shall not attach until
after, or as part of the same transaction, the distributions required under
the Plan to be made to the DIP Bank Group and Class 1A (other than the
distribution of any Additional Bank Group Stock) have been made.
42. "FABRICLAND" means Fabricland, Inc., an Oregon corporation and a
wholly owned subsidiary of HOF.
43. "FILE" or "FILED" means file or filed with the Bankruptcy Court in
the Reorganization Cases.
44. "FINAL ORDER" means an order as to which (a) the time to appeal or
petition for certiorari has expired and as to which no appeal or petition for
certiorari has been timely filed, or (b) as to which any appeal or petition for
certiorari that has been filed has been resolved by the highest court to which
the order was timely appealed or from which certiorari was sought, and after
which such order is enforceable due to the highest court's (i) affirmance of the
order in whole or in relevant part,
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(ii) denial of certiorari, or (iii) dismissal of the appeal or petition for
certiorari.
45. "GREENVILLE" means the County of Greenville, South Carolina.
46. "HOF" means House of Fabrics, a Delaware corporation.
47. "HOFSC" means House of Fabrics of South Carolina, Inc., a South
Carolina corporation and a wholly owned subsidiary of HOF.
48. "INITIAL BANK GROUP STOCK" shall have the meaning set forth in
section IV.B.1.
49. "IRS" means the Internal Revenue Service of the United States of
America.
50. "MAULDIN FACILITY" means the real property on which the Debtors
have maintained their processing and distribution center located in Mauldin,
South Carolina and owned by HOFSC.
51. "MAULDIN IRBS" means the Third Series of Industrial Revenue Bonds
issued by Greenville that mature in fiscal year 1998.
52. "METROLINA" means Metrolina Express, Inc., a South Carolina
corporation, and a wholly owned subsidiary of HOFSC.
53. "MINIMUM VOLUME BUSINESS DAY" means a business day on which at
least 150,000 shares of New HOF Common Stock are traded on all recognized
domestic exchanges.
54. "NEW HOF COMMON STOCK" means the common stock of the Reorganized
Debtor to be distributed pursuant to the Plan.
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55. "OBLIGATED DEBTORS" means those Debtors obligated under the Credit
Agreement, i.e., HOF, Sofro, Fabricland, and HOFSC.
56. "PETITION DATE" means November 2, 1994.
57. "PRICING PERIOD" means the period commencing on the 121st day
after the Effective Date and ending on the 150th day after the Effective Date.
58. "PRIORITY TAX CLAIM" means a Claim by a governmental unit entitled
to priority in payment pursuant to any provision of section 507(a) of the
Bankruptcy Code.
59. "PROFESSIONAL PERSON" means a person retained or to be compensated
pursuant to order of the Bankruptcy Court or under sections 326, 327, 328, 330,
503(b)(2) or (4), 1103, or 1107(b) of the Bankruptcy Code.
60. "PRO RATA" means proportionately so that the ratio of the amount
of consideration distributed on account of a particular Allowed Claim or Allowed
Equity Interest at a particular time to the amount of the Allowed Claim or
Allowed Equity Interest is the same as the ratio of the amount of consideration
distributed at that time on account of all Allowed Claims and Allowed Equity
Interests of the Class in which the particular Allowed Claim or Allowed Equity
Interest is included to the amount of all Allowed Claims and Allowed Equity
Interests of that Class.
61. "RECLAMATION AMOUNT" means the dollar amount of goods that the
Debtors assert a holder of an Asserted Reclamation Claim could have been
entitled to reclaim pursuant to Bankruptcy Code section 546(c) if the Debtors
had been insolvent on the Petition Date, as set forth in the Reclamation Claim
List.
12
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62. "RECLAMATION CLAIM LIST" means the list, which the Debtors shall
File prior to the final hearing to consider the adequacy of the Disclosure
Statement, of all Asserted Reclamation Claims on account of which the Debtors
received demands for reclamation from the holders of such Claims. The
Reclamation Claim List shall set forth the Asserted Reclamation Claim and the
Reclamation Amount.
63. "REFERENCE RATE" means the rate of interest publicly announced
from time to time by BofA in San Francisco, California as its "reference rate."
64. "RELEASE OF CLAIMS" means the general release of claims to be
executed by the Debtors in favor of the Bank Group in a form acceptable to BofA.
65. "REORGANIZATION CASES" means the above-captioned cases pending in
the Bankruptcy Court under chapter 11 of the Bankruptcy Code for the Debtors.
66. "REORGANIZED DEBTOR" means HOF (including its capacity as
successor by merger to Sofro, Fabricland, HOFSC and Metrolina) on and after the
Effective Date.
67. "SCHEDULED" means set forth in the Schedules of Assets and
Liabilities.
68. "SCHEDULES OF ASSETS AND LIABILITIES" means the Schedules of
Assets and Liabilities Filed by each of the Debtors, as the same have been or
may be amended from time to time prior to the Effective Date.
69. "SECURED CLAIM" means a Claim other than an Administrative Claim,
plus any allowable interest thereon from the Petition Date until the Effective
Date at a rate determined under
13
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section 506(b) and any fees or charges that are allowable under section 506(b),
that is secured by a lien on property in which the Estates have an interest or
that is subject to setoff under section 553 of the Bankruptcy Code.
Notwithstanding the preceding sentence, in the absence of a proper and timely
election under section 1111(b)(2) of the Bankruptcy Code with respect to the
Plan by the Class including such Secured Claim, which election shall not have
been revoked by such Class within 20 days following a material modification of
this Plan with respect to such Class, a Claim shall be a Secured Claim only to
the extent of the lesser of (a) the amount of the Claim that is an Allowed Claim
or (b) the value of the claimholder's interest in the Estates' interest in such
property or to the extent of the amount subject to setoff, as applicable, as
determined under section 506(a) of the Bankruptcy Code.
70. "SERIES A WARRANTS" means the warrants to purchase a package of
securities consisting of (a) one share of New HOF Common Stock and (b) one
Series B Warrant, having the following terms and conditions:
a. The exercise price of the Series A Warrants shall be equal to
the lesser of (i) 90% of the average closing price at which the New HOF
Common Stock trades on the New York Stock Exchange during the Pricing
Period and (ii) $4.50;
b. The Series A Warrants shall be exercisable for a period
commencing 151 days after the Effective Date and expiring 270 days after
the Effective Date;
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c. The Series A Warrants shall be transferable; and
d. The Series A Warrants shall have such other terms and
conditions, not inconsistent with the foregoing as shall be set forth in
the Series A Warrant Agreement.
71. "SERIES A WARRANT AGREEMENT" means the document governing the
terms and conditions of the Series A Warrants which shall be Filed twenty-one
(21) days prior to the Confirmation Hearing.
72. "SERIES B WARRANTS" means the warrants to purchase a package of
securities consisting of (a) one share of New HOF Common Stock and (b) one
Series C Warrant, having the following terms and conditions:
a. The exercise price of the New HOF Common Stock shall be the
greater of (i) 140% of the average closing price during the Pricing Period
and (ii) $6.00;
b. The Series B Warrants shall be exercisable after the twenty-
first (21st) month but before the end of the twenty-fourth (24th) month
after the Effective Date;
c. The Series B Warrants shall be transferable; and
d. The Series B Warrants shall have such other terms and
conditions as shall be set forth in the Series B Warrant Agreement.
73. "SERIES B WARRANT AGREEMENT" means the document governing the
terms and conditions of the Series B Warrants which shall be Filed twenty-one
(21) days prior to the Confirmation Hearing.
15
<PAGE>
74. "SERIES C WARRANTS" means the warrants to purchase an additional
share of New HOF Common Stock, having the following terms and conditions:
a. The purchase price of the New HOF Common Stock shall be
greater of (i) 200% of the average closing price during the Pricing Period
and (ii) $10.00;
b. The Series C Warrants shall be exercisable during the period
commencing upon their issuance and ending five years following the
Effective Date;
c. The Series C Warrants shall be transferable; and
d. The Series C Warrants shall have such other terms and
conditions as shall be set forth in the Series C Warrant Agreement.
75. "SERIES C WARRANT AGREEMENT" means the agreement governing the
terms and conditions of the Series C Warrants which shall be Filed twenty-one
(21) days prior to the Confirmation Hearing.
76. "SOFRO" means Sofro Fabrics, Inc., a Nevada corporation and a
wholly owned subsidiary of HOF.
77. "STOCK FAIR MARKET VALUE" means, with respect to a share of the
New HOF Common Stock, if such security is listed on a recognized domestic
exchange, the daily trading price of such security. The daily trading price on
any business day shall be the average of the closing trading prices on such day
of such security on all recognized domestic exchanges on which such security is
then listed, or if there shall have been no sales on any such exchange on such
day, the average of the highest bid and
16
<PAGE>
lowest asked prices on all such exchanges at the end of such day. If such
security is listed on a recognized domestic exchange, the term "business days"
as used in this definition shall mean business days on which such exchange is
open for trading. If at any time during which the Stock Fair Market Value is
being determined such security is not listed on a recognized domestic exchange,
"Stock Fair Market Value" shall be the fair market value of a share of such
security and shall be reasonably determined by the Board of Directors of the
Reorganized Debtor, said valuation to be delivered to the respective Bank Group
members on or before the 125th day after the Effective Date of the Plan. In the
event that, within five (5) business days after receipt of written notice of the
valuation by the Board of Directors, any Bank Group member gives the Reorganized
Debtor notice that it disagrees with the Board's valuation, then the Stock Fair
Market Value for any Bank Group member who disputed the Board of Directors'
valuation shall be determined by a nationally recognized investment banking firm
chosen by the Reorganized Debtor which firm does not have a business
relationship with the Reorganized Debtor or its officers or directors. The
Reorganized Debtor and any Bank Group member that disputed the Board's valuation
shall be afforded adequate opportunities to discuss the appraisal with the
investment banking firm. The decision as to fair market value shall be binding
upon the Reorganized Debtor and all Bank Group members who disputed the Board of
Directors' valuation.
78. "USBO" means the United States Bank of Oregon.
79. "USBO NOTES" means those notes evidencing the Debtors' obligations
to the USBO secured by the real property
17
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located at: (a) 7209 Highway 99, Vancouver, Washington 98665-8827 (#426 WR
Anderson DLC, Clark County, Washington); (b) 1991 Olympic Street, Springfield,
Oregon 97477 (17-03-25-3-1-07600, Laret County, Oregon); (c) 1791 S.W. Court
Avenue, Pendleton, Oregon 97801 (Section #10, Lot #C3592, Umatillo County,
Oregon); (d) 1430 N.W. 9th Avenue, Corvallis, Oregon 97330 (Lot #00700, Section
26, Benfont County, Oregon); and (e) 702 West Nobb Hill Boulevard, Yakima,
Washington 98902-5522 (Parcel #5-500000-10920, Yakima County, Washington).
80. "USBO TERM NOTE" means the promissory note of the Reorganized
Debtor to be distributed to USBO pursuant to Article IV.B.3 of the Plan and the
documents necessary for the implementation thereof, which shall be Filed twenty-
one (21) days prior to the Confirmation Hearing.
81. "UNSECURED CLAIM" means a Claim against Debtors that is not an
Administrative Claim, Priority Tax Claim, or Secured Claim.
82. "YORK" means Dale A. York and Bernice C. York, holders of the York
Note.
83. "YORK NOTE" means the note evidencing any of the Debtors'
obligations to York which is secured by the real property located at 702 West
Nobb Hill Boulevard, Yakima, Washington 98902.
B. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION OF TIME, AND
CHOICE OF LAW.
1. The provisions of the Plan shall control over the contents of the
Disclosure Statement. The provisions of the Confirmation Order shall control
over the contents of the Plan.
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2. Any term used in the Plan that is not defined in the Plan, either
in this Article II (Definitions) or elsewhere, but that is used in the
Bankruptcy Code or the Bankruptcy Rules has the meaning assigned to that term in
(and shall be construed in accordance with the rules of construction under) the
Bankruptcy Code or the Bankruptcy Rules. Without limiting the foregoing, the
rules of construction set forth in section 102 of the Bankruptcy Code shall
apply. The definitions and rules of construction contained herein do not apply
to the Disclosure Statement or to the Exhibits to the Plan except to the extent
expressly so stated in the Disclosure Statement or in each particular Exhibit to
the Plan.
3. The words "herein", "hereof", "hereto", "hereunder", and others of
similar import refer to the Plan as a whole and not to any particular Article,
Section, Subsection, or Clause contained in the Plan.
4. Unless specified otherwise in a particular reference, all
references in the Plan to Articles, Sections, Subsections, Clauses, and Exhibits
are references to Articles, Sections, Subsections, Clauses, and Exhibits of or
to the Plan.
5. Any reference in the Plan to a contract, document, instrument,
release, bylaw, certificate, exhibit, or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions.
6. Any reference in the Plan to an existing document or exhibit means
such document or exhibit, as it may have been
19
<PAGE>
amended, restated, modified, or supplemented as of the Effective Date.
7. Captions and headings to Articles, Sections, Subsections, and
Clauses in the Plan are inserted for convenience of reference only and shall
neither constitute a part of the Plan nor in any way affect the interpretation
of the provisions hereof.
8. Whenever from the context it is appropriate, each term stated in
either the singular or the plural shall include both the singular and the
plural.
9. In computing any period of time prescribed or allowed by the Plan,
the provisions of Bankruptcy Rule 9006(a) shall apply.
10. Whenever a distribution of property is required to be made on a
particular date, the distribution shall be made on such date or as soon as
practicable thereafter, provided, however, that time is of the essence regarding
distributions of property to the Bank Group and DIP Bank Group.
