SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE TRUST INDENTURE ACT OF 1939
EDISON BROTHERS STORES, INC.
(NAME OF APPLICANT)
501 North Broadway
St. Louis, Missouri 63102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Securities to be Issued Under the Indenture to be Qualified
Title of Class Amount
-------------- ------
11% Senior Notes Due 2007, Unlimited
and such other series as may
be issued under the Indenture
Approximate date of proposed public offering: Upon the Effective Date of the
Debtors' Amended Joint Plan of Reorganization described herein.
------------------------------
Alan A. Sachs, Esq.
501 North Broadway
St. Louis, Missouri 63102
(NAME AND ADDRESS OF AGENT FOR SERVICE)
With a copy to:
Charles E. Harrell, Esq. Mark E. Betzen, Esq.
Weil, Gotshal & Manges LLP Jones, Day, Reavis & Pogue
700 Louisiana, Suite 1600 2001 Ross Avenue, Suite 2300
Houston, Texas 77002 Dallas, Texas 75201
- --------------------------------------------------------------------------------
The obligor hereby amends this application for qualification on such date or
dates as may be necessary to delay its effectiveness until: (i) the 20th day
after the filing of a further amendment which specifically states that it shall
supersede this amendment, or (ii) such date as the Commission, acting pursuant
to Section 307(c) of the Act, may determine upon the written request of the
obligor.
- --------------------------------------------------------------------------------
Total Number of Pages of this Application (including Exhibits): 429
---
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FORM T-3
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE APPLICANT:
(A) FORM OF ORGANIZATION.
Edison Brothers Stores, Inc., a Delaware corporation (the
"Company"), is a corporation.
(B) STATE OR OTHER SOVEREIGN POWER UNDER THE LAWS OF WHICH ORGANIZED.
The Company is organized under the laws of the State of Delaware.
ITEM 2. SECURITIES ACT EXEMPTION APPLICABLE.
STATE BRIEFLY THE FACTS RELIED UPON BY THE APPLICANT AS A BASIS FOR THE CLAIM
THAT REGISTRATION OF THE INDENTURE SECURITIES UNDER THE SECURITIES ACT OF 1933
IS NOT REQUIRED.
The Company relies upon Section 1145(a)(1) of the Bankruptcy Reform Act of
1978, as amended, Title 11, United States Code (the "Bankruptcy Code"), as the
basis for its claim that registration of the offer and sale to the holders of
Allowed General Unsecured Claims (as defined in the Plan (as defined below))
pursuant to the Plan of the 11% Senior Notes Due 2007 (the "Notes") to be issued
by the Company under an indenture (the "Base Indenture") to be dated as of the
effective date of the Plan (the "Effective Date"), between the Company and The
Bank of New York, a New York banking corporation, as trustee (the "Trustee"),
and a first supplemental trust indenture (the "First Supplemental Indenture"
and, collectively with the Base Indenture, the "Indenture") to be dated as of
the Effective Date between the Company and the Trustee, is not required under
the Securities Act of 1933, as amended (the "Securities Act").
On November 3, 1995, the Company and certain of its subsidiaries filed
petitions for relief under Chapter 11 ("Chapter 11") of the Bankruptcy Code in
the United States District Court for the District of Delaware (the Company and
such subsidiaries, in such capacity, collectively, the "Debtors," and such
District Court, the "Bankruptcy Court"). Since such time, the Debtors have
continued to operate their businesses and manage their properties as debtors in
possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
Pursuant to the Debtors' Amended Joint Plan of Reorganization Under
Chapter 11 Of The Bankruptcy Code dated June 30, 1997 (as it may be altered,
amended or modified from time to time, the "Plan"), on the date (the "Initial
Distribution Date") that is 60 days after the Effective Date, or as soon
thereafter as is practicable, the
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Notes will be issued to holders of Allowed General Unsecured Claims. An integral
and essential element of the Plan is that the issuance of the Notes pursuant to
the Plan shall be exempt from registration under the Securities Act pursuant to
Section 1145 of the Bankruptcy Code.
AFFILIATIONS
ITEM 3. AFFILIATES.
FURNISH A LIST OR DIAGRAM OF ALL AFFILIATES OF THE APPLICANT AND INDICATE THE
RESPECTIVE PERCENTAGES OF VOTING SECURITIES OR OTHER BASES OF CONTROL.
As of July 11, 1997
-------------------
The following is a list of all affiliates of the Company as of July 11,
1997.
Subsidiaries of the Company, 100% of the voting securities of which are
owned directly by the Company ("First Tier Subsidiaries") (1)
-------------------------------------------------------------
Edison Brothers Apparel Stores, Inc. Edison Oklahoma Stores, Inc.
Edison Brothers Shoe Stores, Inc. Edison Oregon Stores, Inc.
Edison Paymaster, Inc. Edison Pennsylvania Stores, Inc.
Edison Brothers Redevelopment Corporation Edison Tennessee Stores, Inc.
Edbro Missouri Realty Company, Inc. Edison Texas Stores, Inc.
Edison Alabama Stores, Inc. Edison Utah Stores, Inc.
Edison Arkansas Stores, Inc. Edbro Ohio Realty, Inc.
Edison Colorado Stores, Inc. EBSS-Montana, Inc.
Edison Brothers Company EBSS-North Central, Inc.
Edison Hawaii Stores, Inc. EBSS-Indiana, Inc.
Edison Illinois Stores, Inc. EBSS-Iowa, Inc.
Edison Kansas Stores, Inc. EBSS-Kansas, Inc.
Edison Kentucky Stores, Inc. EBSS-Wisconsin, Inc.
Edison Louisiana Stores, Inc. EBSS-Northeast, Inc.
Edison Maryland Stores, Inc. EBSS-South, Inc.
Edison Massachusetts Stores, Inc. EBSS-Mideast, Inc.
Edison Michigan Stores, Inc. EBSS-Michigan, Inc.
Edison Minnesota Stores, Inc. EBSS-East, Inc.
Edison Mississippi Stores, Inc. EBSS-Ohio, Inc.
Edison Nebraska Stores, Inc. EBSS-Pennsylvania, Inc.
Edison New Jersey Stores, Inc. EBSS-Texas, Inc.
Edison New Mexico Stores, Inc. EBSS-West, Inc.
Edison New York Stores, Inc. Edison Puerto Rico Stores, Inc.
Edison Ohio Stores, Inc. Ebscat, Inc.
- ----------------------
(1) All of the First Tier Subsidiaries, the Second Tier Subsidiaries and the
Third Tier Subsidiaries are Debtors, except for those indicated by
asterisk, each of which is a non-Debtor foreign subsidiary of the
Company.
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Edison Brothers Mall Entertainment, Inc. Edbro California USG - 1, Inc.
Horizon Entertainment, Inc. Industrial Design, Inc.
Edison Brothers Stores International, Inc. Edison Brothers Stores
Edisur, Inc. International - Taiwan*
EBS Holdings Corp. Edison Canada, Ltd.*
Edison Whittier Warehouse, Inc. Ebphil, Inc.*
Edbro California USG - 2, Inc. Edibas De Mexico, Sa de Cv*
Edbro Missouri USG - 2, Inc.
Subsidiaries of the Company, 100% of the voting securities of which are owned
directly by one of the First Tier Subsidiaries ("Second Tier Subsidiaries") (1)
-------------------------------------------------------------------------------
Webster Clothes, Inc. Kasmen, Ltd.*
Time-Out Family Amusement Centers, Inc. Edifinsa, Sa de Cv*
Sacha Shoes Ltd. Edibas, Sa de Cv*
Repp Ltd. Big & Tall*
Subsidiaries of the Company, 100% of the voting
securities of which are owned directly by one of the
Second Tier Subsidiaries ("Third Tier Subsidiaries") (1)
--------------------------------------------------------
Z&Z Fashions, Ltd. Tofac of Puerto Rico, Inc.
Webster-Rossville, Inc. Mandel's of California, Inc.
As of the Effective Date (2)
----------------------------
Pursuant to the Plan, on the Effective Date, all equity interests in the
Company will be canceled and, upon effectiveness of the Company's Amended and
Restated Certificate of Incorporation, the Company will be authorized to issue
100,000,000 shares of Common Stock, par value $.01 per share ("New Common
Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per share
("New Preferred Stock"). See "Capital Securities -- Capitalization -- As of the
Effective Date" in Item 7 to this Form T-3. The following is a list of all
affiliates of the Company as they are expected to be constituted as of the
Effective Date.
- ---------------------
(1) All of the First Tier Subsidiaries, the Second Tier Subsidiaries and the
Third Tier Subsidiaries are Debtors, except for those indicated by
asterisk, each of which is a non-Debtor foreign subsidiary of the
Company.
(2) Such information is provided, as required by Form T-3, on the basis of
present information.
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Subsidiaries of the Company, 100% of the voting
securities of which are owned directly by the Company
-----------------------------------------------------
<TABLE>
<S> <C>
Edison Brothers Apparel Stores, Inc. EBSS-North Central, Inc.
Edison Brothers Shoe Stores, Inc. EBSS-Indiana, Inc.
Edison Paymaster, Inc. EBSS-Iowa, Inc.
Edison Brothers Redevelopment Corporation EBSS-Kansas, Inc.
Edbro Missouri Realty Company, Inc. EBSS-Wisconsin, Inc.
Edison Alabama Stores, Inc. EBSS-Northeast, Inc.
Edison Arkansas Stores, Inc. EBSS-South, Inc.
Edison Colorado Stores, Inc. EBSS-Mideast, Inc.
Edison Brothers Company EBSS-Michigan, Inc.
Edison Hawaii Stores, Inc. EBSS-East, Inc.
Edison Illinois Stores, Inc. EBSS-Ohio, Inc.
Edison Kansas Stores, Inc. EBSS-Pennsylvania, Inc.
Edison Kentucky Stores, Inc. EBSS-Texas, Inc.
Edison Louisiana Stores, Inc. EBSS-West, Inc.
Edison Maryland Stores, Inc. Edison Puerto Rico Stores, Inc.
Edison Massachusetts Stores, Inc. Ebscat, Inc.
Edison Michigan Stores, Inc. Edison Brothers Mall Entertainment, Inc.
Edison Minnesota Stores, Inc. Horizon Entertainment, Inc.
Edison Mississippi Stores, Inc. Edison Brothers Stores International, Inc.
Edison Nebraska Stores, Inc. Edisur, Inc.
Edison New Jersey Stores, Inc. EBS Holdings Corp.
Edison New Mexico Stores, Inc. Edison Whittier Warehouse, Inc.
Edison New York Stores, Inc. Edbro California USG - 2, Inc.
Edison Ohio Stores, Inc. Edbro Missouri USG - 2, Inc.
Edison Oklahoma Stores, Inc. Edbro California USG - 1, Inc.
Edison Oregon Stores, Inc. Industrial Design, Inc.
Edison Pennsylvania Stores, Inc. Edison Brothers Stores International -
Edison Tennessee Stores, Inc. Taiwan
Edison Texas Stores, Inc. Edison Canada, Ltd.
Edison Utah Stores, Inc. Ebphil, Inc.
Edbro Ohio Realty, Inc. Edibas De Mexico, Sa de Cv
EBSS-Montana, Inc.
</TABLE>
Subsidiaries of the Company, 100% of the voting
securities of which are owned directly by one of the First Tier Subsidiaries
----------------------------------------------------------------------------
Webster Clothes, Inc. Kasmen, Ltd.
Time-Out Family Amusement Centers, Inc. Edifinsa, Sa de Cv
Sacha Shoes Ltd. Edibas, Sa de Cv
Repp Ltd. Big & Tall
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Subsidiaries of the Company, 100% of the voting
securities of which are owned directly by one of the Second Tier Subsidiaries
-----------------------------------------------------------------------------
Z&Z Fashions, Ltd. Tofac of Puerto Rico, Inc.
Webster-Rossville, Inc. Mandel's of California, Inc.
Other affiliates
----------------
On the basis of present holdings, commitments and information, on the
Effective Date, Swiss Bank Corporation will beneficially own 1,309,556 shares of
New Common Stock, representing approximately 13.1% of the then-outstanding
shares of New Common Stock. See "Principal Owners of Voting Securities -- As of
the Effective Date."
Under the terms of the Plan, on or prior to the Effective Date, the
Company will organize and form EBS Litigation, L.L.C., a Delaware limited
liability company ("EBS Litigation"), EBS Building, L.L.C., a Delaware limited
liability company ("EBS Building"), and EBS Pension, L.L.C., a Delaware limited
liability company ("EBS Pension" and, collectively with EBS Litigation and EBS
Building, the "LLCs"), for the purposes of prosecuting, settling, managing and
liquidating certain assets of the Company and certain other Debtors pursuant to
the terms of the Plan. Each LLC will have the following two classes of
membership units representing ownership interests therein: (1) Class A
Membership Units and (2) Class B Membership Units. On the Effective Date,
10,000,000 Class B Membership Units in each of the LLCs, representing 100% of
the ownership interests therein, will be issued to the Company. Thereafter, in
connection with each distribution of Class A Membership Units under the terms of
the Plan, the Company will surrender for cancellation a number of Class B
Membership Units in the applicable LLC equal to the number of Class A Membership
Units in such LLC that are to be so distributed, and will receive in exchange
therefor, for distribution under the terms of the Plan, a like number of Class A
Membership Units in such LLC (upon the completion of such distributions, the
Class A Membership Units will represent 100% of the ownership interests in the
LLCs).
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MANAGEMENT AND CONTROL
ITEM 4. DIRECTORS AND EXECUTIVE OFFICERS.
LIST THE NAMES AND COMPLETE MAILING ADDRESSES OF ALL DIRECTORS AND EXECUTIVE
OFFICERS OF THE APPLICANT AND ALL PERSONS CHOSEN TO BECOME DIRECTORS OR
EXECUTIVE OFFICERS. INDICATE ALL OFFICES WITH THE APPLICANT HELD OR TO BE HELD
BY EACH PERSON NAMED.
Directors and executive officers of
the Company as of July 11, 1997
-----------------------------------
Name Address Office/Position
- ---- ------- ---------------
Bart A. Brown, Jr. 5050 N. 40th Street Director
Suite 200
Phoenix, Arizona 85018
David B. Cooper, Jr. 501 North Broadway Director
St. Louis, Missouri 63102 Executive Vice President and
Chief Financial Officer
Julian I. Edison 500 Washington Avenue Director
Suite 1234
St Louis, Missouri 63102
Paul D. Eisen 501 North Broadway President of JW/Jeans
St. Louis, Missouri 63102 West/Oaktree
Jane Evans Bldg. 34R, Suite 175 Director
3701 W. Oak Street
Burbank, California 91505
Michael J. Fine 501 North Broadway President of Edison Footwear
St. Louis, Missouri 63102 and Womenswear Group
Eric A. Freesmeier 501 North Broadway Executive Vice President -
St. Louis, Missouri 63102 Human Resources
Richard C. Marcus c/o Peter J. Solomon Co. Director
767 Fifth Avenue
26th Floor
New York, New York 10153
Karl W. Michner 501 North Broadway Senior Executive Vice President
St. Louis, Missouri 63102 Director
President of Edison Menswear
Group
Alan D. Miller 501 North Broadway Chairman of the Board, President
St. Louis, Missouri 63102 and Chief Executive Officer
Director
Alan A. Sachs 501 North Broadway Executive Vice President,
St. Louis, Missouri 63102 General Counsel and Secretary
Director
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Craig D. Schnuck 11420 Lackland Road Director
P.O. Box 46928
St. Louis, Missouri 63146
Steven R. Thomas 501 North Broadway President, Edison Big & Tall
St. Louis, Missouri 63102
Directors and executive officers of
the Company as of the Effective Date (1)
----------------------------------------
On or prior to the Effective Date, pursuant to the Plan, the Company will
file an Amended and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware that will provide that, at the effective time
thereof, the Board of Directors of the Company will consist of nine members. As
of the Effective Date, the executive officers of the Company, and the offices
and/or positions of such persons with the Company, are expected to be as follows
(the nine members of the Board of Directors of the Company are not presently
known, but will be disclosed prior to the confirmation hearing pertaining to the
Plan, and will consist of two representatives from the Company's senior
management, one current outside director and six persons selected by the
Creditors' Committee with respect to the Debtors' Chapter 11 cases after
consultation with the Company's management):
Name Address Office/Position
- ---- ------- ---------------
David B. Cooper, Jr. 501 North Broadway Executive Vice President and
St. Louis, Missouri 63102 Chief Financial Officer
Paul D. Eisen 501 North Broadway President of JW/Jeans West/
St. Louis, Missouri 63102 Oaktree
Michael J. Fine 501 North Broadway President of Edison Footwear
St. Louis, Missouri 63102 and Womenswear Group
Eric A. Freesmeier 501 North Broadway Executive Vice President -
St. Louis, Missouri 63102 Human Resources
Karl W. Michner 501 North Broadway Senior Executive Vice President
St. Louis, Missouri 63102 President of Edison Menswear
Group
Alan D. Miller 501 North Broadway Chairman of the Board, President
St. Louis, Missouri 63102 and Chief Executive Officer
Alan A. Sachs 501 North Broadway Executive Vice President,
St. Louis, Missouri 63102 General Counsel and Secretary
Steven R. Thomas 501 North Broadway President, Edison Big & Tall
St. Louis, Missouri 63102
- ----------------------
(1) Such information is provided, as required by Form T-3, on the basis of
present information.
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ITEM 5. PRINCIPAL OWNERS OF VOTING SECURITIES.
FURNISH THE FOLLOWING INFORMATION AS TO EACH PERSON OWNING 10 PERCENT OR MORE OF
THE VOTING SECURITIES OF THE APPLICANT.
As of July 11, 1997
-------------------
None.
As of the Effective Date (1)
----------------------------
Col. A Col. B Col. C Col. D
Percentage of
Class of
Title of Voting
Name and Complete Class Amount Securities
Mailing Address Owned Owned Owned
====================== ========== ====== ==============
Swiss Bank Corporation Common 1,309,556 shares 13.1% (2)
c/o Swiss Bank Corporation, Stock, par
New York Branch value $.01
45 Broadway per share
New York, New York 10006
UNDERWRITERS
ITEM 6. UNDERWRITERS.
GIVE THE NAME AND COMPLETE MAILING ADDRESS OF (A) EACH PERSON WHO, WITHIN THREE
YEARS PRIOR TO THE DATE OF FILING THE APPLICATION, ACTED AS AN UNDERWRITER OF
ANY SECURITIES OF THE OBLIGOR WHICH WERE OUTSTANDING ON THE DATE OF FILING THE
APPLICATION, AND (B) EACH PROPOSED PRINCIPAL UNDERWRITER OF THE SECURITIES
PROPOSED TO BE OFFERED. AS TO EACH PERSON SPECIFIED IN (A), GIVE THE TITLE OF
EACH CLASS OF SECURITIES UNDERWRITTEN.
(a) None.
- ------------------
(1) Such information is provided, as required by Form T-3, on the basis of
present holdings, commitments and information.
(2) Such percentage is calculated based upon the assumption that no Rights
are exercised. See "Capital Securities -- Capitalization -- As of the
Effective Date."
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(b) No principal underwriter within the meaning of Section 303(4) of the
Trust Indenture Act of 1939, as amended (the "1939 Act"), has been proposed with
respect to the Notes.
CAPITAL SECURITIES
ITEM 7. CAPITALIZATION.
(A) FURNISH THE FOLLOWING INFORMATION AS TO EACH AUTHORIZED CLASS OF
SECURITIES OF THE APPLICANT.
As of July 11, 1997
-------------------
Col. A Col. B Col. C
Title of Class Amount Authorized Amount Outstanding
======================== ====================== ========================
Common Stock, par value
$1.00 per share 100,000,000 shares 22,201,778 shares
Preferred Stock, no par value 10,000,000 shares 0 shares
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As of the Effective Date
------------------------
Col. A Col. B Col. C
Title of Class Amount Authorized Amount Outstanding
======================= ==================== =========================
Common Stock, par value
$.01 per share (1) 100,000,000 shares 10,000,000 shares
Preferred Stock, par value
$.01 per share 10,000,000 shares 0 shares
11% Senior Notes Due
2007 (2) $100,000,000 $100,000,000
(B) GIVE A BRIEF OUTLINE OF THE VOTING RIGHTS OF EACH CLASS OF VOTING
SECURITIES REFERRED TO IN PARAGRAPH (A) ABOVE.
The Old Common Stock and the New Common Stock
---------------------------------------------
- -------------------------
(1) In addition, pursuant to the Plan, the Company will issue to holders of
Allowed Edison Equity Interests (as defined in the Plan) approximately
1,008,791 Eight-Year Warrants (the "Eight-Year Warrants"), each of which
will be exercisable for one share of New Common Stock at an initial
exercise price of $16.40 per share. The Eight-Year Warrants will be
exercisable until 5:00 p.m., New York City time, on the eighth anniversary
of the Effective Date (or, if such date is not a business day, the next
succeeding business day). The number of shares of New Common Stock
purchasable upon the exercise of the Eight-Year Warrants and such exercise
price are subject to adjustment as set forth in the warrant agreement
governing such warrants. Also pursuant to the Plan, the Company will issue
to holders of Allowed Edison Equity Interests 10,000,000 Rights (the
"Rights"). The Rights will be exercisable until 5:00 p.m., New York City
time, on the 30th day after the Effective Date (or, if such date is not a
business day, the next suceeding Business Day). The Rights will represent,
in the aggregate, the right to purchase, at an exercise price of $16.40
per right, (1) the New Common Stock and (2) either (a) the Class A
Membership Units in EBS Litigation or (b) if the holders thereof are also
D&B Spinoff Stockholders (as defined in the Plan), the right to
participate in the D&B Spinoff Settlement (as defined in the Plan). The
Company will also issue to certain of its senior executives, and pursuant
to the Plan, an aggregate of 225,000 shares of restricted New Common
Stock.
(2) The Base Indenture between the Company and the Trustee is an "open-end"
Indenture under which the aggregate principal amount of securities that
may be issued thereunder is unlimited. The First Supplemental Indenture
will limit the aggregate principal amount of the Notes to a specified
amount determined in accordance with the Plan (which amount will be
$100,000,000, subject to adjustment in the manner provided in the Plan).
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Each outstanding share of the Company's existing Common Stock, par value
$1.00 per share ("Old Common Stock"), and New Common Stock, has or will have, as
applicable, one vote with respect to all matters subject to common stockholder
vote.
The information set forth above in this Item 7(b) under the caption "The
Old Common Stock and the New Common Stock" is provided pursuant to the
requirements of Form T-3. However, the Company is currently under the protection
of the Bankruptcy Court and the owners of equity interests in the Company are
subject to the provisions of the Bankruptcy Code. Under the Bankruptcy Code, all
actions taken pursuant to the Plan must be approved by order of the Bankruptcy
Court and, in accordance with Section 303 of the Delaware General Corporation
Law, may then be carried out without the necessity of any further action by any
stockholder of the Company.
Old Preferred Stock
-------------------
The Company's existing Preferred Stock, no par value, may be issued from
time to time with such terms (including voting rights) as may be determined by
the Board of Directors of the Company prior to such issuance.
New Preferred Stock
-------------------
The New Preferred Stock may be issued from time to time with such terms
(including voting rights) as may be determined by the Board of Directors of the
Company prior to such issuance.
INDENTURE SECURITIES
ITEM 8. ANALYSIS OF INDENTURE PROVISIONS.
INSERT AT THIS POINT THE ANALYSIS OF INDENTURE PROVISIONS REQUIRED UNDER SECTION
305(A)(2) OF THE ACT.
Events of Default.
------------------
An Event of Default will have occurred under the terms of the Indenture
with respect to the securities of any series thereunder if: (1) required
payments of principal (or premium, if any) or interest with respect to such
series are not made as and when due and payable (subject to a 30-day grace
period in the case of a default upon a payment of interest); (2) there is a
default in the making of any sinking fund payment when and as due by the terms
of such series; (3) there is a default in or breach of any covenant or warranty
of the Company in the Indenture (other than a covenant or warranty whose default
or breach is elsewhere specifically addressed or that is solely for the benefit
of one or more other series) (subject to a 60-day grace period after notice to
the Company by the Trustee or the Company and the Trustee by the holders of at
least 25% in outstanding principal amount of that series); (4) there is a
default in the payment at maturity of principal of any indebtedness of the
Company or any subsidiary of the Company in an aggregate principal amount of at
least $10.0 million
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that continues beyond any grace period and results in such indebtedness becoming
due prior to its stated maturity or occurs at the final maturity thereof; (5)
there is entered a judgment for the payment of money against the Company
creating a liability of at least $25.0 million in excess of insured amounts that
is not stayed, discharged or otherwise satisfied within 60 days thereafter; (6)
there is entered an order for relief with respect to the Company in an
involuntary case under federal or state bankruptcy or similar law, or an order
adjudging the Company a bankrupt or insolvent or approving as properly filed a
petition seeking reorganization of the Company under any such law, or appointing
a custodian, receiver, trustee or similar official of the Company or any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and such order continues unstayed and in effect for 60 consecutive
days; (7) the Company commences a voluntary case under any federal or state
bankruptcy or similar law or any other case to be adjudicated a bankrupt or
insolvent, or the Company consents to an order for relief in any involuntary
case under any such law or to the commencement of any bankruptcy or insolvency
case against it, or the filing by the Company of an answer or consent seeking
reorganization or relief under any such law, or the consent by it to the filing
of such petition or the appointment of or taking possession by a custodian,
receiver, trustee or similar official of the Company or any substantial part of
its property pursuant to any such law, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due, or the taking of corporate action by
the Company in furtherance of any such action; or (8) any other event of default
with respect to such series occurs, including with respect to the Notes, the
occurrence of any of the events or the taking of any of the actions set forth in
clauses (6) and (7) of this paragraph with respect to any Significant Subsidiary
(as defined in the First Supplemental Indenture) of the Company or any group of
subsidiaries of the Company that would collectively constitute a significant
subsidiary.
Withholding of Notice.
----------------------
If a default occurs under the Indenture with respect to securities of any
series, the Trustee will give the holders of securities of such series notice
thereof as and to the extent provided by the 1939 Act; provided, however, that
in the case of any default of the type specified in clause (3) under the caption
"Events of Default" above, no such notice will be given until at least 30 days
after the occurrence thereof.
Registration and Delivery of Notes; Application of Proceeds.
------------------------------------------------------------
The aggregate principal amount of the Notes to be issued will be
determined in accordance with the Plan and will be equal to $100,000,000,
subject to adjustment in the manner provided in the Plan. All of the Notes
issued under the First Supplemental Indenture will be distributed to holders of
Allowed General Unsecured Claims in accordance with the terms of the Plan. Each
Note will be signed by the Company, authenticated by the Trustee, registered in
the security register by the Trustee or an agent appointed by the Company to act
as the transfer agent and registrar and delivered to the holders of Allowed
General Unsecured Claims by the Company or an exchange or disbursing agent on
behalf of the Company.
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Satisfaction and Discharge of Indenture.
----------------------------------------
The Company may satisfy and discharge the Indenture (subject to certain
surviving obligations) if (1) all securities previously authenticated and
delivered (with certain exceptions) have been delivered to the Trustee for
cancellation, or all such securities not so delivered have become due and
payable, or will become due and payable or will be called for redemption within
one year, and the Company has deposited in trust with the Trustee an amount
sufficient to pay and discharge the entire indebtedness on such securities, (2)
the Company has paid all other sums payable under the Indenture by the Company
and (3) the Company has delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that all conditions precedent in the Indenture
relating to such satisfaction and discharge have been satisfied.
The Company may effect a defeasance (i.e., the discharge of certain of its
obligations under the Indenture, including the indebtedness represented by the
securities), or covenant defeasance (i.e., the release of certain covenant
obligations of the Company under the Indenture) with respect to any defeasible
series of securities (including the Notes but excluding any securities
convertible or exchangeable into other securities) upon the satisfaction of
certain conditions, including (1) the deposit by the Company with the Trustee in
trust for the benefit of the holders of such series of sufficient money, U.S.
Government Obligations (as defined in the Indenture) or a combination thereof to
pay the principal of and any premium and interest on the securities of such
series when the same shall be due, and (2) the delivery of certain prescribed
opinions of counsel, including an opinion with respect to certain federal income
tax matters.
Evidence Required to be Furnished by the Obligor Upon the Indenture
Securities to the Trustee as to Compliance with the Conditions and
Covenants Provided for in the Indenture.
-------------------------------------------------------------------
The Company will deliver to the Trustee an annual officer's certificate
stating whether or not the Company is in default in the performance and
observance of any of the terms, provisions and conditions of the Indenture and,
if the Company is in default, specifying all such defaults and the nature and
status thereof.
ITEM 9. OTHER OBLIGORS.
GIVE THE NAME AND COMPLETE MAILING ADDRESS OF ANY PERSON, OTHER THAN THE
APPLICANT, WHO IS AN OBLIGOR UPON THE INDENTURE SECURITIES.
None.
CONTENTS OF APPLICATION FOR QUALIFICATION. THIS APPLICATION FOR
QUALIFICATION COMPRISES --
(a) Pages number 1 to 17, consecutively.
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<PAGE>
(b) The statement of eligibility and qualification on Form T-1 of each
trustee under the indenture to be qualified.
(c) The following exhibits in addition to those filed as part of the
statement of eligibility and qualification of each trustee.
Exhibit T3A-1 Certificate of Incorporation of the
Company, as amended, as in effect on
the date of filing hereof (incorporated
herein by reference to the Item 6(b)
Exhibit of the Company's Quarterly
Report on Form 10-Q for the quarter
ended July 29, 1995).
Exhibit T3A-2 Form of the Amended and Restated
Certificate of Incorporation of the
Company, to be filed with the Secretary
of State of the State of Delaware and
to become effective as of the Effective
Date.
Exhibit T3B-1 Bylaws of the Company, as amended, as
in effect on the date of filing hereof
(incorporated herein by reference to
Exhibit 3(a) of the Company's Annual
Report on Form 10-K for the year ended
February 3, 1996).
Exhibit T3B-2 Amended and Restated Bylaws of the
Company to become effective as of the
Effective Date.
Exhibit T3C-1 Indenture, to be dated as of the
Effective Date, between the Company and
the Trustee, in the form to be
qualified, including an itemized table
of contents showing the articles,
sections and subsections of the
Indenture, together with the subject
matter thereof and the pages on which
they appear.
Exhibit T3C-2 First Supplemental Trust Indenture, to
be dated as of the Effective Date,
between the Company and the Trustee, in
the form to be qualified.
Exhibit T3D Not applicable.
15
<PAGE>
Exhibit T3E-1 Debtors' Joint Disclosure Statement
Pursuant to Section 1125 of the
Bankruptcy Code dated June 30, 1997.
Exhibit T3F A cross reference sheet showing the
location in the Indenture of the
provisions inserted therein pursuant to
Section 310 through 318(a), inclusive,
of the 1939 Act.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Applicant, Edison Brothers Stores, Inc., a corporation organized
and existing under the laws of Delaware, has duly caused this Application on
Form T-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
St. Louis, and State of Missouri, as of the 23rd day of July, 1997.
(Seal) EDISON BROTHERS STORES, INC.
By: /s/ David B. Cooper, Jr.
----------------------------
Name: David B. Cooper, Jr.
Title: Executive Vice President and
Chief Financial Officer
Attest: /s/ Alan A. Sachs
------------------------------
Name: Alan A. Sachs
Title: Executive Vice President,
General Counsel and Secretary
17
<PAGE>
Exhibit Index
-------------
Exhibit No. Exhibit
- ----------- -------
Exhibit 25 Statement of Eligibility and Qualification on
Form T-1.
Exhibit T3A-1 Certificate of Incorporation of the Company, as
amended, as in effect on the date of filing hereof
(incorporated herein by reference to the Item 6(b)
Exhibit of the Company's Quarterly Report on Form
10-Q for the quarter ended July 29, 1995).
Exhibit T3A-2 Form of the Amended and Restated Certificate of
Incorporation of the Company, to be filed with the
Secretary of State of the State of Delaware and to
become effective as of the Effective Date.
Exhibit T3B-1 Bylaws of the Company, as amended, as in effect on
the date of filing hereof (incorporated herein by
reference to Exhibit 3(a) of the Company's Annual
Report on Form 10-K for the year ended February 3,
1996).
Exhibit T3B-2 Form of the Amended and Restated Bylaws of the
Company to become effective as of the Effective Date.
Exhibit T3C-1 Indenture, to be dated as of the Effective Date,
between the Company and the Trustee, in the form to
be qualified, including an itemized table of
contents showing the articles, sections and
subsections of the Indenture, together with the
subject matter thereof and the pages on which they
appear.
18
<PAGE>
Exhibit T3C-2 First Supplemental Trust Indenture, to be dated as
of the Effective Date, between the Company and the
Trustee, in the form to be qualified.
Exhibit T3D Not applicable.
Exhibit T3E-1 Debtors' Joint Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code dated June 30,
1997.
Exhibit T3F A cross reference sheet showing the location in the
Indenture of the provisions inserted therein
pursuant to Section 310 through 318(a), inclusive,
of the 1939 Act.
19
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
_____________________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
_____________________________
EDISON BROTHERS STORES, INC.
(Exact name of obligor as specified in its charter)
Delaware 43-0254900
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
501 North Broadway
St. Louis, Missouri 63102
(Address of principal executive offices) (Zip code)
----------------------
11% Senior Notes Due 2007
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration
Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 10th day of July, 1997.
THE BANK OF NEW YORK
By: /s/ Thomas E. Tabor
---------------------------
Name: Thomas E. Tabor
Title: Assistant Treasurer
-4-
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- ----------------------------------------------------------------------
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
EXHIBIT 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 6,024,605
Interest-bearing balances .......... 808,821
Securities:
Held-to-maturity securities ........ 1,071,747
Available-for-sale securities ...... 3,105,207
Federal funds sold in domestic offices
of the bank: .......................... 4,250,941
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................31,962,915
LESS: Allowance for loan and
lease losses ..............635,084
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 31,327,402
Assets held in trading accounts ...... 1,539,612
Premises and fixed assets (including
capitalized leases) ................ 692,317
Other real estate owned .............. 22,123
Investments in unconsolidated
subsidiaries and associated
companies .......................... 213,512
Customers' liability to this bank on
acceptances outstanding ............ 985,297
Intangible assets .................... 590,973
Other assets ......................... 1,487,903
-----------
Total assets ......................... $52,120,460
===========
LIABILITIES
Deposits:
In domestic offices ................ $25,929,642
Noninterest-bearing ......11,245,050
Interest-bearing .........14,684,592
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 12,852,809
Noninterest-bearing .........552,203
<PAGE>
Interest-bearing .........12,300,606
Federal funds purchased and securities
sold under agreements to repurchase in
domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased ............ 1,360,877
Securities sold under agreements
to repurchase....................... 226,158
Demand notes issued to the U.S.
Treasury ........................... 204,987
Trading liabilities .................. 1,437,445
Other borrowed money:
With original maturity of one year
or less .......................... 2,312,556
With original maturity of more than
one year ......................... 20,766
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,014,717
Subordinated notes and debentures .... 1,014,400
Other liabilities .................... 1,721,291
----------
Total liabilities .................... 48,095,648
----------
EQUITY CAPITAL
Common stock ........................ 942,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,354,095
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 7,030
Cumulative foreign currency transla-
tion adjustments .................. ( 9,916)
-----------
Total equity capital ................ 4,024,812
-----------
Total liabilities and equity
capital ........................... $52,120,460
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
---
J. Carter Bacot |
Thomas A. Renyi |-- Directors
Alan R. Griffith |
---
WGM DRAFT 06/16/97
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EDISON BROTHERS STORES, INC.
EDISON BROTHERS STORES, INC., a corporation duly incorporated
by the filing of its original Certificate of Incorporation (the "Original
Certificate of Incorporation") with the Secretary of State of the State of
Delaware on March 13, 1929 (the "Company"), desiring to amend and restate said
Original Certificate of Incorporation, as amended, and such amended and restated
Certificate of Incorporation having been duly adopted in accordance with
Sections 245 and 303 of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. This Amended and Restated Certificate of Incorporation
amends and restates the Original Certificate of Incorporation of the Company, as
heretofore amended, and has been duly adopted in accordance with Sections 242,
245 and 303 of the General Corporation Law of the State of Delaware, as amended
(the "DGCL"), pursuant to the authority granted to the Company under Section 303
of the DGCL to put into effect and carry out the Debtors' Amended Joint Plan of
Reorganization under Chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code") for the Company, et al. (the "Plan"), as confirmed on
_____________ ___, 1997 by order of the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). Provision for the making of this
Amended and Restated Certificate of Incorporation is contained in the order of
the Bankruptcy Court having jurisdiction under the Bankruptcy Code for the
reorganization of the Company.
2. The Original Certificate of Incorporation, as heretofore
amended, is hereby further amended and restated to read in its entirety as
follows:
FIRST: The name of the corporation is "EDISON BROTHERS STORES,
INC." (the "Company").
SECOND: The address of the registered office of the Company in
the State of Delaware is 32 Loockerman Square, Suite 203, in the City of Dover,
County of Kent, Delaware 19901-7421. The registered agent for the Company at
such address is CSC The United States Corporation Company.
1
<PAGE>
THIRD: The nature of business and purpose of the Company is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law, as amended (the "DGCL").
FOURTH: The total number of shares of all classes of capital
stock which the Company shall have authority to issue is 110,000,000 shares,
consisting of:
(i) 100,000,000 shares of Common Stock,
par value $0.01 per share (the
"Common Stock"); and
(ii) 10,000,000 shares of Preferred
Stock, par value $0.01 per share
(the "Preferred Stock").
Except as otherwise provided by law, the shares of capital
stock of the Company, regardless of class, may be issued by the Company from
time to time in such amounts, for such lawful consideration and for such
corporate purpose(s) as the Board of Directors may from time to time determine.
Subject to the laws of the State of Delaware and to the
limitations set forth below, authority is hereby vested in the Board of
Directors of the Company to issue said ten million (10,000,000) shares of
Preferred Stock from time to time in one or more series, with such designations,
voting powers, preferences and relative, participating, optional and other
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in the resolution or resolutions providing for the issuance of such
stock adopted by the Board of Directors. Without limiting the generality of the
foregoing, in the resolution or resolutions providing for the issuance of each
particular series of Preferred Stock, the Board of Directors is expressly
authorized:
(a) to fix the distinctive serial designation of the shares of any such
series;
(b) to fix the consideration for which the shares of any such series
are to be issued;
(c) to fix the rate per annum, if any, at which the holders of the
shares of any such series shall be entitled to receive dividends, the dates on
which such dividends shall be payable, whether the dividends shall be cumulative
or
2
<PAGE>
noncumulative, and if cumulative, the date or dates from
which such dividends shall be cumulative;
(d) to fix the price or prices at which, the times during which, and
the other terms, if any, upon which the shares of any such series may be
redeemed;
(e) to fix the rights, if any, which the holders of shares of any such
series shall have in the event of a dissolution or upon distribution of the
assets of the Company;
(f) to determine whether the shares of any such series shall be made
convertible into or exchangeable for other securities of the Company, including
shares of the Common Stock of the Company or shares of any other series of the
Preferred Stock of the Company, now or hereafter authorized, or any new class of
stock of the Company hereafter authorized, the price or prices or the rate or
rates at which such conversion or exchange may be made, and the terms and
conditions upon which any such conversion right or exchange right may be
exercised;
(g) to determine whether a sinking fund shall be provided for the
purchase or redemption of shares of such series and, if so, to fix the terms and
amount of such sinking fund;
(h) to determine (subject to Article EIGHTH hereof) whether the shares
of any such series shall have voting rights, and, if so, to fix the voting
rights of the shares of such series, provided, however, that the holders of
shares of Preferred Stock shall not be entitled to more than one vote per share
when voting as a class with the holders of shares of Common Stock; and
(i) to fix such other preferences, rights, privileges and restrictions
applicable to any such series as may be permitted by law.
Subject to the prior rights of the holders of any shares of
Preferred Stock, the holders of the Common Stock shall be entitled to receive,
to the extent permitted by law, such dividends as may be declared from time to
time by the Board of Directors.
Subject to the provisions of applicable law and the Company's
By-Laws with respect to the closing of the transfer
3
<PAGE>
books or the fixing of a record date for the determination of stockholders
entitled to vote, the holders of outstanding shares of capital stock of the
Company shall exclusively possess the voting power for the election of directors
of the Company and for all other purposes as prescribed by applicable law, with
each holder of record of shares of Common Stock having voting power being
entitled to one vote for each share of Common Stock registered in his or its
name on the books, registers and/or accounts of the Company.
FIFTH: A director of the Company shall not be personally
liable either to the Company or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, or (ii) for acts
or omissions which are not taken or omitted to be taken in good faith or which
involve intentional misconduct or knowing violation of the law, or (iii) for any
matter in respect of which such director would be liable under Section 174 of
the DGCL or any amendment or successor provision thereto, or (iv) for any
transaction from which the director shall have derived an improper personal
benefit. Neither the amendment nor the repeal of this Article FIFTH nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article FIFTH shall eliminate or reduce the effect of
this Article FIFTH in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Article FIFTH, would accrue or arise prior to
such amendment, repeal or adoption of an inconsistent provision.
The Company shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or an officer
of the Company at any time after the Effective Time against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding to
the fullest extent and in the manner set forth in and permitted by the DGCL, and
any other applicable law, as from time to time in effect. Such right of
indemnification shall not be deemed exclusive of any other rights to which such
director or officer may be entitled apart from the foregoing provisions. The
foregoing provisions shall be deemed to be a contract between the Company and
each director and officer who serves in such capacity at any time while this
Article
4
<PAGE>
FIFTH and the relevant provisions of the DGCL and other applicable law, if any,
are in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action then or theretofore brought or threatened
based in whole or in part upon any such state of facts.