11. All exhibits to the Plan are incorporated into the Plan, and
shall be deemed to be included in the Plan, regardless of when they are Filed.
12. Subject to the provisions of any contract, certificate, bylaws,
instrument, release, or other agreement or document entered into in connection
with the Plan, the rights and obligations arising under the Plan shall be
governed by, and construed and enforced in accordance with, federal law,
including the Bankruptcy Code and Bankruptcy Rules.
20
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III.
DESIGNATION OF CLASSES
OF CLAIMS AND EQUITY INTERESTS
The following is a designation of the Classes of Claims and Equity
Interests under the Plan. Administrative Claims and Priority Tax Claims have
not been classified and are excluded from the following Classes in accordance
with section 1123(a)(1) of the Bankruptcy Code. A Claim or Equity Interest is
classified in a particular Class only to the extent that the Claim or Equity
Interest qualifies within the description of that Class and is classified in a
different Class to the extent that any remainder of the Claim or Equity Interest
qualifies within the description of such different Class.
A. SECURED CLAIMS.
Class 1A: All Allowed Secured Bank Group Claims.
--------
Class 1B: All Secured Claims of Greenville or AmSouth Bank against
--------
any of the Debtors arising in connection with Greenville's issuance of the
Mauldin IRBs and all other related documents including without limitation the
leases of the Debtors' Mauldin Facility.
Class 1C: All Secured Claims of USBO against any of the Debtors
--------
arising under, evidenced by, or relating to the USBO Notes.
Class 1D: All Secured Claims of York against any of the Debtors
--------
arising under, evidenced by, or relating to the York Note.
Class 1E: All other Secured Claims against any of the Debtors that
--------
are not included in Classes 1A, 1B, 1C, 1D, or 1F
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hereof. Each Secured Claim in Class 1E shall be considered to be in its own
separate sub-Class within Class 1E.
Class 1F: All Secured Claims against any of the Debtors for taxes.
--------
Each Secured Claim in Class 1F shall be considered to be in its own separate
sub-Class within Class 1F.
B. CERTAIN PRIORITY UNSECURED CLAIMS.
Class 2: All Unsecured Claims against the Debtors that are specified
-------
as having priority in sections 507(a)(3), 507(a)(4), 507(a)(5), or 507(a)(6) of
the Bankruptcy Code.
C. UNSECURED CLAIMS WITHOUT PRIORITY.
Class 3: All Unsecured Claims against the Debtors that are not
-------
entitled to priority under section 507(a) of the Bankruptcy Code and that are
not classified in any other Class, including, without limitation, Unsecured
Claims of trade creditors and Unsecured Claims arising from the rejection of
executory contracts and unexpired leases.
Class 4: All Unsecured Claims against the Debtors to the extent such
-------
Claims are covered by one or more of the Debtors' insurance policies.
D. EQUITY INTERESTS AND RELATED RIGHTS.
Class 5A: All Equity Interests and rights related thereto consisting
--------
of, arising under, or relating to the Existing HOF Common Stock.
Class 5B: All Equity Interests in Sofro.
--------
Class 5C: All Equity Interests in Fabricland.
--------
Class 5D: All Equity Interests in HOFSC.
--------
Class 5E: All Equity Interests in Metrolina.
--------
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IV.
TREATMENT OF CLASSES
OF CLAIMS, INTERESTS, AND
UNCLASSIFIED CLAIMS OR INTERESTS
A. UNCLASSIFIED CLAIMS.
1. ADMINISTRATIVE CLAIMS.
a. GENERALLY.
Except as provided otherwise in this Article IV of the Plan, each
holder of an Allowed Administrative Claim, including but not limited to
professionals' fees incurred by the Professional Persons and allowed by the
Bankruptcy Court, shall be paid by the Reorganized Debtor on the Effective Date
and shall receive, on account of and in full satisfaction of such Allowed
Administrative Claim, Cash equal to the amount thereof net of any offset, unless
the holder agrees to less favorable treatment of such Allowed Administrative
Claim. Without limiting the foregoing, all fees payable by the Debtors under
section 1930 of title 28 of the United States Code that have not heretofore been
paid shall be paid by the Reorganized Debtor on the Effective Date.
b. POST-PETITION DATE TRADE CLAIMS.
Post-Petition Date trade Claims incurred by the Debtors in the
ordinary course of their business shall be paid according to ordinary trade
terms in the absence of an express agreement to the contrary.
c. RECLAMATION CLAIMS.
Each holder of an Asserted Reclamation Claim that does not file an
adversary proceeding seeking allowance and payment of its Asserted Reclamation
Claim under section 546 of the Bankrupt-
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cy Code within ten days after the Confirmation Date shall receive on the
Effective Date 25% of the Reclamation Amount as set forth in the Reclamation
Claim List and shall receive the balance in 12 equal monthly installments
commencing on the last day of the month following the month in which the
Effective Date occurs. Such payments shall be in full satisfaction of such
holder's asserted entitlement to an Administrative Claim or to reclamation of
goods. Any holder of an Asserted Reclamation Claim that timely files an
adversary proceeding seeking allowance and payment of its Asserted Reclamation
Claim pursuant to section 546 of the Bankruptcy Code shall receive the amount,
if any, determined to be entitled to administrative priority by the Bankruptcy
Court, subject to the disposition of any appeal, or such other amount as may be
agreed by the parties.
d. DIP FINANCING CLAIMS.
The Allowed DIP Secured Bank Group Claims shall be paid in full on or
prior to the Effective Date; provided, however, that letters of credit relating
to the Allowed DIP Secured Bank Group Claim shall be treated as follows: (1)
all reimbursement obligations that have become fixed on or before the Effective
Date or, with the passing of time would become fixed after the Effective Date,
shall be paid in full on or before the Effective Date, together with all
associated fees, costs and charges, including without limitation actual and
reasonable attorneys' and financial advisors' fees, and (2) all such letters of
credit shall either be replaced and returned such that all liability of the
issuer(s) thereof shall forever be terminated, canceled and annulled or the
issuer shall receive cash in the amount of 105
24
<PAGE>
percent (105%) of the face amount of such letters of credit to be held as cash
collateral for the reimbursement obligations relating to such letters of credit,
with interest on such cash collateral accruing, but not being paid, until
expiration of such letters of credit, without liability to the issuer.
Notwithstanding any contrary provision in this Plan, the Debtors' duty to pay
fees and costs, including without limitation actual and reasonable attorneys'
fees incurred or billed after the Effective Date in connection with actions
taken or requests made by the Debtor or Reorganized Debtor shall survive the
Effective Date and shall not be discharged.
e. ADMINISTRATIVE CLAIMS BAR DATE.
Sixty days following the Effective Date shall be the last date by
which Administrative Claims other than trade claims arising in the ordinary
course of business and Claims of Professional Persons for post-Petition Date
Services must be Filed. Any such Claim that is not Filed within 60 days after
the Effective Date shall be barred and the holder shall not be entitled to any
distribution on account of such Claim.
2. TREATMENT OF PRIORITY TAX CLAIMS.
The holder of an Allowed Priority Tax Claim shall not be entitled to
receive any payment on account of post-Petition Date interest, or on account of
any penalty arising with respect to or in connection with the Allowed Priority
Tax Claim (except to the extent allowable as a part of an Allowed Priority Tax
Claim pursuant to section 507(a)(1) of the Bankruptcy Code). Any such Claim or
demand for any such penalty shall be discharged by Confirmation of the Plan and
section 1141(d)(1) of the Bankruptcy
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Code, and the holder of an Allowed Priority Tax Claim shall not assess or
attempt to collect such penalty from the Debtors, the Reorganized Debtor, their
affiliates, or their directors or officers.
Each holder of an Allowed Priority Tax Claim that has not been paid
prior to the Confirmation Date shall receive deferred Cash payments over a
period not exceeding six (6) years from the Date of Assessment of such Allowed
Priority Tax Claim, in an aggregate amount equal to the amount of such Allowed
Priority Tax Claim, plus interest from the Effective Date on the unpaid portion
thereof, without penalty of any kind, at the rate prescribed below. The payment
of each such Allowed Priority Tax Claim shall be made in equal quarterly
installments with the first installment due on the latest of: (i) the first
business day following the end of the first full fiscal quarter of the
Reorganized Debtor following the Effective Date, (ii) the first business day
following the end of the first full fiscal quarter of the Reorganized Debtor
following the date on which an order allowing such Priority Tax Claim becomes a
Final Order, and (iii) such other time or times as may be agreed in writing
between the Reorganized Debtor and the holder of such Allowed Priority Tax
Claim. Each installment shall include simple interest on the unpaid balance of
the Allowed Priority Tax Claim, without penalty of any kind, at the nondefault
statutory rate of interest provided for such taxes under applicable
nonbankruptcy law as of the Effective Date; provided, however, that the
Reorganized Debtors reserve the right to pay or to prepay any Allowed Priority
26
<PAGE>
Tax Claim, or any remaining balance thereof, in full, at any time on or after
the Effective Date, without premium or penalty.
3. TREATMENT OF INTERCOMPANY CLAIMS.
Claims of one or more Debtors against one or more other Debtors shall
be eliminated for all purposes by offset, dividend, contribution to capital, or
the effect of the merger of Sofro, Fabricland, HOFSC and Metrolina into the
Reorganized Debtor; and such claims shall not be considered Allowed Claims under
the Plan for any purpose.
4. TREATMENT OF JOINT LIABILITY DUPLICATE
CLAIMS AGAINST MULTIPLE DEBTORS
(INCLUDING GUARANTEE CLAIMS).
Any creditor that asserts Claims against two or more Debtors based on
their joint liability (including any creditor who asserts Claims against one
Debtor as primary obligor and against another Debtor based on such Debtor's
guarantee of the primarily obligated Debtor's obligation to that creditor), will
hold only one such Claim; and any duplicative claims against any other Debtor
based on that other Debtor's joint liability will be disallowed.
B. TREATMENT OF SECURED CLAIMS.
1. CLASS 1A (CLAIMS ARISING UNDER THE
CREDIT AGREEMENT).
Class 1A is impaired under the Plan. Holders of Allowed Secured Bank
Group Claims shall receive the following treatment:
a. INITIAL CASH DISTRIBUTION
1. $76,500,000 in Cash less any amount paid in reduction
of the principal amount of the Allowed
27
<PAGE>
Secured Bank Group Claims in Class 1A after May 1, 1996 ("Settlement
Sum"), together with all unpaid interest that is a component of the
Allowed Secured Bank Group Claims ("Interest"), shall be paid to the
holders of Allowed Secured Bank Group Claims on the Effective Date, to
be allocated among those holders by applying the percentages provided
in writing by BofA to the Debtors before the Effective Date (the
"Percentage Allocation") to such Settlement Sum and Interest;
2. All unreimbursed reasonable costs and expenses,
including but not limited to reasonable legal fees and costs of
holders of Allowed Secured Bank Group Claims, reasonable financial
advisory fees of BofA, and reasonable collateral audit fees and travel
expenses of BofA and each other member of the Bank Group, incurred
both prepetition and postpetition in connection with and/or related to
the Credit Agreement through the Effective Date of the Plan, shall be
paid on the Effective Date or upon demand to BofA and each holder of
an Allowed Secured Bank Group Claim to the extent incurred by each
such holder and not on a pro rata basis; and
3. Notwithstanding any contrary provision in the Plan, each
holder of an Allowed Secured Bank Group Claim shall be entitled to
recover from the Reorganized Debtor its respective actual and
reasonable costs and expenses, including reasonable attorneys' fees,
incurred after the Effective Date arising out of or relating to
actions requested by the Reorganized
28
<PAGE>
Debtor, including by way of example and not limitation assisting the
Reorganized Debtor in obtaining formal releases of liens that secure
Allowed Secured Bank Group Claims.
b. STOCK DISTRIBUTIONS.
1. On the Effective Date, each holder of an Allowed Secured
Bank Group Claim shall receive its Percentage Allocation of 685,000
shares of New HOF Common Stock (the "Initial Bank Group Stock"),
representing five percent (5%) of the New HOF Common Stock to be
issued on the Effective Date, subject to dilution by the Series A
Warrants, the Series B Warrants, the Series C Warrants, the shares to
be issued pursuant to options under the equity incentive plans for
officers, directors, and employees of the Reorganized Debtor described
in Section VI.A.2 hereof, and/or any Additional Bank Group Stock.
2. If (a) the average Stock Fair Market Value during the
Bank Group Stock Valuation Period multiplied by 685,000 (the "Bank
Group Stock Value") is less than two million dollars ($2,000,000), and
(b) the Stock Fair Market Value multiplied by 685,000 is two million
dollars ($2,000,000) or more on fewer than 15 Minimum Volume Business
Days from the Effective Date through 120 days thereafter, then,
subject to the following sentence, each holder of an Allowed Secured
Bank Group Claim as of the Effective Date shall receive, on or before
127 days after the Effective Date (unless the
29
<PAGE>
New HOF Common Stock is not listed on a recognized domestic exchange
during that period, in which case the distribution shall be made as
soon as reasonably practicable after a determination of Stock Fair
Market Value is made), its Percentage Allocation of either:
(x) Additional shares of New HOF Common Stock
("Additional Bank Group Stock") such that the average Stock Fair
Market Value during the Bank Stock Valuation Period multiplied by
the sum of the amount of Initial Bank Group Stock plus the amount
of Additional Bank Group Stock shall equal at least two million
dollars ($2,000,000)
or
(y) an amount of Cash equal to the difference between
the Bank Group Stock Value and two million dollars ($2,000,000),
with the determination of whether the distribution shall be
Additional Bank Group Stock or Cash to be in the sole discretion
of the Reorganized Debtor.
3. If the Stock Fair Market Value multiplied by 685,000 is
at least two million dollars ($2,000,000) on at least 10 Minimum
Volume Business Days but fewer than 15 Minimum Volume Business Days
during the period from the Effective Date through 120 days thereafter,
then each holder of an Allowed Secured Bank Group Claim shall receive
only one-half of the Additional Bank Group Shares or Cash set forth in
the preceding sentence.
30
<PAGE>
2. CLASS 1B (GREENVILLE AND/OR AMSOUTH
BANK SECURED CLAIMS).
Class 1B is not impaired under the Plan, and each holder of a Class 1B
Allowed Secured Claim is conclusively presumed to have voted to accept the Plan
under section 1126(f) of the Bankruptcy Code. Except as otherwise agreed in
writing with the Debtors or the Reorganized Debtor, each holder of an Allowed
Secured Claim in Class 1B shall be treated as follows:
a. any default other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code shall be cured, without
recognition of any default rate of interest or other similar penalty or
charge, and upon such cure, no default shall then exist with respect to the
Allowed Secured Claim;
b. the maturity of the Allowed Secured Claim shall be reinstated
as the maturity existed before any default without recognition of any
default rate of interest or other similar penalty or charge;
c. the holder of the Allowed Secured Claim shall be compensated
for actual damages incurred as a result of any reasonable reliance by the
holder on any provision that entitled the holder to accelerate the maturity
of the Allowed Secured Claim; and
d. the legal, equitable, or contractual rights to which the
Allowed Secured Claim entitles the holder shall not otherwise be altered.
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3. CLASS 1C (USBO SECURED CLAIMS).
Class 1C is impaired under the Plan. The Holder of the Allowed
Secured Claim in Class 1C shall receive (i) Cash in an amount equal to all
accrued but unpaid interest as of the Effective Date at the non-default rate set
forth in the USBO Notes and any other allowed costs and expenses under the USBO
Notes accrued through the Effective Date, and (ii) the USBO Term Note, which
shall have the following terms and provisions:
a. Amount: The USBO Term Note shall have a principal amount
equal to the amount of the Allowed Secured Claim of USBO as of the Petition
Date minus the proceeds of any collateral securing the USBO Note used to
reduce the principal amount of the USBO Note before the Effective Date.
b. Term: The USBO Term Note shall have a term of five years and
shall mature on the fifth anniversary of the Effective Date.
c. Interest Rate: The USBO Term Note shall bear simple interest
at the rate of the Treasury Constant Maturities Rate plus 4.5% per annum
(the "USBO Rate"), fixed for the first two years after the Effective Date
at the USBO Rate on the Effective Date and variable at the USBO Rate
thereafter.
d. Payments: The holder of the USBO Term Note shall receive
monthly payments of interest plus principal in an amount sufficient to
fully amortize the USBO Term Note in a period of 15 years. All unpaid
principal and interest shall be paid on the fifth anniversary of the
Effective Date.
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e. Security: The USBO Term Note shall be secured by the same
property of the Estates securing the Allowed Secured Claim of USBO as of
the Effective Date (the "USBO Assets"). Upon a sale of any USBO Asset, 100%
of the net proceeds shall be applied toward the principal amount of the
USBO Term Note that would otherwise be due at maturity.
f. Other Terms: The USBO Term Note shall have such other terms
and conditions not inconsistent with the foregoing as shall be set forth in
the form of USBO Term Note to be Filed 21 days before the Confirmation
Hearing.
4. CLASS 1D (YORK SECURED CLAIMS).
Class 1D is not impaired under the Plan, and the holder of the Class
1D Allowed Secured Claim is conclusively presumed to have voted to accept the
Plan under section 1126(f) of the Bankruptcy Code. Except as otherwise agreed
in writing with the Debtors or the Reorganized Debtor, the holder of the Allowed
Secured Claim in Class 1D shall be treated as follows:
a. any default other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code shall be cured, without
recognition of any default rate of interest or other similar penalty or
charge, and upon such cure, no default shall then exist with respect to the
Allowed Secured Claim;
b. the maturity of the Allowed Secured Claim shall be reinstated
as the maturity existed before any default without recognition of any
default rate of interest or other similar penalty or charge;
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c. the holder of the Allowed Secured Claim shall be compensated
for actual damages incurred as a result of any reasonable reliance by the
holder on any provision that entitled the holder to accelerate the maturity
of the Allowed Secured Claim; and
d. the legal, equitable, or contractual rights to which the
Allowed Secured Claim entitles the holder shall not otherwise be altered.
5. CLASS 1E (OTHER SECURED CLAIMS).
Class 1E is not impaired under the Plan. At the sole election of the
Debtors, the holders of Allowed Secured Claims in Class 1E, if any, shall
receive either of the following:
a. The collateral securing the Allowed Secured Claims in full
and complete satisfaction of such Allowed Secured Claims or
b. (i) Any default other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code shall be cured, without
recognition of any default rate of interest or other similar penalty or
charge and upon such cure, no default shall then exist with respect to such
Allowed Secured Claim; (ii) the maturity of the Allowed Secured Claim shall
be reinstated as the maturity existed before any default without
recognition of any default rate of interest or other similar penalty or
charge; (iii) the holder of the Allowed Secured Claim shall be compensated
for any actual damages incurred as a result of any reasonable reliance by
the holder on any provision that entitled the holder to accelerate the
maturity of the Allowed Secured Claim; and
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(iv) the legal, equitable, or contractual rights to which the Allowed
Secured Claim entitles the holder shall not otherwise be altered.
To the extent the Bankruptcy Court, or any other court of competent
jurisdiction, determines, either before or after the Effective Date of the Plan,
that any agreement in the form of a lease of real or personal property
identified for assumption pursuant to Article V of the Plan is, in fact, a
disguised secured transaction, the resulting secured indebtedness arising from
such determination shall be treated in accordance with this Section, but only to
the extent secured.
6. CLASS 1F (SECURED TAX CLAIMS).
Class 1F is not impaired under the Plan, and each holder of a Class 1F
Claim is conclusively presumed to have voted to accept the Plan under section
1126(f) of the Bankruptcy Code. Each holder of an Allowed Secured Claim in
Class 1F will be paid in Cash the following amounts: (a) the entire principal
amount of such Claim and all accrued interest and penalties through the Petition
Date, to the extent allowable (the "Allowed Petition Date Amount") and (b)
simple interest on the Allowed Petition Date Amount from the Petition Date to
the date of payment at the Reference Rate in effect over that same period,
unless such holder agrees in writing to less favorable treatment. The holder of
an Allowed Secured Claim in Class 1F shall not be entitled to receive any
payment on account of any penalty arising with respect to or in connection with
an Allowed Secured Claim in Class 1F. Any such Claim or demand for any such
penalty is disallowed and shall be discharged by Confirmation of the Plan and
section
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1141(d)(1) of the Bankruptcy Code, and the holder of an Allowed Secured
Claim in Class 1F shall not assess or attempt to collect such penalty from the
Debtors, the Reorganized Debtor, their affiliates, or their directors or
officers.
C. TREATMENT OF CERTAIN PRIORITY UNSECURED CLAIMS.
Class 2 is not impaired under the Plan, and each holder of a Class 2
Claim is conclusively presumed to have voted to accept the Plan under section
1126(f) of the Bankruptcy Code. All holders of Allowed Class 2 Claims shall
retain unaltered their legal, equitable, and contractual rights with respect to
such Allowed Claims.
D. TREATMENT OF GENERAL UNSECURED CLAIMS.
1. GENERAL UNSECURED CLAIMS.
Class 3 is impaired under the Plan. Each holder of a Class 3 Allowed
Claim will receive a Pro Rata share of 12,741,000 shares of New HOF Common
Stock, representing ninety-three percent (93%) of the New HOF Common Stock to be
issued on the Effective Date, subject to dilution by the Series A Warrants, the
Series B Warrants, the Series C Warrants, the equity incentive plans for
officers, directors, and employees of the Reorganized Debtor described in
Section VI.A.2 hereof, and/or any Additional Bank Group Stock.
2. INSURED CLAIMS.
Class 4 is not impaired under the Plan, and the holders of Class 4
Claims are conclusively presumed to have voted to accept the Plan under section
1126(f) of the Bankruptcy Code. All holders of Class 4 Allowed Claims shall
retain unaltered their legal, equitable, and contractual rights to pursue the
Debtors'
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insurance carriers. The Debtors reserve all defenses, cross-claims and
counterclaims to such Claims.
E. TREATMENT OF EQUITY INTERESTS AND CERTAIN
RIGHTS RELATED THERETO.
1. HOLDERS OF EXISTING HOF COMMON STOCK.
Class 5A is impaired under the Plan. Each holder of Class 5A Equity
Interests shall receive a Pro Rata distribution of the following in exchange for
its Existing HOF Common Stock:
a. 274,000 shares or approximately two percent of the New HOF
Common Stock to be issued on the Effective Date, subject to dilution by the
Series A Warrants, the Series B Warrants, the Series C Warrants, the equity
incentive programs for the officers, directors, and employees of the
Reorganized Debtor described in Section VI.A.2. hereof, and/or any
Additional Bank Group Stock;
b. 685,000 Series A Warrants.
Upon the Effective Date the Equity Interests represented by the
Existing HOF Stock shall be deemed canceled and the shares of Existing HOF Stock
shall thereafter represent only the right of the holder to receive the
appropriate number of shares of New HOF Common Stock and Series A Warrants.
2. HOLDERS OF EXISTING SOFRO STOCK.
Class 5B is unimpaired under the Plan. The holders of the Equity
Interests in Class 5B shall retain their legal, equitable and contractual rights
unaltered by the Plan. The holders of the Equity Interests in Class 5B are
conclusively deemed to have accepted the Plan and therefore shall not be
entitled to vote on the Plan.
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3. HOLDERS OF EXISTING FABRICLAND STOCK.
Class 5C is unimpaired under the Plan. The holders of the Equity
Interests in Class 5C shall retain their legal, equitable and contractual rights
unaltered by the Plan. The holders of the Equity Interests in Class 5C are
conclusively deemed to have accepted the Plan and therefore shall not be
entitled to vote on the Plan.
4. HOLDERS OF EXISTING HOFSC STOCK.
Class 5D is unimpaired under the Plan. The holders of the Equity
Interests in Class 5D shall retain their legal, equitable and contractual rights
unaltered by the Plan. The holders of the Equity Interests in Class 5D are
conclusively deemed to have accepted the Plan and therefore shall not be
entitled to vote on the Plan.
5. HOLDERS OF EXISTING METROLINA STOCK.
Class 5E is unimpaired under the Plan. The holders of the Equity
Interests in Class 5E shall retain their legal, equitable and contractual rights
unaltered by the Plan. The holders of the Equity Interests in Class 5E are
conclusively deemed to have accepted the Plan and therefore shall not be
entitled to vote on the Plan.
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V.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. ASSUMPTION OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES.
1. ASSUMPTION GENERALLY.
Except as otherwise provided in the Plan, in any order of the
Bankruptcy Court, or in any contract, instrument, release, or other agreement or
document entered into by the Debtors or the Reorganized Debtor in connection
with the Plan or the Reorganization Cases, on the Effective Date, pursuant to
section 365 of the Bankruptcy Code, each of the executory contracts, settlement
agreements, and unexpired leases listed on the Schedule of Assumed Contracts
(Exhibit V.A.1 hereto), to be Filed before the final hearing to determine the
adequacy of the Disclosure Statement, and each executory contract or unexpired
lease of the Debtors that is not or has not been assumed or rejected by order of
the Bankruptcy Court, is not the subject of a motion to reject as of
Confirmation, and is not rejected under Section V.B hereof, are assumed subject
to the same rights that the Debtors or the Reorganized Debtor held or holds at,
on, or after the Petition Date to modify or terminate such agreements under
applicable nonbankruptcy law. Each contract and lease assumed under this
Section shall be assumed only to the extent, if any, that it constitutes an
executory contract or unexpired lease, and the listing of such contract or lease
on Exhibit V.A.1 shall not constitute an admission by the Debtors or the
Reorganized Debtor that such contract or lease is an executory contract or
unexpired lease or that the Debtors or the Reorganized Debtor have any liability
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thereunder. To the extent the Bankruptcy Court, or any other court of competent
jurisdiction, determines, either before, on, or after the Effective Date of the
Plan, that any agreement in the form of a lease of real or personal property
identified for assumption in this Article V of the Plan, is, in fact, a
disguised secured transaction, the resulting secured indebtedness arising from
such determination shall be treated in accordance with Subsection IV.B.5 of the
Plan.
At least fifteen (15) days prior to the final Confirmation Hearing,
the Debtors shall provide notice of any amendments to any Exhibit identified in
this Article V of the Plan to the parties to the executory contracts or
unexpired leases affected thereby and to the parties on the then-applicable
special notice list in the Reorganization Cases. Each executory contract and
unexpired lease assumed pursuant to this Article V by the Debtors shall revest
in and be fully enforceable by the Reorganized Debtor in accordance with its
terms, except as modified by the provisions of the Plan, any order of the
Bankruptcy Court authorizing and providing for its assumption, or applicable
federal law.
2. ASSUMPTIONS OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES RELATED TO REAL
PROPERTY.