The Company may indemnify any person who was or is threatened
to be made a party to any threatened pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was an employee or agent of the Company after the
Effective Time, or is or was serving at the request of the Company, as a
director, officer, employee or agent after the Effective Time of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the DGCL, and any other applicable law, as from time to time in
effect. Such right of indemnification shall not be deemed exclusive of any other
rights to which any such person may be entitled apart from the foregoing
provisions.
SIXTH: Notwithstanding Section 228(a) of the DGCL, any action
required or permitted to be taken by the stockholders of the Company must be
effected at a duly called annual or special meeting of such stockholders and may
not be effected by any consent in writing by such stockholders. Except as
otherwise required by law and subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation, special meetings of stockholders of the Company may be called
only by the Chairman of the Board, the President, or the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors, and shall be called by the President or Secretary upon the written
request of the holders of at least 51% of the outstanding shares of Common
Stock.
SEVENTH: At the Effective Time, the number of directors
constituting the entire Board of Directors shall be nine (9). After the
Effective Time, the number of directors constituting the entire Board of
Directors shall be fixed by, or in the manner provided in, the Company's Bylaws.
Election of directors need not be by written ballot.
5
<PAGE>
EIGHTH: Notwithstanding any other provision contained herein,
the Company, as a Debtor (as defined in the Plan referred to below) under the
Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for the
Company et al. (the "Plan"), shall not issue nonvoting equity securities in
connection with the Plan and shall comply, to the extent applicable, with
Section 1123(a)(6) of the Bankruptcy Code of 1978, as amended. This Article
EIGHTH shall not be amended or repealed prior to 180 days after the Effective
Time; provided that after the expiration of such 180-day period, this Article
EIGHTH may be amended or repealed by the affirmative vote of a majority of the
outstanding stock entitled to vote thereon in accordance with Section 242 of the
DGCL.
* * * *
3. At the Effective Time, as contemplated by the Plan, each
share of the Company's old common stock, par value $1.00 per share, outstanding
immediately prior to the Effective Time, shall, without any further action on
the part of the Company or of any holder of stock of the Company, be cancelled
and cease to represent any ownership interest in the Company, and new fully paid
and nonassessable shares of the Common Stock will be issued pursuant to the
Plan.
4. This Amended and Restated Certificate of Incorporation
shall become effective at [12:00 noon], Delaware time, on ____________, 1997
(the "Effective Time"), and shall not become effective until such time.
6
<PAGE>
IN WITNESS WHEREOF, Edison Brothers Stores, Inc. has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Alan D. Miller, its Chairman of the Board, President and Chief Executive
Officer, and attested to by Alan A. Sachs, its Executive Vice President, General
Counsel and Secretary, on this ___ day of ____________, 1997.
EDISON BROTHERS STORES, INC.
By: ___________________________
Alan D. Miller
Chairman of the Board,
President and Chief Executive
Officer
Attest:
_________________________________
Alan A. Sachs
Executive Vice President, General
Counsel and Secretary
7
HOFS04...:\16\43016\0001\1615\CRT3067S.03F
<PAGE>
WGM DRAFT 06/16/97
FORM OF
EDISON BROTHERS STORES, INC.
____________________________
AMENDED AND RESTATED BY-LAWS
____________________________
ARTICLE I.
OFFICES
SECTION 1. Registered office in Delaware. The registered
-----------------------------
office of the Corporation in the State of Delaware shall be in the City of
Dover, County of Kent.
SECTION 2. Other Offices. The principal executive offices of
-------------
the Corporation shall be in St. Louis, Missouri. The Corporation may also have
offices in such other places as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders
-----------------
shall be held at the executive offices of the Corporation in St. Louis,
Missouri, or at such other place as may be designated by the Board of Directors
or, in the case of a special meeting called by the Chairman of the Board or the
President, by the person calling the meeting.
SECTION 2. Annual Meetings. An annual meeting of the
---------------
stockholders, for the election of directors and for the transaction of such
other business as may properly come before the meeting, shall be held on the
second Wednesday in June of each year at 11:00 A.M., Central Time, or on such
other date or at such other time as the Board of Directors may designate.
Written notice of an annual meeting of stockholders, stating
the place, date and hour of the meeting, shall be mailed to each stockholder
entitled to
1
HOFS04...:\16\43016\0001\1615\BYL3147M.45E
<PAGE>
vote thereat, at such address as appears on the records of the Corporation, not
less than ten nor more than sixty (60) days prior to the date of the meeting.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than ninety (90) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the date of the annual
meeting is advanced by more than thirty (30) days from such anniversary date,
then, to be considered timely, notice by the stockholder must be received not
later than the close of business on the tenth day following the date on which
notice of such meeting was mailed to stockholders. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the By-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2. The presiding officer of an annual meeting shall,
if the facts warrant, determine that business was not properly brought before
the meeting in accordance with the provisions of this Section 2, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 3. Special Meetings. Except as otherwise required by
----------------
law and subject to the rights of the
2
HOFS04...:\16\43016\0001\1615\BYL3147M.45E
<PAGE>
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of the stockholders
may be called only by the Chairman of the Board, the President, or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors, and shall be called by the President or Secretary upon the written
request of the holders of at least 51% of the outstanding shares of Common
Stock.
Written notice of a special meeting of the stockholders,
stating the place, date and hour of the meeting, and the purpose or purposes for
which the meeting is called, shall be mailed to each stockholder entitled to
vote thereat, at such address as appears on the records of the Corporation, not
less than ten nor more than sixty (60) days prior to the date of the meeting.
The business transacted at any special meeting of the
stockholders shall be confined to the purpose or purposes stated in the call.
SECTION 4. Organization. Each meeting of the stockholders
------------
shall be presided over by the Chairman of the Board, or, in the absence of the
Chairman, by the President; if neither is present, the meeting shall be presided
over by a chairman to be chosen at the meeting. The Secretary of the Corporation
shall act as secretary of the meeting; if he is not present, the secretary of
the meeting shall be such person as the presiding officer appoints.
SECTION 5. Voting. At each meeting of the stockholders, each
------
stockholder shall have one vote for each share of stock having voting power
registered in his name on the books of the Corporation. Each stockholder having
the right to vote may vote in person or by proxy appointed either by an
instrument in writing or by a transmission permitted by Section 212(c)(2) of the
Delaware General Corporation Law subscribed or transmitted, as the case may be,
by such stockholder or by his authorized agent, except that no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period.
SECTION 6. Quorum. At all meetings of the stockholders, the
------
presence, in person or by proxy, of the holders of record of a majority of the
shares issued and outstanding and entitled to vote thereat shall constitute a
quorum for the transaction of business, except as otherwise
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<PAGE>
provided by law, by the Restated Certificate of
Incorporation or by these By-Laws.
In the absence of a quorum, the holders of record of a majority of the shares
present in person or by proxy and entitled to vote at the meeting may adjourn
the meeting from time to time until a quorum is present. No notice need be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, unless the adjournment is for more
than thirty (30) days or a new record date is fixed for the adjourned meeting,
in which event a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat. At any such adjourned meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
SECTION 7. Vote Required for Action. At each meeting of the
------------------------
stockholders, if a quorum is present, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote
shall decide all matters brought before the meeting, except as otherwise
provided by law, by the Restated Certificate of Incorporation or by these
By-Laws.
SECTION 8. List of Stockholders. A complete list of the
--------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting at the place
where the meeting is to be held. The list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to inspection by any
stockholder who is present.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board of
Directors. Except as otherwise provided by law, by the Restated Certificate of
Incorporation or by these By-Laws, the Board of Directors
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<PAGE>
may exercise all powers and do all such acts and things as may be exercised or
done by the Corporation.
SECTION 2. Number, Election, Term of Office and Qualification.
--------------------------------------------------
Unless and until changed by amendment to this By-Law, the number of directors
constituting the Board of Directors shall be nine (9); provided, however, that
if and whenever by the terms and provisions of the Restated Certificate of
Incorporation the holders of any class of stock other than the common stock
shall be entitled to elect additional directors, the number of directors shall
be increased in accordance with the terms and provisions of the Restated
Certificate of Incorporation; and if and whenever the common stock shall become
revested with the exclusive voting right for the election of directors, the
number of directors shall be reduced by the number of additional directors
chosen by the holders of such other class of stock. Directors need not be
stockholders. All elections of directors by the holders of the common stock
shall be by a plurality of the votes cast. Except as otherwise provided in this
Article III, the directors to be chosen by the holders of the common stock shall
be elected at the annual meeting of the stockholders. Each such director shall
continue in office until the annual meeting of the stockholders held next after
his election and until his successor shall have been elected and shall qualify,
or until his earlier resignation or removal. The directors, if any, to be chosen
by the holders of any class of stock other than the common stock shall be
elected in the manner, and their tenure of office shall be limited, as set forth
in the Restated Certificate of Incorporation.
Subject to the rights of holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation, nominations for the election of directors may be made by the Board
of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However,
any stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if the
stockholder has given timely notice in writing to the Secretary of the
Corporation of such stockholder's intent to make such nomination or nominations.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of stockholders, ninety
(90)
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<PAGE>
days prior to the anniversary date of the immediately preceding annual meeting
of stockholders; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty (30) days from such anniversary
date, then, to be considered timely, notice by the stockholder must be received
not later than the close of business on the tenth day following the date on
which notice of such meeting was mailed to stockholders, and (ii) with respect
to an election to be held at a special meeting of stockholders for the election
of directors, the close of business on the tenth day following the date on which
notice of such meeting was mailed to stockholders. Each such notice shall set
forth: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation, if so elected. The presiding
officer of the meeting shall refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
SECTION 3. Resignation. Any director may resign at any time by
-----------
written notice to the Corporation, addressed to the attention of the Chairman of
the Board, the President or the Secretary. Unless otherwise specified therein,
such resignation shall take effect on receipt thereof.
SECTION 4. Vacancies. If the position of any director elected,
---------
or entitled to be elected, by the holders of the common stock becomes vacant by
reason of death, resignation, removal, increase in the number of directors or
otherwise, such vacancy may be filled by the vote of a majority of the remaining
directors elected, or entitled to be elected, by the holders of the common
stock, though less than a quorum. If the position of any director elected, or
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<PAGE>
entitled to be elected, by the holders of stock other than the common stock
becomes vacant by reason of death, resignation, removal from office (otherwise
than by reason of the revesting in the common stock of the exclusive voting
right for the election of directors), or otherwise, such vacancy may be filled
by the vote of a majority of the remaining directors elected, or entitled to be
elected, by the holders of such stock other than the common stock, though less
than a quorum.
SECTION 5. Annual and Regular Meetings. As soon as practicable
---------------------------
after the annual meeting of the stockholders in each year, an annual meeting of
the Board of Directors shall be held for the election of officers and for the
transaction of such other business as may properly come before the meeting.
Annual and regular meetings of the Board of Directors may be
held at such times and places (within or without the State of Delaware) as the
Board may from time to time determine. No notice of any such meeting need be
given.
SECTION 6. Special Meetings. A special meeting of the Board of
----------------
Directors may be called at any time by the Chairman of the Board or by the
President, and shall be called by the Chairman, the President or the Secretary
upon the written request of two directors. The person calling such meeting shall
fix the time and place therefor. Notice of such meeting shall be given (a) by
written notice delivered personally, sent by telegram or mailed to each director
at his business or home address or (b) by verbal notice communicated personally
or by telephone to each director. Such notice shall be given at least six hours
prior to the meeting, except that if given by mail such notice shall be given at
least two (2) days prior to the meeting. If mailed, such notice shall be deemed
delivered when deposited in the United States mail. If given by telegram, such
notice shall be deemed delivered when the telegram is delivered to the telegraph
company. No such notice need be given to any director if waived by such director
in writing, whether before or after such meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of the Board need be
specified in the notice or waiver of notice of such meeting.
SECTION 7. Quorum and Vote Required for Action. At all
-----------------------------------
meetings of the Board of Directors, the
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<PAGE>
presence in person of a majority of the total number of directors shall
constitute a quorum for the transaction of business, and, except as otherwise
provided by law, by the Restated Certificate of Incorporation or by these
By-Laws, if a quorum is present, the act of a majority of the directors present
shall be the act of the Board of Directors. In the absence of a quorum, a
majority of the directors present, without notice other than by announcement at
the meeting, may adjourn the meeting to another date, time or place.
SECTION 8. Participation in a Meeting by Conference Telephone.
--------------------------------------------------
A member of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence at such meeting.
SECTION 9. Written Consent in Lieu of Meeting. Any action
----------------------------------
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 10. Compensation. Directors, as such, may receive such
------------
compensation for their services, including their services as members of
committees of the Board of Directors, as the Board of Directors may fix from
time to time.
ARTICLE IV.
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Designation and Powers. The Board of Directors may,
----------------------
by resolution or resolutions adopted by a majority of the whole Board, designate
one or more committees, each committee to consist of two or more directors,
which, to the extent specified in such resolution or resolutions, and except as
otherwise provided by law, shall have and may exercise all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation.
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<PAGE>
The members of each committee shall be appointed by the Board
of Directors. Any member of a committee may resign at any time by written notice
addressed to the Chairman of the Board, the President or the Secretary. Unless
otherwise specified therein, such resignation shall take effect on receipt
thereof. Any member of a committee may be removed at any time, either with or
without cause, by a majority vote of the directors then in office. Any committee
designated pursuant to this Article IV may at any time thereafter be dissolved
by resolution of the Board of Directors.
SECTION 2. Meetings. Each committee may provide for the
--------
holding of regular meetings at such times and places (within or without the
State of Delaware) as it may from time to time determine. No notice of any such
meeting need be given. A special meeting of a committee may be called at any
time by the chairman of such committee (if one has been appointed) or by the
Chairman of the Board or by the President. The person calling such meeting shall
fix the time and place therefor. Notice of such meeting shall be given (a) by
written notice delivered personally, sent by telegram or mailed to each member
of the committee at his business or home address or (b) by verbal notice
communicated personally or by telephone to each member of the committee. Such
notice shall be given at least six hours prior to the meeting, except that if
given by mail such notice shall be given at least two (2) days prior to the
meeting. If mailed, such notice shall be deemed delivered when deposited in the
United States mail. If given by telegram, such notice shall be deemed delivered
when the telegram is delivered to the telegraph company. Such notice need not
state the purpose of the meeting. Each committee shall keep minutes of its
proceedings and shall report the same to the Board of Directors when so
requested by the Board. At any meeting of a committee, the presence in person of
a majority of the members of the committee shall constitute a quorum for the
transaction of business, and, except as otherwise provided by law, by the
Restated Certificate of Incorporation or by these By-Laws, if a quorum is
present, the act of a majority of the members present shall be the act of such
committee. In the absence of a quorum, a majority of the members present,
without notice other than by announcement at the meeting, may adjourn the
meeting to another date, time or place.
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ARTICLE V.
NOTICES
SECTION 1. Waiver of Notice. Whenever any notice is required
----------------
to be given by law, by the Restated Certificate of Incorporation or by these
By-Laws, a written waiver thereof signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice. Neither the business to be transacted at, nor the
purpose of, any meeting need be specified in such waiver.
SECTION 2. Attendance at Meeting. Attendance of a person at
---------------------
any meeting shall constitute a waiver of notice of such meeting, except when the
person attends such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
ARTICLE VI.
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
------
Chairman of the Board, a President, one or more Executive Vice Presidents, one
or more Vice Presidents, a Secretary, a Treasurer, and such other officers as
the Board of Directors may from time to time appoint. Any number of offices may
be held by the same person.
SECTION 2. Selection, Term of Office and Duties. All officers
------------------------------------
shall be elected by the Board of Directors. Each officer shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal. Each officer shall have such authority and perform such duties as may
be prescribed by these By-Laws or by the Board of Directors.
SECTION 3. Resignation. Any officer may resign at any time by
-----------
written notice to the Corporation, addressed to the attention of the Chairman of
the Board, the President or the Secretary. Unless otherwise specified therein,
such resignation shall take effect on receipt thereof.
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SECTION 4. Removal. Any officer may be removed at any time,
-------
either with or without cause, by the affirmative vote of a majority of the
directors then in office.
SECTION 5. Vacancies. If an office becomes vacant by reason of
---------
death, resignation, removal or otherwise, such vacancy may be filled by the
Board of Directors.
SECTION 6. Compensation. The compensation of all officers of
------------
the Corporation shall be fixed by the Board of Directors or such committee
thereof as the Board may designate.
SECTION 7. Chairman of the Board. The Chairman of the Board
---------------------
shall be chosen from among the directors and shall, if present, preside at all
meetings of the stockholders and of the Board of Directors. Except where by law
the signature of the President is required, the Chairman of the Board shall
possess the same power as the President to sign all certificates, contracts and
other instruments of the Corporation. The Chairman of the Board shall, subject
to the direction and control of the Board of Directors, have overall
responsibility for the management and supervision of the business and affairs of
the Corporation. He shall, in general, perform all duties incident to the office
of the Chairman of the Board and such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 8. President. The President shall, subject to the
---------
direction and control of the Board of Directors, share with the Chairman of the
Board responsibility for the management and supervision of the business and
affairs of the Corporation. He shall have the power to sign all certificates,
contracts and other instruments of the Corporation. In general, the President
shall perform all duties incident to the office of President and shall have such
other duties as the Board of Directors may from time to time prescribe.
SECTION 9. Executive Vice Presidents and Vice Presidents. Each
---------------------------------------------
Executive Vice President and Vice President shall have such duties as may be
assigned to him from time to time by the Board of Directors. In the absence of
both the Chairman of the Board and the President, or in the event of their death
or disability, the Executive Vice
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<PAGE>
President having the greatest seniority with the Corporation shall perform the
duties and exercise the powers of the Chairman of the Board and the President.
SECTION 10. Secretary and Assistant Secretaries. The Secretary
-----------------------------------
shall give, or cause to be given, notice of all meetings of the stockholders and
of the Board of Directors in accordance with these By-Laws, shall attend all
meetings of the stockholders and of the Board of Directors, and shall record
their proceedings in a book to be kept for that purpose. The Secretary shall
have custody of the corporate seal and affix the seal to any instrument
requiring it. He shall perform such other duties as the Board of Directors may
from time to time prescribe.
The Assistant Secretary or Assistant Secretaries, if any,
shall, in the absence or disability of the Secretary, or at his request, perform
his duties and exercise his powers and authority.
SECTION 11. Treasurer and Assistant Treasurers. The Treasurer
----------------------------------
shall have custody of the funds and securities of the Corporation, shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation, and shall deposit all money and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be prescribed by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors, at
meetings of the Board of Directors or whenever the Board may require it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. The Treasurer shall perform such other duties as the Board of
Directors may from time to time prescribe.
The Assistant Treasurer or Assistant Treasurers, if any,
shall, in the absence or disability of the Treasurer, or at his request, perform
his duties and exercise his powers and authority.
SECTION 12. Delegation of Authority. Notwithstanding any
-----------------------
provision hereof, the Board of Directors may from time to time delegate the
powers or duties of any officer to any other officer.
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SECTION 13. Surety Bonds. In the event that the Board of
------------
Directors shall so require, any officer of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned on the faithful performance of his duties to
the Corporation.
SECTION 14. Proxies. Subject to such limitations as the Board
-------
of Directors may from time to time prescribe, the Chairman of the Board, the
President and any other officer of the Corporation so authorized by the Chairman
of the Board or the President shall have full power and authority on behalf of
the Corporation to attend, to vote at, and to waive notice of, any meeting of
stockholders of any other corporation, shares of stock of which are owned by or
stand in the name of the Corporation, to execute and deliver proxies and actions
in writing, and otherwise to exercise on behalf of the Corporation any and all
rights and powers incident to the ownership of such shares.
ARTICLE VII.
STOCK
SECTION 1. Certificates of Stock. The interest of each
---------------------
stockholder shall be evidenced by a certificate or certificates representing
shares of stock of the Corporation which shall be in such form as the Board of
Directors may from time to time adopt. Each such certificate shall exhibit the
stockholder's name and the number of shares represented thereby, shall be signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, shall be sealed with the
seal of the Corporation, and shall be countersigned and registered in such
manner, if any, as the Board of Directors may prescribe. If such certificate is
signed by a transfer agent of the Corporation, the signature of any such officer
and the seal of the Corporation on such certificate may be facsimile. If any
officer who has signed, or whose facsimile signature has been used, on any such
certificate shall cease to be such officer of the Corporation before such
certificate is issued and delivered by the Corporation, such certificate may
nevertheless be issued and delivered with the same effect as if the person who
signed such certificate, or whose facsimile signature was used thereon, had not
ceased to be such officer. There shall be entered on the stock books of
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<PAGE>
the Corporation the number of each certificate issued, the number of shares
represented thereby, the name of the person to whom such certificate was issued
and the date of issuance thereof.
SECTION 2. Transfer of Stock. Transfers of shares of the stock
-----------------
of the Corporation shall be made only on the books of the Corporation by the
holder of record thereof, or by his attorney thereunto duly authorized by a
power of attorney, upon the surrender of the certificate or certificates for
such shares properly endorsed, with such evidence of the authenticity of such
transfer, authorization and other matters as the Corporation or its agents may
reasonably require, and accompanied by all necessary federal and state stock
transfer stamps.
SECTION 3. Lost, Stolen or Destroyed Certificates. A
--------------------------------------
certificate for shares of stock of the Corporation may be issued in place of any
certificate alleged to have been lost, stolen or destroyed, but only upon
delivery to the Corporation of such evidence of loss, theft or destruction as
the Board of Directors may require, and, if the Board of Directors so requires,
of a bond of indemnity, in form and amount and with one or more sureties
satisfactory to the Board.
SECTION 4. Regulations, Transfer Agents and Registrars. The
-------------------------------------------
Board of Directors may establish such other rules and regulations as it deems
appropriate concerning the issuance and transfer of certificates for shares of
the stock of the Corporation and may appoint one or more transfer agents or
registrars, or both.
SECTION 5. Record Date. (a) In order that the Corporation may
-----------
determine the stockholders entitled to notice of and to vote at any meeting of
stockholders, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders entitled
to notice of and to vote at a meeting of stockholders shall be the close of
business on the day next preceding the day on which notice of the meeting is
given. A determination of the stockholders of record entitled to notice of and
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting;
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provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (60) days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be the close
of business on the date on which the Board of Directors adopts the resolution
relating thereto.
SECTION 6. Dividends and Reserves. Dividends shall be declared
----------------------
and paid at such times as the Board of Directors may determine, provided that no
dividends shall be paid or declared contrary to applicable provisions of law or
of the Restated Certificate of Incorporation. The Board of Directors may, from
time to time, set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board, in its discretion, deems proper as a
reserve fund for working capital, or to meet contingencies, or for repairing or
maintaining the property of the Corporation, or for any other purpose that the
Board deems to be in the best interests of the Corporation. The Board of
Directors may modify or abolish any such reserve at any time.
SECTION 7. Record Ownership. The Corporation shall be entitled
----------------
to treat the holder of record of any shares of stock of the Corporation as the
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII.
CORPORATE SEAL
The corporate seal of the Corporation shall be circular and
shall have inscribed thereon the name of the
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Corporation, the year of its organization, and the words "Corporate Seal,
Delaware." In all cases in which the corporate seal is authorized to be used, it
may be used by causing it or a facsimile of it to be impressed, affixed,
reproduced, engraved or printed.
ARTICLE IX.
FISCAL YEAR
The fiscal year of the Corporation shall be either a 52 or 53
week year which shall commence on the Sunday occurring on or nearest to February
1 and shall end on the Saturday occurring on or nearest to the following January
31.
ARTICLE X.
AMENDMENTS
Subject to the provisions of the Restated Certificate of
Incorporation, these By-Laws may be amended or repealed at any regular meeting
of the stockholders, or at any special meeting thereof duly called for that
purpose, at which a quorum is present, by a majority vote of the shares
represented and entitled to vote at such meeting. Subject to the laws of the
State of Delaware, the Restated Certificate of Incorporation and these By-Laws,
the Board of Directors may, by majority vote of those directors present at any
meeting of the Board at which a quorum is present, amend these By-Laws or adopt
such other By-Laws as in their judgment may be advisable for the regulation of
the conduct of the affairs of the Corporation.
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EXHIBIT T3C-1
-------------
Draft of July 2, 1997
---------------------
================================================================================
Edison Brothers Stores, Inc.
and
The Bank of New York,
Trustee
-----------------------
INDENTURE
Dated as of ______________, 1997
-----------------------
DEBT SECURITIES
================================================================================
<PAGE>
[ ]
DEBT SECURITIES (CROSS REFERENCE SHEET*)
This Cross Reference Sheet shows the location in the Indenture of the provisions
inserted pursuant to Sections 310 - 318(a), inclusive, of the Trust Indenture
Act of 1939, as amended.
Trust Indenture Act Sections of Indenture
- ------------------- ---------------------
ss.310(a)(1) .................................. 9.08
(a)(2) .................................. 9.08
(a)(3) .................................. Inapplicable
(a)(4) .................................. Inapplicable
(a)(5) .................................. 9.08
(b) .................................. 9.07 and 9.09
(c) .................................. Inapplicable
ss.311(a) .................................. 9.12
(b) .................................. 9.12
(c) .................................. Inapplicable
ss.312(a) .................................. 7.01 and 7.02
(b) .................................. 7.02
(c) .................................. 7.02
ss.313(a) .................................. 7.03
(b) .................................. 7.03
(c) .................................. 7.03
(d) .................................. 7.03
ss.314(a) .................................. 7.04
(a)(4) .................................. 1.01 and 6.07
(b) .................................. Inapplicable
(c)(1) .................................. 13.05
(c)(2) .................................. 13.05
(c)(3) .................................. Inapplicable
(d) .................................. Inapplicable
(e) .................................. 13.05
(f) .................................. Inapplicable
ss.315(a) .................................. 9.01
(b) .................................. 8.08
(c) .................................. 9.01
(d) .................................. 9.01
(e) .................................. 8.07
ss.316(a) .................................. 1.01
(a)(1)(A) .................................. 8.01 and 8.06
(a)(1)(B) .................................. 8.01
(a)(2) .................................. Inapplicable
(b) .................................. 8.09
(c) .................................. 13.11
ss.317(a)(1) .................................. 8.02
(a)(2) .................................. 8.02
(b) .................................. 6.03
ss.318(a) .................................. 13.08
- -----------------
* The Cross Reference Sheet is not part of the Indenture.
<PAGE>
Table of Contents*
Recitals............................................................. 1
Article I. Definitions.............................................. 1
Section 1.01. Certain Terms Defined........................ 1
Act ................................................... 2
Affiliate................................................ 2
Authenticating Agent..................................... 2
Board of Directors....................................... 2
Board Resolution......................................... 2
Business Day............................................. 2
Capital Lease............................................ 2
Capital Lease Obligation................................. 3
Commission............................................... 3
Common Stock............................................. 3
Company.................................................. 3
Company Request or Company Order......................... 3
Corporate Trust Office................................... 3
Covenant Defeasance...................................... 4
Default.................................................. 4
Defaulted Interest....................................... 4
Defeasance............................................... 4
Defeasible Series........................................ 4
Depositary............................................... 4
Event of Default......................................... 4
Exchange Act............................................. 4
GAAP ................................................... 5
Global Security.......................................... 5
Holder................................................... 5
Indebtedness............................................. 5
Indenture................................................ 5
Interest................................................. 6
Interest Payment Date.................................... 6
Material Adverse Effect.................................. 6
Maturity................................................. 6
Notice of Default........................................ 6
Officer's Certificate.................................... 6
Opinion of Counsel....................................... 7
Original Issue Discount Security......................... 7
Outstanding.............................................. 7
Paying Agent............................................. 8
Person................................................... 8
i
<PAGE>
Place of Payment......................................... 8
Predecessor Security..................................... 8
Redemption Date.......................................... 8
Redemption Price......................................... 8
Regular Record Date...................................... 9
Responsible Officer...................................... 9
Securities............................................... 9
Security Register and Security Registrar................. 9
Special Record Date...................................... 9
Stated Maturity.......................................... 9
Subsidiary............................................... 10
Trust Indenture Act...................................... 10
Trustee.................................................. 10
U.S. Government Obligation............................... 10
Vice President........................................... 11
Article II. The Securities........................................... 11
Section 2.01. Designation and Amount of Securities......... 11
Section 2.02. Form of Securities and Trustee's Certificate of
Authentication............................... 13
Section 2.03. Date and Denominations....................... 14
Section 2.04. Execution, Authentication, and Delivery
of Securities ............................... 14
Section 2.05. Registration of Transfer and Exchange........ 16
Section 2.06. Temporary Securities......................... 17
Section 2.07. Mutilated, Destroyed, Lost, and Stolen
Securities .................................. 18
Section 2.08. Cancellation of Surrendered Securities....... 19
Section 2.09. Payment of Interest; Interest Rights
Preserved ................................... 19
Section 2.10. Persons Deemed Owners........................ 20
Section 2.11. Computation of Interest...................... 21
Section 2.12. CUSIP Numbers................................ 21
Article III. Redemption of Securities........................... 21
Section 3.01. Applicability of Article..................... 21
Section 3.02. Election to Redeem; Notice to Trustee........ 21
Section 3.03. Deposit of Redemption Price.................. 22
Section 3.04. Securities Payable on Redemption Date........ 23
Section 3.05. Securities Redeemed in Part.................. 23
Article IV. Sinking Funds............................................ 23
Section 4.01. Applicability of Article..................... 23
Section 4.02. Satisfaction of Sinking Fund Payments With
Securities .................................. 24
Section 4.03. Redemption of Securities for Sinking Fund.... 24
Article V. Defeasance and Covenant Defeasance....................... 24
ii
<PAGE>
Section 5.01. Company's Option to Effect Defeasance or Covenant
Defeasance................................... 24
Section 5.02. Defeasance and Discharge..................... 25
Section 5.03. Covenant Defeasance.......................... 25
Section 5.04. Conditions to Defeasance or Covenant
Defeasance................................... 26
Section 5.05. Deposited Money and U.S. Government Obligations
to be Held in Trust; Other Miscellaneous
Provisions .................................. 28
Section 5.06. Reinstatement................................ 28
Article VI. Particular Covenants of the Company...................... 29
Section 6.01. Payment of Principal, Premium, and Interest
on Securities................................ 29
Section 6.02. Maintenance of Office or Agency.............. 29
Section 6.03. Money for Securities Payments to be Held
in Trust .....................................29
Section 6.04. Payment of Taxes and Other Claims............ 31
Section 6.05. Maintenance of Properties.................... 31
Section 6.06. Existence.................................... 31
Section 6.07. Compliance with Laws......................... 32
Section 6.08. Statement by Officers as to Default.......... 32
Section 6.09. Waiver of Certain Covenants.................. 32
Section 6.10. Calculation of Original Issue Discount....... 32
Article VII. Securities Holders' Lists And Reports By The Company And
The Trustee........................................ 33
Section 7.01. Company to Furnish Trustee Names and Addresses
of Holders................................... 33
Section 7.02. Preservation of Information; Communication to
Holders ..................................... 33
Section 7.03. Reports by Trustee........................... 33
Section 7.04. Reports by Company........................... 34
Article VIII. Default............................................ 34
Section 8.01. Event of Default............................. 34
Section 8.02. Covenant of Company to Pay to Trustee Whole
Amount Due on Securities on Default in Payment
of Interest or Principal; Suits for Enforcement
by Trustee................................... 37
Section 8.03. Application of Money Collected by Trustee.... 38
Section 8.04. Limitation on Suits by Holders of Securities. 39
Section 8.05. Rights and Remedies Cumulative; Delay or
Omission in Exercise of Rights not a Waiver
of Event of Default ......................... 39
Section 8.06. Rights of Holders of Majority in Principal
Amount of Outstanding Securities to Direct
Trustee...................................... 40
Section 8.07. Requirement of an Undertaking to Pay Costs in
Certain Suits Under the Indenture or Against
the Trustee ................................. 40
Section 8.08. Notice of Defaults........................... 40
iii
<PAGE>
Section 8.09. Unconditional Right of Holders to Receive
Principal, Premium, and Interest............. 41
Section 8.10. Restoration of Rights and Remedies........... 41
Section 8.11. Trustee May File Proofs of Claims............ 41
Article IX. Concerning the Trustee................................... 42
Section 9.01. Certain Duties and Responsibilities.......... 42
Section 9.02. Certain Rights of Trustee.................... 42
Section 9.03. Not Responsible for Recitals or Issuance of
Securities................................... 43
Section 9.04. May Hold Securities.......................... 43
Section 9.05. Money Held in Trust.......................... 43
Section 9.06. Compensation and Reimbursement............... 43
Section 9.07. Disqualification; Conflicting Interests...... 44
Section 9.08. Corporate Trustee Required Eligibility....... 44
Section 9.09. Resignation and Removal; Appointment of
Successor ................................... 45
Section 9.10. Acceptance of Appointment by Successor....... 46
Section 9.11. Merger, Conversion, Consolidation, or
Succession to Business....................... 47
Section 9.12. Preferential Collection of Claims Against
Company ..................................... 48
Section 9.13. Appointment of Authenticating Agent.......... 48
Article X. Supplemental Indentures And Certain Actions.............. 50
Section 10.01. Purposes for Which Supplemental Indentures May
Be Entered Into Without Consent of Holders... 50
Section 10.02. Modification of Indenture With Consent of
Holders of at Least a Majority in Principal
Amount of Outstanding Securities............. 51
Section 10.03. Execution of Supplemental Indentures......... 52
Section 10.04. Effect of Supplemental Indentures............ 52
Section 10.05. Conformity with Trust Indenture Act.......... 52
Section 10.06. Reference in Securities to Supplemental
Indentures................................... 53
Article XI. Consolidation, Merger, Sale, or Transfer................. 53
Section 11.01. Consolidations and Mergers of Company and
Sales Permitted Only on Certain Terms........ 53
Article XII. Satisfaction and Discharge of Indenture............ 54
Section 12.01. Satisfaction and Discharge of Indenture...... 54
Section 12.02. Application of Trust Money................... 54
Article XIII. Miscellaneous Provisions........................... 55
Section 13.01. Successors and Assigns of Company Bound by
Indenture.................................... 55
iv
<PAGE>
Section 13.02. Service of Required Notice to Trustee and
Company...................................... 55
Section 13.03. Service of Required Notice to Holders; Waiver 55
Section 13.04. Indenture and Securities to be Construed in
Accordance with the Laws of the State of New
York......................................... 56
Section 13.05. Compliance Certificates and Opinions......... 56
Section 13.06. Form of Documents Delivered to Trustee....... 56
Section 13.07. Payments Due on Non-Business Days............ 56
Section 13.08. Provisions Required by Trust Indenture Act to
Control...................................... 57
Section 13.09. Invalidity of Particular Provisions.......... 57
Section 13.10. Indenture May be Executed In Counterparts.... 57
Section 13.11. Acts of Holders; Record Dates................ 57
Section 13.12. Effect of Headings and Table of Contents..... 60
Section 13.13. Benefits of Indenture........................ 60
v
<PAGE>
INDENTURE, dated as of _________ __, 1997, between Edison Brothers
Stores, Inc., a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and The Bank of New York, a New York banking
corporation, as Trustee (the "Trustee").
RECITALS
A. The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its unsecured
debentures, notes, and other evidences of indebtedness (the "Securities"), to be
issued in one or more series as in this Indenture provided.
B. All acts and things necessary to make the Securities, when the
Securities have been executed by the Company and authenticated by the Trustee
and delivered as provided in this Indenture, the valid, binding, and legal
obligations of the Company and to constitute these presents a valid indenture
and agreement according to its terms, have been done and performed, and the
execution and delivery by the Company of this Indenture and the issue hereunder
of the Securities have in all respects been duly authorized; and the Company, in
the exercise of legal right and power in it vested, is executing and delivering
this Indenture and proposes to make, execute, issue, and deliver the Securities.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
In order to declare the terms and conditions upon which the
Securities are authenticated, issued, and delivered, and in consideration of the
premises and of the purchase and acceptance of the Securities by the Holders
thereof, it is mutually agreed, for the equal and proportionate benefit of the
respective Holders from time to time of the Securities or of a series thereof,
as follows:
ARTICLE I. DEFINITIONS.
SECTION 1.01. CERTAIN TERMS DEFINED.
(a) The terms defined in this Section 1.01 (except as herein
otherwise expressly provided or unless the context of this Indenture otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto have the respective meanings specified in this Section 1.01. All other
terms used in this Indenture that are defined in the Trust Indenture Act, either
directly or by reference therein (except as herein otherwise expressly provided
or unless the context of this Indenture otherwise requires), have the respective
meanings assigned to such terms in the Trust Indenture Act as in force at the
date of this Indenture as originally executed.
1
<PAGE>
Act:
- ----
The term "Act", when used with respect to any Holder, has the
meaning set forth in Section 13.11.
Affiliate:
- ----------
The term "Affiliate" means, with respect to a particular Person, any
Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of this definition, control
of a Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
Authenticating Agent:
- ---------------------
The term "Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 9.13 to act on behalf of the Trustee to authenticate
Securities of one or more series.
Board of Directors:
- -------------------
The term "Board of Directors" means the Board of Directors of the
Company or a duly authorized committee of such Board.
Board Resolution:
- -----------------
The term "Board Resolution" means a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
Business Day:
- -------------
The term "Business Day", when used with respect to any Place of
Payment, means each Monday, Tuesday, Wednesday, Thursday, and Friday which is
not a day on which banking institutions in that Place of Payment are authorized
or required by law or executive order to close.
Capital Lease:
- --------------
The term "Capital Lease" means, with respect to any Person, any
lease of property (whether real, personal, or mixed) by such Person or its
Subsidiaries as lessee that would be capitalized on a balance sheet of such
Person or its Subsidiaries
2
<PAGE>
prepared in conformity with GAAP, other than, in the case of such Person or its
Subsidiaries, any such lease under which such Person or any of its Subsidiaries
is the lessor.
Capital Lease Obligation:
- -------------------------
The term "Capital Lease Obligations" means, with respect to any
Person, the capitalized amount of all obligations of such Person and its
Subsidiaries under Capital Leases, as determined on a consolidated basis in
conformity with GAAP.
Commission:
- -----------
The term "Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
Common Stock:
- -------------
The term "Common Stock" means the common stock of the Company.
Company:
- --------
The term "Company" means Edison Brothers Stores, Inc., a Delaware
corporation, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" will mean such
successor Person.
Company Request or Company Order:
- ---------------------------------
The term "Company Request" or "Company Order" means a written
request or order signed in the name of the Company by the Chief Executive
Officer, the President, the Chief Financial Officer or the Secretary of the
Company, and delivered to the Trustee.
Corporate Trust Office:
- -----------------------
The term "Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business is principally
administered, which on the date hereof is 101 Barclay Street, Floor 21 West, New
York, New York 10286.
3
<PAGE>
Covenant Defeasance:
- --------------------
The term "Covenant Defeasance" has the meaning set forth in Section
5.03.
Default:
- --------
The term "Default" means any event which, with notice or passage of
time or both, would constitute an Event of Default.
Defaulted Interest:
- -------------------
The term "Defaulted Interest" has the meaning set forth in Section
2.09.
Defeasance:
- -----------
The term "Defeasance" has the meaning set forth in Section 5.02.
Defeasible Series:
- ------------------
The term "Defeasible Series" has the meaning set forth in Section
5.01.
Depositary:
- -----------
The term "Depositary" means, with respect to Securities of any
series issuable in whole or in part in the form of one or more Global
Securities, a clearing agency registered under the Exchange Act that is
designated to act as Depositary for such Securities in accordance with Section
2.01.
Event of Default:
- -----------------
The term "Event of Default" has the meaning set forth in Section
8.01(a).
Exchange Act:
- -------------
The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, as the same may be in effect from time to time.
4
<PAGE>
GAAP:
- -----
The term "GAAP" means generally accepted accounting principles in
the United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and The American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board, or in such other statements by any
successor entity as may be in general use by significant segments of the
accounting profession, which are applicable to the circumstances as of the date
of determination.
Global Security:
- ----------------
The term "Global Security" means a Security that evidences all or
part of the Securities of any series and is authenticated and delivered to, and
registered in the name of, the Depositary for such Securities or a nominee
thereof.
Holder:
The term "Holder" means a person in whose name a particular Security
is registered in the Security Register.
Indebtedness:
- -------------
The term "Indebtedness" means, as applied to any Person, without
duplication, (a) indebtedness for borrowed money, all indebtedness evidenced by
notes, bonds, debentures or other evidences of indebtedness, and all
indebtedness under purchase money mortgages or other purchase money liens or
conditional sales or similar title retention agreements, in each case where such
indebtedness has been created, incurred, assumed or guaranteed by such Person or
where such Person is otherwise liable therefor, and (b) indebtedness for
borrowed money secured by any mortgage, pledge or other lien or encumbrance upon
property owned by such Person even though such Person has not assumed or become
liable for the payment of such indebtedness; provided, however, that
indebtedness of the type referred to in clause (b) above shall be included
within the definition of "Indebtedness" only to the extent of the lesser of: (i)
the amount of the underlying indebtedness referred to in the clause (b) above
and (ii) the aggregate value of the security for such indebtedness.
Indenture:
- ----------
The term "Indenture" means this Indenture, as this Indenture may be
amended, supplemented, or otherwise modified from time to time, including, for
all purposes of this Indenture and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively. The term
"Indenture" will also
5
<PAGE>
include the terms of particular series of Securities established in accordance
with Section 2.01.