The assumption of each executory contract and unexpired lease listed
on Exhibit V.A.1 that relates to the use or occupancy of real property shall
include the assumption of: (1) all modifications, amendments, supplements,
restatements or other written agreements, instruments, or other documents that
affect such executory contract or unexpired lease; and (2) all executory
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contracts or unexpired leases appurtenant to the premises, including without
limitation, all separate and common area maintenance agreements, reciprocal
easement agreements, easements, licenses, permits, rights, privileges, powers,
uses, and any other interests in real estate, rights in rem, or agreements
related to such premises or its operation, unless any of the foregoing are
specifically rejected pursuant to Section V.B below and are listed on Exhibit
V.B.
3. APPROVAL OF ASSUMPTIONS.
The Confirmation Order shall constitute an order of the Bankruptcy
Court approving the assumptions, revestments and, to the extent not subject to
dispute as set forth in section V.A.5 hereof, the "cure" amounts described in
this Article V and Exhibit V.A.1 pursuant to section 365 of the Bankruptcy Code
effective as of the Effective Date, except as otherwise provided therein.
4. OBJECTIONS TO ASSUMPTION OF EXECUTORY
CONTRACTS AND UNEXPIRED LEASES.
If any party has any objection to the Debtors' proposed assumption of
an executory contract or unexpired lease identified for assumption based on
adequate assurance of future performance or on any ground other than the
adequacy of the "cure" amount set forth in Exhibit V.A.1, any such objection
shall be filed and served within the same deadline and in the same manner
established for filing objections to Confirmation.
Failure to file an objection within the time period set forth above
shall constitute consent to the assumption and revestment of those contracts and
leases, including an acknowl-
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edgment that the proposed assumption provides adequate assurance of future
performance.
If any party files an objection to assumption based upon any ground
other than the adequacy of the "cure" amount set forth in Exhibit V.A.1, and the
Bankruptcy Court ultimately determines that the Debtors cannot assume the
executory contract or lease or that the Debtors cannot provide adequate
assurance of future performance as proposed or in any modified proposal
submitted by the Debtors or the Reorganized Debtor, then the unexpired lease or
executory contract shall automatically thereupon be deemed to have been included
on Exhibit V.B and shall be rejected pursuant to Section V.B hereof.
5. OBJECTIONS TO PROPOSED "CURE" AMOUNTS.
If any party to an executory contract or unexpired lease listed on
Exhibit V.A.1 (as it may be modified) asserts arrearages or damages pursuant to
section 365(b)(1) of the Bankruptcy Code that exceeds the amount set forth in
Exhibit V.A.1, such party must file and serve an objection to the proposed cure
amount within the same deadline and in the same manner established for filing
objections to Confirmation. Failure to assert arrearages different from the
amount set forth on Exhibit V.A.1 within the time period set forth above shall
constitute consent to the cure amount set forth in Exhibit V.A.1 and an
acknowledgment that the amount identified for "cure" on Exhibit V.A.1 is the
amount necessary to cover any and all outstanding defaults under the respective
executory contract or unexpired lease to be assumed and an acknowledgment that
no other defaults exist under said contract or lease.
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To the extent that any objections to the amounts set forth in Exhibit
V.A.1 are timely filed and served and such objections are not resolved between
the Debtors and the objecting parties, the Bankruptcy Court shall resolve such
disputes at a hearing to be held at a date to be determined by the Bankruptcy
Court at the Confirmation Hearing. The resolution of such disputes shall not
affect the Debtors' assumption of the contracts or leases that are subject of
such a dispute, but rather shall affect only the "cure" amount the Debtors must
pay in order to assume such contract or lease. Notwithstanding the prior
sentence, if the Debtors in their sole discretion determine that the amount
asserted to be the necessary "cure" amount would, if ordered by the Bankruptcy
Court, make the assumption of the contract or lease imprudent, then the Debtors
may, prior to or at the Confirmation Hearing, elect to (1) reject the contract
or lease pursuant to section V.B hereof, or (2) request an expedited hearing on
the resolution of the "cure" dispute, exclude assumption or rejection of the
contract or lease from the scope of the Confirmation Order, and retain the right
to reject the contract or lease pursuant to section V.B hereof pending the
outcome of such dispute.
6. PAYMENTS RELATED TO ASSUMPTION OF
EXECUTORY CONTRACTS AND UNEXPIRED
LEASES.
If not the subject of dispute pursuant to Section V.A.5 hereof as of
Confirmation, any monetary defaults under each executory contract and unexpired
lease to be assumed under the Plan shall be satisfied by the Debtors, pursuant
to section 365(b)(1) of the Bankruptcy Code, by payment of the amount set
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forth in Exhibit V.A.1 or such other amount as ordered by the Bankruptcy Court
or agreed upon by the Debtors, in Cash within 60 days following the Effective
Date or on such other terms as agreed to by the parties to such executory
contract or unexpired lease. In the event of a dispute pursuant to Section
V.A.5, payment of the amount otherwise payable hereunder shall be made following
entry of a Final Order or agreement by the Debtors and the party to the contract
or lease.
B. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TO BE REJECTED.
Effective as of the Effective Date, the executory contracts and
unexpired leases listed on the Schedule of Rejected Contracts (Exhibit V.B
hereto), which shall be Filed before the final hearing to determine the adequacy
of the Disclosure Statement, shall be rejected. The Debtors may amend Exhibit
V.B at any time prior to fifteen (15) days before the final Confirmation Hearing
by filing such amendment with the Bankruptcy Court and serving it on parties
directly affected by the amendment. Listing a contract or lease by category
above or on Exhibit V.B shall not constitute an admission by the Debtors or the
Reorganized Debtor that such contract or lease, including related agreements, is
an executory contract or unexpired lease or that the Debtors or the Reorganized
Debtor have any liability thereunder.
The Confirmation Order shall constitute an order of the Bankruptcy
Court approving such rejections on the Confirmation Date, pursuant to section
365 of the Bankruptcy Code, effective as of the Effective Date. Any party to an
executory contract or unexpired lease identified for rejection as provided
herein may,
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within the same deadline and in the same manner established for
filing objections to Confirmation, file any objection thereto. Failure to file
any such objection within the time period set forth above shall constitute
consent and agreement to the rejection.
C. BAR DATE FOR REJECTION DAMAGES.
If the rejection of an executory contract or unexpired lease pursuant
to Section V.B above gives rise to a Claim by the other party or parties to such
contract or lease, such Claim, to the extent that it is timely Filed and is a
Secured Claim, shall be classified in Class 1E, and to the extent that it is
timely filed and is an Unsecured Claim, shall be classified in Class 3;
provided, however, that in either event any Claim arising from the rejection
shall be forever barred and shall not be enforceable against the Debtors, the
Reorganized Debtor, their affiliates, their successors, or their properties,
unless a proof of claim is Filed and served on the Debtors or the Reorganized
Debtor within thirty (30) days after the earlier of (a) the date of the entry of
the first order of the Bankruptcy Court rejecting the executory contract or
unexpired lease, or (b) the Confirmation Date.
D. CONTRACTS ENTERED INTO ON OR AFTER
THE PETITION DATE.
All contracts, leases, and other agreements entered into by the
Debtors in Possession on or after the Petition Date, which agreements have not
been terminated in accordance with their terms on or before the Confirmation
Date shall revest and
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remain in full force and effect as against the Reorganized Debtor.
IV.
MEANS FOR EXECUTION
AND IMPLEMENTATION OF THE PLAN
A. CORPORATE ACTION AND FINANCIAL
RESTRUCTURING.
1. ON THE EFFECTIVE DATE:
a. The Reorganized Debtor shall cause 13,700,000 shares of New
HOF Common Stock to be issued and deposited with a stock transfer agent as
is required for distribution to Classes 1A, 3 and 5A under the Plan and
shall be authorized without further corporate action by its Board of
Directors or shareholders to issue such additional shares as are necessary
to satisfy the Series A Warrants, the Series B Warrants, the Series C
Warrants, the equity incentive plans for its officers, directors, and
employees described in Article VI.A.2. of this Plan, and/or any Additional
Bank Group Stock.
b. The Debtors shall execute and deliver to the appropriate
entities the USBO Term Note, the Series A Warrant Agreement, the Series B
Warrant Agreement, the Series C Warrant Agreement and all documents related
thereto or necessary for the implementation thereof.
c. The Debtors shall be authorized to execute and deliver the
Exit Loan Agreement.
d. Each of Sofro, Fabricland, HOFSC and Metrolina shall be
merged into HOF.
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e. The Reorganized Debtor shall authorize, execute and deliver
to BofA an indemnity agreement, in a form satisfactory to BofA, in which
the Reorganized Debtor agrees to indemnify and hold BofA harmless for any
losses it may incur in connection with the termination of the cash
management system and related banking accounts.
2. PRIOR TO THE EFFECTIVE DATE:
a. The adoption of revised charter, bylaws or similar
constituent documents for the Reorganized Debtor, which shall be Filed with
the Court prior to the conclusion of the Confirmation Hearing; the initial
selection of directors and officers for the Reorganized Debtor; the
adoption, execution, and implementation of employment, retirement, and
indemnification agreements, incentive compensation programs (including
without limitation equity incentive plans for the officers and/or directors
of the Reorganized Debtor, which may include, without limitation, stock
options involving the allocation and/or issuance of shares of New HOF
Common Stock to the officers, directors, and employees of the Reorganized
Debtor (from which there shall be deducted the Additional Bank Group Stock,
if any, required to be issued to Class 1A unless the Reorganized Debtor's
financial performance is reasonably in conformance with or better than the
"upside" projections set forth in Exhibit "E" to the Disclosure Statement,
as determined by the Board of Directors of the Reorganized Debtor), a
summary of which shall be Filed no later than twenty-one (21) days before
the final Confirmation Hearing), retirement income plans, health
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and welfare benefit plans, and other employee plans and related agreements,
if any; and the other matters provided under the Plan involving the
corporate structure of the Debtors or the Reorganized Debtor, or corporate
action to be taken by or required by the Debtors or the Reorganized Debtor
shall be authorized and approved in all respects without any requirement of
further action by stockholders or directors of the Debtors or the
Reorganized Debtor.
b. The Chairman of the Board of Directors, the Chief Executive
Officer, the Chief Financial Officer, the President, a Vice President, or
the General Counsel of the Debtors or the Reorganized Debtor shall be
authorized to execute, deliver, file, or record such contracts,
instruments, releases, agreements, documents, certificates, reports,
schedules, or other papers, and take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of
the Plan, agreements approved hereby, or orders of the Bankruptcy Court
relating thereto. The Secretary or the Assistant Secretary of the Debtors
or the Reorganized Debtor shall be authorized to certify or attest to any
of the foregoing actions.
c. The Reorganized Debtor shall amend its charter in conformance
with section 303 of the Delaware General Corporation Law and pursuant to
section 1123(a)(5)(I) of the Bankruptcy Code. The amended charter or bylaws
shall, among other provisions: (i) authorize the issuance of the New HOF
Common Stock, the Series A Warrants, the Series B Warrants and the Series C
Warrants; (ii) prohibit the issuance of
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nonvoting equity securities to the extent required by section 1123(a)(6) of
the Bankruptcy Code; (iii) provide that the first regular annual meeting of
shareholders of Reorganized Debtor following the Effective Date shall take
place on a date designated by the Board of Directors of the Reorganized
Debtor which shall occur no later than twelve (12) months following the
Effective Date; (iv) prohibit the issuance of additional common stock not
provided for herein for less than fair market value during the first two
years after the Effective Date, and (v) provide that any proposed issuance
or series of issuances of additional common stock not provided for herein
during the first two years after the Effective Date that exceeds 20
percent, individually or in the aggregate, of the then existing common
stock must be approved by a vote of the shareholders of the Reorganized
Debtor. The amended charter and bylaws will become effective upon (i)
Confirmation of the Plan, (ii) the occurrence of the Effective Date, and
(iii) the filing with the Delaware Secretary of State of a certificate of
amendment reflecting the amendments.
d. On the Effective Date, or as soon thereafter as is
practicable, pursuant to applicable state law, the Reorganized Debtor shall
file with the applicable state governmental agencies or offices any
required constituent documents for the Reorganized Debtor. Following the
Effective Date, except with respect to the election of directors at the
first regular annual meeting of shareholders as provided herein, the
Reorganized Debtor shall retain the right
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to take any corporate action in accordance with applicable nonbankruptcy
law, including amending its certificates and bylaws pursuant to applicable
nonbankruptcy law to provide for the issuance of nonvoting equity
securities.
B. FUNDING OF PLAN.
Funds to make Cash payments required to be made under the Plan shall
be provided from the funds existing in the Debtors' Estates from whatever source
(including tax refunds and proceeds from the sale of the Debtors' real property
assets); the proceeds of the Exit Loan Agreement; and funds generated by
operation of the Debtors' and the Reorganized Debtor's business.
C. REVESTING OF ASSETS.
Except as otherwise provided in the Plan, agreements entered into in
connection therewith, or the Confirmation Order, and provided that all
distributions to the holders of Allowed Secured Bank Group Claims and Allowed
DIP Secured Claims that are required to be made hereunder on or prior to the
Effective Date have in fact been made, on the Effective Date, all property of
the Estates shall revest in the Reorganized Debtor, free and clear of all
Claims, liens, encumbrances, and other interests of any person; and the
Reorganized Debtor may operate its business and may use, acquire, and dispose of
property and compromise or settle any Claims or Equity Interests without
supervision or approval by the Bankruptcy Court, free of any restrictions of the
Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly
imposed by the Plan or the Confirmation Order. Without limiting the foregoing,
the Reorganized Debtor may pay, without application to the Bankruptcy Court, the
fees and charges
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that it (rather than the Debtors' Estates) incurs on or after
the Effective Date for professionals' fees, disbursements, expenses, or related
support services relating to the Reorganization Cases. From and after the
Effective Date, the Reorganized Debtor may use, acquire, and dispose of property
without supervision or approval by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code or the Bankruptcy Rules, except as expressly
provided by the Plan, agreements entered into in connection therewith, or the
Confirmation Order.