Interest:
- ---------
The term "interest," (i) when used with respect to an Original Issue
Discount Security which by its terms bears interest only after Maturity, means
interest which accrues from and after and is payable after Maturity and (ii)
when used with respect to any Security, means the amount of all interest
accruing on such Security, including any default interest and any interest that
would have accrued after any Event of Default but for the occurrence of such
Event of Default, whether or not a claim for such interest would be otherwise
allowable under applicable law.
Interest Payment Date:
- ----------------------
The term "Interest Payment Date," when used with respect to any
Security, means the Stated Maturity of an installment of interest on such
Security.
Material Adverse Effect:
- ------------------------
The term "Material Adverse Effect" means a material adverse effect
on the business, assets, financial condition or results of operations of the
Company (taken together with its Subsidiaries as a whole).
Maturity:
- ---------
The term "Maturity," when used with respect to any Security, means
the date on which the principal of that Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption, or otherwise.
Notice of Default:
- ------------------
The term "Notice of Default" means a written notice of the kind set
forth in Section 8.01(a)(iv).
Officer's Certificate:
- ----------------------
The term "Officer's Certificate" means a certificate executed on
behalf of the Company by a Responsible Officer, and delivered to the Trustee.
6
<PAGE>
Opinion of Counsel:
- -------------------
The term "Opinion of Counsel" means an opinion in writing signed by
legal counsel, who, subject to any express provisions hereof, may be an employee
of or counsel for the Company or any Subsidiary, reasonably acceptable to the
Trustee.
Original Issue Discount Security:
- ---------------------------------
The term "Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 8.01(b).
Outstanding:
- ------------
The term "Outstanding" means, when used with reference to Securities
as of a particular time, all Securities theretofore issued by the Company and
authenticated and delivered by the Trustee under this Indenture, except (a)
Securities theretofore cancelled by the Trustee or delivered to the Trustee for
cancellation, (b) Securities in respect of which (i) notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made, and (ii) money in the amount required
for the redemption thereof has been deposited with the Trustee or any Paying
Agent (other than the Company) in trust for the Holders of such Securities, (c)
Securities paid pursuant to Section 2.07(c), and (d) Securities in exchange for
or in lieu of which other Securities have been authenticated and delivered
pursuant to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands such Securities
are valid obligations of the Company; provided, however, that in determining
whether the Holders of the requisite principal amount of the Outstanding
Securities have given any request, demand, authorization, direction, notice,
consent, or waiver hereunder, (x) the principal amount of an Original Issue
Discount Security that will be deemed to be Outstanding will be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon acceleration of the Maturity thereof to such date pursuant to
Section 8.01(b), (y) the principal amount of a Security denominated in one or
more foreign currencies or currency units will be the U.S. dollar equivalent,
determined in the manner contemplated by Section 2.01 on the date of original
issuance of such Security, of the principal amount (or, in the case of an
Original Issue Discount Security, the U.S. dollar equivalent on the date of
original issuance of such Security of the amount determined as provided in
clause (i) above) of such Security, and (z) Securities owned by the Company or
any other obligor upon the Securities or any Affiliate of the Company or of such
other obligor will be disregarded and deemed not to be Outstanding, except that,
in determining whether the Trustee will be protected in relying upon any such
request, demand, authorization, direction, notice, consent, or waiver, only
Securities which a Responsible Officer of the Trustee actually knows to be so
owned will be so
7
<PAGE>
disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
Paying Agent:
- -------------
The term "Paying Agent" means any Person authorized by the Company
to pay the principal of or any premium or interest on any Securities on behalf
of the Company.
Person:
- -------
The term "Person" means any individual, partnership, corporation,
limited liability company, limited liability partnership, joint stock company,
business trust, trust, unincorporated association, joint venture, or other
entity, or government or political subdivision or agency thereof.
Place of Payment:
- -----------------
The term "Place of Payment," when used with respect to the
Securities of any series, means the place or places for the payment of the
principal of and any premium and interest on the Securities of that series
established in accordance with Section 2.01.
Predecessor Security:
- ---------------------
The term "Predecessor Security," when used with respect to any
particular Security, means every previous Security evidencing all or a portion
of the same debt as that evidenced by such Security; and, for the purposes of
this definition, any Security authenticated and delivered under Section 2.07 in
exchange for or in lieu of a mutilated, destroyed, lost, or stolen Security will
be deemed to evidence the same debt as the mutilated, destroyed, lost, or stolen
Security.
Redemption Date:
- ----------------
The term "Redemption Date," when used with respect to any Security
to be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
Redemption Price:
- -----------------
The term "Redemption Price," when used with respect to any Security
to be redeemed, means the price (including premium, if any) at which it is to be
redeemed pursuant to this Indenture.
8
<PAGE>
Regular Record Date:
- --------------------
The term "Regular Record Date" for the interest payable on any
Interest Payment Date on the Securities of any series means the date established
for that purpose in accordance with Section 2.01.
Responsible Officer:
- --------------------
The term "Responsible Officer," when used (a) with respect to the
Company, means the Chief Executive Officer, the President, the Chief Financial
Officer or the Secretary of the Company and (b) with respect to the Trustee,
means any Vice President, any Assistant Vice President, any Assistant Secretary,
any Assistant Treasurer, any trust officer or assistant trust officer, or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time are such
officers, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
Securities:
- -----------
The term "Securities" has the meaning set forth in the first recital
of this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
Security Register and Security Registrar:
- -----------------------------------------
The terms "Security Register" and "Security Registrar" have the
respective meanings set forth in Section 2.05.
Special Record Date:
- --------------------
The term "Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 2.09.
Stated Maturity:
- ----------------
The term "Stated Maturity," when used with respect to any Security,
any installment of interest thereon, or any other amount payable under this
Indenture or the Securities, means the date specified in this Indenture or such
Security as the regularly scheduled date on which the principal of such
Security, such installment of interest, or such other amount, is due and
payable.
9
<PAGE>
Subsidiary:
- -----------
The term "Subsidiary" means, as applied with respect to any Person,
any corporation, partnership, or other business entity of which, in the case of
a corporation, more than 50% of the issued and outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation has or might have voting power upon the
occurrence of any contingency), or, in the case of any partnership or other
legal entity, more than 50% of the ordinary equity capital interests, is at the
time directly or indirectly owned or controlled by such Person, by such Person
and one or more of its other Subsidiaries, or by one or more of such Person's
other Subsidiaries.
Trust Indenture Act:
- --------------------
The term "Trust Indenture Act" means the Trust Indenture Act of
1939, as amended, as in force at the date as of which this instrument was
executed; provided, however, that in the event the Trust Indenture Act of 1939
is amended after such date, "Trust Indenture Act" means, to the extent required
by any such amendment, the Trust Indenture Act of 1939 as so amended.
Trustee:
- --------
The term "Trustee" means the Person named as the "Trustee" in the
first paragraph of this Indenture until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" will mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series will mean each Trustee with respect to
Securities of that series.
U.S. Government Obligation:
- ---------------------------
The term "U.S. Government Obligation" means (a) any security that is
(i) a direct obligation of the United States of America for the payment of which
full faith and credit of the United States of America is pledged or (ii) an
obligation of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case (i) or (ii), is not callable or
redeemable at the option of the issuer thereof and (b) any depositary receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933,
as amended) as custodian with respect to any U.S. Government Obligation
specified in clause (a), which U.S. Government Obligation is held by such
custodian for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on any such U.S.
Government Obligation, provided that (except as required by law) such custodian
is not authorized to make
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any deduction from the amount payable to the holder of such depositary receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by such
depositary receipt.
Vice President:
- ---------------
The term "Vice President," when used with respect to the Company or
the Trustee, means any vice president, whether or not designated by a number or
a word or words added before or after the title "vice president."
(b) The words "Article" and "Section" refer to an Article and
Section, respectively, of this Indenture. The words "herein", "hereof," and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section, or other subdivision. Certain terms
used principally in Articles V, VI, and IX are defined in those Articles. Terms
in the singular include the plural and terms in the plural include the singular.
ARTICLE II. THE SECURITIES.
SECTION 2.01. DESIGNATION AND AMOUNT OF SECURITIES.
(a) The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is unlimited.
(b) The Securities may be issued in one or more series. There will
be established in or pursuant to a Board Resolution and, subject to Section
2.04, set forth or determined in the manner provided in an Officer's
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series: (i) the title of the Securities of
the series (which will distinguish the Securities of the series from Securities
of any other series); (ii) any limit upon the aggregate principal amount of the
Securities of the series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in the exchange for, or in lieu of, other Securities of the
series pursuant to Section 2.05, 2.06, 2.07, 3.05, or 10.06 and except for any
Securities which, pursuant to Section 2.04, are deemed never to have been
authenticated and delivered hereunder); (iii) the Person to whom any interest on
a Security of the series will be payable, if other than the Person in whose name
that Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest; (iv) the date or dates
on which the principal of the Securities of the series is payable; (v) the rate
or rates at which the Securities of the series will bear interest, if any, the
date or dates from which such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, and the Regular Record Date for any
interest payable on any Interest
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Payment Date; (vi) the place or places where the principal of and any premium
and interest on Securities of the series will be payable; (vii) the period or
periods within which, the price or prices at which, and the terms and conditions
upon which Securities of the series may be redeemed, in whole or in part, at the
option of the Company; (viii) the obligation, if any, of the Company to redeem
or purchase Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods within
which, the price or prices at which, and the terms and conditions upon which
Securities of the series will be redeemed or purchased, in whole or in part,
pursuant to such obligation; (ix) if other than denominations of $1,000 and
integral multiples thereof, the denominations in which Securities of the series
will be issuable; (x) the currency, currencies, or currency units in which
payment of the principal of and any premium and interest on any Securities of
the series will be payable if other than the currency of the United States of
America and the manner of determining the equivalent thereof in the currency of
the United States of America for purposes of the definition of "Outstanding" in
Section 1.01; (xi) if the amount of payments of principal of or any premium or
interest on any Securities of the series may be determined with reference to an
index, based upon a formula, or in some other manner, the manner in which such
amounts will be determined; (xii) if the principal of or any premium or interest
on any Securities of the series is to be payable, at the election of the Company
or a Holder thereof, in one or more currencies or currency units other than that
or those in which the Securities are stated to be payable, the currency,
currencies, or currency units in which payment of the principal of and any
premium and interest on Securities of such series as to which such election is
made will be payable, and the periods within which and the terms and conditions
upon which such election is to be made; (xiii) if other than the principal
amount thereof, the portion of the principal amount of Securities of the series
which will be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 8.01(b); (xiv) if applicable, that the Securities of the
series will be subject to either or both of Defeasance or Covenant Defeasance as
provided in Article V, provided that no series of Securities that is convertible
into Common Stock pursuant to Section 2.01(b)(xvi) or convertible into or
exchangeable for any other securities pursuant to Section 2.01(b)(xvii) will be
subject to Defeasance pursuant to Section 5.02; (xv) if and as applicable, that
the Securities of the series will be issuable in whole or in part in the form of
one or more Global Securities and, in such case, the Depositary or Depositaries
for such Global Security or Global Securities and any circumstances other than
those set forth in Section 2.05 in which any such Global Security may be
transferred to, and registered and exchanged for Securities registered in the
name of, a Person other than the Depositary for such Global Security or a
nominee thereof and in which any such transfer may be registered; (xvi) the
terms and conditions, if any, pursuant to which the Securities are convertible
into Common Stock; (xvii) the terms and conditions, if any, pursuant to which
the Securities are convertible into or exchangeable for any other securities,
including (without limitation) securities of Persons other than the Company;
(xviii) if and as applicable, that the Securities of the series will be
subordinate and subject in right of payment to the prior payment of other
Indebtedness; and (xix) any other
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terms of, or provisions, covenants, rights or other matters applicable to, the
series (which terms, provisions, covenants, rights or other matters will not be
inconsistent with the provisions of this Indenture, except as permitted by
Section 10.01(e)).
(c) All Securities of any one series will be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to the Board Resolution referred to below and (subject to Section 2.04) set
forth or determined in the manner provided in the Officer's Certificate referred
to above or in any such indenture supplemental hereto.
(d) If any of the terms of the series are established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action will be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee concurrently with or prior to the delivery
of the Officer's Certificate setting forth the terms of the series.
SECTION 2.02. FORM OF SECURITIES AND TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
(a) The Securities of each series will be in such form as may be
established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, and may have such letters, numbers, or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. If the form of Securities of
any series is established by action taken pursuant to a Board Resolution, a copy
of an appropriate record of such action will be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee concurrently
with or prior to the delivery of the Company Order contemplated by Section 2.04
for the authentication and delivery of such Securities.
(b) The definitive Securities will be printed, lithographed, or
engraved on steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the Securities may be
listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
(c) The Trustee's certificate of authentication will be in
substantially the following form:
[Form of Trustee's Certificate of Authentication for Securities]
Trustee's Certificate of Authentication
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
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THE BANK OF NEW YORK,
as Trustee
By:
----------------------------------
Authorized Signatory
(d) Every Global Security authenticated and delivered hereunder will
bear a legend in substantially the following form:
[Form of Legend for Global Securities]
This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of a Depositary
or a nominee thereof. This Security may not be transferred to, or registered or
exchanged for Securities registered in the name of, any Person other than the
Depositary or a nominee thereof, and no such transfer may be registered, except
in the limited circumstances described in the Indenture. Every Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, this Security will be a Global Security subject to the
foregoing, except in such limited circumstances.
SECTION 2.03. DATE AND DENOMINATIONS.
Each Security will be dated the date of its authentication. The
Securities of each series will be issuable only in registered form without
coupons in such denominations as may be specified in accordance with Section
2.01. In the absence of any such specified denomination with respect to the
Securities of any series, the Securities of such series will be issuable in
denominations of $1,000 and integral multiples thereof.
SECTION 2.04. EXECUTION, AUTHENTICATION, AND DELIVERY OF SECURITIES.
(a) The Securities will be executed on behalf of the Company by the
Chief Executive Officer or the President of the Company and attested by the
Treasurer or the Secretary of the Company under its corporate seal. The
signature of any of these officers on the Securities may be manual or facsimile.
The seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted, or otherwise reproduced on the Securities.
(b) Only such Securities bearing the Trustee's certificate of
authentication, signed manually by the Trustee, will be entitled to the benefits
of this Indenture or be valid or obligatory for any purpose. Such execution of
the certificate of authentication by the Trustee upon any Securities executed by
the Company will be conclusive evidence that the Securities so authenticated
have been duly authenticated
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and delivered hereunder. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 2.08, for all purposes of this Indenture
such Security will be deemed never to have been authenticated and delivered
hereunder and will never be entitled to the benefits of this Indenture.
(c) Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company will bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
(d) At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with the Company Order will authenticate and make such
Securities available for delivery. If the form or terms of the Securities of the
series have been established in or pursuant to one or more Board Resolutions as
permitted by Sections 2.01 and 2.02, in authenticating such Securities, and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee will be entitled to receive, and (subject to
Section 9.01) will be fully protected in relying upon, an Opinion of Counsel
stating (i) if the form of such Securities has been established by or pursuant
to a Board Resolution as permitted by Section 2.02, that such form has been
established in conformity with the provisions of this Indenture, (ii) if the
terms of such Securities have been established by or pursuant to a Board
Resolution as permitted by Section 2.01, that such terms have been established
in conformity with the provisions of this Indenture, and (iii) that such
Securities, when authenticated and delivered by the Trustee and issued by the
Company in the manner and subject to any conditions specified in such Opinion of
Counsel, will constitute valid and binding obligations of the Company
enforceable in accordance with their terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, or other
laws of general applicability relating to or affecting creditors' rights and by
general principles of equity.
(e) Notwithstanding the provisions of Sections 2.01 and 2.04(d), if
all Securities of a series are not to be originally issued at one time, it will
not be necessary to deliver the Officer's Certificate otherwise required
pursuant to Section 2.01 or the Company Order and Opinion of Counsel otherwise
required pursuant to Section 2.04(d) at or prior to the time of authentication
of each Security of such series if such documents are delivered at or prior to
the authentication upon original issuance of the first Security of such series
to be issued.
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SECTION 2.05. REGISTRATION OF TRANSFER AND EXCHANGE.
(a) The Company will cause to be kept at the Corporate Trust Office
a register (the register maintained in such office and in any other office or
agency of the Company in a Place of Payment being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company will provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.
(b) Upon surrender for registration of transfer of any Security of
any series at the office or agency in a Place of Payment for that series, the
Company will execute, and the Trustee will authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series, of any authorized denominations and of a like
aggregate principal amount and tenor.
(c) At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series, of any authorized
denominations and of a like aggregate principal amount and tenor, upon surrender
of the Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company will execute, and the
Trustee will authenticate and make available for delivery, the Securities which
the Holder making the exchange is entitled to receive.
(d) Every Security presented or surrendered for registration of
transfer or exchange will (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument or instruments of transfer,
in form reasonably satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. No
service charge will be made for any registration of transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Securities, other than exchanges
pursuant to Section 2.06, 3.05, or 10.06 not involving any transfer. The Company
will not be required (i) to issue, register the transfer of, or exchange
Securities of any series during a period beginning at the opening of business 15
calendar days before the mailing of a notice of redemption of Securities of that
series selected for redemption under Section 3.02(c) and ending at the close of
business on the day of such mailing or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except, in
the case of any Securities to be redeemed in part, the portion thereof not being
redeemed.
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(e) All Securities issued upon any registration of transfer or
exchange of Securities will be valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
(f) Notwithstanding any other provision in this Indenture, no Global
Security may be transferred to, or registered or exchanged for Securities
registered in the name of, any Person other than the Depositary for such Global
Security or any nominee thereof, and no such transfer may be registered, unless
(i) such Depositary (A) notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Security or (B) ceases to be a clearing
agency registered under the Exchange Act, (ii) the Company executes and delivers
to the Trustee a Company Order that such Global Security shall be so
transferable, registrable, and exchangeable, and such transfers shall be
registrable, (iii) there shall have occurred and be continuing an Event of
Default with respect to the Securities evidenced by such Global Security, or
(iv) there shall exist such other circumstances, if any, as have been specified
for this purpose in accordance with Section 2.01. Notwithstanding any other
provision in this Indenture, a Global Security to which the restriction set
forth in the preceding sentence shall have ceased to apply may be transferred
only to, and may be registered and exchanged for Securities registered only in
the name or names of, such Person or Persons as the Depositary for such Global
Security shall have directed and no transfer thereof other than such a transfer
may be registered. Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security to which the
restriction set forth in the first sentence of this Section 2.05(f) shall apply,
whether pursuant to this Section 2.05, Section 2.06, 2.07, 3.05, or 10.06 or
otherwise, will be authenticated and delivered in the form of, and will be, a
Global Security.
SECTION 2.06. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute and register and upon Company Order the Trustee will
authenticate and make available for delivery temporary Securities (printed,
lithographed, or typewritten), of any authorized denomination, and substantially
in the form of the definitive Securities but with such omissions, insertions,
and variations as may be appropriate for temporary Securities, all as may be
determined by the officers executing such Securities as evidenced by their
execution of such Securities; provided, however, that the Company will use
reasonable efforts to have definitive Securities of that series available at the
times of any issuance of Securities under this Indenture. Every temporary
Security will be executed and registered by the Company and be authenticated by
the Trustee upon the same conditions and in substantially the same manner, and
with like effect, as the definitive Securities. The Company will execute and
register and furnish definitive Securities of such series as soon as practicable
and thereupon any or all temporary Securities of such series may be surrendered
in exchange therefor at the office or agency of the Company in the Place of
Payment for
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that series, and the Trustee will authenticate and make available for delivery
in exchange for such temporary Securities of such series one or more definitive
Securities of the same series, of any authorized denominations, and of a like
aggregate principal amount and tenor. Such exchange will be made by the Company
at its own expense and without any charge to the Holder therefor. Until so
exchanged, the temporary Securities of any series will be entitled to the same
benefits under this Indenture as definitive Securities of the same series
authenticated and delivered hereunder.
SECTION 2.07. MUTILATED, DESTROYED, LOST, AND STOLEN SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee, the
Company will execute and the Trustee will authenticate and make available for
delivery in exchange therefor a new Security of the same series and of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
(b) If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss, or theft of any
Security and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company will execute and the Trustee will authenticate
and make available for delivery, in lieu of any such destroyed, lost, or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
(c) In case any such mutilated, destroyed, lost, or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
(d) Upon the issuance of any new Security under this Section 2.07,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
(e) Every new Security of any series issued pursuant to this Section
2.07 in exchange for any mutilated Security or in lieu of any destroyed, lost,
or stolen Security will constitute an original additional contractual obligation
of the Company, whether or not the mutilated, destroyed, lost, or stolen
Security shall be at any time enforceable by anyone, and will be entitled to all
the benefits of this Indenture equally and proportionately with any and all
other Securities of that series duly issued hereunder.
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(f) The provisions of this Section 2.07 are exclusive and will
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost, or stolen Securities.
SECTION 2.08. CANCELLATION OF SURRENDERED SECURITIES.
All Securities surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any sinking fund payment will, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and will be promptly cancelled by it. The Company may at any time deliver to the
Trustee for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered will be promptly
cancelled by the Trustee. No Securities will be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section 2.08, except
as expressly permitted by this Indenture. All cancelled Securities held by the
Trustee will be disposed of as directed by a Company Order, provided, however,
that the Trustee will not be required to destroy cancelled Securities except in
accordance with its established policies.
SECTION 2.09. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
(a) Except as otherwise provided in accordance with Section 2.01
with respect to any series of Securities, interest on any Security which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date will be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest.
(b) Any interest on any Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") will forthwith cease to be payable to the
Holder on the relevant regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may be paid by the Company together with interest
thereon (to the extent permitted by law) at the rate of interest applicable to
such Security, at its election in each case, as provided in clause (i) or (ii)
below:
(i) The Company may elect to make payment of any Defaulted
Interest (and interest thereon, if any) to the Persons in whose names the
Securities of such series (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which will be fixed in the following
manner. The Company will notify the Trustee in writing of the amount of
Defaulted Interest (and interest thereon, if any) proposed to be paid on
each Security of such series and the date of the proposed payment, and at
the same time the
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Company will deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
(and interest thereon, if any) or will make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
persons entitled to such Defaulted Interest (and interest thereon, if any)
as in this clause (i) provided. Thereupon the Trustee will fix a Special
Record Date for the payment of such Defaulted Interest (and interest
thereon, if any) which will be not more than 15 calendar days and not less
than 10 calendar days prior to the date of the proposed payment and not
less than 10 calendar days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee will promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, will cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder of Securities of such series at his
address as it appears in the Security Register, not less than 10 calendar
days prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest (and interest thereon, if any) and the Special
Record Date therefor having been so mailed, such Defaulted Interest will
be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and will no longer be payable
pursuant to the following clause (ii).
(ii) The Company may make payment of any Defaulted Interest (and
interest thereon, if any) on the Securities of any series in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which such Securities may be listed, and upon such notice as
may be required by such exchange, if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this clause (ii), such
manner of payment shall be deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section 2.09, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security will carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.10. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee, and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and any premium
and (subject to Section 2.09) any interest on such Security and for all other
purposes whatsoever, whether or not such Security shall be overdue, and neither
the Company, the Trustee
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nor any agent of the Company or the Trustee will be affected by notice to the
contrary.
SECTION 2.11. COMPUTATION OF INTEREST.
Except as otherwise specified in accordance with Section 2.01 for
Securities of any series, interest on the Securities of each series will be
computed on the basis of a 360-day year consisting of 12 30-day months.
SECTION 2.12. CUSIP NUMBERS.
The Company, in issuing Securities of any series, may use "CUSIP"
numbers (if then generally in use) and, if so, the Trustee will use "CUSIP"
numbers in notices of redemption as a convenience to Holders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption will not be affected
by any defect in or omission of such numbers. To the extent applicable, the
Company will promptly notify the Trustee of any change in the "CUSIP" numbers.
ARTICLE III. REDEMPTION OF SECURITIES.
SECTION 3.01. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable before their Stated
Maturity will be redeemable in accordance with their terms and (except as
otherwise specified in accordance with Section 2.01 for Securities of any
series) in accordance with this Article III.
SECTION 3.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
(a) The election of the Company to redeem any Securities will be
evidenced by a Board Resolution. In case of any redemption at the election of
the Company, the Company will, at least 60 calendar days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date, of the principal amount of
Securities of such series to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company will furnish the Trustee with an Officer's Certificate evidencing
compliance with such restriction.
(b) Notice of redemption of Securities to be redeemed at the
election of the Company will be given by the Company or, at the Company's
request,
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by the Trustee in the name and at the expense of the Company and will be
irrevocable. Notice of redemption will be given by mail, first-class postage
prepaid, not less than 30 or more than 60 calendar days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register. All notices of redemption will identify the Securities to
be redeemed (including the CUSIP numbers thereof, if applicable) and will state
(i) the Redemption Date, (ii) the Redemption Price, (iii) if less than all the
Outstanding Securities of any series are to be redeemed, the identification
(and, in the case of partial redemption of any Securities, the principal
amounts) of the particular Securities to be redeemed, (iv) that on the
Redemption Date the Redemption Price will become due and payable upon each such
Security to be redeemed and, if applicable, that interest thereon will cease to
accrue on and after said date, (v) the place or places where such Securities are
to be surrendered for payment of the Redemption Price, (vi) that the redemption
is for a sinking fund, if such is the case, and (vii) the specific provision of
this Indenture pursuant to which such Securities are to be redeemed.
(c) If less than all the Securities of any series are to be
redeemed, the particular Securities to be redeemed will be selected not more
than 60 calendar days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series not previously called for redemption, by
such method as the Trustee may deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series. The Trustee
will promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
(d) For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities will relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 3.03. DEPOSIT OF REDEMPTION PRICE.
At or prior to 10:00 a.m., New York City time, any Redemption Date,
the Company will deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 6.03) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
any accrued interest on, all of the Securities that are to be redeemed on that
date.
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SECTION 3.04. SECURITIES PAYABLE ON REDEMPTION DATE.
(a) Notice of redemption having been given as aforesaid, the
Securities so to be redeemed will, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company defaults in the payment of the Redemption Price and accrued
interest) such Securities will cease to accrue interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security will
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that, unless otherwise specified in
accordance with Section 2.01, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates in accordance with their terms
and the provisions of Section 2.09.
(b) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium will, until
paid, bear interest from the Redemption Date at the rate prescribed therefor in
the Security.
SECTION 3.05. SECURITIES REDEEMED IN PART.
Any Security that is to be redeemed only in part will be surrendered
at a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company will execute, and the Trustee will
authenticate and make available for delivery to the Holder of such Security
without service charge, a new Security or Securities of the same series and of
like tenor, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered.
ARTICLE IV. SINKING FUNDS.
SECTION 4.01. APPLICABILITY OF ARTICLE.
The provisions of this Article IV will be applicable to any sinking
fund for the retirement of Securities of a series except as otherwise specified
in accordance with Section 2.01 for Securities of such series. The minimum
amount of any sinking fund payment provided for by the terms of Securities of
any series is herein referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the terms of Securities
of any series is herein referred to as an "optional sinking fund payment." If
provided for by the terms of Securities of any series, the amount of any sinking
fund payment may be subject to reduction as provided in Section 4.02. Each
sinking fund payment with respect to
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Securities of a particular series will be applied to the redemption of
Securities of such series as provided for by the terms of Securities of such
series.
SECTION 4.02. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (a) may deliver Outstanding Securities of a series
(other than any previously called for redemption) and (b) may apply as a credit
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series required to be made
pursuant to the terms of such Securities as provided for by the terms of such
series, provided that such Securities have not been previously so credited. Such
Securities will be received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities for redemption through operation
of the sinking fund and the amount of such sinking fund payment will be reduced
accordingly.
SECTION 4.03. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 60 calendar days prior to each sinking fund payment
date for any series of Securities, the Company will deliver to the Trustee an
Officer's Certificate specifying the amount of the next ensuing sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, that is to be satisfied by payment of cash and the portion
thereof, if any, that is to be satisfied by delivering and crediting Securities
of that series pursuant to Section 4.02 and will also deliver to the Trustee any
Securities to be so delivered. Not less than 30 calendar days before each such
sinking fund payment date, the Trustee will select the Securities to be redeemed
upon such sinking fund payment date in the manner specified in Section 3.02(c)
and cause notice of the redemption thereof to be given in the name of and at the
expense of the Company in the manner provided in Section 3.02(b). Such notice
having been duly given, the redemption of such Securities will be made upon the
terms and in the manner stated in Sections 3.04 and 3.05.
ARTICLE V. DEFEASANCE AND COVENANT DEFEASANCE.
SECTION 5.01. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may elect, at its option by Board Resolution at any
time, to have either Section 5.02 or Section 5.03 applied to the Outstanding
Securities of any series designated pursuant to Section 2.01 as being defeasible
pursuant to this Article V (hereinafter called "Defeasible Series"), upon
compliance with the conditions set forth below in this Article V, provided that
Section 5.02 will not apply to any series of Securities that is convertible into
Common Stock pursuant to Section
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2.01(b)(xvi) or convertible into or exchangeable for any other securities
pursuant to Section 2.01(b)(xvii).
SECTION 5.02. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of the option provided in Section 5.01
to have this Section 5.02 applied to the Outstanding Securities of any
Defeasible Series and subject to the proviso to Section 5.01, the Company will
be deemed to have been discharged from its obligations with respect to the
Outstanding Securities of such series as provided in this Section 5.02 on and
after the date the conditions set forth in Section 5.04 are satisfied
(hereinafter called "Defeasance"). For this purpose, such Defeasance means that
the Company will be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities of such series and to have satisfied
all its other obligations under the Securities of such series and this Indenture
insofar as the Securities of such series are concerned (and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging the same),
subject to the following which will survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of Securities of such series to
receive, solely from the trust fund described in Section 5.04 and as more fully
set forth in Section 5.04, payments in respect of the principal of and any
premium and interest on such Securities of such series when payments are due,
(b) the Company's obligations with respect to the Securities of such series
under Sections 2.05, 2.06, 2.07, 6.02, 6.03, and 10.06, (c) the rights, powers,
trusts, duties, and immunities of the Trustee hereunder, and (d) this Article V.
Subject to compliance with this Article V, the Company may exercise its option
provided in Section 5.01 to have this Section 5.02 applied to the Outstanding
Securities of any Defeasible Series notwithstanding the prior exercise of its
option provided in Section 5.01 to have Section 5.03 applied to the Outstanding
Securities of such series.
SECTION 5.03. COVENANT DEFEASANCE.
Upon the Company's exercise of the option provided in Section 5.01
to have this Section 5.03 applied to the Outstanding Securities of any
Defeasible Series, (a) the Company will be released from its obligations under
Sections 6.04 through 6.07, inclusive, Section 11.01, and such provisions of any
Supplemental Indenture specified as may be in such Supplemental Indenture, and
(b) the occurrence of any event specified in Sections 8.01(a)(iii), 8.01(a)(iv)
(with respect to any of Sections 6.04 through 6.07, inclusive, Section 11.01,
and such provisions of any Supplemental Indenture as may be specified in such
Supplemental Indenture), 8.01(a)(v), 8.01(a)(vi), and 8.01(a)(ix) will be deemed
not to be or result in an Event of Default, in each case with respect to the
Outstanding Securities of such series as provided in this Section on and after
the date the conditions set forth in Section 5.04 are satisfied (hereinafter
called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means
that the Company may omit to comply with and will have no liability in respect
of any term, condition, or limitation set forth in any such specified
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Section or provision (to the extent so specified in the case of Section
8.01(a)(iv)), whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or provision or by reason of any reference
in any such Section or provision to any other provision herein or in any other
document, but the remainder of this Indenture and the Securities of such series
will be unaffected thereby.
SECTION 5.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following will be the conditions to application of either
Section 5.02 or Section 5.03 to the Outstanding Securities of any Defeasible
Series:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee that satisfies the
requirements contemplated by Section 9.08 and agrees to comply with the
provisions of this Article V applicable to it) as trust funds in trust for
the benefit of the Holders of Outstanding Securities of such series (i)
money in an amount, or (ii) U.S. Government Obligations that through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, without reinvestment, not later
than one day before the due date of any payment, money in an amount, or
(iii) a combination thereof, in each case sufficient to pay and discharge,
and which will be applied by the Trustee (or any such other qualifying
trustee) to pay and discharge, the principal of and any premium and
interest on the Securities of such series on the respective Stated
Maturities or on any earlier date or dates on which the Securities of such
series shall be subject to redemption and the Company shall have given the
Trustee irrevocable instructions satisfactory to the Trustee to give
notice to the Holders of the redemption of the Securities of such series,
all in accordance with the terms of this Indenture and the Securities of
such series.
(b) In the case of an election under Section 5.02, the Company shall
have delivered to the Trustee an Opinion of Counsel (from a counsel who
shall not be an employee of the Company) to the effect that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities of such series will not recognize
gain or loss for federal income tax purposes as a result of the deposit,
Defeasance, and discharge to be effected with respect to the Securities of
such series and will be subject to federal income tax on the same amount,
in the same manner, and at the same times as would be the case if such
deposit, Defeasance, and discharge were not to occur.
(c) In the case of an election under Section 5.03, the Company shall
have delivered to the Trustee an Opinion of Counsel (from a counsel who
shall
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not be an employee of the Company) to the effect that the Holders of the
Outstanding Securities of such series will not recognize gain or loss for
federal income tax purposes as a result of the deposit and Covenant
Defeasance to be effected with respect to the Securities of such series
and will be subject to federal income tax on the same amount, in the same
manner, and at the same times as would be the case if such deposit and
Covenant Defeasance were not to occur.
(d) The Company shall have delivered to the Trustee an Opinion of
Counsel (from a counsel who shall not be an employee of the Company)
stating that the defeasance trust does not violate the Investment Company
Act of 1940.
(e) The Company shall have delivered to the Trustee the opinion of a
nationally recognized independent public accounting firm certifying the
sufficiency of the amount of the moneys, U.S. Government Obligations, or a
combination thereof, placed on deposit to pay, without regard to any
reinvestment, the principal of and any premium and interest on the
Securities on the Stated Maturity thereof or on any earlier date on which
the Securities shall be subject to redemption.
(f) The Company shall have delivered to the Trustee an Officer's
Certificate (i) stating that the deposit was not made by the Company with
the intent of preferring the holders of the Securities over the other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others, and (ii) to the
effect that the Securities of such series, if then listed on any
securities exchange, will not be delisted solely as a result of such
deposit.
(g) No Event of Default or event that (after notice or lapse of time
or both) would become an Event of Default shall have occurred and be
continuing at the time of such deposit or, with regard to any Event of
Default or any such event specified in Sections 8.01(a)(vii) and (viii),
at any time on or prior to the 124th calendar day after the date of such
deposit (it being understood that this condition will not be deemed
satisfied until after such 124th calendar day).
(h) Such Defeasance or Covenant Defeasance will not cause the
Trustee to have a conflicting interest within the meaning of the Trust
Indenture Act (assuming all Securities are in default within the meaning
of such Act).
(i) Such Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
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(j) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 5.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
(a) Subject to the provisions of Section 6.03(e), all money and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee or other qualifying trustee (solely for purposes of this Section 5.05
and Section 5.06, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 5.04 in respect of the
Securities of any Defeasible Series will be held in trust and applied by the
Trustee, in accordance with the provisions of the Securities of such series and
this Indenture, to the payment, either directly or through any such Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of Securities of such series, of all sums due and to
become due thereon in respect of principal and any premium and interest, but
money so held in trust need not be segregated from other funds except to the
extent required by law.
(b) The Company will pay and indemnify the Trustee against any tax,
fee, or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 5.04 or the principal and interest
received in respect thereof other than any such tax, fee, or other charge that
by law is for the account of the Holders of Outstanding Securities.
(c) Notwithstanding anything in this Article V to the contrary, the
Trustee will deliver or pay to the Company from time to time upon a Company
Request any money or U.S. Government Obligations held by it as provided in
Section 5.04 with respect to Securities of any Defeasible Series that are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Defeasance or Covenant Defeasance with respect to the
Securities of such series.
SECTION 5.06. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article V with respect to the Securities of any series by
reason of any order or judgment of any court or governmental authority
enjoining, restraining, or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Securities of such series
will be revived and reinstated as though no deposit had occurred pursuant to
this Article V with respect to Securities of such series until such time as the
Trustee or Paying Agent is permitted to apply all money held in trust pursuant
to Section 5.05 with respect to Securities of such series in accordance with
this Article V; provided, however, that if the Company makes any
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payment of principal of or any premium or interest on any Security of such
series following the reinstatement of its obligations, the Company will be
subrogated to the rights of the Holders of Securities of such series to receive
such payment from the money so held in trust.
ARTICLE VI. PARTICULAR COVENANTS OF THE COMPANY.
SECTION 6.01. PAYMENT OF PRINCIPAL, PREMIUM, AND INTEREST ON SECURITIES.
The Company, for the benefit of each series of Securities, will duly
and punctually pay the principal of and any premium and interest on the
Securities of that series in accordance with the terms of the Securities and
this Indenture.
SECTION 6.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company will maintain in each Place of Payment for any
series of Securities an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that series may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Securities of that series and
this Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices, and demands may be made or served at
the Corporate Trust Office, and the Company hereby appoints the Trustee as its
agent to receive all such presentations, surrenders, notices, and demands.
(b) The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission will in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of any series for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
SECTION 6.03. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
(a) If the Company shall at any time act as its own Paying Agent
with respect to any series of Securities, it will, on or before each due date of
the principal of or any premium or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and any premium and interest so
becoming due until
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such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
(b) Whenever the Company shall have one or more Paying Agents for
any series of Securities, it will, prior to each due date of the principal of or
any premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
(c) The Company will cause each Paying Agent for any series of
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent will agree with the Trustee, subject to
the provisions of this Section 6.03, that such Paying Agent will (i) comply with
the provisions of the Trust Indenture Act applicable to it as a Paying Agent and
(ii) during the continuance of any default by the Company (or any other obligor
upon the Securities of that series) in the making of any payment in respect of
the Securities of that series, and upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Securities of that series.
(d) The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent will be released from all further liability with respect to
such money.
(e) Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of or any
premium or interest on any Security of any series and remaining unclaimed for
two years after such principal, premium, or interest has become due and payable
will be paid to the Company upon a Company Request (or, if then held by the
Company, will be discharged from such trust); and the Holder of such Security
will thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, will thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which will not
be less than 30 calendar days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
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SECTION 6.04. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments, and
governmental charges levied or imposed upon the Company or any Subsidiary of the
Company or upon the income, profits, or property of the Company or any
Subsidiary of the Company, and (b) all lawful claims for labor, materials, and
supplies, in each case which, if unpaid, might by law become a lien upon the
property of the Company or any Subsidiary of the Company and would have a
Material Adverse Effect; provided, however, that (x) the Company will not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge, or claim the amount, applicability, or validity of which is
being contested in good faith by appropriate proceedings, and (y) any failure to
pay any such tax, assessment, charge, or claim shall not constitute a breach of
this Section 6.04 if such failure (i) was not willful and (ii) does not and will
not result in any Material Adverse Effect.
SECTION 6.05. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct
of its business or the business of any Subsidiary of the Company to be
maintained and kept in good condition, repair, and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments, and improvements thereof; provided,
however, that nothing in this Section 6.05 will (i) require the Company to take
any action that it determines in good faith to be contrary to its best
interests, so long as the failure to take such action will not have a Material
Adverse Effect, or (ii) prevent the Company from taking any action that it
determines in good faith to be in its best interests, so long as the taking of
such action will not have a Material Adverse Effect.
SECTION 6.06. EXISTENCE.
Subject to Article XI, the Company will, and will cause each of its
Subsidiaries to, do or cause to be done all things necessary to preserve and
keep in full force and effect its existence, rights (charter and statutory), and
franchises; provided, however, that, except with respect to the preservation of
the Company's existence, nothing in this Section 6.06 will (i) require the
Company to take any action that it determines in good faith to be contrary to
its best interests, so long as the failure to take such action will not have a
Material Adverse Effect, or (ii) prevent the Company from taking any action that
it determines in good faith to be in its best interests, so long as the taking
of such action will not have a Material Adverse Effect.
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SECTION 6.07. COMPLIANCE WITH LAWS.
The Company will, and will cause each of its Subsidiaries to, comply
with all applicable federal, state, local, or foreign laws, rules, regulations,
or ordinances, including without limitation such laws, rules, regulations, or
ordinances relating to pension, environmental, employee, and tax matters, to the
extent that, in the aggregate, the failure so to comply would have a Material
Adverse Effect.
SECTION 6.08. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 calendar days
after the end of each fiscal year of the Company ending after the date hereof,
an Officer's Certificate signed by the principal executive officer, principal
financial officer, or principal accounting officer of the Company stating
whether or not to the knowledge of such person after due inquiry the Company is
in default in the performance and observance of any of the terms, provisions,
and conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company is in default,
specifying all such defaults and the nature and status thereof of which such
person may have such knowledge.
SECTION 6.09. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
term, provision, or condition set forth in Sections 6.04 through 6.07,
inclusive, and such provisions of any Supplemental Indenture as may be specified
in such Supplemental Indenture, with respect to the Securities of any series if
the Holders of a majority in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision, or condition,
but no such waiver will extend to or affect such term, provision, or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision, or condition will remain in full force and
effect.
SECTION 6.10. CALCULATION OF ORIGINAL ISSUE DISCOUNT.
The Company will, to the extent applicable, file with the Trustee
promptly at the end of each calendar year (i) a written notice specifying the
amount of original issue discount (including daily rates and accrual periods)
accrued on Outstanding Securities as of the end of such year and (ii) such other
specific information relating to such original issue discount as may then be
required under the Internal Revenue Code of 1986, as amended from time to time.
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ARTICLE VII. SECURITIES HOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE.
SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee (a)
semi-annually, not more than 15 calendar days after the applicable Regular
Record Date, a list for each series of Securities, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders of Securities
of such series as of such Regular Record Date and (b) at such other times as the
Trustee may request in writing, within 30 calendar days after the receipt by the
Company of any such request, a list of similar form and content as of a date not
more than 15 calendar days prior to the time such list is furnished; excluding
from any such list names and addresses received by the Trustee in its capacity
as Security Registrar.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATION TO HOLDERS.
(a) The Trustee will preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, will be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them will be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 7.03. REPORTS BY TRUSTEE.
The Trustee will transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act or any rule or regulation of the Commission promulgated
pursuant thereto at the times and in the manner provided therein. If required by
Section 313(a) of the Trust Indenture Act, the Trustee will, within sixty days
after each May 15 following the date of this Indenture, deliver to Holders a
brief report, dated as of such May 15, which complies with the provisions of
such Section 313(a). A copy of each such report will, at the time of such
transmission to Holders, be filed by the Trustee
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with each stock exchange upon which any Securities are listed, with the
Commission, and with the Company. The Company will promptly notify the Trustee
when any Securities are listed on any stock exchange.
SECTION 7.04. REPORTS BY COMPANY.
The Company will file with the Trustee and the Commission, and
transmit to Holders, such information, documents, and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act or any
rule or regulation of the Commission promulgated pursuant thereto at the times
and in the manner provided therein; provided that any such information,
documents, or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act will be filed with the Trustee within 15
calendar days after the same is so required to be filed with the Commission.
Delivery of such reports, information, and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such will not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officer's Certificates).
ARTICLE VIII. DEFAULT.
SECTION 8.01. EVENT OF DEFAULT.
(a) "Event of Default," wherever used herein with respect to
Securities of any series, means any one of the following events (whatever the
reason for such Event of Default and whether it may be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree, or order
of any court or any order, rule, or regulation of any administrative or
governmental body):
(i) default in the payment of any interest on any Security
of that series when it becomes due and payable, and continuance of such
default for a period of 30 calendar days;
(ii) default in the payment of principal of (or premium, if
any, on) any Security of that series when it becomes due and payable,
whether by redemption, repurchase, or otherwise;
(iii) default in the making of any sinking fund payment when
and as due by the terms of a Security of that series;
(iv) default in the performance, or breach, of any covenant
or warranty of the Company in this Indenture (other than a covenant or
warranty, a default in the performance or breach of which is elsewhere in
this Section
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8.01 specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of one or more series of Securities other
than that series), and continuance of such default or breach for a period
of 60 calendar days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the Outstanding
Securities of that series a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(v) any default in the payment at maturity of principal of any
Indebtedness of the Company or any Subsidiary of the Company in an
aggregate principal amount of $10.0 million or more, which, in any such
case, (A) continues beyond any period of grace provided with respect
thereto and (B) results in such Indebtedness becoming due prior to its
stated maturity or occurs at the final maturity of such Indebtedness;
provided, however, that, subject to the provisions of Section 9.01 and
8.08, the Trustee will not be deemed to have knowledge of such nonpayment
or other default unless either (1) a Responsible Officer of the Trustee
has actual knowledge of nonpayment or other default or (2) the Trustee has
received written notice thereof from the Company, from any Holder, from
the holder of any such Indebtedness or from the trustee under the
agreement or instrument relating to such Indebtedness;
(vi) the entry of one or more judgments or orders for the payment
of money against the Company, which judgments and orders create a
liability of $25.0 million or more in excess of insured amounts and have
not been stayed (by appeal or otherwise), vacated, discharged, or
otherwise satisfied within 60 calendar days of the entry of such judgments
and orders;
(vii) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of or in respect of the Company
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator, or other similar
official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance
of any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive calendar days;
(viii) the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a
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decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
with respect to the Company under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or other similar official of the Company or of any
substantial part of its property pursuant to any such law, or the making
by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of
any such action; or
(ix) any other Event of Default provided with respect to
Securities of that series.
(b) If an Event of Default (other than an Event of Default arising
under Section 8.01(a)(vii) or (viii)) with respect to Securities of any series
at the time Outstanding occurs and is continuing, then in every case the Trustee
or the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if any of the
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount of such Securities as may be specified in the terms
thereof) of all of the Securities of that series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
amount) will become immediately due and payable. If an Event of Default under
Section 8.01(a)(vii) or (viii) occurs, then the principal of, premium, if any,
and accrued interest on the Securities shall become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
(c) At any time after such a declaration of acceleration with
respect to Securities of any series has been made and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter in this Article VIII provided, the Holders of a majority in
principal amount of the outstanding Securities of that series, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (i) the Company has paid or deposited with the Trustee a sum
sufficient to pay (A) all overdue interest on all Securities of that series, (B)
the principal of (and premium, if any, on) any Securities of that series which
have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate or rates prescribed therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest upon overdue
interest at the rate or rates prescribed therefor in such Securities, and (D)
all sums paid or advanced by the Trustee hereunder and the
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reasonable compensation, expenses, disbursements, and advances of the Trustee
and its agents and counsel and (ii) all Events of Default with respect to
Securities of that series, other than the non-payment of the principal of
Securities of that series that has become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 8.01(d). No such
rescission will affect any subsequent default or impair any right consequent
thereon.
(d) The Holders of a majority in principal amount of the Outstanding
Securities of any series may on behalf of the Holders of all the Securities of
such series waive any past default hereunder with respect to such series and its
consequences, except a default (i) in the payment of the principal of or any
premium or interest on any Security of such series or (ii) in respect of a
covenant or provision hereof which under Article X cannot be modified or amended
without the consent of the Holder of each Outstanding Security of such series
affected. Upon any such waiver, such default will cease to exist, and any Event
of Default arising therefrom will be deemed to have been cured, for every
purpose of this Indenture, but no such waiver will extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 8.02. COVENANT OF COMPANY TO PAY TO TRUSTEE WHOLE AMOUNT DUE ON
SECURITIES ON DEFAULT IN PAYMENT OF INTEREST OR PRINCIPAL;
SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that if (i) default is made in the payment
of any interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 calendar days or (ii) default is made
in the payment of the principal of (or premium, if any, on) any Security when it
becomes due and payable, the Company will, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal and any premium and interest and,
to the extent that payment of such interest will be legally enforceable,
interest on any overdue principal and premium and on any overdue interest, at
the rate or rates prescribed therefor in such Securities, and, in addition
thereto, such further amount as will be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements, and advances of the Trustee and its agents and counsel.
(b) If an Event of Default with respect to Securities of any
series occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of
such series by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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(c) In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee will be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee will be authorized to collect and receive
any money or other property payable or deliverable on any such claims and to
distribute the same, and any custodian, receiver, assignee, trustee, liquidator,
sequestrator, or other similar official in any such judicial proceeding is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee consents to the making of such payments directly to
the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements, and advances of the Trustee and its
agents and counsel, and any other amounts due the Trustee under Section 9.06.
(d) No provision of this Indenture will be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment, or composition affecting
the Securities or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and be a member of a creditors'
or other similar committee.
(e) All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee will be brought in
its own name as trustee of an express trust, and any recovery of judgment will,
after provision for the payment of the reasonable compensation, expenses,
disbursements, and advances of the Trustee and its agents and counsel, be for
the ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 8.03. APPLICATION OF MONEY COLLECTED BY TRUSTEE.
Any money collected by the Trustee pursuant to this Article VIII
will be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
or any premium or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 9.06; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and any premium and interest on the
Securities in respect of which or for the benefit of
which
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such money has been collected, ratably, without
preference or priority of any kind, according to the
amounts due and payable on such Securities for principal
and any premium and interest, respectively.
SECTION 8.04. LIMITATION ON SUITS BY HOLDERS OF SECURITIES.
No Holder of any Security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless (a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities of that
series, (b) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder, (c) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses, and liabilities to be
incurred in compliance with such request, (d) the Trustee for 60 calendar days
after its receipt of such notice, request, and offer of indemnity has failed to
institute any such proceeding, and (e) no direction inconsistent with such
written request has been given to the Trustee during such 60-day period by the
Holders of a majority in principal amount of the Outstanding Securities of that
series, it being understood and intended that no one or more of such Holders
will have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb, or prejudice the rights of any
other of such Holders, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all of such Holders.
SECTION 8.05. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION IN EXERCISE
OF RIGHTS NOT A WAIVER OF EVENT OF DEFAULT.
(a) Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost, or stolen Securities in the last
paragraph of Section 2.07, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy will, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, will not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
(b) No delay or omission of the Trustee or of any Holder of any
Securities to exercise any right or remedy accruing upon any Event of Default
will impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
VIII or by
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law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 8.06. RIGHTS OF HOLDERS OF MAJORITY IN PRINCIPAL AMOUNT OF
OUTSTANDING SECURITIES TO DIRECT TRUSTEE.
The Holders of a majority in principal amount of the Outstanding
Securities of any series will have the right to direct the Trustee with respect
to the time, method, and place of conducting any proceeding for any remedy
available to the Trustee and the exercise of any trust or power conferred on the
Trustee, in each case with respect to the Securities of such series, provided
that (a) such direction will not be in conflict with any rule of law or with
this Indenture and (b) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 8.07. REQUIREMENT OF AN UNDERTAKING TO PAY COSTS IN CERTAIN SUITS
UNDER THE INDENTURE OR AGAINST THE TRUSTEE.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered, or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs,
including legal fees and expenses, against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; provided that
neither this Section 8.07 nor the Trust Indenture Act will be deemed to
authorize any court to require such an undertaking or to make such an assessment
in any suit instituted by the Trustee or by the Company.
SECTION 8.08. NOTICE OF DEFAULTS.
If a Default occurs hereunder with respect to Securities of any
series, the Trustee will give the Holders of Securities of such series notice of
such Default actually known to it as and to the extent provided by the Trust
Indenture Act; provided, however, that in the case of any Default of the
character specified in Section 8.01(a)(iv) with respect to Securities of such
series no such notice to Holders will be given until at least 30 calendar days
after the occurrence thereof. The Company will give the Trustee notice of any
uncured Event of Default within 10 days after any Responsible Officer of the
Company becomes aware of or receives actual notice of such Event of Default.
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SECTION 8.09. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM,
AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security will have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium and (subject to Section
2.09) interest on such Security on the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights may not
be impaired without the consent of such Holder.
SECTION 8.10. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee, and the Holders will
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders will continue
as though no such proceeding had been instituted.
SECTION 8.11. TRUSTEE MAY FILE PROOFS OF CLAIMS.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements, and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceeding relative to the Company or the
Subsidiaries (or any other obligor upon the Securities), their creditors or
their property and shall be entitled and empowered to collect and receive any
monies or other property payable or deliverable on any such claim and to
distribute the same, and any custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements, and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee hereunder. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
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ARTICLE IX. CONCERNING THE TRUSTEE.
SECTION 9.01. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee will be as provided
by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture will require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee will be
subject to the provisions of this Section 9.01.
SECTION 9.02. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 9.01: (a) the Trustee may
conclusively rely and will be protected in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties; (b) any request or
direction of the Company mentioned herein will be sufficiently evidenced by a
Company Request or Company Order and any resolution of the Board will be
sufficiently evidenced by a Board Resolution; (c) whenever in the administration
of this Indenture the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering, or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officer's Certificate; (d) the
Trustee may consult with counsel of its selection and the advice of such counsel
or any Opinion of Counsel will be full and complete authorization and protection
in respect of any action taken, suffered, or omitted by it hereunder in good
faith and in reliance thereon; (e) the Trustee will be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses, and liabilities which might be incurred by it in
compliance with such request or direction; (f) the Trustee will not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
will be entitled to examine the books, records, and premises of the Company,
personally or by agent or attorney; (g) the Trustee may execute any of the
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trusts or powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee will not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder; (h) the Trustee will not be liable for any action taken,
suffered, or omitted to be taken by it in good faith and reasonably believed by
it to be authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and (i) the Trustee will not be deemed to have notice of
any Default or Event of Default unless a Responsible Officer of the Trustee has
actual knowledge thereof or unless written notice of any event or circumstance
which is in fact such a Default or Event of Default is received by the Trustee
at the Corporate Trust Office of the Trustee, and such notice references the
Securities (or the applicable series thereof) and this Indenture.
SECTION 9.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, may be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. The Trustee
or any Authenticating Agent will not be accountable for the use or application
by the Company of Securities or the proceeds thereof.
SECTION 9.04. MAY HOLD SECURITIES.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar, or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 9.07 and 9.12, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar, or such other agent.
SECTION 9.05. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required herein or by law. The Trustee
will be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 9.06. COMPENSATION AND REIMBURSEMENT.
(a) The Company will (i) pay to the Trustee from time to time such
compensation as shall be agreed to in writing between the Company and the
Trustee for all services rendered by it hereunder (which compensation will not
be limited to any provision of law in regard to the compensation of a trustee of
an express trust);
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(ii) except as otherwise expressly provided herein, reimburse the Trustee upon
its request for all reasonable expenses, disbursements, and advances incurred or
made by the Trustee in accordance with provision of this Indenture (including
the reasonable compensation and the expenses and disbursements of agents and
counsel), except any such expense, disbursement, or advance as may be
attributable to its negligence or bad faith; and (iii) indemnify the Trustee and
any predecessor Trustee for, and hold them harmless against, any and all losses,
liabilities, damages, claims and expenses, including taxes (other than taxes
based on the income of the Trustee or predecessor Trustee and other taxes
relating to the Trustee's or predecessor Trustee's overall business and
operations) incurred without negligence or bad faith on its part arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.
(b) The Trustee will have a lien prior to the Securities as to all
property and funds held by it hereunder for any amount owed to it or any
predecessor Trustee pursuant to this Section 9.06, except with respect to funds
held in trust for the benefit of the Holders of particular Securities.
(c) When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 8.01(a)(vii) or Section
8.01(a)(viii), such expenses (including the reasonable fees and expenses of its
counsel) and the Trustee's compensation for such services are intended to
constitute expenses of administration under any applicable federal or state
bankruptcy, insolvency, or other similar law.
(d) The provisions of this Section 9.06 will survive the termination
of this Indenture.
SECTION 9.07. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or acquires a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee will either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 9.08. CORPORATE TRUSTEE REQUIRED ELIGIBILITY.
There will at all times be one or more Trustees hereunder with
respect to the Securities of each series, at least one of which will be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $100,000,000 and its Corporate Trust
Office or principal office in New York City, or any other major city in the
United States that is acceptable to the Company. If such Person publishes
reports of condition at least annually, pursuant to
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law or to the requirements of a supervising or examining state or federal
authority, then for the purposes of this Section 9.08, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section 9.08, it will resign immediately in the manner and with the effect
hereinafter specified in this Article IX.
SECTION 9.09. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article IX will become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 9.10.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 9.10 shall not have been delivered to the Trustee within 30 calendar
days after the giving of such notice of resignation, the resigning Trustee may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 9.10 shall not have been delivered to the Trustee within 30 calendar
days after the giving of such notice of removal, the Trustee being removed may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(d) If, at any time, (i) the Trustee fails to comply with Section
9.07 after written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, (ii) the Trustee
ceases to be eligible under Section 9.08 and fails to resign after written
request therefor by the Company or by any such Holder, or (iii) the Trustee
becomes incapable of acting or is adjudged a bankrupt or insolvent or a receiver
of the Trustee or of its property is appointed or any public officer takes
charge or control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation, or liquidation, then, in any such case, (A) the
Company by a Board Resolution may remove the Trustee with respect to all
Securities or (B) subject to Section 8.07, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee with respect to all Securities and the appointment of a
successor Trustee or Trustees.
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(e) If the Trustee resigns, is removed, or becomes incapable of
acting, or if a vacancy occurs in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company by a Board
Resolution will promptly appoint a successor Trustee or Trustees with respect to
the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there will be only one Trustee with
respect to the Securities of any particular series) and will comply with the
applicable requirements of Section 9.10. If, within one year after such
resignation, removal, or incapability or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series is appointed by
Act of the Holders of a majority in principal amount of the Outstanding
Securities of such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed will, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 9.10,
become the successor Trustee with respect to the Securities of such series and
to that extent supersede the successor Trustee appointed by the Company. If no
successor Trustee with respect to the Securities of any series shall have been
so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 9.10, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company will give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to all holders of Securities of such series in the manner provided in Section
13.03. Each notice will include the name of the successor Trustee with respect
to the Securities of such series and the address of its Corporate Trust Office.
SECTION 9.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed will
execute, acknowledge, and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee will become effective and such successor Trustee,
without any further act, deed, or conveyance, will become vested with all the
rights, powers, trusts, and duties of the retiring Trustee, but, on the request
of the Company or the successor Trustee, such retiring Trustee will, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers, and duties of the retiring Trustee and
will duly assign, transfer, and deliver to such Trustee all property and money
held by such retiring Trustee hereunder.
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(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee, and each successor Trustee with respect to the Securities of
one or more series will execute and deliver an indenture supplemental hereto
wherein such successor Trustee will accept such appointment and which (i) will
contain such provisions as may be necessary or desirable to transfer and confirm
to, and to vest in, each successor Trustee all the rights, powers, trusts, and
duties of the retiring Trustee with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates, (ii) if the
retiring Trustee is not retiring with respect to all Securities, will contain
such provisions as may be deemed necessary or desirable to confirm that all the
rights, powers, trusts, and duties of the retiring Trustee with respect to the
Securities of that or those series as to which the retiring Trustee is not
retiring will continue to be vested in the retiring Trustee, and (iii) will add
to or change any of the provisions of this Indenture as may be necessary to
provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such
supplemental indenture will constitute such Trustees co-trustees of the same
trust and that each such Trustee will be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustees and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee will become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed, or conveyance, will become vested with all the rights, powers,
trusts, and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates;
but on request of the Company or any successor Trustee, such retiring Trustee
will duly assign, transfer, and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the Securities
of that or those series to which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company will
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all applicable rights, powers, and trusts
referred to in the preceding paragraphs of this Section 9.10.
(d) No successor Trustee will accept its appointment unless at the
time of such acceptance such successor Trustee is qualified and eligible under
this Article IX.
SECTION 9.11. MERGER, CONVERSION, CONSOLIDATION, OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Trustee may be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, will be the successor of the Trustee hereunder, provided such
corporation is otherwise
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qualified and eligible under this Article IX, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion, or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 9.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee is or becomes a creditor of the Company (or
any other obligor upon the Securities), the Trustee will be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 9.13. APPOINTMENT OF AUTHENTICATING AGENT.
(a) The Trustee may appoint an Authenticating Agent or Agents with
respect to one or more series of Securities which will be authorized to act on
behalf of the Trustee to authenticate Securities of such series issued upon
original issue and upon exchange, registration of transfer, or partial
redemption thereof or pursuant to Section 2.07, and Securities so authenticated
will be entitled to the benefits of this Indenture and will be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference will be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States of America, any state thereof, or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by federal or state authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section 9.13,
the combined capital and surplus of such Authenticating Agent will be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 9.13, such
Authenticating Agent will resign immediately in the manner and with the effect
specified in this Section 9.13.
(b) Any corporation into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion, or consolidation to which such Authenticating Agent
may be a party, or any corporation succeeding to the corporate agency or
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corporate trust business of an Authenticating Agent, will continue to be an
Authenticating Agent, provided such corporation is otherwise eligible under this
Section 9.13, without the execution or filing of any paper or any further act on
the part of the Trustee or the Authenticating Agent.
(c) An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions this Section 9.13, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and will mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities of the series with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder will
become vested with all the rights, powers, and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent will be appointed unless eligible under the
provisions of this Section 9.13.
(d) The Trustee agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this Section 9.13, and
the Trustee will be entitled to be reimbursed for such payments, subject to the
provisions of Section 9.06.
(e) If an appointment with respect to one or more series of
Securities is made pursuant to this Section 9.13, the Securities of such series
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative form of certificate of authentication in the
following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
By:
---------------------------------
As Authenticating Agent
By:
---------------------------------
Authorized Signatory
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ARTICLE X. SUPPLEMENTAL INDENTURES AND CERTAIN ACTIONS.
SECTION 10.01. PURPOSES FOR WHICH SUPPLEMENTAL INDENTURES MAY BE
ENTERED INTO WITHOUT CONSENT OF HOLDERS.
Without the consent of or notice to any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
herein and in the Securities, all to the extent otherwise permitted
hereunder;
(b) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to
be for the benefit of less than all series of Securities, stating that
such covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company;
(c) to add any additional Events of Default;
(d) to add to or change any of the provisions of this Indenture to
such extent as may be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the
issuance of Securities in uncertificated form;
(e) to add to, change, or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, provided that
any such addition, change, or elimination (i) will neither (A) apply to
any Security of any series created prior to the execution of such
supplemental indenture and entitled to the benefit of such provision nor
(B) modify the rights of the Holder of any such Security with respect to
such provision or (ii) will become effective only when there is no such
Security Outstanding;
(f) to establish the form or terms of Securities of any series as
permitted by Sections 2.01 and 2.02;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this
Indenture as may be necessary to provide for or facilitate the
administration of the trusts
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hereunder by more than one Trustee, pursuant to the requirements of
Section 9.10; or
(h) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided that such action pursuant
to this clause (h) will not adversely affect the interests of the Holders
of Securities of any series in any material respect.
SECTION 10.02. MODIFICATION OF INDENTURE WITH CONSENT OF HOLDERS OF AT
LEAST A MAJORITY IN PRINCIPAL AMOUNT OF OUTSTANDING
SECURITIES.
(a) With the consent of the Holders of a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture will, without the consent of the Holder of
each Outstanding Security affected thereby:
(i) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or reduce the amount of the principal
of an Original Issue Discount Security that would be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Sections
8.01(b), or change any Place of Payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date);
(ii) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of
which is required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture; or
(iii) modify any of the provisions of this Section 10.02, Section
8.01(d) or Section 6.09, except to increase the percentage in principal
amount of Holders required under any such Section or to provide that
certain other
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provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby,
provided, however, that this clause (c) will not be deemed to require the
consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section 10.02 and Section 6.09,
or the deletion of this proviso, in accordance with the requirements of
Sections 9.10 and 10.01(g).
(b) A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, will be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
(c) It will not be necessary for any Act of Holders under this
Section 10.02 to approve the particular form of any proposed supplemental
indenture, but it will be sufficient if such Act approves the substance thereof.
SECTION 10.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article X or the modifications thereby
of the trusts created by this Indenture, the Trustee will be entitled to
receive, and (subject to Section 9.01) will be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but will not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, or immunities under this Indenture or otherwise.
SECTION 10.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article
X, this Indenture will be modified in accordance therewith, and such
supplemental indenture will form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder will be bound thereby.
SECTION 10.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article X
will conform to the requirements of the Trust Indenture Act.
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SECTION 10.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article X may, and will
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE XI. CONSOLIDATION, MERGER, SALE, OR TRANSFER.
SECTION 11.01. CONSOLIDATIONS AND MERGERS OF COMPANY AND SALES PERMITTED
ONLY ON CERTAIN TERMS.
(a) The Company shall not consolidate with or merge with or into any
other Person, or transfer (by lease, assignment, sale, or otherwise) its
properties and assets substantially as an entirety to another Person unless (i)
either (A) the Company shall be the continuing or surviving Person in such a
consolidation or merger or (B) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company are transferred substantially as an
entirety (the Company or such other Person being referred to as the "Surviving
Person") shall be a corporation organized and validly existing under the laws of
the United States, any state thereof, or the District of Columbia, and shall
expressly assume, by an indenture supplement, all the obligations of the Company
under the Securities and the Indenture, (ii) immediately after the transaction
and the incurrence or anticipated incurrence of any Indebtedness to be incurred
in connection therewith, no Default will exist, and (iii) an Officer's
Certificate has been delivered to the Trustee to the effect that the conditions
set forth in the preceding clauses (i) and (ii) have been satisfied and an
Opinion of Counsel (from a counsel who shall not be an employee of the Company)
has been delivered to the Trustee to the effect that the conditions set forth in
the preceding clause (i) have been satisfied.
(b) The Surviving Person will succeed to and be substituted for the
Company with the same effect as if it had been named herein as a party hereto,
and thereafter the predecessor corporation (if it is not the Surviving Person)
will be relieved of all obligations and covenants under this Indenture and the
Securities.
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ARTICLE XII. SATISFACTION AND DISCHARGE OF INDENTURE.
SECTION 12.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture will upon a Company Request cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, at the
expense the Company, will execute proper instruments acknowledging satisfaction
and discharge of this Indenture, when: (a) either (i) all Securities theretofore
authenticated and delivered (other than (A) Securities which have been
destroyed, lost, or stolen and which have been replaced or paid as provided in
Section 2.07 and (B) Securities for the payment of which money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as provided in
Section 6.03) have been delivered to the Trustee for cancellation or (ii) all
such Securities not theretofore delivered to the Trustee for cancellation (A)
have become due and payable, (B) will become due and payable at their Stated
Maturity within one year, or (C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company, in the case of clause (A), (B), or (C) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for such purpose
an amount sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal and any premium and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be; (b) the Company has paid or caused to be
paid all other sums payable hereunder by the Company; and (c) the Company has
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.06, the obligations of
the Company to any Authenticating Agent under Section 9.13, and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section 12.01, the obligations of the Trustee under Sections 6.03(e) and
12.02, will survive.
SECTION 12.02. APPLICATION OF TRUST MONEY.
Subject to provisions of Section 6.03(e), all money deposited with the Trustee
pursuant to Section 12.01 will be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and any premium and interest for whose payment such money has been
deposited with the Trustee.
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ARTICLE XIII. MISCELLANEOUS PROVISIONS.
SECTION 13.01. SUCCESSORS AND ASSIGNS OF COMPANY BOUND BY INDENTURE.
All the covenants, stipulations, promises, and agreements in this
Indenture contained by or on behalf of the Company will bind its successors and
assigns, whether so expressed or not.
SECTION 13.02. SERVICE OF REQUIRED NOTICE TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent,
waiver, Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with (a) the Trustee by any
Holder or by the Company will, upon receipt, be sufficient for every purpose
hereunder if made, given, furnished, or filed in a writing received by the
Trustee at its Corporate Trust Office (addressed to the attention of: Corporate
Trust Trustee Administration) or (b) the Company by the Trustee or by any Holder
will, upon receipt, be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished, or filed in a writing
received by the Company at its principal executive offices (addressed to the
attention of both its Chief Financial Officer and its General Counsel).
SECTION 13.03. SERVICE OF REQUIRED NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event,
such notice will be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at his address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder will affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver will be the equivalent of such notice. Waivers of notice by Holders
will be filed with the Trustee, but such filing will not be a condition
precedent to the validity of any action taken in reliance upon such waiver. In
case by reason of the suspension of regular mail service or by reason of any
other cause it will be impracticable to give such notice by mail, then such
notification as may be made with the approval of the Trustee will constitute a
sufficient notification for every purpose hereunder.
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SECTION 13.04. INDENTURE AND SECURITIES TO BE CONSTRUED IN ACCORDANCE
WITHTHE LAWS OF THE STATE OF NEW YORK.
This Indenture and the Securities will be deemed to be a contract
made under the laws of the State of New York, and for all purposes will be
construed in accordance with the laws of said State without giving effect to
principles of conflict of laws of such State.
SECTION 13.05. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company will
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act. Each such certificate or opinion will be given in the
form of an Officer's Certificate, if to be given by an officer of the Company,
or an Opinion of Counsel, if to be given by counsel, and will comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
SECTION 13.06. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents. Where any
Person is required to make, give, or execute two or more applications, requests,
consents, certificates, statements, opinions, or other instruments under this
Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 13.07. PAYMENTS DUE ON NON-BUSINESS DAYS.
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity of any Security shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or of the
Securities (other than a provision of the Securities of any series which
specifically states that such provision will apply in lieu of this Section
13.07)) payment of interest or principal (and premium, if any) need not be made
at such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date or Redemption Date, or at the Stated Maturity, and
no interest shall accrue for the intervening period.
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SECTION 13.08. PROVISIONS REQUIRED BY TRUST INDENTURE ACT TO CONTROL.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed on any Person by Sections 310 through 317 of the Trust
Indenture Act (including provisions automatically deemed included in this
Indenture pursuant to the Trust Indenture Act unless this Indenture provides
that such provisions are excluded), which are deemed to be a part of and govern
this Indenture, whether or not contained herein, then such imposed duties will
control.
SECTION 13.09. INVALIDITY OF PARTICULAR PROVISIONS.
In case any one or more of the provisions contained in this
Indenture or in the Securities is for any reason held to be invalid, illegal, or
unenforceable in any respect, such the validity, illegality, or enforceability
will not affect any other provision of this Indenture or of the Securities, but
this Indenture and such Securities will be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 13.10. INDENTURE MAY BE EXECUTED IN COUNTERPARTS.
This instrument may be executed in any number of counterparts, each
of which will be an original, but such counterparts will together constitute but
one and the same instrument.
SECTION 13.11. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver, or other action provided or permitted by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action will become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent will be sufficient for any purpose of this
Indenture and (subject to Section 9.01) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section 13.11.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a
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signer acting in a capacity other than his individual capacity, such certificate
or affidavit will also constitute sufficient proof of his authority. The fact
and date of the execution of any such instrument or writing, or the authority of
the Person executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) The ownership of Securities will be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver, or other Act of the Holder of any Security will bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange thereof or in lieu thereof in
respect of anything done, omitted, or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) The Company may, in the circumstances permitted by the Trust
Indenture Act, set any day as the record date for the purpose of determining the
Holders of Outstanding Securities of any series entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver, or other
action provided or permitted by this Indenture to be given or taken by Holders
of Securities of such series. With regard to any record date set pursuant to
this paragraph, the Holders of Outstanding Securities of the relevant series on
such record date (or their duly appointed agents), and only such Persons, will
be entitled to give or take the relevant action, whether or not such Holders
remain Holders after such record date. With regard to any action that may be
given or taken hereunder only by Holders of a requisite principal amount of
Outstanding Securities of any series (or their duly appointed agents) and for
which a record date is set pursuant to this paragraph, the Company may, at its
option, set an expiration date after which no such action purported to be given
or taken by any Holder will be effective hereunder unless given or taken on or
prior to such expiration date by Holders of the requisite principal amount of
Outstanding Securities of such series on such record date (or their duly
appointed agents). On or prior to any expiration date set pursuant to this
paragraph, the Company may, on one or more occasions at its option, extend such
date to any later date. Nothing in this paragraph will prevent any Holder (or
any duly appointed agent thereof) from giving or taking, after any such
expiration date, any action identical to, or, at any time, contrary to or
different from, the action or purported action to which such expiration date
relates, in which event the Company may set a record date in respect thereof
pursuant to this paragraph. Nothing in this Section 13.11(e) will be construed
to render ineffective any action taken at any time by the Holders (or their duly
appointed agents) of the requisite principal amount of Outstanding Securities of
the relevant series on the date such action is so taken. Notwithstanding the
foregoing or the Trust Indenture Act, the Company will not set a record date
for, and the provisions of this Section 13.11(e) will not apply with respect to,
any notice, declaration, or direction referred to in the next paragraph.
58
<PAGE>
(f) Upon receipt by the Trustee from any Holder of Securities of a
particular series of (a) any notice of default or breach referred to in Section
8.01(a)(iv) or 8.01(a)(v) with respect to Securities of such series, if such
default or breach has occurred and is continuing and the Trustee shall not have
given such notice to the Company, (b) any declaration of acceleration referred
to in Section 8.01(b), if an Event of Default with respect to Securities of such
series has occurred and is continuing and the Trustee shall not have given such
a declaration to the Company, or (c) any direction referred to in Section 8.06
with respect to Securities of such series, if the Trustee shall not have taken
the action specified in such direction, then a record date will automatically
and without any action by the Company or the Trustee be set for determining the
Holders of Outstanding Securities of such series entitled to join in such
notice, declaration, or direction, which record date will be the close of
business on the tenth calendar day following the day on which the Trustee
receives such notice, declaration, or direction. Promptly after such receipt by
the Trustee, and in any case not later than the fifth calendar day thereafter,
the Trustee will notify the Company and the Holders of Outstanding Securities of
such series of any such record date so fixed. The Holders of Outstanding
Securities of such series on such record date (or their duly appointed agents),
and only such Persons, will be entitled to join in such notice, declaration, or
direction, whether or not such Holders remain Holders after such record date;
provided that, unless such notice, declaration, or direction shall have become
effective by virtue of Holders of the requisite principal amount of Outstanding
Securities of such series on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th calendar day after such record
date, such notice, declaration, or direction will automatically and without any
action by any Person be cancelled and of no further effect. Nothing in this
Section 13.11(f) will be construed to prevent a Holder (or a duly appointed
agent thereof) from giving, before or after the expiration of such 90-day
period, a notice, declaration, or direction contrary to or different from, or,
after the expiration of such period, identical to, the notice, declaration, or
direction to which such record date relates, in which event a new record date in
respect thereof will be set pursuant to this Section 13.11(f). Nothing in this
Section 13.11(f) will be construed to render ineffective any notice,
declaration, or direction of the type referred to in this Section 13.11(f) given
at any time to the Trustee and the Company by Holders (or their duly appointed
agents) of the requisite principal amount of Outstanding Securities of the
relevant series on the date such notice, declaration, or direction is so given.
(g) Without limiting the foregoing, a Holder entitled hereunder to
give or take any action hereunder with regard to any particular Security may do
so with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
59
<PAGE>
SECTION 13.12. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and will not affect the construction hereof.
SECTION 13.13. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
will give to any Person, other than the parties hereto and their successors
hereunder and the Holders, any benefit or any legal or equitable right, remedy,
or claim under this Indenture.
--------------------
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
[Seal] EDISON BROTHERS STORES, INC.
By: ----------------------------
Name: ----------------------------
Title:----------------------------
Attest:
- ------------------------------
Name: -----------------------
Title: -----------------------
THE BANK OF NEW YORK, AS TRUSTEE
By: -----------------------------
Name: -----------------------------
Title:-----------------------------
Attest:
- -------------------------------
Name: ------------------------
Title: ------------------------
61
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of , 1997, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he/she is ___________________ of EDISON BROTHERS STORES, INC., one of
the entities described in and which executed the above instrument; that he/she
knows the seal of said entity; that the seal or a facsimile thereof affixed to
said instrument is such seal; that it was so affixed by authority of the Board
of Directors of said entity, and that he/she signed his/her name thereto by like
authority.
_____________________________________
Notary Public
In Witness Whereof, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
______________________________________
Notary Public
62
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of , 1997, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he/she is ___________________ of THE BANK OF NEW YORK, one of the
entities described in and which executed the above instrument; that he/she knows
the seal of said entity; that the seal or a facsimile thereof affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of said entity, and that he/she signed his/her name thereto by like
authority.
___________________________________
Notary Public
In Witness Whereof, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
___________________________________
Notary Public
63
Exhibit T3C-2
-------------
Draft of July 2, 1997
Edison Brothers Stores, Inc.
and
The Bank of New York,
Trustee
FIRST SUPPLEMENTAL TRUST INDENTURE
Dated as of __________, 1997
Supplementing that certain
INDENTURE
Dated as of __________, 1997
Authorizing the Issuance and Delivery of
Debt Securities
consisting of $___________* aggregate principal amount
of 11% Senior Notes due 2007
- --------------------
* In the execution version, the appropriate amount determined in accordance
with Exhibit B and Section 1.15 of the Plan will be inserted here and in
the first paragraph on page 3.
<PAGE>
TABLE OF CONTENTS
Page
RECITALS............................................................. 1
[Form of Face of Security]........................................... 2
[Form of Reverse of Security]........................................ 4
ARTICLE I. ISSUANCE OF SENIOR NOTES................................. 8
Section 1. Issuance of Senior Notes; Principal Amount;
Maturity .................................... 8
Section 1.2. Interest on the Senior Notes; Payment of
Interest .................................... 8
ARTICLE II. CERTAIN DEFINITIONS..................................... 9
Section 2.1. Certain Definitions.......................... 9
ARTICLE III. CERTAIN COVENANTS...................................... 16
Section 3.1. Indebtedness................................. 16
Section 3.2. Liens........................................ 16
Section 3.3. Restricted Payments.......................... 16
Section 3.4. Change of Control............................ 18
Section 3.5. Payment Restrictions Affecting Subsidiaries.. 19
Section 3.6. Issuance of Subsidiary Preferred Stock....... 20
Section 3.7. Asset Sales.................................. 20
Section 3.8. Transactions with Affiliates................. 21
Section 3.9. Sale and Leaseback Transactions.............. 21
ARTICLE IV. ADDITIONAL EVENTS OF DEFAULT............................ 22
Section 4.1. Additional Events of Default................. 22
ARTICLE V. REDEMPTION OF SECURITIES................................. 22
Section 5.1. Right of Redemption.......................... 22
Section 5.2. Repurchase................................... 22
ARTICLE VI. DEFEASANCE.............................................. 22
Section 6.1. Applicability of Article V of the Indenture.. 22
ARTICLE VII. MISCELLANEOUS.......................................... 23
Section 7.1. Reference to and Effect on the Indenture..... 23
Section 7.2. Waiver of Certain Covenants.................. 23
i
<PAGE>
Section 7.3. Supplemental Indenture May be Executed in
Counterparts................................. 23
ii
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of __________, 1997 (this "First
Supplemental Indenture"), between Edison Brothers Stores, Inc., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), and The Bank of New York, a New York banking corporation, as Trustee
(the "Trustee"), supplementing that certain Indenture, dated as of __________,
1997, between the Company and the Trustee (the "Indenture").
RECITALS
A. The Company has duly authorized the execution and delivery of the
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes and/or other unsecured evidences of indebtedness (the
"Securities") to be issued in one or more series as provided for in the
Indenture.
B. The Indenture provides that the Securities of each series shall be in
such form as may be established by or pursuant to a Board Resolution or in one
or more indentures supplemental thereto, and may have such letters, numbers, or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution thereof.
C. The Company and the Trustee have agreed that the Company shall issue
and deliver, and the Trustee shall authenticate, Securities denominated "11%
Senior Notes due 2007" (the "Senior Notes") pursuant to the terms of this First
Supplemental Indenture and substantially in the form set forth below, in each
case with such appropriate insertions, omissions, substitutions, and other
variations as are required or permitted by the Indenture and this First
Supplemental Indenture, and with such letters, numbers, or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Senior
Notes, as evidenced by their execution thereof.
1
<PAGE>
[Form of Face of Security]
EDISON BROTHERS STORES, INC.
11% SENIOR NOTE DUE 2007
No. R-__________ $__________
CUSIP No.
- -----------
EDISON BROTHERS STORES, INC., a corporation duly organized and existing
under the laws of the State of Delaware (hereinafter called the "Company," which
term includes any successor Person under the Indenture hereinafter referred to),
for value received, hereby promises to pay to [_______________], or registered
assigns, the principal sum of $__________ on [the later of the tenth anniversary
of the Effective Date and July 31, 2007], subject to earlier redemption or
repurchase as described below, and to pay interest thereon from [the earlier of
the Effective Date and July 31, 1997], or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, at the rate of 11%
per annum, payable semiannually on January 31 and July 31 of each year,
commencing on January 31, 1998, until the principal hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date shall, as provided in said Indenture,
be computed on the basis of a 360-day year consisting of twelve 30-day months
and paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the January 15 or July 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than 10
calendar days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
Payment of the principal of and any such interest on this Security shall
be made at the office or agency of the Company maintained for such purpose in
New York, New York, in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address appears in the Security Register.
2
<PAGE>
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS SET FORTH ON THE
REVERSE HEREOF. SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS
THOUGH FULLY SET FORTH IN THIS PLACE.
This Security shall not be valid or become obligatory for any purpose
until the certificate of authentication herein has been signed manually by the
Trustee under said Indenture.
IN WITNESS WHEREOF, this instrument has been duly executed in accordance
with the Indenture.
EDISON BROTHERS STORES, INC.
By: ----------------------
Name: ----------------------
Attest: Title:----------------------
By: ------------------------
3
<PAGE>
[Form of Reverse of Security]
EDISON BROTHERS STORES, INC.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities") issued and to be issued in one or more
series under an Indenture, dated as of __________, 1997 (herein called the
"Indenture"), between the Company and The Bank of New York, as Trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, and immunities thereunder of the Company, the Trustee, and the Holders
of the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $-----------.
No sinking fund is provided for the Securities. The Securities are subject
to redemption at the option of the Company, at any time and from time to time,
in whole or in part, in increments of not less than $5.0 million, upon not more
than 60 nor less than 30 days' notice to the Holders prior to the Redemption
Date, at the following Redemption Prices (expressed as percentages of the
principal amount): If redeemed on or before June 30, 1998, 100%, and if redeemed
during the 12-month period beginning on July 1 of the years indicated:
Year Redemption
Price
1998............................. 104%
1999............................. 103%
2000............................. 102%
2001............................. 101%
2002 and thereafter.............. 100%,
together, in the case of any such redemption, with accrued and unpaid interest
to the date of redemption.
If less than all of the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed will be selected by such method as
the Trustee may deem fair and appropriate. In the event of the redemption of
this Security in part only, a new Security or Securities of this series and of
like tenor for the portion hereof not so redeemed shall be issued in the name of
the Holder hereof upon the cancellation hereof.