D. MANAGEMENT OF REORGANIZED DEBTOR.
The Board of Directors of the Reorganized Debtor as of the Effective
Date shall consist of seven members, including the Chief Executive Officer and
Chief Financial Officer of the Reorganized Debtor, the three independent members
of the Board of Directors appointed in 1995, and two additional independent
members to be appointed after consultation between the Debtors and the
Creditors' Committee. The two additional independent directors shall be
disclosed prior to the Confirmation Hearing. If it is necessary to fill
vacancies of independent directors due to resignations, total disabilities, or
deaths at any time prior to the Effective Date, the existing independent
directors shall have the sole authority to make such designation or fill such
vacancies upon such notice as may be required by the Bankruptcy Court. Subject
to any requirement of Bankruptcy Court approval under section 1129(a)(5) of the
Bankruptcy Code, all persons designated pursuant to this Section shall be
authorized to assume their offices as of the Effective Date and shall be
authorized to continue to serve in such capacities thereafter pending further
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action of the board of directors or stockholders of the Reorganized Debtor in
accordance with applicable state law and the Reorganized Debtor's then-existing
bylaws and charter. The persons who are officers of the Debtors as of the
Effective Date shall assume their respective offices of the Reorganized Debtor,
subject to replacement by the directors of the Reorganized Debtor. For a period
of three years following the Effective Date, the Board shall have not less than
five independent directors. Vacancies occurring in the seats of the independent
directors during the three years following the Effective Date shall be filled by
a majority vote of the remaining independent directors.
E. EXEMPTION FROM CERTAIN TRANSFER TAXES.
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of a security, or the making or delivery of an instrument
of transfer, shall not be subject to any stamp tax, real estate transfer tax, or
similar tax. Transfers under the Plan that are exempt from taxation pursuant to
section 1146(c) of the Bankruptcy Code include, but are not limited to, the
issuance, transfer, assignment, or exchange of New HOF Common Stock, Series A
Warrants, Series B Warrants and Series C Warrants; the creation of any mortgage,
deed of trust, lien or other security interest; the making, revestment, or
assignment of any lease or sublease; and the transfer of property or the making,
revestment, or delivery of any deed or other instrument or transfer under, in
furtherance of, or in connection with, the Plan, including any deeds, bills of
sale, pledges, mortgages, deeds of trust, or assignments executed in connection
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with the Plan, agreements entered into in connection therewith, or the
Confirmation Order.
F. APPLICABILITY OF SECTIONS 1125 AND 1145 OF THE
BANKRUPTCY CODE TO NEW HOF COMMON STOCK AND OTHER
SECURITIES ISSUED UNDER THE PLAN.
The protection afforded by section 1125 of the Bankruptcy Code with
regard to the solicitation of acceptances or rejections of the Plan, and with
regard to the offer, issuance, sale, or purchase of the New HOF Common Stock or
other securities issued to holders of Allowed Claims and Equity Interests under
the Plan and distributed pursuant to the Plan including, without limitation, the
Initial Bank Group Stock, any and all Additional Bank Group Stock, the Series A
Warrants, the Series B Warrants, the Series C Warrants and the New HOF Common
Stock to be issued upon exercise of those warrants, shall apply to the full
extent provided by law. In addition, the exemption provided in section 1145 of
the Bankruptcy Code from the requirements of section 5 of the Securities Act of
1933, 15 U.S.C. (S) 77e, and any state or local law requiring registration for
the offer or sale of a security shall apply to the distribution of the New HOF
Common Stock or other securities issued under the Plan to the holders of Allowed
Claims and Equity Interests including, without limitation, the Initial Bank
Group Stock, any and all Additional Bank Group Stock, the Series A Warrants, the
Series B Warrants, the Series C Warrants and the New HOF Common Stock to be
issued upon exercise of those warrants.
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G. OBJECTIONS TO CLAIMS.
All objections to Claims other than objections to Claims in Class 3
and Class 4 shall be Filed and served on the holders of such Claims by the later
of: (a) 180 days after the Effective Date, or (b) 180 days after the particular
proof of claim has been Filed, except as extended by an agreement between the
claimant and the Reorganized Debtor, or by order of the Bankruptcy Court upon a
motion filed by the Reorganized Debtor, with notice of such motion to be served
upon the Office of the United States Trustee and those holders of Disputed
Claims directly affected by the motion. All objections to Class 3 Claims shall
be Filed and served on the holders of such Claims by the later of (a) 90 days
after the Effective Date or (b) 90 days after the particular proof of claim has
been Filed, except as extended by an agreement between the claimant and the
Reorganized Debtor, or by order of the Bankruptcy Court upon a motion filed by
the Reorganized Debtor, with notice of such motion to be served upon the Office
of the United States Trustee and those holders of Disputed Claims directly
affected by the motion. If an objection to a proof of claim that relates to a
Disputed Claim has not been Filed by the objection bar dates established in this
Section VI.G, the Claim to which the proof of claim relates shall be treated as
an Allowed Claim for purposes of distribution under the Plan.
H. DISCHARGE OF DEBTORS AND INJUNCTION.
Except as otherwise provided in the Plan, subject to applicable case
law and constitutional principles, and conditioned upon the occurrence of the
Effective Date, the rights af-
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forded in the Plan and the treatment of all Claims therein shall be in exchange
for, and in complete satisfaction, discharge, and release of, all Claims,
including without limitation, all Administrative Claims, Secured Claims,
Priority Tax Claims, other priority Claims, and Unsecured Claims, including any
interest accrued on such Claims, whether before or after the Petition Date,
against the Debtors, the Debtors' Estates, the Debtors in Possession and the
Reorganized Debtor, or any of their assets or properties, and shall terminate
all Equity Interests of any nature whatsoever in HOF. Except as otherwise
provided in the Plan, (1) on the Effective Date, all substantive rights or
obligations of the Debtors under any Equity Interests in HOF shall be
terminated, and the Debtors shall be deemed discharged and released to the
fullest extent permitted by section 1141 of the Bankruptcy Code from all Claims
that arose before the Confirmation Date, including without limitation all
Administrative Claims, Secured Claims, Priority Tax Claims, other priority
Claims, and Unsecured Claims, including any interest accrued on such Claims
before and after the Petition Date against the Debtors and the Debtors in
Possession, or any of their assets or properties, and all debts of the kind
specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, in each
case whether or not: (a) a proof of Claim or proof of Equity Interest based on
such Claim, Administrative Claim, or Equity Interest is Filed or deemed Filed
pursuant to section 501 of the Bankruptcy Code, (b) a Claim, Administrative
Claim, or Equity Interest is allowed or deemed allowed pursuant to the
Bankruptcy Code, or (c) the holder of a Claim, Administrative Claim, or
Equity In-
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terest has voted to accept the Plan; and (2) all persons shall be enjoined
permanently by section 524 of the Bankruptcy Code from asserting against the
Reorganized Debtor, its successors, or its assets or properties, any other or
further Claims, Administrative Claims, or Equity Interests based upon any act or
omission, transaction, or other activity of any kind or nature that occurred
prior to the Confirmation Date, and such discharge shall void any judgment
against the Debtors or the Reorganized Debtor at any time obtained to the extent
that it relates to a Claim, Administrative Claim, or Equity Interest discharged
or terminated.
Except as otherwise provided in the Plan and subject to applicable
case law and constitutional principles, on and after the Effective Date, all
persons who have held, currently hold, or may hold a Claim, Administrative
Claim, or Equity Interest discharged or terminated pursuant to the terms of the
Plan are enjoined permanently by section 524 of the Bankruptcy Code from taking
any of the following actions on account of any such discharged Claim or
terminated Equity Interest: (1) commencing or continuing in any manner any
action or other proceeding against the Debtors, the Reorganized Debtor, their
successors, or their assets or properties; (2) enforcing, attaching, collecting,
or recovering in any manner any judgment, award, decree, or order against the
Debtors, the Reorganized Debtor, their successors, or their assets or
properties; (3) creating, perfecting, or enforcing any lien or encumbrance
against the Debtors, the Reorganized Debtor, their successors, or their assets
or properties; (4) asserting any setoff, right of subrogation, or recoupment of
any
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kind against any obligation due to the Debtors, the Reorganized Debtor,
their successors, or their assets or properties; and (5) commencing or
continuing any action, in any manner, in any place, that does not comply with or
is inconsistent with the provisions of the Plan or the Confirmation Order. Any
person violating such injunction may be liable for actual damages, including
costs and attorneys' fees and, in appropriate circumstances, punitive damages.
The provisions of this Plan shall be binding upon and govern the acts
of all persons including, without limitation, all holders of Claims,
Administrative Claims, and Equity Interests, all filing agents, filing officers,
title agents, title companies, recorders of mortgages, recorders of deeds,
registrars of deeds, administrative agencies, governmental departments,
secretaries of state, federal, state, and local officials, and all other persons
who may be required by operation of law, the duties of their office, or contract
to accept, file, register, or otherwise record or release any documents or
instruments, or who may be required to report or insure any title or state of
title in or to any of the assets of the Debtors, the Debtors' Estates, or the
Reorganized Debtor.
I. PRESERVATION OF RIGHTS OF ACTION.
Except as provided in Section VI.J hereof or in any other contract,
instrument, release (including without limitation the Release of Claims), or
other agreement entered into in connection with the Plan, in accordance with
section 1123(b) of the Bankruptcy Code, the Reorganized Debtor shall be revested
with, shall retain and may enforce any claims, rights, or causes of
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action, including rights or causes of action arising under the Bankruptcy Code,
that the Debtors or their Estates may hold against any person. The Reorganized
Debtor or its successors may pursue such retained claims, rights, or causes of
action, as appropriate, in accordance with the best interests of the Reorganized
Debtor or its successors holding such rights of action.
J. LIMITATION OF LIABILITY.
Neither the Debtors, the Reorganized Debtor, the Creditors' Committee,
the Equity Committee, nor any of their respective officers, directors,
employees, trustees, members, or agents, nor any Professional Persons employed
by one or more of them, shall have or incur any liability to any person for any
act taken or omission made in good faith in connection with or related to the
postpetition administration of the Debtors' cases, including, but not limited
to, the formulation, implementation, confirmation, or consummation of the Plan,
the Disclosure Statement, or any security contract, instrument, release, or
other agreement or document created in connection with the Plan, or regarding
any distributions made pursuant to the Plan.
All distributions to holders of Allowed Secured Bank Group Claims and
Allowed DIP Secured Bank Group Claims are indefeasible and are not and shall not
be preferences or fraudulent transfers within the meaning of 11 U.S.C. (S) 547
or (S) 548 or otherwise avoidable in any subsequent case under title 11 of the
United States Code affecting the Reorganized Debtor.
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VII.
DISTRIBUTION
A. GENERAL.
1. DISBURSING AGENTS.
Persons approved by the Debtors or the Reorganized Debtor, such as a
stock transfer agent for the New HOF Common Stock or other entity for the
distribution of other property, shall act as Disbursing Agents under the Plan.
Any such Disbursing Agent may, with the prior approval of the Reorganized
Debtor, employ or contract with other persons to assist in or to perform the
distribution required. Each Disbursing Agent shall serve without bond, except
as required by the Reorganized Debtor, and each third party hired as a
Disbursing Agent shall receive, without further Bankruptcy Court approval,
reasonable compensation for distribution services rendered pursuant to the Plan
and reimbursement of reasonable out-of-pocket expenses incurred in connection
with such services from the Reorganized Debtor, on terms acceptable to the
Reorganized Debtor.
2. TRANSMITTAL OF DISTRIBUTIONS TO PARTIES
ENTITLED THERETO.
All distributions shall be deemed made upon placing such distribution
in the United States mail, postage prepaid, except distributions to holders of
Allowed Secured Bank Group Claims and Allowed DIP Secured Bank Group Claims,
which shall be made by wire transfers for distributions of Cash and by personal
delivery for distributions of share certificates. Wire transfer instructions
and delivery addresses for share certificates shall
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be provided by BofA in writing to the Debtors or the Reorganized Debtor at least
one business day before a distribution.
Except as otherwise provided in the Plan, any property to be
distributed on account of an Allowed Claim, Allowed Administrative Claim,
allowed reclamation Claim or Allowed Equity Interest shall be distributed by
mail as follows: (a) except in the case of the holder of a share of stock for
which there is a stock transfer agent, to (i) the latest mailing address Filed
of record for the party entitled thereto or to a holder of a power of attorney
designated by the holder of the Allowed Claim, Allowed Administrative Claim,
allowed reclamation Claim or Allowed Equity Interest to receive such
distributions, or (ii) if no such mailing address has been so Filed, the mailing
address reflected on the Schedules of Assets and Liabilities or in Reorganized
Debtor's books and records; or (b) in the case of the holder of a share of stock
for which there is a stock transfer agent, in accordance with the terms of any
agreements governing distributions with respect to such share of stock, to the
latest mailing address maintained of record by the pertinent stock transfer
agent, or, if no mailing address is maintained of record, to the pertinent stock
transfer agent.