4
<PAGE>
Upon the occurrence of a Change of Control, the Company is required to
repurchase the Securities, at the option of the Holders thereof, at a purchase
price equal to 101% of the outstanding principal amount thereof, together in the
case of any such purchase with accrued and unpaid interest to the Repurchase
Date, but interest installments with a Stated Maturity on or prior to such
Repurchase Date shall be payable to the Holders of such Securities of record at
the close of business on the relevant Regular Record Dates referred to on the
face hereof all as provided in the Indenture. In the event of the repurchase of
this Security in part only, a new Security or Securities of this series of like
tenor for the portion hereof not so repurchased shall be issued in the name of
the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness evidenced by this Security or (b) certain restrictive
covenants and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a
5
<PAGE>
direction inconsistent with such request and the Trustee shall have failed to
institute such proceeding for 60 calendar days after receipt of such notice,
request, and offer of indemnity. However, the foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or interest hereon on or after the respective due
dates therefor expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium or interest
on this Security at the times, place, and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series and of like
tenor, of authorized denominations and for the same aggregate principal amount,
shall be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof. As provided
in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee, and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security shall be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security that are defined in the Indenture shall
have the respective meanings assigned to them in the Indenture. This Security
and the Indenture shall be construed in accordance with the laws of the State of
New York without giving effect to principles of conflict of laws of such State.
D. The Trustee's certificate of authentication shall be in
substantially the following form:
6
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
Dated: The Bank of New York, as Trustee
By: --------------------------
Authorized Signatory
E. All acts and things necessary to make the Senior Notes, when the Senior
Notes have been executed by the Company and authenticated by the Trustee and
delivered as provided in the Indenture and this First Supplemental Indenture,
the valid, binding, and legal obligations of the Company and to constitute these
presents a valid indenture and agreement according to its terms, have been done
and performed, and the execution and delivery by the Company of the Indenture
and this First Supplemental Indenture and the issue hereunder of the Senior
Notes have in all respects been duly authorized; and the Company, in the
exercise of legal right and power in it vested, has executed and delivered the
Indenture and is executing and delivering this First Supplemental Indenture and
proposes to make, execute, issue, and deliver the Senior Notes.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
In order to declare the terms and conditions upon which the Senior Notes
are authenticated, issued, and delivered, and in consideration of the premises
and of the purchase and acceptance of the Senior Notes by the Holders thereof,
it is mutually agreed, for the equal and proportionate benefit of the respective
Holders from time to time of the Senior Notes, as follows:
7
<PAGE>
ARTICLE I. ISSUANCE OF SENIOR NOTES.
Section 1.1. Issuance of Senior Notes; Principal Amount; Maturity.
(a) On __________, 1997, the Company shall issue and deliver to the
Trustee, and the Trustee shall authenticate, Senior Notes substantially in the
form set forth above, in each case with such appropriate insertions, omissions,
substitutions, and other variations as are required or permitted by the
Indenture and this First Supplemental Indenture, and with such letters, numbers,
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or as
may, consistently herewith, be determined by the officers executing such Senior
Notes, as evidenced by their execution thereof.
(b) The Senior Notes shall be issued in the aggregate principal amount of
$100,000,000 and shall mature on [the later of the tenth anniversary of the
Effective Date and July 31, 2007].
Section 1.2. Interest on the Senior Notes; Payment of Interest.
(a) The Senior Notes shall bear interest at the rate of 11% per annum from
[the earlier of the Effective Date and July 31, 1997], or, if later, from the
most recent Interest Payment Date to which interest has been paid or duly
provided for.
(b) The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date shall, as provided in the Indenture, be paid to the
Person in whose name a Senior Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 15 or July 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name the Senior Note (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 calendar days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities of this series may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in the Indenture.
(c) Payment of the principal of and any such interest on the Senior Notes
shall be made at the office or agency of the Company maintained for such purpose
in New York, New York, in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts; provided, however, that at the option of the Company payment of interest
may be made by
8
<PAGE>
check mailed to the address of the Person entitled thereto as such address
appears in the Security Register.
ARTICLE II. CERTAIN DEFINITIONS.
Section 2.1. Certain Definitions.
The terms defined in this Section 2.1 (except as herein otherwise
expressly provided or unless the context of this First Supplemental Indenture
otherwise requires) for all purposes of this First Supplemental Indenture and of
any indenture supplemental hereto have the respective meanings specified in this
Section 2.1. All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP. All other terms used in this First
Supplemental Indenture that are defined in the Indenture or the Trust Indenture
Act, either directly or by reference therein (except as herein otherwise
expressly provided or unless the context of this First Supplemental Indenture
otherwise requires), have the respective meanings assigned to such terms in the
Indenture or the Trust Indenture Act, as the case may be, as in force at the
date of this First Supplemental Indenture as originally executed.
"Affiliate" has the meaning ascribed thereto in Section 3.8.
"Bank Facilities" means [describe new working capital facility, which
shall be on terms acceptable to the Creditors Committee], as the same may be
amended, supplemented, or otherwise modified from time to time.
"Cash Equivalent" means: (a) obligations issued or unconditionally
guaranteed as to principal and interest by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America; (b) obligations (including, but
not limited to, demand or time deposits, bankers' acceptances, and certificates
of deposit) issued by a depository institution or trust company or a wholly
owned Subsidiary of the Company or branch office of any depository institution
or trust company, provided that (i) such depository institution or trust company
has, at the time of the Company's or any of its Subsidiaries' investment therein
or contractual commitment providing for such investment, capital, surplus, or
undivided profits (as of the date of such institution's most recently published
financial statements) in excess of $100.0 million and (ii) the commercial paper
of such depository institution or trust company, at the time of the Company's or
any of its Subsidiaries' investment therein or contractual commitment providing
for such investment, is rated at least A1 by S&P or P-1 by Moody's; (c) debt
obligations (including, but not limited to, commercial paper and medium term
notes) issued or unconditionally guaranteed as to principal and interest by any
corporation, state or municipal government or agency or instrumentality thereof,
or foreign sovereignty, if the commercial paper of such corporation, state or
municipal government or foreign sovereignty, at the time of the Company's or any
of its
9
<PAGE>
Subsidiaries' investment therein or contractual commitment providing for such
investment, is rated at least A1 by S&P or P-1 by Moody's; (d) repurchase
obligations with a term of not more than seven calendar days for underlying
securities of the type described above entered into with a depository
institution or trust company meeting the qualifications described in clause (b)
above; and (e) Investments in money market or mutual funds that invest
predominantly in Cash Equivalents of the type described in clauses (a), (b),
(c), and (d) above; provided, however, that, in the case of clause (a) above,
each such investment has a maturity of 762 days or less from the date of
acquisition thereof, and, in the case of clauses (b) and (c) above, each such
investment has a maturity of 397 days or less from the date of acquisition
thereof.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" (other than an Exempt Person) or "group" (other than a group
that includes at least one Exempt Person to whom or which more than 300,000
shares of Common Stock of the Company shall be distributable and/or shall have
been distributed pursuant to the Plan or at least one Person who or which
directly or indirectly controls, is directly or indirectly controlled by, or is
under direct or indirect common control with, such an Exempt Person) (as the
terms "person" and "group" are used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of more than 50% of the total
voting power of all classes of stock entitled to vote generally in the election
of directors of the Company ("Voting Stock"); (b) the Company consolidates with,
or merges with or into, another Person or sells, assigns, conveys, transfers,
leases, or otherwise disposes of all or substantially all of its assets to any
Person, in any such event pursuant to a transaction in which the outstanding
Voting Stock is converted into or exchanged for cash, securities, or other
property, and immediately after such transaction, any "person" (other than an
Exempt Person) or "group" (other than a group that includes at least one Exempt
Person to whom or which more than 300,000 shares of Common Stock of the Company
shall be distributable and/or shall have been distributed pursuant to the Plan
or at least one Person who or which directly or indirectly controls, is directly
or indirectly controlled by, or is under direct or indirect common control with,
such an Exempt Person) (as the terms "person" and "group" are used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of all classes of Voting
Stock (or, if the Person surviving or resulting from such transaction or
acquiring such assets is not the Company, of more than 50% of the total voting
power of the equity interests in such Person that are most analogous to Voting
Stock); (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office;
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or (d) the dissolution or liquidation of the Company (to the extent that such
dissolution or liquidation does not constitute an Event of Default with respect
to the Senior Notes).
"EBS Building, L.L.C." has the meaning ascribed thereto in the Plan.
"EBS Litigation, L.L.C." has the meaning ascribed thereto in the Plan.
"EBS Pension, L.L.C." has the meaning described thereto in the Plan.
"Effective Date" means ______________, 1997.
"Excess Sale Proceeds" has the meaning ascribed thereto in Section 3.7(a).
"Exempt Person" means (a) any Person to whom or which shares of Common
Stock of the Company are distributed pursuant to the Plan and (b) any Person who
or which directly or indirectly controls, is directly or indirectly controlled
by, or is under direct or indirect common control with, any Person to whom or
which shares of Common Stock of the Company are distributed pursuant to the
Plan.
"Interest Coverage Ratio" means the ratio of (a) the sum of (i) net income
(other than net income of any Subsidiary of the Company during a period in which
such Subsidiary is prohibited from paying dividends pursuant to any provision
referred to in clause (ii), (iii), or (iv) of Section 3.5 hereof), (ii) net
interest expense, (iii) cash dividends with respect to redeemable preferred
stock (to the extent deducted from net income and not included in net interest
expense in accordance with GAAP), (iv) income tax expense, (v) depreciation
expense, (vi) amortization expense, and (vii) the net amount, which may be less
than zero, of extraordinary or unusual losses, minus extraordinary or unusual
gains, of the Company and its Subsidiaries on a consolidated basis, to (b) net
interest expense, plus cash dividends with respect to redeemable preferred stock
(to the extent deducted from net income and not included in net interest expense
in accordance with GAAP), of the Company and its Subsidiaries on a consolidated
basis, all as determined in accordance with GAAP (or, in respect of the net
income of any Subsidiary of the Company for purposes of the parenthetical in
clause (a)(i) above, the normal accounting practices of such Subsidiary as in
effect from time to time), for the four most recently completed fiscal quarters
of the Company.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any capital stock, bonds, notes, debentures, or other securities
or evidences of Indebtedness issued by any other Person. The amount of any
Investment shall be the original cost thereof, plus the cost of all additions
thereto and minus the amount of all reductions therein in the nature of
repayment of principal or return of capital, without any adjustments for
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increases or decreases in value, write-ups, write-downs, or write-offs with
respect to such Investment.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest, or preference, priority, or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to assure
payment of any Indebtedness or other obligation, including without limitation
any conditional sale, deferred purchase price, or other title retention
agreement, the interest of a lessor under a Capital Lease Obligation, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing, under the Uniform Commercial Code or comparable law
of any jurisdiction, of any financing statement naming the owner of the asset to
which such financing statement relates as debtor.
"Moody's" means Moody's Investors Service, Inc., or any successor to the
rating agency business thereof.
"Net Sale Proceeds" has the meaning ascribed thereto in Section 3.7(a).
"Permitted Indebtedness" means, without duplication: (a) the Senior Notes;
(b) the Series 1997 Loan Agreement, the Series 1997 Note and all other Series
1997 Loan Documents; (c) the outstanding principal amount of uncertificated
obligations of the Company owed to the Internal Revenue Service and other taxing
authorities pursuant to the Plan; (d) Indebtedness under the Bank Facilities in
an aggregate principal amount at any one time outstanding not to exceed $250.0
million; (e) Indebtedness incurred for the purpose of financing store
construction and remodeling or other capital expenditures; (f) unsecured
Indebtedness between or among the Company and its Subsidiaries; (g) Indebtedness
in respect of the deferred purchase price of property or arising under any
conditional sale or other title retention agreement; (h) Indebtedness of a
Person acquired by the Company or a Subsidiary of the Company at the time of
such acquisition (provided that such Indebtedness was not incurred by such
Person in contemplation of such acquisition); (i) to the extent deemed to be
"Indebtedness," obligations under swap agreements, cap agreements, collar
agreements, insurance arrangements, or any similar agreement or arrangement, in
each case designed to provide a bona fide hedge against fluctuations in interest
rates, the cost of currency, or the cost of goods (other than inventory); (j)
other Indebtedness of the Company or its Subsidiaries in outstanding amounts not
to exceed $10.0 million in the aggregate at any particular time; (k)
Indebtedness evidenced by letters of credit that are issued in the ordinary
course of the business of the Company and its Subsidiaries to secure workers'
compensation and other insurance coverages; (l) Indebtedness of the Company or a
Subsidiary of the Company, as applicable,
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existing as of the Effective Date (after giving effect to the consummation of
the Plan) and identified on Schedule I hereto; (m) deferred taxes and other
deferred obligations incurred in the ordinary course of business and not
evidenced by notes, bonds, debentures or other evidences of indebtedness; and
(n) Indebtedness incurred in connection with any extension, renewal,
refinancing, replacement, or refunding (including successive extensions,
renewals, refinancings, replacements, or refundings), in whole or in part, of
any Indebtedness of the Company or its Subsidiaries; provided, however, that the
principal amount of the Indebtedness so incurred does not exceed the sum of the
principal amount of the Indebtedness so extended, renewed, refinanced, replaced,
or refunded, plus all interest accrued thereon and all related fees and
expenses.
"Permitted Investments" means, without duplication: (a) Cash Equivalents;
(b) Investments in another Person, if as a result of such Investment (i) such
other Person becomes a Subsidiary of the Company or (ii) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Subsidiary of the Company;
(c) Investments in any Subsidiary of the Company or Investments in the Company
by a Subsidiary of the Company; (d) Investments represented by accounts
receivable created or acquired in the ordinary course of business or extensions
of trade credit on commercially reasonable terms in accordance with normal trade
practices; (e) commissions and advances to employees of the Company and its
Subsidiaries in the ordinary course of business; (f) Investments representing
notes, securities, or other instruments or obligations acquired in connection
with the sale of assets; (g) Investments represented by that portion of the
proceeds from asset sales permitted under Section 3.7 to the extent such
Investments are non-cash proceeds; (h) Investments representing capital stock or
obligations issued to the Company or any Subsidiary of the Company in settlement
of claims against any other Person by reason of a composition or readjustment of
debt or a reorganization of any debtor of the Company or such Subsidiary; (i)
loans or advances to vendors in connection with in-store (or catalog)
merchandising to be repaid either on a lump-sum basis or over a period of time
by the delivery of merchandise; (j) loans or advances to sublessees in an
aggregate amount not to exceed $1.0 million at any time outstanding; (k)
construction advances to developers or contractors; (l) Investments in swap
agreements, cap agreements, collar agreements, insurance arrangements or any
similar agreement or arrangement, in each case designed to provide a bona fide
hedge against fluctuations in interest rates, the cost of currency, or the cost
of goods (other than inventory); and (m) other Investments, the aggregate amount
of which at any one time does not exceed $10.0 million; provided that any
Investment referred to in this clause (m) that is made at a time at which, after
giving effect thereto, the aggregate amount of Investments referred to in this
clause (m) would exceed $2.5 million shall be a Permitted Investment only to the
extent, if any, of the amount thereof that could then have been paid as a
dividend on the Company's capital stock in accordance with Section 3.3.
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"Permitted Liens" means, without duplication: (a) Liens (other than Liens
on inventory) securing any Permitted Indebtedness (other than Permitted
Indebtedness referred to in clause (f) of the definition of "Permitted
Indebtedness") or other Indebtedness incurred in accordance with Section 3.1;
(b) Liens on inventory securing any Indebtedness referred to in clause (d) of
the definition of Permitted Indebtedness; (c) Liens incurred and pledges and
deposits made in the ordinary course of business in connection with liability
insurance, workers' compensation, unemployment insurance, old-age pensions, and
other social security benefits other than in respect of employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended; (d)
Liens on goods and documents securing trade letters of credit; (e) Liens imposed
by law, such as carriers', warehousemen's, mechanics', materialmen's, and
vendor's Liens, incurred in the ordinary course of business and securing
obligations which are not yet due or which are being contested in good faith by
appropriate proceedings; (f) Liens securing the payment of taxes, assessments,
and governmental charges or levies, either (i) not delinquent or (ii) being
contested in good faith by appropriate legal or administrative proceedings and
as to which adequate reserves shall have been established on the books of the
relevant Person in conformity with GAAP; (g) zoning restrictions, easements,
rights of way, reciprocal easement agreements, operating agreements, covenants,
conditions, or restrictions on the use of any parcel of property that are
routinely granted in real estate transactions or do not interfere in any
material respect with the ordinary conduct of the business of the Company and
its Subsidiaries or the value of such property for the purpose of such business;
(h) Liens on property existing at the time such property is acquired; (i)
purchase money Liens upon or in any property acquired or held in the ordinary
course of business to secure Indebtedness incurred solely for the purpose of
financing the acquisition of such property; (j) Liens on the assets of any
Subsidiary of the Company at the time such Subsidiary is acquired; (k) Liens
with respect to obligations in outstanding amounts not to exceed $5.0 million at
any particular time and that (i) are not incurred in connection with the
borrowing of money or obtaining advances or credit (other than trade credit in
the ordinary course of business) and (ii) do not in the aggregate interfere in
any material respect with the ordinary conduct of the business of the Company
and its Subsidiaries; (l) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of the business of the Company and its
Subsidiaries; (m) Liens resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in respect
of which (i) the Company or a Subsidiary of the Company shall in good faith be
prosecuting an appeal or proceeding for a review, (ii) a stay of execution
pending such appeal or proceeding for review shall be in effect, and (iii) the
Company shall have established on its books adequate reserves in accordance with
GAAP; (n) rights of banks to set off deposits against Indebtedness owed to such
banks; (o) Liens on assets or properties of the Company or a Subsidiary of the
Company, as applicable, existing as of the Effective Date (after giving effect
to the consummation of the Plan) and identified on Schedule II hereto; and (p)
any extension, renewal, or replacement, in whole or in part, of any
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Lien described in the foregoing clauses; provided, however, that any such
extension, renewal, or replacement Lien is limited to the property or assets
covered by the Lien extended, renewed, or replaced or substitute property or
assets, the value of which is not materially greater than the value of the
property or assets for which the substitute property or assets are substituted.
"Plan" means the Joint Plan of Reorganization of the Company and certain
of its Subsidiaries, as confirmed by the United States Bankruptcy Court for the
District of Delaware in Case No. 95-1354(PJW).
"Repurchase Date" has the meaning ascribed thereto in Section 3.4(a).
"Restricted Payments" has the meaning ascribed thereto in Section 3.3.
"Repurchase Price" has the meaning described thereto in Section 3.4(a).
"Restricted Payments" has the meaning ascribed thereto in Section 3.3.
"S&P" means Standard & Poor's Ratings Services, a Division of the McGraw-
Hill Companies, Inc., or any successor to the rating agency business thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company, or other lender or investor or to
which such lender or investor is a party providing for the leasing pursuant to a
Capital Lease by such Person or any Subsidiary of such Person of any property or
asset of such Person or such Subsidiary which has been or is being sold or
transferred by such Person or such Subsidiary to such lender or investor or to
any Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or asset.
"Series 1997 Loan Agreement" has the meaning ascribed thereto in the
Plan.
"Series 1997 Loan Documents" has the meaning ascribed thereto in the
Plan.
"Series 1997 Note" has the meaning ascribed thereto in the Plan.
"Significant Subsidiary" means any Subsidiary of the Company that would be
a "significant subsidiary" of the Company within the meaning of Rule 1-02(w) of
Regulation S-X promulgated by the Commission (as in effect on the date hereof)
if the Company were viewed as the "registrant" for purposes of such Rule.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Senior Notes.
"Uniform Commercial Code" means the New York Uniform Commercial Code as
amended or modified from time to time.
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"Voting Stock" has the meaning ascribed thereto in the definition of
"Change of Control."
"Warrant Agreement" means the Eight-Year Warrant Agreement under which the
Warrants are to be issued pursuant to the Plan, as such Eight-Year Warrant
Agreement is in effect on the Effective Date.
"Warrants" has the meaning ascribed thereto in the Plan.
ARTICLE III. CERTAIN COVENANTS.
Section 3.1. Indebtedness.
The Company shall not, directly or indirectly, create, incur, issue,
assume, guarantee, or otherwise become liable with respect to any Indebtedness
other than Permitted Indebtedness referred to in clauses (a) through (d),
clauses (f) and (g), and clauses (i) through (n) of the definition thereof,
unless immediately thereafter the Interest Coverage Ratio is 2.0 to 1.0 or
greater, after giving effect thereto on a pro forma basis as if incurred at the
beginning of the applicable period.
The Company shall not permit any Subsidiary of the Company, directly or
indirectly, to create, incur, issue, assume, guarantee, or otherwise become
liable with respect to, any Indebtedness other than Permitted Indebtedness;
provided, in the case of Permitted Indebtedness incurred pursuant to clauses (e)
and (h) of the definition thereof, immediately thereafter the Interest Coverage
Ratio is 2.0 to 1.0 or greater, after giving effect thereto on a pro forma basis
as if incurred at the beginning of the applicable period.
Section 3.2. Liens.
The Company shall not, and shall not permit any Subsidiary of the Company
to, create, incur, assume, or suffer to exist any Liens upon any of their
respective assets, other than Permitted Liens, unless the Senior Notes are
secured by an equal and ratable Lien on the same assets.
Section 3.3. Restricted Payments.
The Company shall not, and shall not permit any Subsidiary of the Company
to, (a) declare or pay any dividend on, or make any other distribution on
account of, the Company's capital stock; (b) purchase, redeem, or otherwise
acquire or retire for value any capital stock (including any option, warrant, or
right to purchase capital stock) of the Company owned beneficially by a Person
other than a wholly owned Subsidiary of the Company; (c) purchase, redeem, or
otherwise acquire or retire for value the principal of any Subordinated
Indebtedness prior to the scheduled maturity
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thereof other than pursuant to mandatory scheduled redemptions or repayments; or
(d) make any Investment other than Permitted Investments (all such dividends,
distributions, purchases, redemptions, or Investments being collectively
referred to as "Restricted Payments") if, at the time of such action, or after
giving effect thereto: (i) an Event of Default shall have occurred and is
continuing; (ii) the Company could not incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test in Section 3.1; or (iii) the
cumulative amount of Restricted Payments made subsequent to the Effective Date
(together with the amount, if any, of any Permitted Investment referred to in
clause (m) of the definition thereof that exceeds $2.5 million) shall be greater
than the sum of: (A) 50% of the Company's cumulative consolidated net income (or
a negative amount equal to 100% of the Company's cumulative consolidated net
loss, if applicable) from the Effective Date through the end of the Company's
fiscal quarter immediately preceding the taking of such action; and (B) 100% of
the aggregate net cash proceeds received by the Company from the issue or sale
of capital stock of the Company (other than redeemable capital stock), including
capital stock issued upon the conversion of convertible Indebtedness issued on
or after the Effective Date, in exchange for outstanding Indebtedness, or from
the exercise of options, warrants, or rights to purchase capital stock of the
Company to any Person other than to a Subsidiary of the Company subsequent to
the Effective Date (with the Company being deemed, in the case of capital stock
issued upon conversion or in exchange for Indebtedness, to have received net
cash proceeds equal to the principal amount of the Indebtedness so converted or
exchanged); provided, however, that (1) the payment of any dividend within 60
calendar days after the date of declaration thereof, if such declaration
complied with the foregoing redemption or other acquisition provisions on the
date of such declaration, (2) the purchase, redemption, or other acquisition or
retirement for value of any shares of capital stock of the Company in exchange
for, or out of the proceeds of, a substantially concurrent issue and sale (other
than to a Subsidiary of the Company) of other shares of capital stock (other
than redeemable capital stock) of the Company, (3) the redemption or other
acquisition or retirement for value prior to any scheduled maturity of any
Subordinated Indebtedness in exchange for, or out of the proceeds of, a
substantially concurrent issue and sale of (a) capital stock (other than
redeemable capital stock) of the Company or (b) Subordinated Indebtedness of the
Company, (4) any purchase, redemption, or other acquisition or retirement for
value of any capital stock (including any option, warrant, or right to purchase
capital stock) of the Company issued to any employee or director of the Company
pursuant to any employee benefit or similar plan, and (5) the exercise by the
Company of its option to repurchase Warrants at any time and from time to time
in accordance with the provisions of Section 14.1 of the Warrant
Agreement shall not be deemed to constitute "Restricted Payments" and shall not
be prohibited under this Section.
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Section 3.4. Change of Control.
(a) Right to Require Repurchase. In the event that there shall occur a
Change of Control, then each Holder shall have the right, at such Holder's
option, to require the Company to repurchase all or any designated part of such
Holder's Senior Notes on the date (the "Repurchase Date") selected by the
Company that is not more than 75 days after the date the Company gives notice of
the Change of Control as contemplated in paragraph (b) below at a price (the
"Repurchase Price") equal to 101% of the outstanding principal amount thereof,
together with accrued and unpaid interest to the Repurchase Date. Such right to
require the repurchase of Senior Notes shall continue notwithstanding a
discharge of the Company from its obligations with respect to the Senior Notes
in accordance with the provisions of Article V or Article XII of the Indenture.
(b) Notice; Method of Exercising Repurchase Right. On or before the 15th
day after the Company knows that a Change of Control has occurred, the Company
or, at the request of the Company, the Trustee (in the name of and at the
expense of the Company), shall give notice of the occurrence of the Change of
Control and of the repurchase right set forth herein arising as a result thereof
by first-class mail, postage prepaid, to each Holder of the Senior Notes at such
Holder's address appearing in the Security Register for the Senior Notes. The
Company shall also deliver a copy of such notice to the Trustee.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and
(4) the instructions a Holder must follow to exercise its
repurchase right.
No failure of the Company to give the foregoing notice shall limit
any Holder's right to exercise its repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Change of
Control. To exercise a repurchase right, a Holder shall deliver to the Company
(or to an agent designated by the Company for such purpose in the notice
referred to above) on or before the fifth Business Day prior to the Repurchase
Date (i) written notice of the Holder's exercise of such right, which notice
shall set forth the name of the Holder, the principal amount of the Senior Note
(or portion of the Senior Note) to be repurchased, and a statement that an
election to exercise the repurchase right is being made thereby, and (ii) the
Senior Note with respect to which the repurchase right is being exercised, duly
endorsed for transfer to the Company. Such written notice shall
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be irrevocable. If the Repurchase Date falls between any Regular Record Date and
the corresponding succeeding Interest Payment Date, Senior Notes to be
repurchased must be accompanied by payment from the Holder of an amount equal to
the interest thereon which the registered Holder thereof is to receive on such
Interest Payment Date. In the event a repurchase right shall be exercised in
accordance with the terms hereof and the instructions referred to herein, (x)
the Company shall on the Repurchase Date pay or cause to be paid in cash to the
Holder thereof the Repurchase Price for each Senior Note (or any portion
thereof) as to which the repurchase right has been exercised, and (y) the
Company shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Senior Note without service charge, a new Senior
Note or Notes, as applicable, of any authorized denomination as requested by
such Holder in aggregate principal amount equal to and in exchange for any
portion of the principal of such Senior Note as to which the repurchase right
has not been exercised. Any questions as to the compliance by a Holder of Senior
Notes with the requirements for a valid exercise of a repurchase right
(including the timely delivery of an exercise notice in proper form) shall be
determined by the Company in its sole discretion, which in all events shall be
exercised in good faith.
(c) Deposit of Repurchase Price. On or prior to the Repurchase Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 6.03 of the Indenture) an amount of money sufficient to pay
the Repurchase Price of the Senior Notes which are to be repurchased on the
Repurchase Date.
(d) Senior Notes Not Repurchased on Repurchase Date. If any Senior Note
(or any portion thereof) surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal of such Senior Note (or such portion thereof)
shall, until paid, bear interest from the Repurchase Date at the rate borne by
such Senior Note.
(e) Compliance. The Company shall comply with all tender offer rules,
including but not limited to Section 14(e) of the Exchange Act and Rule 14e-1
thereunder, to the extent applicable to any repurchase of the Senior Notes under
this Section 3.4.
Section 3.5. Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist any contractual
restriction on the ability of any Subsidiary of the Company to (a) pay any
dividend on, or make any other distribution on account of, its capital stock or
pay any Indebtedness owed to the Company or a Subsidiary of the Company or (b)
make loans or advances to the Company or a Subsidiary of the Company, except for
(i) restrictions existing as of the Effective Date, (ii) restrictions in the
documentation setting forth the terms of or
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entered into in connection with any Permitted Indebtedness, (iii) restrictions
in the documentation setting forth the terms of or entered into in connection
with the sale of such Subsidiary to a third party, (iv) restrictions applicable
to a Person acquired by the Company or a Subsidiary of the Company, which exist
at the time of such acquisition, or (v) other restrictions arising in the
ordinary course of business otherwise than in connection with financing
transactions.
Section 3.6. Issuance of Subsidiary Preferred Stock.
The Company shall not permit any Subsidiary of the Company to issue any
shares of preferred stock other than (a) preferred stock issued to the Company
or a wholly owned Subsidiary of the Company or (b) preferred stock issued to any
other Person if, after giving effect thereto on a pro forma basis as if such
preferred stock were issued at the beginning of the applicable period, such
Subsidiary could have incurred additional Indebtedness in an amount equal to the
aggregate liquidation value of such preferred stock (assuming such Indebtedness
were incurred to the Person(s) and for the purposes to which and for which such
preferred stock was issued).
Section 3.7. Asset Sales.
(a) The Company shall not, and shall not permit any Subsidiary of the
Company to, consummate any sale of assets (other than sales of inventories,
goods, fixtures, and accounts receivable in the ordinary course of business, and
sales of assets to the Company or a wholly owned Subsidiary of the Company)
unless such sale is for fair market value and, in the case of individual sales
of assets for which the consideration received (including liabilities assumed)
is more than $1.0 million, at least 75% of the consideration therefor (other
than liabilities assumed) consists of any combination of cash and Cash
Equivalents. The aggregate amount of cash and Cash Equivalent proceeds (net of
all legal, title, and recording tax expenses, commissions, and other fees and
expenses incurred, and all federal, state, provincial, foreign, and local taxes
and reserves required to be accrued as a liability, as a consequence of such
sales of assets, and net of all payments made on any Indebtedness which is
secured by such assets in accordance with the terms of any Liens upon such
assets or which must by the terms of such Liens or the Bank Facilities be repaid
out of the proceeds from such sales of assets, and net of all distributions and
other payments made to minority interest holders in Subsidiaries of the Company
or joint ventures as a result of such sales of assets) from such sales of assets
(excluding individual sales of assets for which the consideration received is
less than $250,000) shall constitute "Net Sale Proceeds" for purposes of this
Section 3.7, and 50% of the cumulative Net Sale Proceeds in excess of $5.0
million shall constitute "Excess Sale Proceeds" for purposes of this Section
3.7.
(b) If, at any time, the cumulative amount of Excess Sale Proceeds that
shall not have been previously applied to the repurchase or redemption of Senior
Notes as provided in this Section 3.7(b) shall exceed $1,000,000, the Company
shall apply
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such Excess Sale Proceeds to the repurchase, in the open market, or, at the
Company's option, the optional redemption, of Senior Notes. The Company shall
effect such application of such Excess Sale Proceeds as promptly as practicable,
and in any event within 30 (or, in the case of an optional redemption, 75)
calendar days after the date on which the obligation to so apply such Excess
Sale Proceeds arises; provided, however, that the Company shall not be in breach
of its obligations under this sentence for so long as it is using commercially
reasonable efforts in good faith to apply all Excess Sale Proceeds then required
to be applied to the repurchase or redemption of Senior Notes to the repurchase
of Senior Notes in the open market. The Company shall deliver all Senior Notes
repurchased or redeemed pursuant to this Section 3.7(b) to the Trustee for
cancellation as promptly as practicable, and in any event within 30 calendar
days after such Senior Notes are so repurchased or redeemed.
Section 3.8. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in any transaction with an Affiliate (other than the Company or a wholly
owned Subsidiary thereof) on terms more favorable to the Affiliate than would
have been obtainable in arm's-length dealing. Solely for purposes of this
Section 3.8, an "Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person, or any other Person that has a
relationship with such specified Person whereby either of such Persons holds or
beneficially owns 10% or more of the equity interest in the other or 10% or more
of any class of voting securities of the other; provided that, under no
circumstances shall EBS Building, L.L.C., EBS Litigation, L.L.C. or EBS
Pension, L.L.C. be deemed to be an Affiliate of the Company or any of its
Subsidiaries. For the purposes of this definition, "control" when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Section 3.9. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any Subsidiary of the Company
to, enter into any Sale and Leaseback Transaction unless: (a) the Capital Lease
Obligation incurred in connection therewith complies with Section 3.1 and (b)
the Net Sale Proceeds therefrom are applied in compliance with Section 3.7 and
to the extent required by Section 3.7.
21
<PAGE>
ARTICLE IV. ADDITIONAL EVENTS OF DEFAULT.
Section 4.1. Additional Events of Default.
In addition to the Events of Default set forth in the Indenture, the term
"Event of Default," whenever used in the Indenture or this First Supplemental
Indenture with respect to the Senior Notes, means the occurrence (whatever the
reason for such occurrence and whether it may be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree, or order of
any court or any order, rule, or regulation of any administrative or
governmental body) in respect of any Significant Subsidiary or, in related
events, any group of Subsidiaries of the Company which, if considered in the
aggregate, would be a Significant Subsidiary, of any of the events referred to
in clauses (vii) and (viii) of Section 8.01(a) of the Indenture that, if the
same were to occur in respect of the Company, would constitute an Event of
Default under either of such clauses of Section 8.01(a) of the Indenture.
ARTICLE V. REDEMPTION OF SECURITIES.
Section 5.1. Right of Redemption.
The Senior Notes may be redeemed in accordance with the provisions of the
form thereof set forth herein.
Section 5.2. Repurchase.
The Company may at any time and from time to time purchase Senior Notes in
the open market or otherwise at any price, and any Senior Notes so purchased
shall be promptly surrendered to the Trustee for cancellation and shall not be
reissued.
ARTICLE VI. DEFEASANCE.
Section 6.1. Applicability of Article V of the Indenture.
(a) The Senior Notes shall be subject to Defeasance and Covenant
Defeasance as provided in Article V of the Indenture.
(b) Upon the exercise of the option provided in Section 5.01 of the
Indenture to have Section 5.03 of the Indenture applied to the Outstanding
Senior Notes, in addition to the obligations from which the Company shall be
released specified in the Indenture, the Company shall be released from its
obligations under Article III hereof.
22
<PAGE>
ARTICLE VII. MISCELLANEOUS.
Section 7.1. Reference to and Effect on the Indenture.
This First Supplemental Indenture shall be construed as supplemental to
the Indenture and all the terms and conditions of this First Supplemental
Indenture shall be deemed to be part of the terms and conditions of the
Indenture. Except as set forth herein, the Indenture heretofore executed and
delivered is hereby (i) incorporated by reference in this First Supplemental
Indenture and (ii) ratified, approved and confirmed.
Section 7.2. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision, or condition set forth in Article III hereof if the Holders of a
majority in principal amount of the Outstanding Senior Notes shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision, or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision, or condition shall remain in full force and effect.
Section 7.3. Supplemental Indenture May be Executed in Counterparts.
This instrument may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
[Seal] EDISON BROTHERS STORES, INC.
By: ________________________
Name:
Title:
Attest:
________________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: __________________________
Name:
Title:
Attest:
_______________________________
Name:
Title:
24
<PAGE>
STATE OF [ ] )
) ss.:
COUNTY OF [ ] )
On this _____ day of [__________], 1997, before me personally came
_______________, to me known, who, being by me duly sworn, did depose and say
that he/she is a _______________ of EDISON BROTHERS STORES, INC., one of the
entities described in and which executed the above instrument; that he/she knows
the seal of said entity; that the seal or a facsimile thereof affixed to said
instrument is such seal; that it was so affixed by authority of the Board of
Directors of said entity, and that he/she signed his/her name thereto by like
authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
_______________________________
Notary Public
25
<PAGE>
STATE OF [ ] )
) ss.:
COUNTY OF [ ] )
On this _____ day of [__________], 1997, before me personally came
_______________, to me known, who, being by me duly sworn, did depose and say
that he/she is a _______________ of THE BANK OF NEW YORK, one of the entities
described in and which executed the above instrument; that he/she knows the seal
of said entity; that the seal or a facsimile thereof affixed to said instrument
is such seal; that it was so affixed by authority of the Board of Directors of
said entity, and that he/she signed his/her name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
_____________________________
Notary Public
26
<PAGE>
Schedule I
[to come]
27
<PAGE>
Schedule II
[to come]
28
HOFS04...:\16\43016\0001\2236\SEC5147L.15F
EXHIBIT T3E-1
-------------
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- --------------------------------------------X
:
In re : CHAPTER 11
:
EDISON BROTHERS STORES, INC., et al., : Case No. 95-1354 (PJW)
:
Debtors. : JOINTLY ADMINISTERED
:
- --------------------------------------------X
DEBTORS' JOINT DISCLOSURE STATEMENT
PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE
-----------------------------------------------
WEIL, GOTSHAL & MANGES LLP
Attorneys for the Debtors
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
and
YOUNG, CONAWAY, STARGATT & TAYLOR
Attorneys for the Debtors
1110 N. Market St.
P. O. Box 391
Rodney Square North, 11th Floor
Wilmington, Delaware 19801
(302) 571-6600
Dated: Wilmington, Delaware
June 30, 1997
<PAGE>
INSERT LETTER FROM THE COMPANY (IF INCLUDED)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. INTRODUCTION.......................................................................................................... 1
A. Holders of Claims and Equity Interests Entitled to Vote................................................. 1
B. Voting Procedures....................................................................................... 2
C. Confirmation Hearing.................................................................................... 3
II. OVERVIEW OF THE PLAN................................................................................................. 4
III. GENERAL INFORMATION................................................................................................. 8
A. Overview of Chapter 11.................................................................................. 8
B. Description and History of Business..................................................................... 8
1. The Debtors.................................................................................... 8
2. Business....................................................................................... 9
3. History........................................................................................ 11
4. Significant Indebtedness....................................................................... 11
C. Events Leading to the Commencement of the Chapter 11 Cases.............................................. 12
IV. EVENTS DURING THE CHAPTER 11 CASES................................................................................... 13
A. Appointment of the Creditors' Committee................................................................. 13
B. Appointment of the Equity Committee..................................................................... 14
C. Stabilization of Business............................................................................... 15
1. First Day Orders............................................................................... 15
2. DIP Credit Facility............................................................................ 15
3. Sale of Mall Entertainment Chain............................................................... 15
4. Cost Reduction and Reengineering............................................................... 16
5. Realignment of Management and Board of Directors............................................... 16
D. Implementation of Real Estate Strategy.................................................................. 17
1. Store Closings................................................................................. 17
2. Lease Termination and Rent Reduction Agreements................................................ 18
3. Extensions of Time to Assume or Reject Leases.................................................. 18
E. Claims Process and Bar Date............................................................................. 19
1. Schedules and Statements....................................................................... 19
2. Bar Date Order................................................................................. 19
3. Global Resolution of Reclamation Claims........................................................ 19
F. Investigation of Claims Arising Out of the D&B Spinoff.................................................. 19
1. The D&B Spinoff................................................................................ 20
2. Review by the Special Review Committee and Creditors' Committee................................ 20
3. The Avoidance Claims Generally................................................................. 21
4. Potential Targets.............................................................................. 22
5. Potential Defense for Public, Non-Insider D&B Spinoff Stockholders............................. 22
6. Transfer to EBS Litigation, L.L.C.............................................................. 22
7. The D&B Spinoff Settlement..................................................................... 23
8. The Rights..................................................................................... 23
9. Release of Other Claims Related to the D&B Spinoff............................................. 23
G. Litigation.............................................................................................. 23
H. Development of Business Plans and Negotiation of Plan of Reorganization................................. 23
V. THE PLAN OF REORGANIZATION............................................................................................ 25
A. Classification and Treatment of Claims and Equity Interests............................................. 25
1. Compensation and Reimbursement Claims.......................................................... 25
2. Administrative Expense Claims.................................................................. 25
3. Priority Tax Claims............................................................................ 26
i
<PAGE>
Page
4. Class 1 -- Other Priority Claims............................................................... 26
5. Class 2 -- Secured Series 1977 Bondholder Claims............................................... 26
6. Class 3 -- Secured Series 1985 Bondholder Claims............................................... 27
7. Class 4 -- Secured Tax Claims.................................................................. 28
8. Class 5 -- Other Secured Claims................................................................ 28
9. Class 6 -- Convenience Claims.................................................................. 29
10. Class 7 -- General Unsecured Claims............................................................ 29
11. Class 8 -- Edison Equity Interests............................................................. 32
B. Securities to be Issued Under the Plan.................................................................. 32
1. New Notes...................................................................................... 32
2. Series 1997 Bonds.............................................................................. 34
3. New Common Stock, Rights, Warrants, Management Options, Director Options and
Restricted Stock............................................................................... 34
C. Method of Distributions Under the Plan.................................................................. 37
D. Timing of Distributions Under the Plan.................................................................. 38
1. Distributions on the Effective Date............................................................ 38
2. Distributions to Holders of General Unsecured Claims........................................... 38
E. The Limited Liability Companies......................................................................... 39
1. Formation and Transfer of Consideration........................................................ 39
2. Structure of the LLCs.......................................................................... 41
F. The Funding Escrow...................................................................................... 45
G. The Pension Plan........................................................................................ 46
H. Consolidation of the Debtors............................................................................ 47
1. Substantive Consolidation...................................................................... 47
2. Merger of Corporate Entities................................................................... 48
I. Treatment of Executory Contracts and Unexpired Leases................................................... 48
J. Provisions for Treatment of Disputed Claims and Equity Interests........................................ 49
K. Distributions Relating to Allowed Insured Claims........................................................ 50
L. Conditions Precedent to Effectiveness of the Plan....................................................... 50
M. Implementation and Effect of Confirmation of the Plan................................................... 51
N. Discharge and Injunction................................................................................ 51
O. Summary of Other Provisions of the Plan................................................................. 52
1. Retiree Benefits............................................................................... 52
2. Amended Bylaws and Amended Certificates of Incorporation....................................... 52
3. Amendments or Modifications of the Plan........................................................ 53
4. Indemnification................................................................................ 53
5. Releases....................................................................................... 54
6. Cancellation and Surrender of Existing Securities and Agreements............................... 54
7. Revocation of the Plan......................................................................... 54
8. Preservation of Causes of Action............................................................... 55
9. Injunction Regarding Worthless Stock Deduction................................................. 55
10. Termination of Committees...................................................................... 55
11. Claims Resolution Committee.................................................................... 55
12. Exculpation.................................................................................... 56
13. Effectuating Documents, Further Transactions and Corporate Action.............................. 56
14. Supplemental Documents......................................................................... 57
P. The D&B Spinoff Settlement.............................................................................. 57
1. Illustrative Numerical Example................................................................. 57
2. Procedure for Participating in the D&B Spinoff Settlement...................................... 58
VI. CONFIRMATION AND CONSUMMATION PROCEDURE.............................................................................. 59
A. Solicitation of Votes................................................................................... 59
B. The Confirmation Hearing................................................................................ 60
C. Confirmation............................................................................................ 60
1. Acceptance..................................................................................... 61
ii
<PAGE>
Page
2. Unfair Discrimination and Fair and Equitable Tests............................................. 61
3. Feasibility.................................................................................... 61
4. Best Interests Test............................................................................ 62
D. Consummation............................................................................................ 63
E. Exit Financing.......................................................................................... 63
VII. MANAGEMENT OF THE REORGANIZED DEBTORS............................................................................... 64
A. Board of Directors and Management....................................................................... 64
1. Composition of Boards of Directors............................................................. 64
2. Identity of Officers........................................................................... 64
3. Chief Executive Officer.........................................................................65
B. Compensation of Executive Officers...................................................................... 65
C. Stock Option Plan, Director Stock Option Plan and Restricted Stock Agreements........................... 66
1. Description.................................................................................... 66
2. Certain Federal Income Tax Consequences........................................................ 69
3. Management Options and Director Options to be Granted and Restricted Stock to be Issued........ 71
D. Amended Employment Contracts............................................................................ 71
E. Retention/Performance Bonuses........................................................................... 72
F. Continuation of Existing Severance Plans and D&O Insurance.............................................. 72
G. Post-Effective Date Security Ownership of Certain Beneficial Owners..................................... 73
VIII. SECURITIES LAWS MATTERS............................................................................................ 74
A. Bankruptcy Code Exemptions from Registration Requirements............................................... 74
1. Initial Offer and Sale of Plan Securities...................................................... 74
2. Subsequent Transfers of Plan Securities........................................................ 75
3. Certain Transactions by Stockbrokers........................................................... 76
4. Transactions with Insiders..................................................................... 76
B. Registration Rights..................................................................................... 76
IX. VALUATION............................................................................................................ 77
A. Debtors' Valuation...................................................................................... 77
1. Reorganization Values.......................................................................... 77
2. Warrant, Management Option and Director Option Values.......................................... 79
B. Creditors' Committee's Valuation........................................................................ 80
1. Reorganization Values.......................................................................... 80
2. Warrant Values................................................................................. 80
C. Equity Committee's Valuation............................................................................ 81
1. Reorganization Values.......................................................................... 81
X. CERTAIN RISK FACTORS TO BE CONSIDERED................................................................................. 82
A. Overall Risks to Recovery by Holders of Claims.......................................................... 82
1. Ability to Refinance Certain Indebtedness...................................................... 82
2. Significant Holders............................................................................ 82
3. Lack of Established Market for New Common Stock, Rights and Warrants........................... 82
4. Lack of Trading Market for New Notes........................................................... 83
5. Dividend Policies.............................................................................. 83
6. Preferred Stock................................................................................ 83
7. Projected Financial Information................................................................ 84
8. Business Factors and Competitive Conditions.................................................... 84
9. Adverse and Unseasonal Weather Conditions...................................................... 84
10. Foreign Sourcing of Merchandise................................................................ 84
11. Seasonality.................................................................................... 84
12. Hart-Scott-Rodino Act Requirements............................................................. 85
13. Risk Relating to EBS Litigation, L.L.C......................................................... 85
iii
<PAGE>
Page
XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.................................................................. 85
A. Introduction............................................................................................ 85
B. Consequences to Holders of Claims....................................................................... 86
1. Realization and Recognition of Gain or Loss in General......................................... 86
2. Holders of Allowed Administrative Expense Claims (Unclassified) and Allowed Other
Priority Claims (Class 1)...................................................................... 86
3. Holders of Allowed Secured Claims (Classes 2, 3, 4 and 5)...................................... 86
4. Holders of Convenience Claims and General Unsecured Claims (Classes 6 and 7)................... 87
5. Allocation of Consideration to Interest........................................................ 88
6. Market Discount................................................................................ 88
7. Subsequent Distributions....................................................................... 89
C. Edison Equity Interests................................................................................. 89
D. Consequences to Debtors or Reorganized Debtors.......................................................... 91
1. Discharge-of-Indebtedness Income Generally..................................................... 91
2. Attribute Reduction............................................................................ 91
3. Utilization of Net Operating Loss Carryovers................................................... 91
4. Consolidated Return Items...................................................................... 93
5. Alternative Minimum Tax........................................................................ 93
E. Termination of the Pension Plan......................................................................... 93
1. Overview....................................................................................... 93
2. Tax Consequences of Termination of the Pension Plan to the Debtors and/or Reorganized
Debtors........................................................................................ 93
F. Taxation of the LLCs.................................................................................... 94
G. Information Reporting and Backup Withholding............................................................ 95
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN........................................................... 95
A. Liquidation Under Chapter 7............................................................................. 95
B. Alternative Plan of Reorganization...................................................................... 95
XIII. CONCLUSION AND RECOMMENDATION...................................................................................... 96
</TABLE>
iv
<PAGE>
I. INTRODUCTION
Edison Brothers Stores, Inc. ("Edison") and its sixty-five
affiliates (the "Subsidiaries") in these jointly administered Chapter 11 Cases
(collectively, with Edison, the "Debtors") submit this Disclosure Statement
pursuant to section 1125 of title 11 of the United States Code (the "Bankruptcy
Code") to holders of claims against and equity interests in the Debtors in
connection with (i) the solicitation of acceptances of the Debtors' Amended
Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated June
30, 1997, as the same may be amended (the "Plan") filed by the Debtors with the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") and (ii) the hearing to consider confirmation of the Plan (the
"Confirmation Hearing") scheduled for August 14, 1997, at 10:00 a.m., Eastern
Time. Unless otherwise defined herein, all capitalized terms contained herein
have the meanings ascribed to them in the Plan.
Attached as Exhibits to this Disclosure Statement are copies
of the following:
o The Plan (Exhibit A);
o Orders of the Bankruptcy Court dated May 27, 1997 and June 30,
1997 (the "Disclosure Statement Orders"), among other things,
approving the Disclosure Statement and establishing certain
procedures with respect to the solicitation and tabulation of
votes to accept or reject the Plan (Exhibit B);
o Edison Brothers Stores, Inc., et al. 1996 Form 10-K and Annual
Report (Exhibit C);
o Edison Brothers Stores, Inc., et al. Projected Financial
Information (Exhibit D);
o Edison Brothers Stores, Inc., et al. Liquidation Analysis
(Exhibit E); and
o Edison Brothers Stores, Inc. 1997 Stock Option Plan, Edison
Brothers Stores, Inc. 1997 Directors Stock Option Plan, the
Form of Restricted Stock Agreement and the Form of Employment
Agreement (Exhibit F).
In addition, a Ballot for the acceptance or rejection of the
Plan is enclosed with the Disclosure Statement submitted to the holders of
Claims and Equity Interests that the Debtors believe may be entitled to vote to
accept or reject the Plan.
On May 27, 1997 and June 30, 1997, after notice and a hearing,
the Bankruptcy Court signed the Disclosure Statement Orders approving this
Disclosure Statement as containing adequate information of a kind and in
sufficient detail to enable hypothetical, reasonable investors typical of the
Debtors' creditors and equity interest holders to make an informed judgment
whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES
NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Orders, copies of which are annexed
hereto as Exhibit B, set forth in detail the deadlines, procedures and
instructions for voting to accept or reject the Plan and for filing objections
to confirmation of the Plan, the record date for voting purposes, and the
applicable standards for tabulating Ballots. In addition, detailed voting
instructions accompany each Ballot. Each holder of a Claim or an Equity Interest
entitled to vote on the Plan should read the Disclosure Statement, the Plan, the
Disclosure Statement Orders and the instructions accompanying the Ballots in
their entirety before voting on the Plan. These documents contain, among other
things, important information concerning the classification of Claims and Equity
Interests for voting purposes and the tabulation of votes. No solicitation of
votes to accept the Plan may be made except pursuant to section 1125 of the
Bankruptcy Code.
A. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE.
Pursuant to the provisions of the Bankruptcy Code, only
holders of allowed claims or equity interests in classes of claims or equity
interests that are impaired are entitled to vote to accept or reject a proposed
chapter 11 plan. Classes of claims or equity interests in which the holders of
claims or equity interests are unimpaired under a chapter 11 plan are deemed to
have accepted the plan and are not entitled to vote to accept or reject the
plan.
1
<PAGE>
Classes 2, 3, 4, 6, 7 and 8 of the Plan are impaired and, to
the extent Claims and Equity Interests in such Classes are Allowed Claims and
Allowed Equity Interests, the holders of such Claims and Equity Interests will
receive distributions under the Plan. Holders of Claims and Equity Interests in
those Classes are entitled to vote to accept or reject the Plan. Classes 1 and 5
of the Plan are unimpaired. Holders of Claims and Equity Interests in Classes 1
and 5 are conclusively presumed to have accepted the Plan. Therefore, the
Debtors are soliciting acceptances only from holders of Allowed Claims and
Allowed Equity Interests in Classes 2, 3, 4, 6, 7 and 8.
The Bankruptcy Code defines "acceptance" of a plan by a class
of claims as acceptance by creditors in that class that hold at least two-thirds
in dollar amount and more than one-half in number of the claims that cast
ballots for acceptance or rejection of the plan. Acceptance of a plan by a class
of interests requires acceptance by at least two-thirds of the number of shares
in such class that cast ballots for acceptance or rejection of the plan. For a
more detailed description of the requirements for confirmation of the Plan, see
Section VI., "Confirmation and Consummation Procedure."
If a Class of Claims or Equity Interests rejects the Plan, the
Debtors reserve the right to amend the Plan or request confirmation of the Plan
pursuant to section 1129(b) of the Bankruptcy Code or both. Section 1129(b)
permits the confirmation of a plan of reorganization notwithstanding the
nonacceptance of a plan by one or more impaired classes of claims or equity
interests. Under that section, a plan may be confirmed by a bankruptcy court if
it does not "discriminate unfairly" and is "fair and equitable" with respect to
each nonaccepting class. For a more detailed description of the requirements for
confirmation of a nonconsensual plan, see Section VI.C.2., "Confirmation and
Consummation Procedure -- Confirmation -- Unfair Discrimination and Fair and
Equitable Tests."
If one or more of the Classes of Claims or Equity Interests
entitled to vote on the Plan votes to reject the Plan, the Debtors intend to
request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy
Code. Subject to a change in material facts and circumstances, the Debtors have
agreed to request confirmation of the Plan pursuant to section 1129(b) of the
Bankruptcy Code if Class 8 rejects the Plan. The determination as to whether to
seek confirmation of the Plan under such circumstances will be announced before
or at the Confirmation Hearing.
B. VOTING PROCEDURES.
If you are entitled to vote to accept or reject the Plan, a
Ballot is enclosed for the purpose of voting on the Plan. If you hold Claims in
more than one Class and you are entitled to vote Claims in more than one Class,
you will receive separate Ballots which must be used for each separate Class of
Claims. Please vote and return your Ballot(s) to:
EDISON BROTHERS STORES, INC.
c/o Claudia King & Associates, Inc.
10502 Northwest Ambassador Drive, Suite 220
Kansas City, Missouri 64153
Attn: Glenda Presley
DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION
OF THE PLAN MUST BE RECEIVED NO LATER THAN 4:00 P.M., CENTRAL TIME, ON JULY 28,
1997. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE
OR REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE
PLAN.
Any Claim or Equity Interest in an impaired Class as to which
an objection or request for estimation is pending or which is scheduled by the
Debtors as unliquidated, disputed or contingent is not entitled to vote unless
the holder of such Claim or Equity Interest has obtained an order of the
Bankruptcy Court temporarily allowing such Claim or Equity Interest for the
purpose of voting on the Plan.
Pursuant to the Disclosure Statement Orders, the Bankruptcy
Court set May 13, 1997 as the record date for voting on the Plan. Accordingly,
only holders of record as of May 13, 1997 that are otherwise entitled to vote
under the Plan will receive a Ballot and may vote on the Plan.
2
<PAGE>
If you are a holder of a Claim or Equity Interest entitled to
vote on the Plan and did not receive a Ballot, received a damaged Ballot or lost
your Ballot, or if you have any questions concerning the Disclosure Statement,
the Plan or the procedures for voting on the Plan, please call Edison Brothers
Stores, Inc. at (314) 331-7413.
C. CONFIRMATION HEARING.
Pursuant to section 1128 of the Bankruptcy Code, the
Confirmation Hearing will be held on August 14, 1997 at 10:00 a.m., Eastern
Time, before the Honorable Peter J. Walsh, United States Bankruptcy Judge, at
the United States Bankruptcy Court, 824 Market Street, 5th Floor, Wilmington,
Delaware 19801. The Bankruptcy Court has directed that objections, if any, to
confirmation of the Plan be served and filed so that they are received on or
before July 28, 1997 at 4:00 p.m., Eastern Time, in the manner described below
in Section VI.B., "Confirmation and Consummation Procedure -- The Confirmation
Hearing." The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for the announcement of the
adjournment date made at the Confirmation Hearing or at any subsequent adjourned
Confirmation Hearing.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE
AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE DELIVERY
OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE INFORMATION STATED SINCE THE DATE HEREOF. HOLDERS OF CLAIMS AND
EQUITY INTERESTS SHOULD CAREFULLY READ THIS DISCLOSURE STATEMENT IN ITS
ENTIRETY, INCLUDING THE PLAN, PRIOR TO VOTING ON THE PLAN.
FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND EQUITY INTERESTS,
THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, BUT THE PLAN ITSELF
QUALIFIES ALL SUMMARIES. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND THE
DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. THE DISCLOSURE
STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE OTHER THAN TO DETERMINE WHETHER
TO VOTE TO ACCEPT OR REJECT THE PLAN, AND NOTHING STATED SHALL CONSTITUTE AN
ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE
EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN ON THE DEBTORS OR HOLDERS
OF CLAIMS OR EQUITY INTERESTS. CERTAIN OF THE STATEMENTS CONTAINED IN THIS
DISCLOSURE STATEMENT, BY NATURE, ARE FORWARD-LOOKING AND CONTAIN ESTIMATES AND
ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE
OF ACTUAL OUTCOMES. ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS SHOULD CAREFULLY
READ AND CONSIDER FULLY SECTION X. OF THIS DISCLOSURE STATEMENT, "CERTAIN RISK
FACTORS TO BE CONSIDERED," BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
SUMMARIES OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED TO IN
THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO, AND
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT OF THE APPLICABLE
AGREEMENT, INCLUDING THE DEFINITIONS OF TERMS CONTAINED IN SUCH AGREEMENT.
THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THEM TO
SUCCESSFULLY REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR
CREDITORS AND EQUITY INTEREST HOLDERS. THE DEBTORS URGE THAT CREDITORS AND
EQUITY INTEREST HOLDERS VOTE TO ACCEPT THE PLAN.
THE COMMITTEE OF UNSECURED CREDITORS APPOINTED IN THE CHAPTER
11 CASES SUPPORTS THE PLAN AND URGES THAT UNSECURED CREDITORS VOTE TO ACCEPT THE
PLAN.
THE COMMITTEE OF EQUITY INTEREST HOLDERS APPOINTED IN THE
CHAPTER 11 CASES SUPPORTS THE PLAN AND URGES THAT EQUITY INTEREST HOLDERS VOTE
TO ACCEPT THE PLAN.
3
<PAGE>
II. OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and
treatment of Claims and Equity Interests under the Plan.
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN1
<TABLE>
<CAPTION>
Type of Claim or Estimated
Class Equity Interest Treatment Recovery
- ----- --------------- --------- --------
<S> <C> <C> <C>
- -- Administrative Expense Unimpaired; paid in full, in Cash, or in accordance with 100%
Claims the terms and conditions of transactions or agreements
relating to obligations incurred in the ordinary course
of business during the pendency of the Chapter 11 Cases
or assumed by the Debtors in Possession.
- -- Priority Tax Claims Unimpaired; at the option of the Debtors either (i) paid 100%
in full, in Cash, or (ii) paid over a six-year period from
the date of assessment as provided in section
1129(a)(9)(C) of the Bankruptcy Code with interest
payable at a rate of 8 1/4% per annum or as otherwise
established by the Bankruptcy Court.
1 Other Priority Claims Unimpaired; paid in full, in Cash. 100%
2 Secured Series 1977 Impaired; distribution of the Series 1997 A Bonds 100%
Bondholder Claims having the following terms:
o aggregate principal amount of $2,482,000;
o mature on June 1, 2002;
o interest payable semiannually in arrears at the
rate provided in the existing Series 1977 Bond
Documents;
o principal payments due on the same schedule as under the
existing Series 1977 Bond Documents, but on a prospective
basis only; and
o holders of Series 1997 A Bonds and Series 1997 B Bonds will be
equally and ratably secured, pari passu, by the Series 1997
Loan Documents, including the Series 1997 Mortgage and the
Series 1997 Guaranty.
The deficiency claims under the Series 1977 Bond Documents in an
aggregate amount equal to 15% of the aggregate outstanding
principal amount of the Series 1977 Bonds (the "Allowed Unsecured
1977 Claims") shall be treated as Allowed General Unsecured Claims
in Class 7 of the Plan. 15% of the outstanding principal amount of
each Series 1977 Bond shall be deemed cancelled on and as of the
Effective Date. In addition, all interest, premium and other
amounts (other than the Secured Series 1977 Bondholder Claims and
the Allowed Unsecured 1977 Claims) accrued and/or due and payable
on the Series 1977 Bonds or under or pursuant to any of the Series
1977 Bond Documents, if any, shall be deemed waived on and as of
the Effective Date.
</TABLE>
- --------------------
1 This table is only a summary of the classification and treatment of Claims and
Equity Interests under the Plan. Reference should be made to the entire
Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3 Secured Series 1985 Impaired; distribution of the Series 1997 B Bonds 100%
Bondholder Claims having the following terms:
o aggregate principal amount of $4,235,000;
o mature on November 1, 2010; o interest payable
semiannually in arrears at the variable rate
provided in the existing Series 1985 Bond Documents;
o principal payments in the amount of $847,000 due on
the same schedule as under the existing Series 1985
Bond Documents;
o prior to conversion of interest rate mode from the
initial variable rate to a "subsequent variable rate" or
"fixed rate" and so long as all of the Series 1997 B
Bonds are held by Mercantile, Mercantile will have
the option to tender all outstanding Series 1997 B
Bonds for mandatory purchase by or on behalf of
Reorganized Edbro Missouri on January 1, 2000 and
on any succeeding January 1 upon 90 days' prior
written notice to Reorganized Edbro Missouri; and
o holders of Series 1997 A Bonds and Series 1997 B Bonds
will be equally and ratably secured, pari passu, by the
Series 1997 Loan Documents, including the Series 1997
Mortgage and the Series 1997 Guaranty.
The deficiency claims under the Series 1985 Bond Documents in an
aggregate amount equal to 23% of the aggregate outstanding
principal amount of the Series 1985 Bonds (the "Allowed Unsecured
1985 Claims") shall be treated as Allowed General Unsecured Claims
in Class 7 of the Plan. 23% of the outstanding principal amount of
each Series 1985 Bond shall be deemed cancelled on and as of the
Effective Date. In addition, all interest, premium and other
amounts (other than the Secured Series 1985 Bondholder Claims and
the Allowed Unsecured 1985 Claims) accrued and/or due and payable
on the Series 1985 Bonds or under or pursuant to any of the Series
1985 Bond Documents, if any, shall be deemed waived on and as of
the Effective Date.
4 Secured Tax Claims Impaired; at the option of the Debtors either (i) paid in 100%
full, in Cash, plus interest required to be paid pursuant to
section 506(b) of the Bankruptcy Code, or (ii) paid over a six-year
period from the date of assessment with interest payable at a rate
of 8 1/4% per annum or as otherwise established by the Bankruptcy
Court.
5 Other Secured Claims Unimpaired; at the option of the Debtors either (i) 100%
reinstated by curing all outstanding defaults, all legal,
equitable and contractual rights remaining unaltered, (ii)
paid in full, in Cash, plus interest required to be paid
pursuant to section 506(b) of the Bankruptcy Code, or
(iii) fully and completely satisfied by delivery or
retention of the Collateral securing the Other Secured
Claims and payment of interest required to be paid
pursuant to section 506(b) of the Bankruptcy Code.
6 Convenience Claims Impaired; paid in full in Cash. 100%
5
<PAGE>
7 General Unsecured Impaired; distribution of a Pro Rata Share of (i) 91.1% (2)
Claims $119,000,000 in Cash, (ii) New Notes in the aggregate principal
amount of $100,000,000, (iii) 10,000,000 shares of New Common
Stock, (iv) 10,000,000 Class A Membership Units in the EBS
Litigation, L.L.C., (v) 10,000,000 Class A Membership Units in the
EBS Pension, L.L.C. and (vi) 10,000,000 Class A Membership Units in
the EBS Building, L.L.C.
Distributions of New Common Stock and Class A Membership Units in
the EBS Litigation, L.L.C. may be reduced as a result of the
exercise of Rights by holders of Allowed Edison Equity Interests
(or their transferees). In such event, the Cash to be distributed
to holders of Allowed General Unsecured Claims will increase by an
amount equal to the Rights Exercise Proceeds.
The Debtors shall have right, at or prior to the Confirmation
Hearing, (i) in their sole discretion, upon notice to the
Creditors' Committee, to reduce the distribution of the
$119,000,000 in Cash by up to $15,000,000, in increments of
$5,000,000, and (ii) with the consent of the Creditors' Committee,
to reduce the distribution of the $119,000,000 in Cash by an
additional $5,000,000, provided that, as a consequence of any such
reduction, the principal amount of the New Notes shall be increased
by the amount of such reduction.
To the extent received by the Debtors prior to the Effective Date,
the Pension Plan Proceeds, the Corporate Headquarters Building
Proceeds and the Resolved Avoidance Claims Proceeds, if any, shall
be added to the Cash distributed to holders of Allowed General
Unsecured Claims. The LLC Funding Amount shall be subtracted from
the Cash distributed to holders of Allowed General Unsecured
Claims.
</TABLE>
- -------------------------
2 The estimated recoveries for General Unsecured Claims are based upon the
Debtors' current estimates of the Allowed General Unsecured Claims. The
aggregate amount of General Unsecured Claims, as reflected in filed proofs of
claim or, in the event no proof of claim was filed, in the Debtors' Schedules,
is $626,000,000, excluding Claims for which no amounts were specified, otherwise
unliquidated Claims, Claims against multiple Debtors, amended Claims, duplicate
Claims and guarantee Claims. For purposes of the Plan, Claims against multiple
Debtors are deemed to be one Claim against the consolidated Debtors and
guarantee Claims are deemed eliminated. See Section V.H.1., "The Plan of
Reorganization -- Consolidation of the Debtors -- Substantive Consolidation."
The Debtors estimate that the amount of Allowed General Unsecured Claims will
aggregate approximately $450,000,000. To the extent that the actual amount of
Allowed General Unsecured Claims varies from the amount estimated by the
Debtors, the recoveries of holders of Allowed General Unsecured Claims may be
higher or lower. The estimated recoveries for Allowed General Unsecured Claims
also are based upon the midpoint of the current estimates of the value of the
New Common Stock to be issued under the Plan. To the extent that the actual
value of the New Common Stock varies from the amounts estimated, the recoveries
of holders of Allowed General Unsecured Claims may be higher or lower. See
Section IX.A., "Valuation -- Debtors' Valuation." Based upon their valuation,
the Creditors' Committee's financial advisors believe that the estimated
recovery for holders of Allowed General Unsecured Claims under the Plan will
range from 78.9% to 86.7%, with a mid-point of 82.8%. See Section IX.B.,
"Valuation -- Creditors' Committee's Valuation." The estimated recoveries for
Allowed General Unsecured Claims also are based upon the assumption that no
Rights are exercised and no D&B Spinoff Stockholder elects to participate in the
D&B Spinoff Settlement Offer. If Rights are exercised and/or D&B Spinoff
Stockholders elect to participate in the D&B Spinoff Settlement Offer, the
recoveries of holders of Allowed General Unsecured Claims may be higher. See
Section V.B.3., "The Plan of Reorganization -- Securities to be Issued Under the
Plan - - New Common Stock, Rights, Warrants, Management Options, Director
Options and Restricted Stock" and Section V.P., "The Plan of Reorganization --
The D&B Spinoff Settlement."
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
8 Edison Equity Interests Impaired; distribution of a Pro Rata Share of $0.32 per
approximately 1,008,791 Warrants having the following share (3)
terms:
o 9.0% of the issued New Common Stock, on a fully
diluted basis;
o exercise price of $16.40;
o expiration on the eighth anniversary of the Effective
Date; and
o such other terms as are described in Section V.B.3.
herein.
Holders of Allowed Edison Equity Interests also will receive a Pro
Rata Share of the Rights. For a description of the Rights and the
procedures for the exercise thereof, see Section V.B.3., "The Plan
of Reorganization -- Securities to be Issued Under the Plan -- New
Common Stock, Rights, Warrants, Management Options, Director
Options and Restricted Stock."
D&B Spinoff Stockholders (including those that are holders of
Allowed Edison Equity Interests and those that are not) may
participate in the D&B Spinoff Settlement Offer. For a description
of the D&B Spinoff and the terms of the D&B Spinoff Settlement
Offer, see Section IV.F., "Events During the Chapter 11 Cases --
Investigation of Claims Arising Out of the D&B Spinoff" and Section
V.P., "The Plan of Reorganization -- The D&B Spinoff Settlement."
</TABLE>
- ---------------------------
3 The estimated recoveries for Edison Equity Interests are based solely on the
Debtors' valuation of the Warrants. See Section IX.A., "Valuation -- Debtors'
Valuation." The Debtors' valuation does not factor in the potential exercise of
Rights and/or participation by D&B Spinoff Stockholders in the D&B Spinoff
Settlement Offer. For a description of the Rights, see Section V.B.3., "The Plan
of Reorganization -- Securities to be Issued Under the Plan -- New Common Stock,
Rights, Warrants, Management Options, Director Options and Restricted Stock."
For a description of the D&B Spinoff Settlement, see Section V.P., "The Plan of
Reorganization -- The D&B Spinoff Settlement."
7
<PAGE>
III. GENERAL INFORMATION
A. OVERVIEW OF CHAPTER 11.
Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself, its creditors
and equity interest holders. In addition to permitting rehabilitation of a
debtor, another goal of chapter 11 is to promote equality of treatment for
similarly situated creditors and similarly situated equity interest holders with
respect to the distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate that
is comprised of all of the legal and equitable interests of the debtor as of the
filing date. The Bankruptcy Code provides that the debtor may continue to
operate its business and remain in possession of its property as a
"debtor-in-possession."
The consummation of a plan of reorganization is the principal
objective of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against and interests in a debtor.
Confirmation of a plan of reorganization by the bankruptcy court makes the plan
binding upon a debtor, any issuer of securities under the plan, any person
acquiring property under the plan and any creditor or equity interest holder of
a debtor. Subject to certain limited exceptions, the confirmation order
discharges a debtor from any debt that arose prior to the date of confirmation
of the plan and substitutes therefor the obligations specified under the
confirmed plan.
After a plan of reorganization has been filed, the holders of
claims against or interest in a debtor are permitted to vote to accept or reject
the plan. Before soliciting acceptances of the proposed plan, however, section
1125 of the Bankruptcy Code requires a debtor to prepare a disclosure statement
containing adequate information of a kind, and in sufficient detail, to enable a
hypothetical reasonable investor to make an informed judgment about the plan.
The Debtors are submitting this Disclosure Statement to holders of Claims
against and Equity Interests in the Debtors to satisfy the requirements of
section 1125 of the Bankruptcy Code.
B. DESCRIPTION AND HISTORY OF BUSINESS.
1.THE DEBTORS
Edison operates its business through a group of affiliated
entities. The Debtors in these Chapter 11 cases are:
Edison Brothers Stores, Inc., a Delaware corporation
Edison Brothers Apparel Stores, Inc., a Missouri corporation
Edison Brothers Shoe Stores, Inc., a Missouri corporation
Edison Paymaster, Inc., a Missouri corporation
Edison Brothers Redevelopment Corporation, a Missouri corporation
Edbro Missouri Realty, Inc., a Missouri corporation
Edison Alabama Stores, Inc., an Alabama corporation
Edison Arkansas Stores, Inc., an Arkansas corporation
Edison Colorado Stores, Inc., a Colorado corporation
Edison Brothers Company, a Georgia corporation
Edison Hawaii Stores, Inc., a Delaware corporation
Edison Illinois Stores, Inc., an Illinois corporation
Edison Kansas Stores, Inc., a Kansas corporation
Edison Kentucky Stores, Inc., a Kentucky corporation
Edison Louisiana Stores, Inc., a Louisiana corporation
Edison Maryland Stores, Inc., a Maryland corporation
Edison Massachusetts Stores, Inc., a Massachusetts corporation
Edison Michigan Stores, Inc., a Michigan corporation
Edison Minnesota Stores, Inc., a Minnesota corporation
Edison Mississippi Stores, Inc., a Mississippi corporation
Edison Nebraska Stores, Inc., a Nebraska corporation
Edison New Jersey Stores, Inc., a New Jersey corporation
Edison New Mexico Stores, Inc., a New Mexico corporation
8
<PAGE>
Edison New York Stores, Inc., a New York corporation
Edison Ohio Stores, Inc., an Ohio corporation
Edison Oklahoma Stores, Inc., an Oklahoma corporation
Edison Oregon Stores, Inc., an Oregon corporation
Edison Pennsylvania Stores, Inc., a Pennsylvania corporation
Edison Tennessee Stores, Inc., a Tennessee corporation
Edison Texas Stores, Inc., a Texas corporation
Edison Utah Stores, Inc., a Utah corporation
Edbro Ohio Realty, Inc., an Ohio corporation
EBSS-Montana, Inc., a Montana corporation
EBSS-North Central, Inc., an Illinois corporation
EBSS-Indiana, Inc., an Indiana corporation
EBSS-Iowa, Inc., an Iowa corporation
EBSS-Kansas, Inc., a Kansas corporation
EBSS-Wisconsin, Inc., a Wisconsin corporation
EBSS-Northeast, Inc., a Delaware corporation
EBSS-South, Inc., a Florida corporation
EBSS-Mideast, Inc., a Maryland corporation
EBSS-Michigan, Inc., a Michigan corporation
EBSS-East, Inc., a New York corporation
EBSS-Ohio, Inc., an Ohio corporation
EBSS-Pennsylvania, Inc., a Pennsylvania corporation
EBSS-Texas, Inc., a Texas corporation
EBSS-West, Inc., a California corporation
Edison Puerto Rico Stores, Inc., a Puerto Rico corporation
Ebscat, Inc., a Missouri corporation
Edison Brothers Mall Entertainment, Inc., a Missouri corporation
Horizon Entertainment, Inc., a Missouri corporation
Edison Brothers Stores International, Inc., a Missouri corporation
Edisur, Inc., a Missouri corporation
EBS Holdings Corp., a Delaware corporation
Edison Whittier Warehouse, Inc., a California corporation
Edbro California USG -- 2, Inc., a California corporation
Edbro Missouri USG -- 2, Inc., a Missouri corporation
Edbro California USG -- 1, Inc., a California corporation
Industrial Design, Inc., a Missouri corporation
Webster Clothes, Inc., a Delaware corporation
Z&Z Fashions, Ltd., a Maryland corporation
Webster-Rossville, Inc., a Maryland corporation
Time-Out Family Amusement Centers, Inc., a New York corporation
Tofac of Puerto Rico, Inc., a Virginia corporation
Sacha Shoes Ltd., a California corporation
Mandel's of California, a California corporation
2.BUSINESS
Edison operates, directly or through its Subsidiaries, chains
of specialty stores in 49 states of the United States, Puerto Rico, the Virgin
Islands and Canada. Edison conducts its principal operations in two business
segments: apparel and footwear. Both the apparel and the footwear segments
feature primarily private-label merchandise in the moderate price range. The
stores operated by Edison are located primarily in shopping malls and typically
range in size from 1,300 to 3,000 square feet. As of November 3, 1995, the
Commencement Date, Edison operated approximately 2,600 specialty retail stores
primarily in shopping malls located throughout the United States, Puerto Rico,
the Virgin Islands and Canada. In addition, as of the Commencement Date, Edison
operated over a chain of over 100 family entertainment centers (the "Mall
Entertainment Chain"). Since the Commencement Date through the date hereof,
Edison has closed approximately 1,074 stores, including virtually all of the
stores in the Mall Entertainment Chain, and opened approximately 119 stores. See
Section IV.D.1., "Events During the
9
<PAGE>
Chapter 11 Cases -- Implementation of Real Estate Strategy -- Store Closings"
and Section IV.C.3., "Events During the Chapter 11 Cases -- Stabilization of
Business -- Sale of Mall Entertainment Chain."
During fiscal 1996, Edison employed an average of 17,700
persons, both full- and part-time, with approximately 16,000 of such persons
engaged in retail operations at the store level. Edison also hires a substantial
number of temporary employees during peak selling seasons. Edison's employees
are all non-union. Edison considers its relationship with its employees to be
good.
Edison does not manufacture merchandise. It does, however,
market most of the merchandise sold in its stores under private labels.
Merchandise is acquired from a multitude of suppliers. Edison has no long-term
purchase commitments and is not dependent on any one supplier. Edison purchases
approximately 75% of its merchandise overseas. Edison maintains buying offices
in Taiwan, Hong Kong, China, Korea, Indonesia, Honduras and the Philippines.
Three main distribution centers serve as receiving points for
merchandise and coordinate the distribution of shipments to Edison's stores via
common or contract carrier. The distribution centers are located in Washington,
Missouri; Rialto, California; and Princeton, Indiana.
A. APPAREL DIVISION
As of the Commencement Date, the apparel division was
comprised of (i) six men's clothing chains -- JW/Jeans West/Coda, Oaktree, J.
Riggings, Zeidler & Zeidler/Webster, Repp Ltd. Big & Tall and Phoenix Big and
Tall (mail order business) and (ii) one teenage girl's clothing chain -- 5-7-9
Shops/Spirale. During the pendency of the Chapter 11 Cases, Edison has merged
the Oaktree chain with the JW/Jeans West/Coda chain and closed the Zeidler &
Zeidler chain and all Spirale stores in the 5-7-9 Shops/Spirale chain. Although
the Oaktree chain no longer exists as an independent chain, approximately 76
stores continue to be operated under the Oaktree name by the JW/Jeans West/Coda
chain. Edison is in the process of combining Phoenix Big and Tall with Repp Ltd.
Big & Tall. In addition, Edison has developed and is expanding one new store
concept -- Shifty's.
The JW/Jeans West/Coda stores generally are smaller than
stores in Edison's other menswear chains. This chain targets young men in the 14
to 25 year-old age group. As of the date hereof, Edison operates approximately
450 stores in the JW/Jeans West/Coda chain (including the approximately 76
Oaktree stores).
J. Riggings focuses on providing updated traditional apparel
to a broad age group of 16 to 35 year-old men. Its mainstream merchandise and
classic store design target a conservative customer. As of the date hereof,
Edison operates approximately 333 J. Riggings stores.
Repp Ltd. Big & Tall markets sportswear and clothing to men
who are 6 foot 3 inches or taller or have a 44 inch or larger waist. As of the
date hereof, Edison operates approximately 189 Repp Ltd. Big & Tall stores.
5-7-9 Shops primarily markets sportswear, dresses and
accessories to the junior customer. Its core customers are teenage girls.
Approximately 90% of the chain's merchandise is sold under the private 5-7-9
label. As of the date hereof, Edison operates approximately 274 5-7-9 Shops
stores.
Shifty's is a new-age youth concept store that sells
male/female clothes, footwear and a wide variety of accessories and related
products. Shifty's stores are label-driven and generally sell domestically
produced merchandise. The first Shifty's store opened in late 1994. As of the
date hereof, Edison operates 14 Shifty's stores.
Terrasystems is an apparel and accessory store that targets
"new generation" youths interested in alternative outdoor sports. Terrasystems
offers male/female clothing, footwear and accessories for the outdoor
experience. As of the date hereof, Edison operates three Terrasystems stores. In
April 1997, Edison announced that the Terrasystems concept will be phased out
during 1997.
10
<PAGE>
B. FOOTWEAR DIVISION
As of the Commencement Date, the footwear division was
comprised of three chains -- Bakers/Leeds, Precis and Wild Pair. During the
pendency of the Chapter 11 Cases, Edison has closed most of its Precis stores
and converted many of such closed stores to Bakers/Leeds stores.
Bakers/Leeds/Precis offers a wide selection of popularly
priced fashion shoes and accessories for the junior customer as well as the
contemporary woman. As of the date hereof, Edison operates approximately 326
Bakers/Leeds/Precis stores.
Wild Pair offers advanced shoe fashions for young women and
men and a selection of trend-setting accessories. As of the date hereof, Edison
operates approximately 164 Wild Pair stores.
3.HISTORY
Edison was founded in 1922 in Atlanta, Georgia by brothers
Harry, Irving, Mark, Samuel and Simon Edison. In 1925, the brothers opened their
first footwear stores outside of Atlanta in New Orleans, Louisiana, Memphis,
Tennessee and Birmingham, Alabama. In 1929, Edison Brothers Company was
incorporated as Edison Brothers Stores, Inc. and its headquarters was relocated
from Atlanta to St. Louis. In 1939, Edison's stock was listed on the New York
Stock Exchange. Edison continued to grow through internal expansion throughout
the 1930's, 1940's, 1950's and 1960's. In 1958, Edison's sales reached
$100,000,000 and by 1964 Edison operated approximately 500 stores.
During the late 1960's and 1970's, Edison began to expand into
businesses other than footwear, acquiring eight Handyman do-it-yourself hardware
and building material centers, the 48-store Jeans West apparel chain, the
four-store United Sporting Goods chain and the 126-store Fashion Conspiracy
apparel chain. By 1981, Edison operated approximately 2,000 stores.
Edison continued to acquire and dispose of businesses in the
1980's and 1990's. Among other things, Edison acquired the 104-store Gussini
self-service footwear chain, the 18-store Sacha London footwear chain, the
209-store J. Riggings apparel chain, the 138-store Webster/Zeidler & Zeidler
chain, the nine-store Rothschild's Big & Tall men's apparel chain, the 30-store
Harry's big and tall men's apparel chain, 198 additional big and tall apparel
stores in several transactions, the 21-store Cabaret accessories chain, two Dave
& Buster's theme restaurants and the 131-store Time-Out and Spaceport amusement
center chains. Edison sold the Gussini, Joan Bari and Cabaret chains and phased
out the Fashion Conspiracy chain.
Edison also grew through internal expansion, opening the
first Wild Pair store in Houston in 1972, the first Oaktree store in Houston in
1976, the first Coda store in Evergreen Park, Illinois in 1988, the first Precis
footwear store in St. Louis in 1990, the first Shifty's store in Woodbridge, New
Jersey in 1994 and the first Terrasystems store in Boulder, Colorado in 1995. As
of its fiscal year ended February 1, 1997, Edison's sales approximated
$1,090,400,000 and Edison operated over 1,700 apparel and footwear stores.
4.SIGNIFICANT INDEBTEDNESS
As of the Commencement Date, the Debtors had outstanding
$150,000,000 of senior notes, $125,000,000 under a $125,000,000 revolving credit
facility, $105,234,000 in letters of credit and bankers' acceptances under a
$205,000,000 letter of credit facility, $80,900,000 of short-term and demand
notes under uncommitted bank lines, $8,400,000 of capital lease obligations
relating to the Washington, Missouri distribution center and $21,600,000 under a
$75,000,000 secured revolving line of credit facility. The $75,000,000 secured
revolving line of credit facility was obtained in connection with an
out-of-court restructuring effectuated in September 1995, which restructuring is
described in Section III.C., "General Information -- Events Leading to the
Commencement of the Chapter 11 Cases." Subsequent to the Commencement Date, the
Debtors received Bankruptcy Court approval to pay $21,600,000 in satisfaction of
their obligations under the $75,000,000 secured revolving line of credit
facility.
11
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C. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES.
As 1995 proceeded, there was a general deterioration in the
overall specialty retailing environment, including a softening of consumer
demand, an increased tendency of consumers to frequent large discount stores and
a general decline in same store sales. Commencing in early 1995, Edison sought
to refinance its existing institutional debt obligations. In August 1995,
however, Edison was advised that such refinancing efforts would be unsuccessful.
Around that time, adverse retail trends began to have an impact on liquidity
and, as a result, in late summer 1995, Edison commenced negotiations with its
institutional lenders with respect to a possible out-of-court restructuring.