3. NO FRACTIONAL SHARES.
Notwithstanding any other provision of the Plan, only whole numbers of
shares of New HOF Common Stock or Warrants shall be distributed. With regard to
the initial and all subsequent distributions of New HOF Common Stock or
Warrants, all Allowed Claims or Allowed Equity Interests of a holder in a
particular Class shall be aggregated and treated as one Allowed Claim or
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Allowed Equity Interest for purposes of distribution. If any calculated
distribution on account of such Allowed Claim or Allowed Equity Interest would
otherwise result in the distribution of a number of shares of New HOF Common
Stock or Warrants that is not a whole number, then the actual distribution of
shares of such stock or such warrants shall be rounded to the nearest whole
number unless such rounding results in a Class of Allowed Claims or Allowed
Equity Interests receiving more than the aggregate number of shares or warrants
allotted for distribution to that Class. In such a case, the actual distribution
of shares and warrants shall be rounded so that the total amount of shares or
warrants distributed to the Class will be no more than the amount allotted for
distribution in that Class. Holders of Allowed Claims or Allowed Equity
Interests that would be entitled to fractional shares of New HOF Common Stock or
to fractional Warrants but for this provision shall receive no consideration
therefor because such amount would be de minimis.
4. TIMING OF DISTRIBUTIONS.
Except as otherwise provided herein (including without limitation the
strict timing provisions governing distributions to holders of Allowed Secured
Bank Group Claims and to holders of Allowed DIP Secured Bank Group Claims),
distributions of property to be made under the Plan on account of an Allowed
Claim or Allowed Equity Interest will occur on or as soon as practicable after
the later of (a) the date on which the Claim or Equity Interest becomes an
Allowed Claim or Allowed Equity Interest and (b) the Effective Date.
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5. COMPLIANCE WITH TAX REQUIREMENTS.
In connection with the Plan, to the extent applicable, each Disbursing
Agent shall comply with all tax withholding and reporting requirements imposed
on it by any governmental unit, and all distributions pursuant to the Plan shall
be subject to such applicable withholding and reporting requirements.
The Disbursing Agent may withhold the distribution due to any holder
of an Allowed Claim or Allowed Equity Interest until such time as such holder
provides the necessary information to comply with any withholding requirements
of any governmental unit, or provides to the Disbursing Agent the Cash necessary
to comply with any applicable withholding requirements. Any property so
withheld will then be paid by the Disbursing Agent to the appropriate taxing
authority.
6. NO DISTRIBUTIONS ON ACCOUNT OF DISPUTED
CLAIMS PENDING ALLOWANCE.
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made on account of a Disputed Claim unless and until the
Disputed Claim has become an Allowed Claim by way of (a) a Final Order allowing
the Claim, to the extent allowed, (b) listing of the Claim in a Filed supplement
to the Allowed Claims List following (i) settlement of the Claim between the
Debtors and the holder of the Claim (after notice to the Creditors' Committee
and an opportunity to be heard) or (ii) determination by the Debtors that the
objection should not be pursued, (c) lapse of the time within which an objection
to the Claim could be Filed without any such objection being Filed, or (d)
withdrawal of an objection to the Claim by the Debtors
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after the deadline for objecting to such Claim, as set forth in Section VI.G,
has passed.
7. INITIAL DISTRIBUTION OF NEW HOF COMMON
STOCK AND DISPUTED CLAIMS
RESERVE.
When the Disbursing Agent makes the initial distribution of New HOF
Common Stock it shall distribute property only to holders of Claims that are
Allowed Claims or Equity Interests that are Allowed Equity Interests at the time
of the distribution as described in the definitions of "Allowed Claim" and
"Allowed Equity Interest." With respect to Class 3, the total amount of
property initially distributed to holders of Allowed Class 3 Claims shall equal
(a) 12,741,000 shares divided by the sum of (i) all Class 3 Allowed Claims plus
(ii) Class 3 Disputed Claims plus (iii) $50,000 or such greater amount as the
Bankruptcy Court determines at the Confirmation Hearing is an appropriate amount
to reserve for Claims that may arise from rejections of executory contracts and
unexpired leases under the Plan, multiplied by (b) the sum of all Class 3
Allowed Claims (the "Initial Distribution"); such property to be distributed Pro
Rata to the holders of then-existing Class 3 Allowed Claims. The Disbursing
Agent shall withhold from the property to be distributed in that Initial
Distribution, and shall place in the Disputed Claims Reserve, an amount equal to
(a) 12,741,000 shares divided by the sum of (i) all Allowed Class 3 Claims plus
(ii) Class 3 Disputed Claims plus (iii) $50,000 (or such other amount as
determined by the Bankruptcy Court) multiplied by (b) the sum of all Class 3
Disputed Claim amounts.
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8. CLASS 3 DISTRIBUTIONS AFTER ALLOWANCE.
If and when a Class 3 Disputed Claim becomes a Class 3 Allowed Claim,
the holder of such Claim shall receive a distribution of property in accordance
with the provisions of this Plan in an amount that bears the same ratio to the
amount of that holder's Allowed Claim as prior distributions to holders of
previously Allowed Claims in Class 3 bore to the amounts of their Allowed
Claims.
9. CLASS 3 SUBSEQUENT AND FINAL
DISTRIBUTIONS.
The Disbursing Agent shall make a subsequent Pro Rata distribution to
holders of previously Allowed Class 3 Claims if and when 33 percent of the
aggregate amount of Class 3 Disputed Claims that exist on the Effective Date
have been disallowed, that distribution to be made from the New HOF Common Stock
reserved for those disallowed Disputed Claims in the Disputed Claims Reserve.
The Disbursing Agent shall make another such distribution if and when 67 percent
of the aggregate amount of Class 3 Disputed Claims that exist on the Effective
Date have been disallowed. Notwithstanding the foregoing, the Debtor may
authorize the Disbursing Agent to make earlier or additional interim
distributions. As soon as practicable after all Disputed Claims in Class 3 have
been resolved, any remaining property to be distributed to Class 3 shall be
distributed Pro Rata among the holders of Class 3 Allowed Claims.
10. TREATMENT OF CONTINGENT CLAIMS.
No reserve shall be established for any contingent Claim unless a
Final Order requires such reserve. If a contin-
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gent Claim becomes fixed and absolute, to the extent the Claim may be Allowed,
the holder of such contingent Claim shall receive only distributions to which it
may be entitled pursuant to section 502(j) of the Bankruptcy Code. In the event
a contingent Claim is entitled to distributions pursuant to section 502(j) of
the Bankruptcy Code, such Claim shall receive a Pro Rata distribution in the
proportion it bears to all other Allowed Claims of the same Class.
B. UNDELIVERABLE DISTRIBUTIONS.
1. HOLDING AND INVESTMENT OF UNDELIVERABLE
DISTRIBUTIONS.
If any distribution is returned to the Reorganized Debtor or a
Disbursing Agent as undeliverable, no further distributions shall be made to the
holder of the Allowed Claim or Allowed Equity Interest on account of which such
distribution was made unless and until the Reorganized Debtor or the Disbursing
Agent, as the case may be, is notified in writing of such holder's then-current
address. Undeliverable distributions shall remain in the possession of the
Reorganized Debtor or the Disbursing Agent, as the case may be, until such time
as a distribution becomes deliverable. Undeliverable New HOF Common Stock,
warrants for the purchase of New HOF Common Stock, and Cash shall be held in
trust for the benefit of the potential claimants of such securities or Cash in
an amount sufficient to fund the unclaimed amounts of such securities or Cash,
and shall be accounted for separately.
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2. FAILURE TO CLAIM UNDELIVERABLE
DISTRIBUTIONS.
The Allowed Claim or Allowed Equity Interest of any holder that does
not present a demand for an undeliverable distribution within five (5) years
from the Confirmation Date shall be discharged; and the holder thereof shall be
forever barred from asserting any such entitlement against the Disbursing Agent,
the Debtors, the Reorganized Debtor, or their assets or properties. In such
cases: (a) any Cash held for distribution on account of such Allowed Claim and
any interest earned thereon shall be property of the Reorganized Debtor, free of
any restrictions thereon; and (b) any New HOF Common Stock or warrants for the
purchase of New HOF Common Stock held for issuance on account of such Allowed
Claim or Allowed Equity Interest shall be canceled. To the extent that such
undeliverable Cash or New HOF Common Stock is held by a Disbursing Agent, it
shall return such Cash or securities to the Reorganized Debtor. Any securities
returned pursuant to this provision shall be canceled. Nothing contained in the
Plan shall require the Reorganized Debtor or the Disbursing Agent to attempt to
locate any holder of an Allowed Claim or Allowed Equity Interest, other than to
mail distributions to the Allowed Claim holder's or Equity Interest holder's
last known address as provided in Section VII.A.2.
C. ESTIMATION OF UNLIQUIDATED AND DISPUTED CLAIMS.
As to any unliquidated Disputed Claim, including Claims based upon
rejection of executory contracts or leases, or other Disputed Claims, the
Bankruptcy Court, upon motion by the Debtors, may estimate as provided herein
the likely maximum amount of
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the Disputed Claims. In addition, the Bankruptcy Court, upon motion by the
Debtors and noticed on the holders of such Claims to be estimated, may determine
an amount sufficient to reserve for such Claim. With respect to Claims arising
from the rejection of executory contracts and unexpired leases pursuant to
Section V.B of the Plan, the estimated maximum amount of all such Claims for
purposes of establishing a reserve for such Claims shall be $50,000.
An estimation may be made for purposes of both allowance for voting
and, except with respect to insured Claims classified herein in Class 4,
reserves for distribution. A person whose Claim is estimated shall not have any
recourse against the holders of New HOF Common Stock, holders of Existing HOF
Common Stock, any person receiving a distribution under the Plan, or any assets
distributed on account of any Allowed Claims or Equity Interests, even if such
person's Claim, as finally Allowed, exceeds the maximum estimated amount
thereof. THUS, THE BANKRUPTCY COURT'S ESTIMATION FOR THE PURPOSE OF
DISTRIBUTION ON ACCOUNT OF A DISPUTED CLAIM OR GROUP OF DISPUTED CLAIMS WILL
LIMIT THE DISTRIBUTION TO BE MADE THEREON, REGARDLESS OF THE AMOUNT FINALLY
DETERMINED TO BE DUE ON ACCOUNT OF SUCH DISPUTED CLAIM(S).
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VIII.
EFFECTIVE DATE
The Effective Date shall occur on a date selected by Debtors:
(a) that is on or after the first business day on which no stay
of the Confirmation Order is and remains in effect;
(b) that is at least ten (10) days (as calculated in accordance
with Bankruptcy Rule 9006(a)) following the Confirmation Date;
(c) on which the Debtors have sufficient funds available to make
the Cash distributions that are required to be made on or as soon as
practicable after the Effective Date;
(d) on which all payments of Cash to the holders of Allowed DIP
Secured Bank Group Claims and Allowed Secured Bank Group Claims that are
required to be made on the Effective Date are made;
(e) on which all Initial Bank Group Stock is issued and
delivered to the holders of Allowed Secured Bank Group Claims;
(f) on which the Debtors deliver one original, fully executed
and authorized Release of Claims to each person to be released thereunder;
(g) on which the Debtors (1) terminate and close all "cash
management system" accounts and related banking business activities with
BofA described in the "Emergency Motion for Order Authorizing Debtors and
Debtors in Posses-
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sion to Maintain Their Cash Management System and Certain Related Bank
Accounts, As Modified," and in the papers filed in connection therewith,
and (2) provide BofA with the indemnity agreement required under Section
VI.A.1.e. hereof;
(h) on which the aggregate amount of all Allowed Class 3 Claims
is at least 75 percent of the sum of all Allowed Class 3 Claims plus all
Disputed Class 3 Claims (the calculation of which (i) will not include any
claims asserted as a result of the Debtors' rejection of contracts or
leases that become or became effective after December 31, 1995, (ii) will
assume the disallowance of any Class 3 Claims that are disallowed pursuant
to the Plan, and (iii) will use the reduced or liquidated amount of any
Disputed Claim as estimated by the Bankruptcy Court for reserve purposes
pursuant to Section VII.C); and
(i) that is not later than July 31, 1996.
Provision (f) above may be waived in a writing by Class 1A after a
vote by its members tabulated in accordance with Bankruptcy Code section
1126(c), which writing must be Filed and served upon the Debtors and Creditors'
Committee. Provision (g) may be waived in a writing by BofA, Filed and served
upon the Debtors, Bank Group and Creditors' Committee. Provision (h) above may
be waived in a joint writing by the Debtors and Creditors' Committee, Filed and
served on the Bank Group and the Office of the United States Trustee. Provision
(i) above may be waived in a joint writing by the Debtors, Creditors' Committee
and Class 1A after a vote by its members tabulated in accordance
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with Bankruptcy Code section 1126(c), which writing must be Filed and served on
the Office of the United States Trustee.
IX.
CONFIRMATION REQUEST
The Debtors reserve the right to request Confirmation of the Plan
under section 1129(b) of the Bankruptcy Code if an impaired Class of Claims or
Equity Interests votes to reject the Plan. If an impaired Class of Claims or
Equity Interests votes to reject the Plan, the Plan may not be confirmed unless
the requirements of section 1129(b) of the Bankruptcy Code are satisfied, as to
be determined by the Bankruptcy Court at the Confirmation Hearing.
X.