The negotiations with the institutional lenders were
exceedingly arduous and complex. Edison's bank group consisted of approximately
12 members (the "Bank Group"), while Edison's senior noteholders consisted of
approximately 21 separate institutions (the "Noteholders"). It was thus
necessary to obtain the consent of approximately 33 institutions in order to
effectuate any modification of Edison's obligations under the applicable
documents. Nevertheless, as a result of such negotiations, Edison reached
agreement with the Bank Group and the Noteholders on or about September 22,
1995. The documents memorializing these agreements are hereinafter referred to
collectively as the "Override Agreements." Pursuant to the Override Agreements,
in exchange for the Bank Group's and the Noteholders' forbearance through
February 29, 1996, Edison agreed to increase the interest rates payable on its
obligations, pay interest monthly in arrears on all obligations subject to the
Override Agreements, and pay a one-time fee in an amount approximating
$3,500,000. Edison also agreed to make a one-time principal payment of
approximately $25,000,000 in December 1995, which payment was not made as a
consequence of the commencement of the Chapter 11 Cases. The Bank Group and the
Noteholders also required that each of Edison's Subsidiaries guarantee Edison's
debt obligations. Concurrently with the execution of the Override Agreements,
Edison reached agreement with BankAmerica Business Credit, Inc. ("BABC"),
pursuant to which BABC provided a $75,000,000 secured revolving line of credit
facility to Edison (the "BABC Facility"). BABC required that the facility be
secured by substantially all of the inventory, receivables and cash of Edison
and the Subsidiaries and required that each of the Subsidiaries guarantee
Edison's obligations thereunder. The Override Agreements were to expire, and the
BABC Facility was to have matured, on February 29, 1996. The Debtors
contemplated that the nearly six-month breathing spell would provide adequate
time to negotiate a permanent out-of-court restructuring, particularly if the
Debtors succeeded in reestablishing domestic trade credit and experienced robust
fall and Christmas sales.
Unfortunately, for a variety of reasons, the objectives of the
Debtors were not achieved. About the time the Override Agreements were executed,
the general retailing environment, already soft, began to decline precipitously.
This was evidenced, in part, by the fact that during the second half of 1995,
several major retailers, including Caldor Corporation, the Elder-Beerman Stores
Corporation, Petrie Stores Corporation, Bradlees, Inc. and Jamesway Corporation,
commenced chapter 11 cases, leading to a general erosion of confidence in
retailing on the part of vendors and factors. As a consequence, despite the
presence of the BABC Facility, the Debtors were unsuccessful in restoring their
trade credit to an amount approaching pre-existing levels. Moreover, retail
trends nationally, and for the Debtors as well, continued to deteriorate.
Projections from many sources increasingly pointed to an unprofitable 1995
Christmas season for retailers.
Edison's assessment of the trends applicable to its stores was
in accord with the general forecasts. Edison, therefore, reluctantly concluded
that it would not be possible to effect the radical restructuring of its
business that would be needed in order to create a revitalized core business
without the protections of chapter 11 and that the interests of all parties
involved would best be served by conducting the restructuring under the auspices
of the Bankruptcy Court.
The Creditors' Committee does not necessarily agree with the
Debtors' recitation of the facts and factors leading to the commencement of the
Chapter 11 Cases or the Debtors' financial condition during 1995 and reserves
all of its rights and those of the EBS Litigation, L.L.C. to take differing
positions in regard thereto in connection with the prosecution of fraudulent
transfer claims relating to the D&B Spinoff. See Section IV.F., "Events During
the Chapter 11 Cases -- Investigation of Claims Arising Out of the D&B Spinoff."
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IV. EVENTS DURING THE CHAPTER 11 CASES
On November 3, 1995, the Debtors commenced the Chapter 11
Cases in the Bankruptcy Court. The Debtors continue to operate their businesses
and manage their properties as debtors in possession pursuant to sections 1107
and 1108 of the Bankruptcy Code.
The following is a brief description of some of the major
events during the Chapter 11 Cases.
A. APPOINTMENT OF THE CREDITORS' COMMITTEE.
On November 21, 1995, the United States Trustee appointed the
Creditors' Committee to represent the interests of unsecured creditors of the
Debtors. Since its formation, the Debtors have consulted with the Creditors'
Committee concerning the administration of the Chapter 11 Cases. The Debtors
have kept the Creditors' Committee informed about their operations and have
sought the concurrence of the Creditors' Committee for actions and transactions
taken outside of the ordinary course of the Debtors' business. The Creditors'
Committee has participated actively, together with the Debtors' management and
professionals, in, among other things, reviewing the Debtors' business
operations and reviewing the Debtors' business plans. The Debtors and their
professionals have met with the Creditors' Committee and its professionals on
numerous occasions in connection with the negotiation of the Plan.
The Creditors' Committee currently consists of five regular
members and three ex officio members. The current members of, and the attorneys
and advisors retained by, the Creditors' Committee are set forth below:
CREDITORS' COMMITTEE MEMBERS
----------------------------
REGULAR MEMBERS
- ---------------
Citibank, N.A. Private Line Group, Inc.
599 Lexington Avenue 1099 Wall Street West
New York, New York 10043 Suite 209
Lyndhurst, New Jersey 07071
Principal Mutual Life Insurance Co. Mulberry Thai Silks, Inc.
711 High Street 1002 Second Street
Des Moines, Iowa 50392-0800 San Rafael, California 94901
Simon Debartolo Group, Inc.
115 West Washington Street
Indianapolis, Indiana 46204
EX OFFICIO MEMBERS
- ------------------
Swiss Bank Corporation Contrarian Capital Advisors, L.L.C.
c/o Swiss Bank Corporation, 411 West Putnam Avenue, Suite 225
New York Branch Greenwich, Connecticut 06830
45 Broadway
New York, New York 10006
Morgens, Waterfall, Vintiadis
& Co., Inc.
10 East 50th Street
New York, New York 10022
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CREDITORS' COMMITTEE PROFESSIONALS
----------------------------------
ATTORNEYS FINANCIAL ADVISORS
- --------- ------------------
Jones, Day, Reavis & Pogue Price Waterhouse LLP
77 W. Wacker 120 Louisiana
Chicago, Illinois 60601-1692 Suite 2900
Houston, Texas 77002
Richards, Layton & Finger The Blackstone Group L.P.
One Rodney Square 345 Park Avenue
Wilmington, Delaware 19801 New York, New York 10154
The following entities formerly were members of the Creditors' Committee:
Boatmen's National Bank of St. Louis, Cigna Investments, Inc., First National
Bank of Chicago and The Bank of Nova Scotia.
B. APPOINTMENT OF THE EQUITY COMMITTEE.
On December 12, 1996, the United States Trustee appointed a
committee of equity interest holders (the "Equity Committee") to represent
equity interest holders of Edison. Since its formation, the Debtors have
consulted with the Equity Committee concerning the administration of the Chapter
11 Cases and the Equity Committee and its professionals have met with the
Debtors and their professionals regarding various issues relating to the Chapter
11 Cases, including issues relating to the Plan.
The Equity Committee currently consists of six members. The
current members of, and the attorneys and advisors retained by, the Equity
Committee are set forth below:
EQUITY COMMITTEE MEMBERS
------------------------
California Public Employees' Robert M. Haimsohn, Inc.
Retirement System 111 Elm Street
400 P Street Suite 420
Room 3340 San Diego, California 92101-2649
Sacramento, California 95814
Alex Berger, Jr.
Bernard J. Morello 11 Long Meadows
3507 Harney Street St. Louis, Missouri 63131
Omaha, Nebraska 68131
John E. Freund
Martin Katz 132 East Delaware Place
270 N. Canon Drive, #1541 Apt. 5306
Beverly Hills, California 90210 Chicago, Illinois 60611
Richard Bronson formerly was a member of the Equity Committee.
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EQUITY COMMITTEE PROFESSIONALS
------------------------------
ATTORNEYS FINANCIAL ADVISORS
- --------- ------------------
Paul, Weiss, Rifkind, Wharton Chilmark Partners, L.L.C
& Garrison 875 North Michigan Avenue,
1285 Avenue of the Americas Suite 2100
New York, New York 10019-6064 Chicago, Illinois 60611
Duane Morris & Heckscher
1201 Market Street
Wilmington, Delaware 19801
FINANCIAL ADVISORS
C. STABILIZATION OF BUSINESS.
During the initial stages of the Chapter 11 Cases, the Debtors
devoted substantial efforts to stabilizing their operations and restoring trade
and vendor support that had been lost prior to the Commencement Date.
1.FIRST DAY ORDERS
On the Commencement Date and during the first few weeks of the
Chapter 11 Cases, the Bankruptcy Court entered several orders authorizing the
Debtors to pay various prepetition claims. These orders were designed to ease
the strain on the Debtors' relationship with customers and employees as a
consequence of the filings. The Bankruptcy Court entered orders authorizing the
Debtors to, among other things, (i) pay prepetition compensation, benefits and
employee reimbursements to employees and (ii) honor certain prepetition
obligations to customers, including obligations relating to the Debtors' layaway
program, return policy, gift certificates and entertainment scrip. To ensure the
uninterrupted flow of merchandise into the Debtors' stores during the critical
Christmas season, the Bankruptcy Court authorized the payment of certain
prepetition claims held by shippers, vendors, tailors and foreign creditors and
authorized the Debtors to pay customs duties and related claims to obtain the
release of goods held by such shippers, vendors, tailors and foreign creditors.
2.DIP CREDIT FACILITY
Upon the commencement of the Chapter 11 Cases, the restoration
of trade credit and support was of significant importance to the Debtors. To
facilitate the establishment of normal vendor relations and to provide the
Debtors with the cash and liquidity to conduct their operations, the Debtors
entered into a $200,000,000 unsecured debtor in possession financing facility
with a syndicate of financial institutions led by BABC (the "DIP Credit
Facility"). The Bankruptcy Court entered an order approving the facility on
November 29, 1995. Pursuant to such order, the Debtors paid $21,600,000 to BABC
in satisfaction of their obligations under the BABC Facility. The DIP Credit
Facility has a sublimit of $150,000,000 for the issuance of letters of credit.
The DIP Credit Facility provides that the obligations of the Debtors thereunder
constitute unsecured administrative expense obligations with priority over any
and all administrative expenses. The DIP Credit Facility expires on the earlier
of November 9, 1997 and the effective date of a plan of reorganization that is
confirmed by the Bankruptcy Court.
As of June 7, 1997, there were no borrowings outstanding under
the DIP Credit Facility. At such date, there were outstanding letters of credit
in the amount of $100,700,000 and available borrowings in the amount of
$35,600,000.
3.SALE OF MALL ENTERTAINMENT CHAIN
Consistent with efforts to refocus on their core retail and
footwear apparel businesses and eliminate unproductive units and operations, the
Debtors sold substantially all of the assets of their Mall Entertainment Chain,
for a gross purchase price of $14,965,000, pursuant to an order of the
Bankruptcy Court dated January 30, 1996. To ensure that the Mall Entertainment
Chain assets were sold for the highest possible price, the Debtors negotiated a
purchase agreement with a prospective acquiror and, thereafter, implemented an
auction procedure that resulted in a higher and better offer being proposed and
accepted. In conjunction with and subsequent to the sale of the Mall
Entertainment Chain assets, the Debtors ceased operations at substantially all
of their Mall Entertainment Chain locations.
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4.COST REDUCTION AND REENGINEERING
Since the Commencement Date, the Debtors have made significant
strides towards reducing their overall cost structure. Among other things, the
Debtors have (i) closed approximately 1,074 stores (as described below), (ii)
closed their Rome, Georgia distribution facility, which is expected to result in
an annual savings of approximately $5,000,000, (iii) instituted an early
retirement program for long-term employees and (iv) instituted a company-wide
initiative to narrow the breadth of their merchandise assortment.
Ernst & Young LLP ("E&Y"), one of the Debtors' financial
advisors, has performed a reengineering study of the Debtors' businesses and
overall operations. Phase one of the reengineering study (the analysis phase),
which was completed in May 1996, has resulted in the identification of specific
procedures for the achievement of additional and substantial cost savings in the
following areas:
(i) corporate functions, including realignment and
reengineering of the Debtors' corporate office;
(ii) overall store operations, including standardization of
delivery schedules, minimizing interstore transfers,
simplification of merchandise receiving practices,
establishment of floor-ready merchandise, limiting defensive
promotions and modification of return policies; and
(iii) transportation functions.
In addition, substantial operating efficiencies were identified in the following
areas:
(i) merchandising, including planning and allocation
processes and distribution center processing; and
(ii) information services, including development of a
strategic information systems plan and a data warehouse.
Phase two of the reengineering study (the implementation phase), which commenced
in July 1996 and was substantially completed in January 1997, involved the
implementation of 52 specific project initiatives that had been identified in
phase one, with the assistance of E&Y, over a seven-month period to streamline
operations, reduce overhead and achieve substantial cost savings. In conjunction
with the reengineering project, the Debtors have retained Garr Consulting Group
to assist in determining the manner in which the Debtors' current distribution
center network should be modified to achieve optimal efficiency and reduce
distribution costs.
The Debtors also have retained Hewitt Associates LLC to
develop compensation and benefit programs to enable the Debtors to strengthen
their competitive position in recruiting and retaining employees. In addition,
Lakewest Group Ltd. will be assisting the Debtors in the selection and
implementation of enterprise-wide information systems. Such implementation
commenced in March 1997 and is planned to continue through 1999.
5.REALIGNMENT OF MANAGEMENT AND BOARD OF DIRECTORS
In February and March 1996, the Debtors, in an attempt to
reinvigorate their operating chains, effected a management realignment. Karl W.
Michner became President of the J. Riggings chain, Steven R. Thomas became
President of the Repp Ltd. Big & Tall chain, and Michael J. Fine, the President
of 5-7-9 Shops, also became President of the footwear division.
Moreover, in the context of the Chapter 11 Cases and the
additional responsibilities incidental thereto, Edison reassessed its corporate
governance and the membership of the Edison Board of Directors. At Edison's
annual stockholders' meeting held on June 12, 1996 in St. Louis, Missouri, two
additional independent directors were elected to Edison's Board of Directors:
Bart A. Brown, Jr., former Chairman of the Board and Chief Executive Officer of
the Circle K Corporation, and Richard C. Marcus, former Chief Executive Officer
of Plaid Clothing Group. Messrs. Brown and Marcus each have extensive and varied
retailing experience, including significant experience with retailers that
require financial and operating restructuring. Four members of the Edison Board
of Directors determined not to stand for reelection at such meeting.
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<PAGE>
D. IMPLEMENTATION OF REAL ESTATE STRATEGY.
1.STORE CLOSINGS
In an effort to eliminate the drain on the Debtors' business
caused by unprofitable stores, promptly after the Commencement Date, the Debtors
announced the closing of approximately 468 underperforming stores (the "Round
One Store Closings"). The Debtors engaged a consortium of entities to liquidate
the inventory in substantially all of the apparel stores to be closed and
conducted on their own substantially all of the footwear store closing sales.
The majority of the stores were closed in December 1995 and January 1996.
Substantially all of the real property leases relating to the closed stores were
terminated pursuant to lease termination agreements with landlords or rejected
pursuant to the provisions of the Bankruptcy Code.
Subsequent to the Round One Store Closings, the Debtors, in
the ordinary course of their business, continued to review and analyze their
overall store operations. As a result, in February 1996, the Debtors announced
the closing of their underperforming Mexico retail operations. Thereafter, in
June 1996, the Debtors determined to cease operations in and close approximately
120 additional underperforming stores (the "Round Two Store Closings"). The
Debtors determined to independently conduct the Round Two Store Closings,
engaging Gordon Brothers Partners, Inc. ("Gordon Brothers"), a professional
liquidator, as an advisory consultant. Substantially all of the stores subject
to the Round Two Store Closings were closed by July 31, 1996. Substantially all
of the real property leases relating to the closed stores were terminated
pursuant to lease termination agreements with landlords or rejected pursuant to
the provisions of the Bankruptcy Code.
In March 1996, the Debtors determined to discontinue, in an
orderly fashion, operations at their underperforming Zeidler & Zeidler/Webster
chain, which, as of the Commencement Date, consisted of approximately 138
stores. Approximately 26 Zeidler & Zeidler/Webster stores were closed in the
Round Two Store Closings. The balance of the store closing sales were completed
by October 27, 1996 (the "Round Three Store Closings"). As with the Round Two
Store Closings, the Debtors determined to independently conduct the Round Three
Store Closings, engaging Gordon Brothers as an advisory consultant. The
disposition of the Zeidler & Zeidler/Webster chain also involved the conversion
of certain stores for use by other Edison divisions, the assumption and
assignment of certain store leases, the closing of certain stores and the
rejection of related store leases and the expiration or termination of certain
store leases in accordance with their terms.
In November 1996, the Debtors determined to cease operations
in and close approximately 142 additional underperforming stores (the "Round
Four Store Closings"). As with the Round Two Store Closings and the Round Three
Store Closings, the Debtors determined to independently conduct the Round Four
Store Closings, engaging Gordon Brothers as an advisory consultant.
Substantially all of the stores subject to the Round Four Store Closings have
been converted for use by other Edison divisions or closed. The real property
leases relating to the closed stores that have not been converted have been
rejected, terminated pursuant to lease termination agreements with landlords or
assumed and assigned to third parties pursuant to the provisions of the
Bankruptcy Code.
In April 1997, the Debtors determined to cease operations in
and close approximately 23 additional stores, including all three of their
Terrasystems stores (the "Round Five Store Closings"). As with the Round Two
Store Closings, the Round Three Store Closings and the Round Four Store
Closings, the Debtors have determined to independently conduct the Round Five
Store Closings, engaging Gordon Brothers as an advisory consultant. By order
dated May 13, 1997, the Bankruptcy Court authorized the Debtors to conduct the
Round Five Store Closings and retain Gordon Brothers in connection therewith. In
addition, pursuant to section 365(a) of the Bankruptcy Code, the Bankruptcy
Court also approved the Debtors' rejection of the "Round Five" store leases,
with the exception of those leases that were entered into subsequent to the
Commencement Date or that may become subject to lease termination agreements or
expire pursuant to their terms and the lease for the Debtors' Boulder, Colorado
Terrasystems store, effective as of either (i) June 30, 1997, with respect to
leases associated with stores in which the Round Five Store Closings are
concluded on or prior to June 30, 1997, or (ii) July 31, 1997, with respect to
leases associated with stores in which the Round Five Store Closings are
concluded after June 30, 1997. The Debtors anticipate that the majority of the
Round Five Store Closings will be concluded by June 30, 1997. Subject to further
order of the Bankruptcy Court, all Round Five Store Closings will be concluded
by July 31, 1997, with the possible exception of store closing sales in the
Debtors' Boston, Massachusetts and Seattle, Washington Terrasystems stores,
which operate under leases entered into by the Debtors subsequent to the
Commencement Date.
As described in Section IV.D.2., "Events During the Chapter 11
Cases -- Implementation of Real Estate Strategy -- Lease Termination and Rent
Reduction Agreements," during the course of the Chapter 11 Cases, the Debtors
have
17
<PAGE>
been successful in obtaining rent reduction agreements with numerous landlords
pursuant to which landlords have reduced rent and related expenses under their
leases with the Debtors. During the final stage of the Chapter 11 Cases, the
Debtors have initiated further discussions with certain landlords seeking rent
reductions and/or optional lease termination provisions. Based upon the Debtors'
prior success in obtaining concessions from landlords, the Debtors believe that
they should be largely successful in their current negotiations. Depending upon
the outcome of such negotiations, the Debtors may determine to close certain
additional stores. Although the number of such additional stores cannot be
predicted with certainty, the Debtors do not anticipate closing more than
approximately 100 to 125 additional stores prior to the Effective Date.
Since the Commencement Date through the date hereof, the
Debtors have closed approximately 1,074 stores, negotiated short-term rent
reduction agreements with respect to approximately 400 stores, assumed and
assigned approximately 107 real property leases, converted approximately 53
stores to other uses, entered into approximately 121 new leases (including new
leases for existing properties) and rejected approximately 593 real property
leases. As of May 31, 1997, the Debtors operated approximately 1,656 stores in
the United States, 57 stores in Puerto Rico, four stores in the Virgin Islands
and 16 stores in Canada, for a total of approximately 1,733 stores.
2.LEASE TERMINATION AND RENT REDUCTION AGREEMENTS
In addition to closing underperforming stores, the Debtors
have diligently been negotiating with their landlords in an effort to obtain
rent reductions and concessions, including claims waivers. Such negotiations
have resulted in the consummation of a significant number of (i) rent reduction
agreements under which landlords have reduced the rent and related expenses
under their leases with the Debtors and (ii) lease termination agreements under
which landlords have waived and relinquished damage claims that otherwise may
have been asserted against the Debtors in connection with rejected and
terminated leases.
3.EXTENSIONS OF TIME TO ASSUME OR REJECT LEASES
Pursuant to section 365(d)(4) of the Bankruptcy Code, the
Debtors were required to assume or reject their nonresidential real property
leases on or before January 2, 1996, absent an extension of such time period by
the Bankruptcy Court. The Bankruptcy Court has, over the objection of various
landlords and other parties, periodically extended such time period. By bridge
order dated February 25, 1997, the Bankruptcy Court extended the time within
which the Debtors may assume or reject their nonresidential real property leases
through the day on which the Bankruptcy Court entered an order with respect to
the Debtors' motion (the "Extension Motion"), dated February 25, 1997, seeking
an extension of such period through the earlier to occur of the Effective Date
and July 31, 1997. The hearing on the Extension Motion was held before the
Bankruptcy Court on April 2, 1997. At that hearing, the Bankruptcy Court entered
an order (the "365(d)(4) Order") requiring the Debtors to file a motion or
motions with respect to the assumption and rejection of their nonresidential
real property leases by no later than May 30, 1997, without prejudice to the
Debtors' right to move for a further extension of time to assume or reject a
core group of their nonresidential real property leases. By motions dated May
30, 1997, as amended by notices dated June 17, 1997 and June 18, 1997, the
Debtors sought approval of, among other things, the conduct of certain store
closing sales (the "Store Closing Sales"), the assumption of approximately 1,470
leases, effective as of the Effective Date (the "Assumption Leases"), the
rejection of approximately 77 leases (the "Rejection Leases") and an extension
of time through the Confirmation Date to assume or reject approximately 45
leases (the "Extension Leases"). At a hearing conducted on June 20, 1997, the
Bankruptcy Court, among other things, approved the Store Closing Sales and the
rejection of the Rejection Leases and extended the Debtors' time to assume or
reject substantially all of the Extension Leases to and including the
Confirmation Date. The Bankruptcy Court adjourned the hearing until July 23,
1997 solely with respect to the Debtors' request that the assumption of the
Assumption Leases become effective as of the Effective Date. Certain of the
Debtors' landlords dispute the Debtors' characterization of the relief granted
by the Bankruptcy Court pursuant to the 365(d)(4) Order.
In an effort to ensure that landlords under the Rejection
Leases and the Extension Leases (collectively, the "Affected Leases") have a
fair opportunity to vote with respect to their rejection damage claims, the
Debtors will allow, for voting purposes only, the rejection damage claims under
each of the Affected Leases in an amount equal to one year's rent reserved under
such leases. The Debtors will provide the affected landlords with ballots based
on such amounts and any additional amounts for unpaid prepetition rent that may
be included in proofs of claim that such landlords may have filed. The Debtors'
calculation of said rejection damage claims shall be for voting purposes only
and will not be binding on either the landlords under the Affected Leases (with
respect to the claims asserted in any proofs of claim that they may already have
filed or may in the future file) or parties that may file objections to such
proofs of claim.
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E. CLAIMS PROCESS AND BAR DATE.
1.SCHEDULES AND STATEMENTS
On January 31, 1996 and February 1, 1996, the Debtors filed
their Statements of Financial Affairs, Schedules of Assets and Liabilities,
Schedules of Executory Contracts and Unexpired Leases and Lists of Equity
Security Holders. Thereafter, on April 4, June 6 and December 31, 1996,
respectively, the Debtors filed their First, Second and Third Amendments to the
Debtors' Schedules of Assets and Liabilities and Schedules of Executory
Contracts and Unexpired Leases (the "First Amendment," "Second Amendment" and
"Third Amendment" and, collectively, with the original filings, and as the same
may be amended or modified through and including the Confirmation Date, the
"Debtors' Schedules").
2.BAR DATE ORDER
By order dated May 1, 1996 (the "Bar Date Order"), pursuant to
Bankruptcy Rule 3003(c)(3), the Bankruptcy Court fixed August 1, 1996 (the "Bar
Date") as the date by which proofs of claim were required to be filed in the
Chapter 11 Cases. In accordance with the Bar Date Order, on or about May 17,
1996, a proof of claim form, a notice regarding the scheduling of each claim and
a notice regarding the Bar Date Order were mailed to all creditors listed on the
Debtors' Schedules. Pursuant to the Bar Date Order, all proofs of claim relating
to unexpired nonresidential real property leases and executory contracts
rejected prior to July 1, 1996, were required to be filed by the Bar Date. All
proofs of claim relating to unexpired nonresidential real property leases and
executory contracts rejected after July 1, 1996, are required to be filed by
dates set forth in the orders authorizing the rejection of such leases. By order
dated January 17, 1997 (the "Supplemental Bar Date Order"), pursuant to
Bankruptcy Rule 3003(c)(3), the Bankruptcy Court fixed April 16, 1997 (the
"Supplemental Bar Date") as the date by which proofs of claim were required to
be filed in the Chapter 11 Cases by creditors listed in the Third Amendment. In
accordance with the Supplemental Bar Date Order, on January 30, 1997, a proof of
claim form, a notice regarding the scheduling of each claim and a notice
regarding the Supplemental Bar Date Order were mailed to the creditors listed in
the Third Amendment.
3.GLOBAL RESOLUTION OF RECLAMATION CLAIMS
In March 1996, the Debtors and the Creditors' Committee agreed
upon a procedure for the global resolution and payment of valid reconciled
reclamation claims. Pursuant to an order dated June 4, 1996, the Bankruptcy
Court approved such procedure under which each holder of a valid reconciled
reclamation claim was afforded the option of receiving an immediate cash payment
of 80% of its reclamation claim (the "80% Option") or having such claim
satisfied as an administrative expense claim under a confirmed and effective
chapter 11 plan of reorganization (the "Administrative Claim Option"). Holders
of approximately $4,656,267 in aggregate amount of valid reconciled reclamation
claims selected the 80% Option and have been paid in accordance therewith.
Approximately $1,483,605 in aggregate amount of valid reconciled reclamation
claims selected the Administrative Claim Option. The reclamation claims of such
holders will be treated as Administrative Expense Claims under the Plan (the
"Administrative Reclamation Claims"). Although the Debtors believe they have
meritorious general defenses to all of the reclamation demands, the settlement
procedure resolved the pertinent issues without further litigation and the cost,
delay and uncertainty attendant thereto and further enhanced relations between
the Debtors and their vendors and factors, a necessary prerequisite for a
successful reorganization.
F. INVESTIGATION OF CLAIMS ARISING OUT OF THE D&B SPINOFF.
THE DISCUSSION IN THIS SECTION IV.F. OF, AMONG OTHER THINGS,
THE D&B SPINOFF, THE FACTS ATTENDANT TO THE D&B SPINOFF, THE VIEWS OF THE
DEBTORS, THE CREDITORS' COMMITTEE, THE EQUITY COMMITTEE AND THE EDISON FAMILY
GROUP (AS DEFINED BELOW) AS TO THE VALUE OF THE AVOIDANCE CLAIMS (AS DEFINED
BELOW), THE AVOIDANCE CLAIMS GENERALLY, THE POTENTIAL TARGETS OF THE AVOIDANCE
CLAIMS AND POTENTIAL DEFENSES TO AVOIDANCE CLAIMS THAT MAY BE AVAILABLE TO
PUBLIC, NON-INSIDER D&B SPINOFF STOCKHOLDERS (AS DEFINED BELOW), IS INTENDED
ONLY AS A SUMMARY OF CERTAIN FACTS, ISSUES AND VIEWS RELATING TO THE D&B SPINOFF
AND THE AVOIDANCE CLAIMS. THE DISCUSSION IN THIS SECTION IV.F. DOES NOT REFLECT
A COMPLETE ANALYSIS OF ALL LEGAL AND FACTUAL ISSUES RELATING TO THE D&B SPINOFF
AND THE AVOIDANCE CLAIMS. ACCORDINGLY, D&B SPINOFF STOCKHOLDERS SHOULD CONSULT
WITH THEIR OWN COUNSEL AS TO THE MERITS OF THE AVOIDANCE CLAIMS THAT MAY BE
ASSERTED AGAINST THEM BEFORE DETERMINING WHETHER TO (A) EXERCISE RIGHTS AND
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FOREGO RECEIPT OF CLASS A MEMBERSHIP UNITS IN THE EBS LITIGATION, L.L.C. IN
FAVOR OF PARTICIPATING IN THE D&B SPINOFF SETTLEMENT OFFER AND/OR (B)
PARTICIPATE IN THE D&B SPINOFF SETTLEMENT OFFER AND, THEREBY, OBTAIN A RELEASE
OF AVOIDANCE CLAIMS.
1.THE D&B SPINOFF
Prior to June 29, 1995, Dave & Buster's, Inc., a Delaware
corporation ("Old D&B"), was a majority owned second tier subsidiary of Edison.
Edison Brothers Entertainment, Inc. ("EBE"), a wholly owned subsidiary of
Edison, owned a majority of the outstanding stock of Old D&B. Old D&B, through
affiliates and subsidiaries, operated five amusement theme restaurants in the
United States. Pursuant to an agreement dated July 11, 1994, among Edison, Old
D&B, Old D&B's minority stockholders and EBE, the parties agreed that the Dave &
Buster's business would become a consolidated and independent entity through a
series of transactions pursuant to which Edison's ownership interest in a
restructured Dave & Buster's business would be distributed to its common
stockholders (the "D&B Spinoff"). By application dated August 16, 1994, Edison
requested that the Internal Revenue Service (the "IRS") approve the D&B Spinoff
and related transactions as tax-free transactions. Such request was approved by
the IRS on January 31, 1995. In early April 1995, after protracted discussions
with the Securities and Exchange Commission (the "Commission"), Edison deferred
to the Commission's position that certain bonus payments to be made in
connection with the D&B Spinoff should be treated as compensation. Thereafter,
on April 11, 1995, Edison filed with the Commission its Form 10 in connection
with the D&B Spinoff. Consistent with the July 11, 1994 agreement and through,
among other transactions, the merger of Old D&B into EBE (renamed Dave &
Buster's, Inc., a Missouri corporation ("New D&B") after the D&B Spinoff), on or
about June 29, 1995, Edison's 85% equity interest in New D&B was distributed, as
a stock dividend, to holders of shares of Edison common stock on the basis of
one share of New D&B common stock for every five shares of Edison common stock.
Prior to the D&B Spinoff, EBE Realty, Inc. ("EBE Realty") was a wholly owned
subsidiary of EBE, a second tier wholly owned subsidiary of Edison and a sister
corporation of Old D&B. After the D&B Spinoff, by virtue of the merger of Old
D&B into EBE, EBE Realty remained a wholly owned subsidiary of the now-
independent New D&B (formerly EBE). Edison retained no equity interest in EBE
Realty. EBE Realty (renamed D&B Realty, Inc. ("D&B Realty") after the D&B
Spinoff) owned, and continues to own, the real property associated with the Dave
& Buster's facilities.
2.REVIEW BY THE SPECIAL REVIEW COMMITTEE AND CREDITORS' COMMITTEE
On July 18, 1996, Edison's Board of Directors appointed a
Special Review Committee (the "Special Review Committee"), consisting of four
non-insider members of the Edison Board of Directors, to determine whether any
action or actions should be initiated by Edison in respect of the D&B Spinoff.
The Special Review Committee, on behalf of the Debtors, and the Creditors'
Committee have spent an extensive amount of time reviewing the D&B Spinoff in an
effort to determine whether avoidance actions should be pursued in connection
with the D&B Spinoff. The Special Review Committee also investigated other
potential claims related to the D&B Spinoff, including claims against the
Debtors' officers and directors and its advisors and consultants involved in the
D&B Spinoff.
At the conclusion of its review, the Special Review Committee
determined that the prosecution of the Debtors' fraudulent transfer Causes of
Action relating to the D&B Spinoff (the "Avoidance Claims") would be disruptive
to management's efforts to reorganize the Debtors, expensive, complicated,
protracted and vigorously defended. In that context and taking into
consideration the vagaries, contingencies and speculative nature of such
litigation, the value of the Avoidance Claims is indeterminate. The occurrence
of future events affecting the prosecution of the Avoidance Claims cannot be
predicted with any certainty. The Special Review Committee further determined
that the Debtors had no viable claims against any of the Debtors' officers or
directors or its advisors or consultants involved in the D&B Spinoff.
In view of the foregoing, and after negotiations with the
Creditors' Committee, the Special Review Committee approved the transfer of the
Avoidance Claims to a successor entity pursuant to the Plan. As described in
detail below, it has been determined that such entity will be a Delaware limited
liability company (the "EBS Litigation, L.L.C.") governed by a members agreement
(the "EBS Litigation LLC Members Agreement"). Any amounts recovered by the EBS
Litigation, L.L.C. in connection with the Avoidance Claims will be distributed
to holders of Class A Membership Units in the EBS Litigation, L.L.C. pursuant to
the terms of the EBS Litigation LLC Members Agreement. See Section V.E., "The
Plan of Reorganization -- The Limited Liability Companies."
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The Creditors' Committee reserves its rights and those of the
EBS Litigation, L.L.C. to take differing positions on the Debtors'
characterization, as set forth above, of the D&B Spinoff and the review of the
D&B Spinoff by the Special Review Committee and the Creditors' Committee in
connection with the prosecution of the Avoidance Claims.
As of June 29, 1995, the date of the D&B Spinoff, the market
value of Edison's former 85% interest in D&B, based upon a closing price for New
D&B stock on June 29, 1995 of $18 1/2 per share, was approximately $81,465,860.
For the reasons set forth above, the Debtors believe that the value of the
Avoidance Claims is indeterminate. The Creditors' Committee believes that the
Avoidance Claims have substantial value. The Equity Committee has not undertaken
an analysis of the Avoidance Claims. Certain potential targets of the Avoidance
Claims -- Bernard A. Edison, Julian Edison, Peter Edison, Eric Newman, Andrew
Newman, John Freund, Martin Sneider and the Harry Edison Foundation
(collectively, the "Edison Family Group") -- believe that the Avoidance Claims
are without merit and that in the event the Avoidance Claims are prosecuted,
some or all of the targets of the Avoidance Claims will assert claims against
present and former officers and directors of the Debtors and the Debtors'
advisors and consultants involved in the D&B Spinoff.
The Debtors do not believe that there are any material claims
against officers, directors, advisors or consultants to the Debtors in
connection with the D&B Spinoff. The members of the Edison Family Group believe
that if the Avoidance Claims have any merit, then the Debtors have meritorious
claims against their present and former officers and directors (which are being
released pursuant to the Plan) and against the Debtors' advisors and consultants
involved in the D&B Spinoff.
3.THE AVOIDANCE CLAIMS GENERALLY
Fraudulent transfer actions may be brought by a debtor in
possession under section 548 of the Bankruptcy Code and, pursuant to section
544(b) of the Bankruptcy Code, under applicable state fraudulent transfer laws.
Pursuant to section 548 of the Bankruptcy Code, two generic forms of fraudulent
transfers exist: (i) transfers made with actual intent to hinder, delay or
defraud creditors and (ii) transfers deemed in law to be constructively
fraudulent, notwithstanding the actual intent of the parties. Neither the
Special Review Committee nor the Creditors' Committee believes that the D&B
Spinoff was effectuated by Edison with an actual intent to hinder, delay or
defraud creditors. Accordingly, the D&B Spinoff should not be avoidable as an
"intentionally" fraudulent transfer.
Section 548(a)(2) of the Bankruptcy Code enables the avoidance
of constructively fraudulent transfers of a debtor's property in circumstances
where the debtor receives less than "reasonably equivalent value" in exchange
for the transfer and the debtor (i) was insolvent at the time of the transfer or
became insolvent as a result of the transfer, (ii) was engaged in a business or
transaction, or was about to engage in a business or transaction, for which the
property remaining with the debtor constituted unreasonably small capital, or
(iii) intended or believed that it would incur debts beyond its ability to pay
as they matured. If the debtor received "reasonably equivalent value," the
transfer cannot be constructively fraudulent under the Bankruptcy Code. If the
debtor did not receive "reasonably equivalent value," a constructively
fraudulent transfer will have occurred if it can be established that one of the
three "financial" conditions set forth in section 548(a)(2) of the Bankruptcy
Code (and described above) existed in the context of the transfer. It is well
established that the payment of a dividend or the redemption of shares of stock
cannot provide reasonably equivalent value to a corporation because
stockholders, rather the corporation and its creditors, are the only parties
benefited. Application of this principle of law leads to the conclusion that
Edison did not receive reasonably equivalent value in connection with the D&B
Spinoff, which constituted a stock dividend. Both the Special Review Committee
and the Creditors' Committee have concluded that Edison likely did not receive
reasonably equivalent value in connection with the D&B Spinoff.
If reasonably equivalent value is not received by a
transferor, a constructively fraudulent transfer will have occurred if facts are
established that comport with one of the three financial conditions set forth in
section 548(a)(2)(B) of the Bankruptcy Code. 11 U.S.C. ss. 548(a)(2)(B). Under
section 548(a)(2)(B)(i), a transfer will be adjudged constructively fraudulent
if the debtor "was insolvent on the date that such transfer was made . . . or
became insolvent as a result of such transfer . . . ." 11 U.S.C. ss.
548(a)(2)(B)(i). Under the Bankruptcy Code, a corporation is insolvent when the
sum of its debts and liabilities is greater than all of its property at a fair
valuation, exclusive of (i) property fraudulently transferred and (ii) property
exempt pursuant to section 522 of the Bankruptcy Code. 11 U.S.C. ss. 101(32). In
determining the fair valuation of a corporation's assets and liabilities,
reported balance sheet amounts are not conclusive. Under the Bankruptcy Code,
the determination of insolvency is based upon a "fair market value" analysis of
all of the corporation's assets. This analysis requires a factual determination
by the trier of fact that is usually based upon expert testimony.
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In the absence of reasonably equivalent value, a transfer also
will be adjudged constructively fraudulent if the debtor "was engaged in
business or a transaction, or was about to engage in business or a transaction,
for which any property remaining with the debtor was an unreasonably small
capital." 11 U.S.C. ss. 548(a)(2)(B)(ii). One issue in the analysis of
"unreasonably small capital" is whether, as a matter of law, the transfer itself
must have directly caused the alleged unreasonably small capital condition. This
issue has not been definitively decided by the courts. Another issue is whether
it was objectively reasonable for Edison to believe, as of June 29, 1995, the
date of the D&B Spinoff, that it would be able to consummate the refinancing
that it was in the midst of negotiating. The Creditors' Committee, however,
believes that "prospective financing" should not be included in the calculation
of capital for purposes of determining unreasonably small capital. The
Creditors' Committee also believes that, even if prospective financing may be
included in such calculation, the prospects of Edison consummating the
refinancing were sufficiently uncertain that the value of such prospective
financing should not be counted in such calculation. Accordingly, the Creditors'
Committee believes that Edison likely had unreasonably small capital subsequent
to the D&B Spinoff. A court, as to the legal aspects of the foregoing issues,
and a court and/or a jury, as to the factual aspects, could arrive at different
conclusions.
Lastly, in the absence of the receipt of reasonably equivalent
value, a transfer also will be adjudged constructively fraudulent if the debtor
"intended to incur, or believed that [it] would incur, debts that would be
beyond the debtor's ability to pay as such debts matured." 11 U.S.C. ss.
548(a)(2)(B)(iii). In order to demonstrate a constructively fraudulent transfer
under this section, the transferor must have subjectively intended to become
incapable of paying its obligations, or have foreseen that it would be unable to
meet its obligations. In view of the facts attendant to the D&B Spinoff, the
Special Review Committee has concluded that Edison likely did not intend to
incur, or believe that it would incur, debts that would be beyond its ability to
pay as such debts matured.
4.POTENTIAL TARGETS
The potential targets of the Avoidance Claims are (i) Edison
common stockholders as of June 19, 1995, the record date of the D&B Spinoff
(collectively, the "D&B Spinoff Stockholders") and (ii) New D&B. The claims
against D&B Spinoff Stockholders would be to recover the New D&B stock
transferred or the value thereof. The claims against New D&B would be to recover
either the stock of D&B Realty (or the value thereof) or the real property held
by D&B Realty (or the value thereof). It is anticipated that such targets will
vigorously defend against any and all such claims.
5.POTENTIAL DEFENSE FOR PUBLIC, NON-INSIDER D&B SPINOFF STOCKHOLDERS
Among other defenses, public, non-insider D&B Spinoff
Stockholders may have a "good faith" defense to fraudulent transfer liability in
connection with the D&B Spinoff based on certain decisions rendered by courts in
the context of leveraged buyouts challenged as fraudulent transfers. In such
cases, courts, relying upon public stockholders' lack of knowledge and intent as
to the leveraging of the target company in the leveraged buyout, have refused to
collapse a leveraged buyout with respect to public, non-insider stockholders
that tendered their shares in the leveraged buyout or have held that such
stockholders have a "good faith" defense to fraudulent transfer liability, in
either case affording such public, non-insider stockholders a complete defense
to fraudulent transfer liability. Although formulated and applied in leveraged
buyout cases, such defense may be available to public, non-insider D&B Spinoff
Stockholders. Such defenses, among others, could be available to other potential
defendants as well.
6.TRANSFER TO EBS LITIGATION, L.L.C.