RETENTION OF JURISDICTION
Following Confirmation, except as provided below, the Bankruptcy Court
may retain such jurisdiction as is legally permissible after Confirmation,
including, without limitation, for the following purposes:
1. To determine the allowability, classification, or priority of
Claims and Equity Interests upon objection by the Reorganized Debtor or any
other party in interest entitled to raise such objection;
2. To construe and to take any action to enforce and execute the Plan,
the Confirmation Order, or any other order of the Bankruptcy Court, issue such
orders as may be necessary for the implementation, execution, performance, and
consummation of
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the Plan and all matters referred to herein, and determine all matters that may
be pending before the Bankruptcy Court in the Reorganization Cases on or before
the Effective Date with respect to any person;
3. To protect the property of the Estates revesting in the
Reorganized Debtor from Claims against, or interference with, such property,
including actions to quiet or otherwise clear title to such property based upon
the terms and provisions of this Plan, or to determine the Reorganized Debtor's
exclusive ownership of claims and causes of action revested or retained under
the Plan;
4. To determine any and all applications for allowance of
compensation and expense reimbursement of Professional Persons for periods on or
before the Effective Date;
5. To determine any other request for payment of Administrative
Claims;
6. To resolve any dispute regarding the implementation, execution,
consummation, or interpretation of the Plan;
7. To determine motions for the rejection, assumption, or assignment
of executory contracts or unexpired leases, and to determine the allowance of
any Claims resulting from the rejection of executory contracts and unexpired
leases;
8. To determine all applications, motions, adversary proceedings,
contested matters, and any other litigated matters instituted prior to the
closing of these cases;
9. To determine such other matters, and for such other purposes, as
may be provided in the Confirmation Order;
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10. To modify the Plan under section 1127 of the Bankruptcy Code, to
remedy any defect or omission in the Plan, or to reconcile any inconsistency in
the Plan so as to carry out its intent and purposes;
11. To issue injunctions or take such other actions or make such other
orders as may be necessary or appropriate to restrain interference with the Plan
or its execution or implementation by any person; and
12. To issue such orders in aid of consummation of the Plan and the
Confirmation Order, notwithstanding any otherwise applicable nonbankruptcy law,
with respect to any person, to the full extent authorized by the Bankruptcy
Code.
The Bankruptcy Court shall not retain jurisdiction to determine the
Stock Fair Market Value.
XI.
MISCELLANEOUS PROVISIONS
A. AMENDMENT AND MODIFICATION OF THE PLAN.
The Plan may be amended or modified before the Effective Date only by
the Debtors or, following the Effective Date, only by the Reorganized Debtor,
and only to the extent provided in section 1127 of the Bankruptcy Code.
B. WITHDRAWAL OR REVOCATION OF THE PLAN.
The Debtors reserve the right to revoke or withdraw the Plan prior to
the Confirmation Date. If the Debtors revoke or withdraw the Plan, or if
Confirmation of the Plan never occurs, then the Plan shall be null and void.
Until the Plan is confirmed and the Effective Date occurs, nothing contained
herein
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shall: (1) constitute a waiver or release of any claims by or against,
or any Equity Interests in, the Debtors; or (2) prejudice in any manner the
rights of Debtors in any proceedings.
C. SECTION 1111(B)(2) ELECTION.
An election pursuant to section 1111(b)(2) of the Bankruptcy Code may
be made, at the election of a holder of a Secured Claim, for purposes of this
Plan only, and shall not affect the rights of such holder making an election
with respect to any other plan of reorganization Filed or to be Filed in the
Reorganization Cases. A holder of a Secured Claim who makes an election
pursuant to section 1111(b)(2) for purposes of this Plan may revoke such
election at any time during the 20 days immediately following the Filing with
the Bankruptcy Court of any amendments to the Plan that materially alter the
rights of such holder, as to be determined by the Bankruptcy Court. Notice of
any revocation permitted herein shall be Filed with the Bankruptcy Court and
served upon the Debtors, the Creditors' Committee, and the Bank Group during the
time specified herein.
D. CREDITORS' COMMITTEE AND EQUITY COMMITTEE.
On the Effective Date, or on such later date on which the final
distribution to Class 5A is made, the Equity Committee shall be dissolved and
thereafter shall have no further participation in the Reorganization Cases.
After the Effective Date, the Creditors' Committee shall remain in existence for
the sole purposes of monitoring and, if necessary, appearing in the Bankruptcy
Court with respect to, the Class 3 Claims resolution and distribution processes.
The Reorganized Debtor shall pay, without the need for Bankruptcy Court
approval, the reasonable
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fees and expenses of Creditors' Committee members and
Professional Persons retained by the Creditors' Committee for services related
to the monitoring of and, if necessary, appearing in the Bankruptcy Court with
respect to, the Class 3 Claims resolution and distribution processes, up to a
maximum of $10,000 per month or such greater amount as may be awarded by the
Bankruptcy Court pursuant to the following sentence, until dissolution of the
Creditors' Committee. In the event that the Creditors' Committee reasonably
determines that it needs to become involved in litigation in the Bankruptcy
Court to fulfill its purposes of monitoring the Class 3 Claims resolution and
distribution processes, its members and Professional Persons may seek approval
from the Bankruptcy Court of reasonable compensation greater than $10,000 per
month for services reasonably necessary in such litigation. Upon the final
distribution from the Disputed Claims Reserve, the Creditors' Committee shall be
dissolved and thereafter shall have no further participation in the
Reorganization Cases. Notwithstanding the foregoing, at all times the
Creditors' Committee and Equity Committee shall have standing to appear and be
heard at any hearing on allowance of final compensation of Professional Persons.
E. SUCCESSORS AND ASSIGNS.
The rights, benefits, and obligations of any person named or referred
to in the Plan shall be binding on, and shall inure to the benefit of and be
binding on, the heirs, executors, administrators, successors, or assigns of such
person.
74
<PAGE>
F. SEVERABILITY OF PROVISIONS OF THE PLAN.
The provisions of this Plan shall not be severable unless such
severance is agreed to in writing by the Debtors or the Reorganized Debtor and
such severance constitutes a permissible modification of the Plan pursuant to
section 1127 of the Bankruptcy Code.
75
<PAGE>
HOUSE OF FABRICS, INC.,
a Delaware Corporation, Debtor
Dated: May ___, 1996 By_________________________________
Gary L. Larkins, President and
Chief Executive Officer
SOFRO FABRICS, INC., a Nevada
Corporation, Debtor
Dated: May ___, 1996 By_________________________________
Gary L. Larkins, President and
Chief Executive Officer
FABRICLAND, INC., an Oregon
Corporation, Debtor
Dated: May ___, 1996 By_________________________________
Gary L. Larkins, President and
Chief Executive Officer
HOUSE OF FABRICS OF SOUTH CAROLINA, INC.,
a South Carolina Corporation, Debtor
Dated: May ___, 1996 By_________________________________
Gary L. Larkins, President and
Chief Executive Officer
METROLINA EXPRESS, INC., a South Carolina
Corporation, Debtor
Dated: May ___, 1996 By_________________________________
Gary L. Larkins, President and
Chief Executive Officer
76
<PAGE>
SUBMITTED BY:
____________________________________
MICHAEL A. MORRIS, a Member of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Reorganization Counsel for Debtors
and Debtors in Possession
77
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO AMENDED AND RESTATED
---------------------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as
of May 1, 1996 (this "First Amendment") is entered into among HOUSE OF FABRICS,
INC., a Delaware corporation, as Debtor and Debtor-in-Possession (the "Company"
or "HF"), FABRICLAND, INC., an Oregon corporation and a Subsidiary of the
Company, as Debtor and Debtor-in-Possession ("FL"), HOUSE OF FABRICS OF SOUTH
CAROLINA, INC., a South Carolina corporation and a Subsidiary of the Company, as
Debtor and Debtor-in-Possession ("HS"), SOFRO FABRICS, INC., a Nevada
corporation and a Subsidiary of the Company, as Debtor and Debtor-in-Possession
("SF") and METROLINA EXPRESS, INC., a South Carolina corporation and a
Subsidiary of HS, as Debtor and Debtor-in-Possession ("ME"; HF, FL, HS, SF and
ME being hereinafter collectively referred to as the "Borrowers", and each
individually as a "Borrower" or as a "Borrower Entity"), jointly and severally,
the several financial institutions party to this Amendment (collectively, the
"Banks"; individually, a "Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as the Issuing Bank under the DIP Credit Agreement referred to
below (the "Issuing Bank") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as agent for the Issuing Bank and the Banks (the "Agent").
RECITALS
A. The Borrower, the Banks, the Issuing Bank and the Agent previously
entered into an Amended and Restated Revolving Credit Agreement dated as of
January 29, 1996 (the "DIP Credit Agreement"). Capitalized terms used herein
and not defined shall have the respective meanings set forth in the DIP Credit
Agreement.
B. Pursuant to the DIP Credit Agreement, the Banks agreed to make
revolving loans, and the Issuing Bank agreed to issue letters of credit (under a
subfacility not to exceed $10,000,000.00), in the aggregate principal amount of
$17,300,000, to or for the account of the Borrowers and on the terms and
conditions set forth in the DIP Credit Agreement for a period ending on April
30, 1996 (the "Revolving Termination Date").
C. The Borrowers and the Creditors' Committee have requested that the
Banks and the Issuing Bank extend the Revolving Termination Date to June 28,
1996, and the Banks and
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<PAGE>
the Issuing Bank have agreed to effect such extension on the terms and
conditions set forth herein.
AMENDMENTS
Section 1. Amendments. The DIP Credit Agreement is hereby amended as
---------- ----------
follows:
(a) The definition of "Cash Collateral Stipulation" contained in Section 1.1
is amended and restated in its entirety to read as follows:
"Cash Collateral Stipulation" means the First Amended Stipulation for
---------------------------
Use of Cash Collateral; Order Thereon, approved by the Bankruptcy Court with
regard to this Agreement.
(b) In the definition of "Cash Equivalents" contained in Section 1.1, the
reference in subparagraphs (a), (b) and (c) to "six months" is deleted and
replaced with a reference to "three months".
(c) The definition of "DIP Financing Order" contained in Section 1.1 is
amended and restated in its entirety to read as follows:
"DIP Financing Order" means the "Order Granting Approval of Third
-------------------
Motion of Debtor and Debtor in Possession Pursuant to U.S.C. (S)363(c)(2),
364(c)(2) & (3) & 364(d) and Fed.R.Bankr.P. 4019, etc." issued by the
Bankruptcy Court with regard to this Agreement.
(d) The definition of "Projections" contained in Section 1.1 is amended and
restated in its entirety to read as follows:
"Projections" means, collectively, the Borrowers' (i) Version
-----------
TERM33d.xlsbalance dated March 27, 1996, at 1:29 p.m. DIP Extension
Projections consisting of a Projected Balance Sheet, Projected Income
Statement, Projected Cash Flow Statements, Projected Mid Jan 96 Store
Closures, Inventory Analysis, and Capital Expenditures; and (ii) Revised
Compliance Calculation statement dated April 10, 1996, at 10:34 a.m.
constituting the Borrowers' projected monthly cash flows for the months
ended March, April, May and June 1996 (the "Projected Monthly Cash Flows
summary"), each of which is attached hereto as Schedule 1.3 (Part A) and
Schedule 1.3 (Part B), respectively.
(e) A new definition is added to Section 1.1, in appropriate alphabetical
order, to read as follows:
-2-
<PAGE>
"Real Estate Account" shall have the meaning specified in Section 6.26.
-------------------
(f) In the definition of "Revolving Termination Date" contained in Section
1.1, the reference to "April 30, 1996" is deleted and replaced with a reference
to "June 28, 1996".
(g) The reference to "Peggy Fujimoto, telephone: (415) 622-4835,
telecopier: (415) 622-4894", in Section 2.14(b) is deleted and replaced with a
reference to "Leandro Balidoy", telephone: (415) 436-4008, telecopier: (415)
436-2700."
(h) Section 6.14 is amended as follows:
(i) The second sentence of Section 6.14(b) is amended and restated in
its entirety to read as follows:
On a monthly basis thereafter, through June 28, 1996, the Borrowers
shall be entitled to retain all cash as reflected on the Ending Cash Balance
line (excluding accrued accounts payable) shown in the Weekly Variance
Report provided by the Borrowers, excluding amounts in the Real Estate
Account and in the Tax Refund Account (as defined below), up to an aggregate
amount not to exceed $8,000,000 (after deducting the Allowed Cash
Deduction), plus for each of May 1996 and June 1996, the amounts equal to
----
$1,219,000.00 and $570,000.00 respectively (the "Capital Expenditures
Deduction") (the "Net Spendable Cash").
(ii) In Section 6.14(c), the reference to "April 30, 1996" is deleted
and replaced with a reference to "June 28, 1996".
(iii) A new Section 6.14(f) is added to read as follows:
(f) The Borrowers shall deposit the Tax Refund (as defined
below), and shall deposit any future Tax Refund, immediately upon receipt
thereof, into a segregated money market interest bearing collateral account
at BofA (the "Tax Refund Account") as cash collateral for the Obligations
hereunder. Any and all interest accruing on monies deposited in the Tax
Refund Account shall be credited to that account. Except for payments to
the Banks for Obligations hereunder, no withdrawals from the Tax Refund
Account, including withdrawals of interest thereon, shall be permitted to be
made by or on behalf of the Borrowers without the consent of all of the
Banks or an order of the Bankruptcy Court (obtained no sooner than after the
lapse of five Business Days' notice to the Agent). In the event this
Agreement is terminated or an
-3-
<PAGE>
Event of Default is declared by the Banks, the Borrowers may at their
election, use funds in the Tax Refund Account to pay the Obligations
hereunder. No amounts in the Tax Refund Account shall be included in the
calculation of Net Spendable Cash or in the calculation of the cash covenant
set forth in Section 6.17(a). "Tax Refund" means all tax refunds received or
to be received by the Borrowers or any of them from or after January 1,
1996.
(i) The reference in Section 6.17(a) to January 31, 1996 is deleted and
replaced with a reference to March 31, 1996.
(j) Section 6.17(b) is amended and restated in its entirety to read as
follows:
(b) The Borrowers' actual monthly Ending Inventory Balance, at cost,
including prepaid purchases, as reported in the Borrowers' financial
statements delivered pursuant to Section 6.1(g) shall not be less than 90%
of the monthly Ending Inventory Balance, for ongoing Stores only, at cost,
including prepaid purchases, included in the Projections. The monthly
Ending Inventory Balance per the Projections shall be initially adjusted by
an amount equal to $1,655,000.00 (representing the difference between the
opening inventory balance as of January 31, 1996 per the 33d and 33e
projections), and finally adjusted in an amount determined by the Fiscal
Year 1996 audit.
(k) A new Section 6.26 is added to read as follows:
6.26 Real Estate Account. All Net Proceeds from the Disposition of
-------------------
the Borrowers' real property assets shall be placed in a segregated money
market interest bearing collateral account at BofA (the "Real Estate
Account") as cash collateral for the Obligations hereunder. Any and all
interest accruing on monies deposited in the Real Estate Account shall be
credited to that account. Except for payment to the Banks for Obligations
hereunder, no withdrawals from the Real Estate Account, including
withdrawals of interest thereon, shall be permitted to be made by or on
behalf of the Borrowers without the consent of all of the Banks or an order
of the Bankruptcy Court (obtained no sooner than after the lapse of five
Business Days' notice to the Agent). No amounts in the Real Estate Account
shall be included in the calculation of Net Spendable Cash or in the
calculation of the cash covenant set forth in Section 6.17(a).
(l) In Section 7.1(j), the reference to "$8,100,000.00" is deleted and
replaced with a reference to "$9,889,000.00".
-4-
<PAGE>
(m) In Section 7.5(d), the reference to "$8,100,000.00" is deleted and
replaced with a reference to "$9,889,000.00".
(n) In Section 7.11(c), the reference to "$8,100,000.00" is deleted and
replaced with a reference to "$9,889,000.00".
(o) Section 7.13 is amended and restated in its entirety to read as follows:
7.13 Capital Expenditures. The Company and its direct and indirect
--------------------
Subsidiaries shall not make or commit to make Capital Expenditures for the
period beginning February 1, 1995 through June 28, 1996 in excess of the
$9,889,000.00 provided for in the Projections delivered to the Agent and
approved by the Majority Banks.
(p) In Section 8.2(d), the proviso therein is amended and restated in its
entirety to read as follows: "provided, however, that the Bank shall be
required first, to apply the proceeds in the Sequestered Account, second, to
apply the proceeds in the Capital Expenditures Account, and third, to apply the
Real Estate Account before exercising any rights against any other Collateral
securing the Obligations hereunder".
(q) Exhibit J to the DIP Credit Agreement is deleted and replaced with
"Exhibit J" hereto.
(r) Schedules 1.3 and 6.17(a) to the DIP Credit Agreement are deleted and
replaced with "Schedule 1.3" and "Schedule 6.17(a)" hereto.
Section 2. Conditions Precedent to Effectiveness of Amendment. This
---------- --------------------------------------------------
Amendment shall become effective on May 1, 1996, provided that the Agent shall
have received all of the following, in form and substance satisfactory to the
Agent and each Bank and in sufficient copies for each Bank:
(a) This Amendment executed by each of the Borrower Entities, the Agent
and each of the Banks;
(b) Copies of the resolutions of the board of directors of each of the
Borrower Entities approving and authorizing the execution, delivery and
performance by such Person of this Amendment and the other documents and
instruments to be delivered in connection herewith (the "Amendment
Documents"), certified as of the date hereof by the Secretary or an
Assistant Secretary of such Person;
(c) A certificate of the Secretary or Assistant of each of the Borrower
Entities certifying the name
-5-
<PAGE>
and true signatures of the officers of such Person authorized to execute,
deliver and perform the Amendment Documents to be delivered hereunder;
(d) A certificate of the Secretary or Assistant Secretary of each
Borrower Entity certifying that (i) the copies of the Articles of
Incorporation or Certificate of Incorporation, as applicable, and the Bylaws
for such Borrower Entity delivered to the Agent in connection with the
execution of the DIP Credit Agreement remain true and correct, and that the
same have not been amended, altered, supplemented, restated or otherwise
modified since so delivered and (ii) such Borrower Entity remains in good
standing in each state specified with respect to such Borrower Entity on
Schedule 4.1(c)(ii) to the DIP Credit Agreement;
(e) Receipt by the Agent for the account of the Banks of a facility fee
in the amount of $36,000, which fee shall be fully earned and non-refundable
when paid;
(f) An opinion of Marvin S. Maltzman, General Counsel of the Borrowers,
addressed to the Agent and the Banks, substantially in the form of Exhibit D
to the DIP Credit Agreement;
(g) Payment by the Borrowers of (i) all accrued and unpaid fees, costs
and expenses of Agent and each Bank due under the present Amended and
Restated Revolving Credit Agreement through February 29, 1996, together with
Attorney Costs through February 29, 1996, and (ii) all reasonable fees,
costs and expenses incurred by the Agent and each Bank, including Attorney
Costs (including the cost of title endorsements), in connection with the
Amendment Documents and any other documents or agreements prepared in
connection herewith;
(h) A certificate signed by a Responsible Officer, dated as of the date
hereof, stating that:
(i) the representations and warranties contained in Article V of
the DIP Credit Agreement and in the Security Agreements are true and correct
on and as of such date, as though made on and as of such date;
(ii) no Default or Event of Default exists or would result from the
execution and delivery of this Amendment; and
(iii) there has not occurred, since March 31, 1995, any event or
circumstance that could reasonably be
-6-
<PAGE>
expected to result in a Material Adverse Effect, except as previously
disclosed in writing to the Agent;
(i) A copy of the Projections of the Borrowers;
(j) A copy of the Cash Collateral Stipulation, in form and substance
satisfactory to the Banks, with no standing motions to modify, rescind or
stay such Cash Collateral Stipulation;
(k) A certificate of acknowledgement by the Borrowers and the
Creditors' Committee regarding the validity and priority of pre-petition
claims and security interests in favor of the Credit Banks under the Credit
Agreement and acknowledgement by the Borrowers and the Creditors' Committee
that the Borrowers and the Creditors' Committee have no claims, cross-
claims, counter-claims, setoffs or defenses of any kind or nature which
would affect the pre-petition obligations of the Borrowers under the Credit
Agreement and the Banks' claims and security interest under the Loan
Documents;
(l) A release of claims, in form and substance satisfactory to the
Banks, executed by the Borrowers and the Creditors' Committee;
(m) An executed acknowledgement in form and substance satisfactory to
the Agent by Borrowers of the validity, priority and extent of the Credit
Banks' pre-petition claim as of March 2, 1996 of $86,744,599.20, together
with accrued interest thereon and Attorney Costs from December 1, 1995 and
the Credit Banks' security interests in the Borrowers' assets pledged as
collateral to the Credit Banks, as well as acknowledging that the Borrowers
have no claims, counterclaims, set-offs and/or defenses of any kind or
nature which would affect the Credit Banks' and/or Agent's claims and
security interests in such pledged assets;
(n) A final executed DIP Financing Order, in form and substance
satisfactory to the Banks and the Credit Banks, approving the extension of
(i) the term of the Loan and Letter of Credit facilities under the DIP
Credit Agreement pursuant to this Amendment and (ii) the Cash Collateral
Stipulation, including findings of proper notice under Federal Rule of
Bankruptcy Procedure 4001 and good faith under Bankruptcy Code Section
364(e);
(o) A Modification to each Mortgage and an amendment to the Non-
Inventory Security Agreement,
-7-
<PAGE>
each in form and substance satisfactory to the Agent, duly executed by the
appropriate parties, and such title endorsements as the Agent deems
necessary to confirm that the priority of the Banks' lien against the
Collateral will not change as a result of this Amendment;
(p) The Agent, on behalf of the Banks shall have a first priority lien
on all assets of the Borrowers, whether presently existing or hereafter
acquired including, but not limited to, other assets and avoidance actions
under Sections 544, 547, 548, 549 and 550 of the Bankruptcy Code, with
priority and super-priority over the Credit Banks' pre-petition first
priority lien securing the Credit Banks' indebtedness outstanding under the
Credit Agreement, priority claims, administrative expenses or any other
claim against the Borrowers whatsoever, subject, however, to any valid pre-
bankruptcy existing liens on the Borrowers' real property and personal
property assets set forth on Schedule 4.1(p) to the DIP Credit Agreement to
the best of the Borrowers' knowledge;
(q) Deposit by Borrowers of all Tax Refunds into Tax Refund Account at
BofA;
(r) Evidence satisfactory to the Agent that all insurance required to
be maintained pursuant to the Credit Agreement and the Loan Documents shall
be in full force and effect;
(s) Evidence satisfactory to the Agent that a properly completed and
executed Notice to Depositary Institution has been sent to the holder of
each deposit account in which a Borrower Entity has an interest; and
(t) Such other approvals, opinions, or documents as the Agent or any
Bank may reasonably request.
Section 3. Each Borrower Entity represents and warrants that (i) it has
----------
duly authorized and approved the execution and delivery of, and the performance
by such Borrower Entity of the obligations on its part contained in the DIP
Credit Agreement, as amended by this Amendment, and the other Amendment
Documents, and (ii) the DIP Credit Agreement, as amended by this Amendment, and
the other Amendment Documents constitute the legal, valid and binding
obligations of such Borrower Entity enforceable in accordance with the terms
thereof.
Section 4. Such Borrower Entity represents and warrants that no approval,
----------
consent, exemption, authorization or other action by, or notice to, or filing
with, any Governmental
-8-
<PAGE>
Authority is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Company or any of its direct or
indirect Subsidiaries of this Amendment, the DIP Credit Agreement, as amended by
this Amendment, or any other Loan Document.
Section 5. None of the terms or provisions of this Amendment may be waived,
----------
altered, modified or amended except by an instrument in writing duly executed
pursuant to the provisions of Section 10.1 of the DIP Credit Agreement. This
Amendment shall be binding upon the successors and assigns of the Borrowers and
the Banks and shall, together with the rights and remedies of the Banks
hereunder, inure to the benefit of the Banks and their successors and assigns.
Section 6. Except as expressly set forth herein, all provisions of the DIP
----------
Credit Agreement and all other Loan Documents shall continue in full force and
effect. Each Borrower Entity expressly acknowledges that this Amendment does
not waive or cure any existing Events of Default that may presently exist or
which may occur in the future under the DIP Credit Agreement as amended by this
Amendment.
Section 7. This Amendment may be executed in any number of counterparts and
----------
by different parties hereto on separate counterparts, each of which counterparts
so executed and delivered shall be deemed to be an original, and all of which
counterparts, taken together, shall constitute but one and the same Amendment.
Section 8. This Amendment and the rights and obligations of the parties
----------
under this Amendment shall be governed by, and construed and interpreted in
accordance with, the law of the State of California; provided that the Agent and
the Banks shall retain all rights arising under federal law.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
HOUSE OF FABRICS, INC.
As Debtor and Debtor-in-Possession
By:_________________________
Marvin S. Maltzman
Senior Vice President
FABRICLAND, INC.
As Debtor and Debtor-in-Possession
By:_________________________
Marvin S. Maltzman
Senior Vice President
SOFRO FABRICS, INC.
As Debtor and Debtor-in-Possession
By:_________________________
Marvin S. Maltzman
Senior Vice President
HOUSE OF FABRICS OF SOUTH CAROLINA, INC.
As Debtor and Debtor-in-Possession
By:_________________________
Marvin S. Maltzman
Senior Vice President
-10-
<PAGE>
METROLINA EXPRESS, INC.
As Debtor and Debtor-in-Possession
By:_________________________
Marvin S. Maltzman
Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as the Agent
By:_________________________
Leandro Balidoy
Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By:_________________________
John E. Klinge
Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Assignee of First Union National Bank
of North Carolina
By:_________________________
John E. Klinge
Vice President
NBD BANK
By:_________________________
Name:_______________________
Title:______________________
-11-
<PAGE>
SOCIETE GENERALE
By:_________________________
Name:_______________________
Title:______________________
UNION BANK OF SWITZERLAND,
as Assignee of United States
National Bank Of Oregon
By:_________________________
Name:_______________________
Title:______________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
Los Angeles Agency
By:_________________________
Name:_______________________
Title:______________________
CITIBANK, N.A., as Assignee of
The Fuji Bank, Limited
Los Angeles Agency
By:_________________________
Name:_______________________
Title:______________________
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 19,157
<SECURITIES> 0
<RECEIVABLES> 7,349
<ALLOWANCES> 0
<INVENTORY> 104,396
<CURRENT-ASSETS> 137,044
<PP&E> 59,390
<DEPRECIATION> 34,993
<TOTAL-ASSETS> 210,349
<CURRENT-LIABILITIES> 58,152
<BONDS> 0
0
0
<COMMON> 1,370
<OTHER-SE> (22,684)
<TOTAL-LIABILITY-AND-EQUITY> 210,349
<SALES> 56,515
<TOTAL-REVENUES> 56,515
<CGS> 31,174
<TOTAL-COSTS> 31,174
<OTHER-EXPENSES> 28,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,509
<INCOME-PRETAX> (5,947)
<INCOME-TAX> 24
<INCOME-CONTINUING> (5,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,971)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