The Plan provides for the establishment of the EBS Litigation,
L.L.C. for the purpose of prosecuting the Avoidance Claims that are not
compromised, settled or abandoned prior to the Effective Date or released
pursuant to the D&B Spinoff Settlement (the "Unresolved Avoidance Claims"). On
the Effective Date, all such Unresolved Avoidance Claims shall be transferred by
the Debtors or Reorganized Debtors to the EBS Litigation, L.L.C. and the Debtors
and Reorganized Debtors shall have no further interest in such Unresolved
Avoidance Claims. The EBS Litigation, L.L.C. is authorized to prosecute and
settle the Unresolved Avoidance Claims for the benefit of holders of Class A
Membership Units in the EBS Litigation, L.L.C. For a description of the terms
and conditions of the EBS Litigation, L.L.C., see Section V.E., "The Plan of
Reorganization -- The Limited Liability Companies."
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7.THE D&B SPINOFF SETTLEMENT
See Section V.P., "The Plan of Reorganization -- The D&B
Spinoff Settlement," for a description of the terms and conditions under which a
D&B Spinoff Stockholder may obtain a release of Avoidance Claims that may be
asserted against such D&B Spinoff Stockholder.
8.THE RIGHTS
See Section V.B.3., "The Plan of Reorganization -- Securities
to be Issued Under the Plan -- New Common Stock, Rights, Warrants, Management
Options, Director Options and Restricted Stock," for a description of the Rights
and the procedures for the exercise thereof by holders of Allowed Edison Equity
Interests (or their transferees), including the ability of those holders of
Allowed Edison Equity Interests who are also D&B Spinoff Stockholders, upon an
exercise of Rights, to forego receipt of Class A Membership Units in the EBS
Litigation, L.L.C. in favor of participating in the D&B Spinoff Settlement
Offer.
9.RELEASE OF OTHER CLAIMS RELATED TO THE D&B SPINOFF
Pursuant to the Plan, the Debtors release and are permanently
enjoined from any prosecution or attempted prosecution of any claims against any
present or former director, officer or employee of the Debtors related to the
D&B Spinoff, other than the Avoidance Claims that any such director, officer or
employee may be subject to in a capacity other than as present or former
director, officer or employee. See Section V.O.5., "The Plan of Reorganization
- -- Summary of Other Provisions of the Plan -- Releases." As described above, the
Debtors do not believe that there are any material claims against officers,
directors, advisors or consultants to the Debtors in connection with the D&B
Spinoff.
G. LITIGATION.
The Debtors do not believe (i) that there is any material
litigation or administrative proceeding to which the Debtors are parties and
(ii) that there are any material claims against officers, directors, advisors or
consultants to the Debtors.
H. DEVELOPMENT OF BUSINESS PLANS AND NEGOTIATION OF PLAN OF REORGANIZATION.
After achieving an initial stabilization of their business
operations, the Debtors engaged in an extensive review and evaluation of the
constituent parts of their business in the context of formulating a long-range
business plan and, ultimately, a plan of reorganization. As part of the
evaluation process, the Debtors retained various consultants to assist them in
analyzing the general retailing industry and their current market position and
developing strategies to improve the Debtors' position. Among others, the
Debtors retained Levy, Kerson, Aronson & Associates to perform a market analysis
of the J. Riggings chain and Kurt Salmon & Associates to perform a market
analysis of the footwear business and the Repp Ltd. Big & Tall chain. The
business plan was based on a comprehensive analysis of the Debtors' businesses,
market analyses and surveys, customer feedback, employee input and an analysis
of competitive conditions and changing demographics.
During the course of the Chapter 11 Cases, the Debtors
developed a new strategic focus which, primarily, targets the rapidly growing,
economically powerful youth market and, secondarily, targets the less
competitive men's special- size market. Anchored by several of the Debtors' more
growth-oriented businesses, this strategic focus exploits the Debtors' core
strengths. The business plan contains numerous initiatives designed to implement
the Debtors' overall strategic focus, including:
o Merchandising. The Debtors have developed a merchandise
strategy to respond more effectively to their customers'
needs. Central to this strategy is the separation of the
planning, allocation and buying functions and the introduction
of MMS Planning and MMS Allocation Software for inventory
planning and management.4 With these tools in place, the
Debtors expect to be able to react quickly to sales trends and
ensure that appropriate merchandise is available at their
stores.
- --------
4. MMS is a leading retail industry software system used for managing retail
product flow.
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o Store Operations. The Debtors' store operations initiatives
are designed to improve customer service, decrease costs and
enable the Debtors to obtain timely and accurate information
regarding sales trends and inventory position. The Debtors are
improving customer service by redeploying their employee labor
hours consistent with peak selling periods, adopting new
operating standards that reduce the amount of time store
employees spend in the backroom so they can devote more time
to customers and providing sales incentives to their
employees. Similarly, the Debtors are decreasing costs and
refining inventory management and control by, among other
things, updating and implementing new transfer policies.
o Corporate. On the corporate level, the Debtors are
consolidating, modernizing and reducing the cycle time for
merchandise to flow through the Debtors' distribution centers
and to the stores. The Debtors also are realigning,
consolidating, modernizing and automating various corporate
functions.
On November 1, 1996, within the time period prescribed by the
Bankruptcy Court, the Debtors delivered the business plan to the Creditors'
Committee. The Debtors continued to refine the business plan in light of, among
other things, the Debtors' ongoing review of their business and operations,
operating results during the 1996 Christmas selling season as compared to the
business plan and 1996 full-year operating results. Based on such review of the
Debtors' business and operations, the Debtors concluded that the business plan
delivered to the Creditor's Committee did not accurately present the Debtors'
anticipated financial performance. The Debtors and the Creditors' Committee also
met to discuss the Creditors' Committee's comments and suggestions regarding the
business plan. The Debtors considered the Creditors' Committee's comments and
suggestions and incorporated into the business plan certain of such comments and
suggestions as well as other changes that the Debtors believed were appropriate
in light of, among other things, operating results. The revised business plan
differs from the original business plan in numerous respects, including the
utilization of three years rather than five years of projections and a reduction
of projected EBITDA for the entire three-year period by approximately $30
million. These changes were made to take into account, among other things,
year-end results and the uncertainties attendant to long-term projections.
The financial advisors to the Equity Committee believe that
the changes in the business plan may not have been warranted and that such
changes substantially lowered the range of the Debtors' reorganization values as
calculated by the Debtors' financial advisors. See Section IX., "Valuation."
Nonetheless, as described in the following paragraph, the Equity Committee
believes that the Plan, as amended consistent with negotiations among the
Debtors, the Creditors' Committee and the Equity Committee, provides fair and
equitable recoveries to all holders of Allowed Claims and Allowed Equity
Interests.
Over the course of the past several months, the Debtors'
discussions with the Creditors' Committee regarding the Debtors' business plan
and business operations naturally evolved into negotiations regarding the
development of a plan of reorganization. These negotiations addressed, among
other things, the treatment of Claims and Equity Interests, the amount of Cash
to be distributed and the amount and terms of the debt, equity securities and
other consideration to be issued on account of allowed Claims and Equity
Interests and the assumed value of debt, equity securities and other
consideration to be distributed under the Plan. Over the course of the past
several weeks, the Debtors, the Creditors' Committee and the Equity Committee
have engaged in negotiations regarding, among other things, the terms of the
Plan and the treatment of holders of Allowed Edison Equity Interests thereunder.
Such negotiations have resulted in an agreement among such parties with respect
to the terms of the Plan. Specifically, with respect to holders of Allowed
Edison Equity Interests, the Plan provides that such holders will receive
Warrants and Rights to purchase (i) New Common Stock and (ii) at the election of
the holders of such Rights, (a) Class A Membership Units in the EBS Litigation,
L.L.C. or (b) if such holders also are D&B Spinoff Stockholders, the right to
participate in the D&B Spinoff Settlement. See Section V.B.3., "The Plan of
Reorganization -- Securities to be Issued Under the Plan -- New Common Stock,
Rights, Warrants, Management Options, Director Options and Restricted Stock" and
Section V.P., "The Plan of Reorganization -- The D&B Spinoff Settlement." The
Debtors, the Creditors' Committee and the Equity Committee believe that the Plan
provides fair and equitable recoveries to all holders of Allowed Claims and
Allowed Equity Interests.
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V. THE PLAN OF REORGANIZATION
The Debtors believe that (i) through the Plan, holders of
Allowed Claims and Allowed Equity Interests will obtain a substantially greater
recovery from the estates of the Debtors than the recovery that they would
receive if the assets of the Debtors were liquidated under chapter 7 of the
Bankruptcy Code and (ii) the Plan will afford the Debtors the opportunity and
ability to continue in business as a viable going concern and preserve ongoing
employment for the Debtors' employees.
The Plan is annexed hereto as Exhibit A and forms a part of
this Disclosure Statement. The summary of the Plan set forth below is qualified
in its entirety by reference to the more detailed provisions of the Plan.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS.
The Plan classifies Claims and Equity Interests separately and
provides different treatment for different Classes of Claims and Equity
Interests in accordance with the Bankruptcy Code. As described more fully below,
the Plan provides, separately for each Class, that holders of certain Claims and
Equity Interests will receive various amounts and types of consideration based
on the different rights of the holders of Claims and Equity Interests in each
Class.
1.COMPENSATION AND REIMBURSEMENT CLAIMS
Compensation and reimbursement Claims are Administrative
Expense Claims for the compensation of professionals and reimbursement of
expenses incurred by such professionals pursuant to sections 503(b)(2),
503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the "Compensation and
Reimbursement Claims"). All payments to professionals for Compensation and
Reimbursement Claims will be made in accordance with the procedures established
by the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court relating
to the payment of interim and final compensation for services rendered and
reimbursement of expenses. The aggregate amount of compensation for services
rendered and reimbursement of expenses incurred by professionals (including
professionals employed by the Debtors, the Creditors' Committee and the Equity
Committee), inclusive of payments through March 10, 1997, is approximately
$11,405,049. The Bankruptcy Court will review and determine all applications for
compensation for services rendered and reimbursement of expenses.
Section 503(b) of the Bankruptcy Code provides for payment of
compensation to creditors, indenture trustees and other entities making a
"substantial contribution" to a reorganization case, and to attorneys for and
other professional advisors to such entities. The amounts, if any, which may be
sought by entities for such compensation are not known by the Debtors at this
time. Requests for compensation must be approved by the Bankruptcy Court after a
hearing on notice at which the Debtors and other parties in interest may
participate and, if appropriate, object to the allowance of any compensation and
reimbursement of expenses.
Pursuant to the Plan, each holder of a Compensation and
Reimbursement Claim (i) shall file its respective final application for
allowance of compensation for services rendered and reimbursement of expenses
incurred through the date (the "Confirmation Date") on which the Clerk of the
Bankruptcy Court enters the order (the "Confirmation Order") of the Bankruptcy
Court confirming the Plan pursuant to section 1129 of the Bankruptcy Code on the
docket by the date that is 60 days after the Effective Date or such other date
as may be fixed by the Bankruptcy Court and, (ii) if granted such an award by
the Bankruptcy Court, shall be paid in full in such amounts as are Allowed by
the Bankruptcy Court (a) on the date such Compensation and Reimbursement Claim
becomes an Allowed Claim, or as soon thereafter as is practicable, or (b) upon
such other terms as may be mutually agreed upon between such holder of such
Compensation and Reimbursement Claim and the Debtors in Possession or, on and
after the Effective Date, the Reorganized Debtors.
2.ADMINISTRATIVE EXPENSE CLAIMS
Administrative Expense Claims are Claims constituting a cost
or expense of administration of the Chapter 11 Cases allowed under sections
503(b) and 507(a)(1) of the Bankruptcy Code. Such Claims include any actual and
necessary costs and expenses of preserving the estates of the Debtors, any
actual and necessary costs and expenses of operating the business of the Debtors
in Possession, any indebtedness or obligations incurred or assumed by the
Debtors in Possession in connection with the conduct of their business
including, without limitation, for the acquisition or lease of property or an
interest in property or the rendition of services, all compensation and
reimbursement of expenses to the extent Allowed by the Bankruptcy Court under
section 330 or 503 of the Bankruptcy Code, and any fees or charges assessed
against the estates of the Debtors under section
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1930 of chapter 123 of title 28 of the United States Code. Administrative
Expense Claims also include Administrative Reclamation Claims.
Except as provided for above with respect to Compensation and
Reimbursement Claims, pursuant to the Plan, Administrative Expense Claims will
be paid in full, in Cash, on the later of the Effective Date and the date such
Administrative Expense Claim becomes an Allowed Claim, or as soon thereafter as
is practicable. Allowed Administrative Expense Claims representing obligations
incurred in the ordinary course of business by the Debtors in Possession
(including amounts owed to vendors and suppliers that have sold goods or
furnished services to the Debtors in Possession since the Commencement Date)
will be assumed and paid by the Reorganized Debtors in accordance with the terms
and conditions of the particular transactions and any agreements relating
thereto.
3.PRIORITY TAX CLAIMS
Priority Tax Claims are Claims for taxes entitled to priority
in payment under section 507(a)(8) of the Bankruptcy Code. The Debtors estimate
that the amount of Allowed Priority Tax Claims that have not previously been
paid pursuant to an order of the Bankruptcy Court will be in a range of
approximately $6,375,000 to $9,375,000.
Each holder of an Allowed Priority Tax Claim will receive, at
the sole option of Reorganized Edison, (i) Cash in an amount equal to such
Allowed Priority Tax Claim on the later of the Effective Date and the date such
Priority Tax Claim becomes an Allowed Claim, or as soon thereafter as is
practicable, or (ii) equal annual Cash payments in an aggregate amount equal to
such Allowed Priority Tax Claim, together with interest at an annual rate equal
to 8 1/4% over a period through the sixth anniversary of the date of assessment
of such Allowed Priority Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the holder of such Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Priority Tax Claim.
4.CLASS 1 -- OTHER PRIORITY CLAIMS
Other Priority Claims are Claims which are entitled to
priority in accordance with section 507(a) of the Bankruptcy Code (other than
Administrative Expense Claims and Priority Tax Claims). Such Claims include (i)
Unsecured Claims for accrued employee compensation earned within 90 days prior
to commencement of the Chapter 11 Cases to the extent of $4,000 per employee and
(ii) contributions to employee benefit plans arising from services rendered
within 180 days prior to the commencement of the Chapter 11 Cases, but only for
each such plan to the extent of (a) the number of employees covered by such plan
multiplied by $4,000, less (b) the aggregate amount paid to such employees from
the estates for wages, salaries or commissions. The Debtors believe that all
Other Priority Claims previously have been paid pursuant to an order of the
Bankruptcy Court. Accordingly, the Debtors believe that there should be no
Allowed Other Priority Claims.
Pursuant to the Plan, holders of Allowed Other Priority
Claims, if any exist, will be paid in full, in Cash on the later of the
Effective Date and the date such Other Priority Claim becomes an Allowed Claim,
or as soon thereafter as is practicable. The legal, equitable and contractual
rights of the holders of Other Priority Claims, if any exist, are not altered by
the Plan.
5.CLASS 2 -- SECURED SERIES 1977 BONDHOLDER CLAIMS
The Secured Series 1977 Bondholder Claims are Secured Claims
relating to certain industrial revenue bonds (the "Series 1977 Bonds") issued by
the City of Washington, Franklin County, Missouri (the "City") in connection
with the financing of a warehouse and distribution facility located in Franklin
County, Missouri (the "Edbro Missouri Facility"), which Edbro Missouri Facility
is owned by the City and leased to Edbro Missouri Realty Company, Inc., a
Missouri corporation ("Edbro Missouri") pursuant to the terms of a lease
agreement between the City and Edbro Missouri, as more particularly described
below (the "Series 1977 Lease Agreement"). Edison has guaranteed all obligations
of Edbro Missouri under the Series 1977 Lease Agreement. Mercantile Bank
National Association (f/k/a Mercantile Bank of St. Louis, National Association,
f/k/a Mercantile Trust Company National Association) ("Mercantile") is the
paying agent with respect to the Series 1977 Bonds. The Secured Series 1977
Bondholder Claims arise under and in connection with the following documents:
(i) Agreement of Lease and Option to Purchase, dated December 15, 1976, between
the City and Edbro Missouri, as amended by that certain First Amendment of Lease
and Option to Purchase, dated June 6, 1977, between the City and Edbro Missouri,
(ii) Ordinance No. 4930 adopted by the City on June 9, 1977, pursuant to which
the Series 1977 Bonds were issued, (iii) Guaranty, dated
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December 15, 1976, executed by Edison and (iv) Guaranty, dated June 6, 1977,
executed by Edison, each securing the obligations of Edbro Missouri under the
Series 1977 Lease Agreement (collectively, the "Series 1977 Bond Documents").
The Debtors formerly were party to a litigation before the
Bankruptcy Court with the City of Washington, Missouri and Mercantile regarding
whether the transactions represented by the Series 1977 Bond Documents are
leasing or secured financing transactions. The Debtors asserted that the
transactions represent a secured financing. The City of Washington, Missouri and
Mercantile asserted that the transactions resulted in the creation of a true
lease.
Over the course of extended discussions, the Debtors and
representatives of the City and Mercantile were able to reconcile their
differences and reach an agreement in principle which is embodied in a
stipulation among the Debtors, Mercantile and the City approved by the
Bankruptcy Court on May 20, 1997 (the "Stipulation"). Pursuant to the
Stipulation, the parties stipulated that the Series 1977 Lease Agreement is
deemed to constitute a financing agreement subject to the provisions of section
363 of the Bankruptcy Code as opposed to an executory contract subject to
assumption or rejection pursuant to section 365 of the Bankruptcy Code. Further,
the parties have agreed that the Secured Series 1977 Bondholder Claims will be
Allowed in the amount of $2,482,000. Pursuant to the Plan, Reorganized Edbro
Missouri will cause the Series 1997 A Bonds in the aggregate principal amount of
$2,482,000 to be issued by the City on the Effective Date and distributed to the
holders of the Series 1977 Bonds with each such holder to receive Series 1997 A
Bonds in authorized denominations, as provided in the Plan, in an aggregate
principal amount equal to 85% of the principal amount of Series 1977 Bonds held
by such holder. The Series 1997 A Bonds will be issued with the same interest
rate, amortization schedule (but on a prospective basis only) and maturity as
the Series 1977 Bonds. The Series 1997 A Bonds will be issued, together with the
Series 1997 B Bonds, pursuant to a trust indenture (the "New Indenture") between
the City and a bank or trust company, acting as trustee thereunder ("New
Trustee") under a loan structure (rather than a lease structure) whereby
Reorganized Edbro Missouri will execute certain loan documents, including a
guaranty from Reorganized Edison and a first deed of trust encumbering the Edbro
Missouri Facility (collectively, the "Series 1997 Loan Documents"), which will
be assigned to the New Trustee as security for the Series 1997 A Bonds and
Series 1997 B Bonds.
The Allowed Unsecured 1977 Claims will be deemed Allowed
General Unsecured Claims and shall be treated as such in Class 7 of the Plan.
15% of the outstanding principal amount of each Series 1977 Bond shall be deemed
cancelled on and as of the Effective Date. In addition, all interest, premium
and other amounts (other than the Secured Series 1977 Bondholder Claims and the
Allowed Unsecured 1977 Claims) accrued and/or due and payable on the Series 1977
Bonds or under or pursuant to any of the Series 1977 Bond Documents, if any,
shall be deemed waived on and as of the Effective Date.
The Series 1977 Bonds were issued in bearer form and the
identities of certain of the holders thereof are not known to the Debtors. To
insure that the Claims of all known and unknown holders of Series 1977 Bonds are
Allowed and treated under the Plan, the Debtors have requested that the proof of
claim filed by the City, on behalf of the holders of the Series 1977 Bonds, be
Allowed and that all Claims filed by individual holders of the Series 1977 Bonds
be disallowed as duplicative. Only the holders of the Series 1977 Bonds,
however, will be allowed to vote in Class 2 and Class 7 to accept or reject the
Plan, and the Claims of the holders of the Series 1977 Bonds will be treated as
provided under the Plan.
6.CLASS 3 -- SECURED SERIES 1985 BONDHOLDER CLAIMS
The Secured Series 1985 Bondholder Claims are Secured Claims
relating to certain industrial revenue bonds (the "Series 1985 Bonds") issued by
the City in connection with the refunding of a prior series of bonds which were
issued in connection with the financing of certain extensions to the Edbro
Missouri Facility. In connection with the issuance of the Series 1985 Bonds,
Edbro Missouri and the City entered into a lease agreement as more particularly
described below (the "Series 1985 Lease Agreement"). Edison has guaranteed all
obligations of Edbro Missouri under the Series 1985 Lease Agreement. The Secured
Series 1985 Bondholder Claims arise under and in connection with the following
documents: (i) Indenture of Trust, dated as of November 15, 1985, between the
City and Mercantile, as trustee ("Series 1985 Trustee"), pursuant to which the
Series 1985 Bonds were issued, (ii) Amended Lease Agreement, dated November 15,
1985 between the City and Edbro Missouri, as amended by that certain Amendment
to Amended Lease Agreement, dated November 28, 1994, between the City and Edbro
Missouri, (iii) Bank Agreement, dated as of November 15, 1985, between Edison
and Mercantile, in its capacity as the holder of all Series 1985 bonds, (iv)
Guaranty Agreement, dated as of November 15, 1985, among the City, Series 1985
Trustee and Edison, securing the obligations of Edbro Missouri under the Series
1985 Lease Agreement (collectively, the "Series 1985 Bond Documents").
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The Debtors formerly were party to a litigation before the
Bankruptcy Court with the City of Washington, Missouri and Mercantile regarding
whether the transactions represented by the Series 1985 Bond Documents are
leasing or secured financing transactions. The Debtors asserted that the
transactions represent a secured financing. The City of Washington, Missouri and
Mercantile asserted that the transactions resulted in the creation of a true
lease.
Over the course of extended discussions, the Debtors and
representatives of the City and Mercantile were able to reconcile their
differences and reach an agreement in principle which is embodied in the
Stipulation. Pursuant to the Stipulation, the parties stipulated that the Series
1985 Lease Agreement is deemed to constitute a financing agreement subject to
the provisions of section 363 of the Bankruptcy Code as opposed to an executory
contract subject to assumption or rejection pursuant to section 365 of the
Bankruptcy Code. Further, the parties have agreed that the Secured Series 1985
Bondholder Claims will be Allowed in the amount of $4,235,000. Pursuant to the
Plan, Reorganized Edbro Missouri will cause the Series 1997 B Bonds in the
aggregate principal amount of $4,235,000 to be issued by the City on the
Effective Date and distributed to the holders of the Series 1985 Bonds with each
such holder to receive Series 1997 B Bonds in authorized denominations, as
provided in the Plan, in an aggregate principal amount equal to 77% of the
principal amount of Series 1985 Bonds held by such holder. The Series 1997 B
Bonds will be issued with the same interest rate and maturity as the Series 1985
Bonds but the amortization schedule shall be modified such that the required
amortization payment to be made on November 1, 2006 and on each November 1
thereafter through maturity shall be equal to $847,000. In addition, as provided
in Schedule 4 to the Plan and the Series 1997 B Bonds and Series 1997 Loan
Documents, Mercantile, as the sole owner of all Series 1997 B Bonds, will have a
tender option on January 1, 2000 and, if not previously exercised, on each
succeeding January 1. The Series 1997 B Bonds will be issued, together with the
Series 1997 A Bonds, pursuant to the New Indenture, under a loan structure
(rather than a lease structure) whereby Reorganized Edbro Missouri will execute
the Series 1997 Loan Documents which will be assigned to the New Trustee as
security for the Series 1997 A Bonds and Series 1997 B Bonds.
The Allowed Unsecured 1985 Claims will be deemed Allowed
General Unsecured Claims and shall be treated as such in Class 7 of the Plan.
23% of the outstanding principal amount of each Series 1985 Bond shall be deemed
cancelled on and as of the Effective Date. In addition, all interest, premium
and other amounts (other than the Secured Series 1985 Bondholder Claims and the
Allowed Unsecured 1985 Claims) accrued and/or due and payable on the Series 1985
Bonds or under or pursuant to any of the Series 1985 Bond Documents, if any,
shall be deemed waived on and as of the Effective Date.
Only the holders of the Series 1985 Bonds will be allowed to
vote in Class 2 and Class 7 to accept or reject the Plan, and the Claims of the
holders of the Series 1985 Bonds will be treated as provided under the Plan.
7.CLASS 4 -- SECURED TAX CLAIMS
The Secured Tax Claims are Secured Claims which, absent their
status as Secured Claims, would be entitled to priority in right of payment
under section 507(a)(8) of the Bankruptcy Code. The Debtors estimate that the
amount of Allowed Secured Tax Claims that have not previously been paid pursuant
to an order of the Bankruptcy Court will aggregate approximately $1,000,500.
Each holder of an Allowed Secured Tax Claim will receive, at
the sole option of Reorganized Edison, (i) Cash in an amount equal to such
Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax
Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on
the later of the Effective Date and the date such Allowed Secured Tax Claim
becomes an Allowed Secured Claim, or as soon thereafter as is practicable, or
(b) equal annual Cash payments in an aggregate amount equal to such Allowed
Secured Tax Claim, together with interest at a fixed annual rate equal to 8
1/4%, over a period through the sixth anniversary of the date of assessment of
such Allowed Secured Tax Claim, or upon such other terms determined by the
Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to such
Allowed Secured Tax Claim.
8.CLASS 5 -- OTHER SECURED CLAIMS
The Other Secured Claims consist of all Secured Claims other
than Secured Series 1977 Bondholder Claims, Secured Series 1985 Bondholder
Claims and Secured Tax Claims. Based upon the Debtors' Schedules and the proofs
of claim filed in the Chapter 11 Cases, the Debtors believe that the Other
Secured Claims include, among other Claims, Claims relating to mechanics' liens
and utility deposits. The Debtors do not believe that the amounts of such Claims
are material.
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At the sole option of Reorganized Edison, (i) each Allowed
Other Secured Claim shall be reinstated and rendered unimpaired in accordance
with section 1124(2) of the Bankruptcy Code, (ii) each holder of an Allowed
Other Secured Claim shall receive Cash in an amount equal to such Allowed Other
Secured Claim, including any interest on such Allowed Other Secured Claim
required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the
later of the Effective Date and the date such Allowed Other Secured Claim
becomes an Allowed Other Secured Claim, or as soon thereafter as is practicable,
or (iii) each holder of an Allowed Other Secured Claim shall receive the
Collateral securing its Allowed Other Secured Claim and any interest on such
Allowed Other Secured Claim required to be paid pursuant to section 506(b) of
the Bankruptcy Code, in full and complete satisfaction of such Allowed Other
Secured Claim on the later of the Effective Date and the date such Allowed Other
Secured Claim becomes an Allowed Other Secured Claim, or as soon thereafter as
is practicable. The legal, equitable and contractual rights of the holders of
Other Secured Claims, if any exist, are not altered by the Plan.
9.CLASS 6 -- CONVENIENCE CLAIMS
The Convenience Claims are Unsecured Claims in the amount of
$1,000 or less and Unsecured Claims that are reduced to $1,000 by the election
of the holders thereof on such holders' Ballots. The Debtors estimate that
Allowed Convenience Claims, excluding Convenience Claims in amounts greater than
$1,000 of holders who elect to opt into Class 6, will aggregate approximately
$777,000.
Pursuant to the Plan, each holder of an Allowed Convenience
Claim as of the day that is five days after the Confirmation Date (the "Record
Date") will receive Cash in an amount equal to its Allowed Convenience Claim on
the later of the Effective Date and the date such Claim becomes an Allowed
Claim, or as soon thereafter as is practicable.
10. CLASS 7 -- GENERAL UNSECURED CLAIMS
The General Unsecured Claims consist of all Unsecured Claims
other than Convenience Claims. Such Claims include (i) Claims relating to the
Debtors' institutional debt obligations, including obligations under certain
senior notes, a revolving credit facility and certain short-term and demand
notes, (ii) Claims in respect of the rejection of leases of nonresidential real
property and executory contracts, (iii) Claims relating to personal injury,
property damage or products liability or other similar Claims that have not been
compromised and settled or otherwise resolved (the "Tort Claims") and (iv)
Claims of the Debtors' trade vendors, suppliers and service providers. The
aggregate amount of General Unsecured Claims, as reflected in proofs of claim
filed by holders of General Unsecured Claims or, in the event no proof of claim
was filed, in the Debtors' Schedules is $626,000,000, excluding Claims for which
no amounts were specified, otherwise unliquidated Claims, Claims against
multiple Debtors, amended Claims, duplicate Claims and guarantee Claims. For
purposes of the Plan, Claims against multiple Debtors are deemed one Claim
against the consolidated Debtors and guarantee Claims are deemed eliminated. See
Section V.H.1., "The Plan of Reorganization -- Consolidation of the Debtors --
Substantive Consolidation." The Debtors estimate that the amount of Allowed
General Unsecured Claims will aggregate approximately $450,000,000. The Debtors'
estimate of Allowed General Unsecured Claims is based upon an analysis of the
General Unsecured Claims and the Debtors' experience to date in resolving
disputes concerning the amount of such General Unsecured Claims. Many of the
personal injury Tort Claims that are General Unsecured Claims are unliquidated
and, in accordance with the Plan, will be liquidated in the tribunal in which
they are pending on the Effective Date or, if no action was pending on the
Effective Date, in any tribunal of appropriate jurisdiction or in accordance
with any alternative dispute resolution or similar proceeding as the same may be
approved by order of the Bankruptcy Court. The resolution of Tort Claims could
result in Allowed General Unsecured Claims in amounts greater than those
estimated by the Debtors for purposes of this Disclosure Statement. See Section
V.K., "The Plan of Reorganization -- Distributions Relating to Allowed Insured
Claims."
Pursuant to the Plan, on the Initial Distribution Date, each
holder of an Allowed General Unsecured Claim as of the Record Date shall receive
a Pro Rata Share of (i) the Cash Distribution Pool less the amount of Cash in
the Reserve, (ii) the New Notes Distribution Amount less the aggregate principal
amount of New Notes in the Reserve, (iii) the New Common Stock Distribution Pool
less the number of shares of New Common Stock in the Reserve and (iv) subject to
section 5.1(c) of the Plan and in accordance with Section 6.4(b) of the Plan,
the Class A Membership Units (less any Class A Membership Units in the EBS
Litigation, L.L.C. purchased upon the exercise of Rights by holders of Allowed
Edison Equity Interests (or their transferees)), plus any interest required to
be paid pursuant to Section 6.4(a) of the Plan. The Initial Distribution Date
means the date that is 60 days subsequent to the Effective Date, or as soon
thereafter as is practicable. The Cash Distribution Pool means $119,000,000 (a)
plus the sum of (i) the Pension Plan Proceeds to the extent received by the
Debtors prior to the Effective Date, (ii) the Corporate Headquarters Building
Proceeds to the extent received by the Debtors prior to the Effective Date,
(iii) the Resolved Avoidance Claims Proceeds and (iv) the Rights Exercise
Proceeds, if any, and (b) minus the LLC
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Funding Amount. The terms "Pension Plan Proceeds," "Corporate Headquarters
Building Proceeds," "Resolved Avoidance Claims Proceeds" and "LLC Funding
Amount" are defined and described in Section V.E., "The Plan of Reorganization
- -- The Limited Liability Companies" and Section V.G., "The Plan of
Reorganization -- The Pension Plan." The terms "Rights Exercise Proceeds" and
"D&B Spinoff Settlement Proceeds" are defined in the Plan and the Rights and the
D&B Spinoff Settlement are described in Section V.B.3., "The Plan of
Reorganization -- Securities to be Issued Under the Plan -- New Common Stock,
Rights, Warrants, Management Options, Director Options and Restricted Stock" and
Section V.P., "The Plan of Reorganization -- The D&B Spinoff Settlement,"
respectively. The New Notes Distribution Amount means $100,000,000 in principal
amount of New Notes, subject to upward adjustment as per Section 1.15 of the
Plan. The New Common Stock Distribution Pool means 10,000,000 shares of New
Common Stock minus the number of shares of New Common Stock issuable as a
consequence of valid exercises of Rights pursuant to Section 10.1 of the Plan.
The Class A Membership Units means the 10,000,000 Class A Membership Units in
the EBS Litigation, L.L.C., the 10,000,000 Class A Membership Units in the EBS
Building, L.L.C. and the 10,000,000 Class A Membership Units in the EBS Pension,
L.L.C. For a description of the EBS Building, L.L.C., the EBS Litigation, L.L.C.
and the EBS Pension, L.L.C., and their respective members agreements, see
Section V.E., "The Plan of Reorganization -- The Limited Liability Companies."
In the event that holders of Allowed Edison Equity Interests
(or their transferees) exercise Rights, (i) the number of shares of New Common
Stock otherwise distributable to holders of Allowed General Unsecured Claims
will decrease, (ii) the number of Class A Membership Units in the EBS
Litigation, L.L.C. otherwise distributable to holders of Allowed General
Unsecured Claims could decrease, depending upon whether holders of Allowed
Edison Equity Interests that elect to exercise Rights (and are also D&B Spinoff
Stockholders) elect to forego receipt of Class A Membership Units in the EBS
Litigation, L.L.C. in favor of participating in the D&B Spinoff Settlement Offer
and (iii) the amount of Cash distributed to holders of Allowed General Unsecured
Claims will increase by an amount equal to the amount of the Rights Exercise
Proceeds.
Each holder of a Right may exercise such Right to purchase (a)
one share of New Common Stock and (b) one Class A Membership Interest in the EBS
Litigation, L.L.C. (or, if such holder also is a D&B Spinoff Stockholder, forego
such Class A Membership Unit in favor of participating in the D&B Spinoff
Settlement Offer). If all 10,000,000 Rights issued under the Plan are exercised
by holders of Allowed Edison Equity Interests (or their transferees), such
holders could, in the aggregate, purchase all 10,000,000 shares of New Common
Stock to be issued and distributed pursuant to the Plan and holders of Allowed
General Unsecured Claims would receive no New Common Stock under the Plan.
Similarly, if all 10,000,000 Rights are exercised and the holders of such Rights
all elect to receive Class A Membership Units in the EBS Litigation, L.L.C.
pursuant to their exercise of Rights, such holders could, in the aggregate,
purchase all 10,000,000 Class A Membership Units in the EBS Litigation, L.L.C.
and holders of Allowed General Unsecured Claims would receive no Class A
Membership Units in the EBS Litigation, L.L.C. under the Plan. There can be no
assurance as to how many, if any, of the Rights will be exercised or how many
holders exercising Rights, if any, will elect to receive a distribution of Class
A Membership Units in the EBS Litigation, L.L.C.
As a hypothetical example, if holders of Allowed Edison Equity
Interests (or their transferees) elect to exercise 4,000,000 of the 10,000,000
Rights to be issued under the Plan, and each such holder elects to receive a
distribution of Class A Membership Units in the EBS Litigation, L.L.C., the
effect on distributions to holders of Allowed General Unsecured Claims would be
as follows: (i) the Cash Distribution Pool would be increased by $65,600,000
(calculated by multiplying the Rights Exercise Price ($16.40) by 4,000,000),
(ii) the New Common Stock Distribution Pool of 10,000,000 shares of New Common
Stock would be reduced by 4,000,000 shares, with the balance of 6,000,000 shares
distributable to holders of Allowed General Unsecured Claims and (iii) the
10,000,000 Class A Membership Units in the EBS Litigation, L.L.C. otherwise
available for distribution to holders of Allowed General Unsecured Claims would
be reduced by 4,000,000 Class A Membership Units, with the balance of 6,000,000
Class A Membership Units distributable to holders of Allowed General Unsecured
Claims.
The Debtors have determined that they may have greater Cash
requirements than those originally projected in the business plan. In order to
provide the Reorganized Debtors with additional liquidity to address additional
Cash requirements, the Plan provides that the Debtors may, at or prior to the
Confirmation Hearing, (i) in their sole discretion, upon notice to the
Creditors' Committee, reduce the Cash Distribution Pool by up to $15,000,000, in
increments of $5,000,000, and (ii) with the consent of the Creditors' Committee,
reduce the Cash Distribution Pool by an additional $5,000,000, provided that the
New Notes Distribution Amount shall be increased by the amount of any such Cash
reduction. The Debtors intend to continue to evaluate their Cash requirements
and will determine whether to reduce the Cash Distribution Pool and increase the
New Notes Distribution Amount at or prior to the Confirmation Hearing.
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Holders of General Unsecured Claims as of the Record Date that
become Allowed Claims subsequent to the Initial Distribution Date shall be paid
on the next Subsequent Distribution Date that follows the period beginning on
the Effective Date and ending on the next of October 31, January 31, April 30
and July 31 (the "Quarter") during which such Disputed General Unsecured Claim
becomes an Allowed General Unsecured Claim. A Subsequent Distribution Date means
the twentieth day after the end of the Quarter following the Initial
Distribution Date and the twentieth day after each subsequent Quarter. Such
distributions shall be made in accordance with the Plan based upon the
distributions that would have been made to such holder under the Plan if the
Disputed General Unsecured Claim had been an Allowed Claim on or prior to the
Effective Date, without any post-Effective Date interest thereon (without regard
to interest earned on property held in the Reserve pursuant to Section 6.4 of
the Plan).
Pursuant to Section 6.4(b) of the Plan and the EBS Litigation
LLC Members Agreement, the EBS Building LLC Members Agreement and the EBS
Pension LLC Members Agreement, on the Effective Date, Reorganized Edison shall
hold 100% of the Class B Membership Units in the EBS Litigation, L.L.C., the EBS
Building, L.L.C. and the EBS Pension, L.L.C. In connection with each
distribution of Class A Membership Units under the Plan, Reorganized Edison will
surrender for cancellation a number of Class B Membership Units in each of the
EBS Litigation, L.L.C., the EBS Building, L.L.C. and the EBS Pension, L.L.C.
equal to the number of Class A Membership Units in each such LLC that are to be
distributed under the Plan, and will receive in exchange therefor, for
distribution under the Plan, a like number of Class A Membership Units in such
LLC. The Class B Membership Units means 10,000,000 Class B Membership Units in
the EBS Litigation, L.L.C., 10,000,000 Class B Membership Units in the EBS
Building, L.L.C. and 10,000,000 Class B Membership Units in the EBS Pension,
L.L.C.
On the Initial Distribution Date and each Subsequent
Distribution Date, Reorganized Edison shall reserve from the distributions to be
made on such dates to the holders of Allowed General Unsecured Claims, an amount
of Cash, New Notes and New Common Stock equal to 100% of the distributions to
which holders of Disputed General Unsecured Claims would be entitled under the
Plan as of such dates if such Disputed General Unsecured Claims were Allowed
Claims in their Disputed Claim Amounts (the "Reserve"). Subject to Section
6.4(b) of the Plan, Reorganized Edison shall also hold in the Reserve the Class
B Membership Units.
On the Subsequent Distribution Dates that occur on the
twentieth day after the end of the second and fourth Quarters, respectively,
following the Quarter in which the Initial Distribution Date occurs, and on each
Subsequent Distribution Date thereafter, each holder of an Allowed General
Unsecured Claim as of the Record Date shall receive a Pro Rata Share of the
Surplus Distributions. The Surplus Distributions consist of: (i) pursuant to
Section 6.3(g) of the Plan, distributions under the Plan to holders of Allowed
General Unsecured Claims that are unclaimed for a period of one year after
distribution thereof; (ii) to the extent that a Disputed General Unsecured Claim
is not Allowed or becomes an Allowed Claim in an amount less than the Disputed
Claim Amount, the excess of the amount of Cash, New Notes and New Common Stock
held in the Reserve over the amount of Cash, New Notes and New Common Stock
actually distributed on account of such Disputed General Unsecured Claim; and
(iii) to the extent that a Disputed General Unsecured Claim is not Allowed or
becomes an Allowed Claim in an amount less than the Disputed Claim Amount, a
number of Class A Membership Units equal to the number of Class B Membership
Units held in the Reserve on account of such excess. The Surplus Distributions
shall be distributed to holders of Allowed General Unsecured Claims as of the
Record Date, based upon such holders' Pro Rata Share. Notwithstanding the
foregoing, the Reorganized Debtors are not required to make any such
distributions on a Subsequent Distribution Date unless the Cash portion of the
Surplus Distributions to be distributed on a Subsequent Distribution Date
aggregates $1,000,000 or more, unless the distribution is the last distribution
under the Plan.
In the event that the amount of Allowed General Unsecured
Claims is less than the amount of Allowed General Unsecured Claims estimated by
the Debtors, the recoveries to holders of Allowed General Unsecured Claims will
increase. In the event that the amount of Allowed General Unsecured Claims is
greater than the amount of Allowed General Unsecured Claims as estimated by the
Debtors, the recoveries to holders of Allowed General Unsecured Claims will
decrease.
Under the Plan, personal injury Tort Claims will be determined
and liquidated in the administrative or judicial tribunals in which they are
pending on the Effective Date or, if no action was pending on the Effective
Date, in any administrative or judicial forum of appropriate jurisdiction or in
accordance with any alternative dispute resolution or similar proceeding as the
same may be approved by order of the Bankruptcy Court, provided that the holder
of such Tort Claim timely filed a proof of claim. The Debtors, however, reserve
the right to seek estimation of any and all personal injury Tort Claims in a
court or courts of competent jurisdiction. To the extent that a personal injury
Tort Claim is determined and liquidated pursuant to a final, nonappealable
judgment in such a tribunal or in any such alternative dispute resolution or
similar proceeding,
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such personal injury Tort Claim shall be deemed an Allowed Claim in such
liquidated amount and, subject to Section 6.6 of the Plan, satisfied in
accordance with the treatment specified in the Plan. See Section V.K., "The Plan
of Reorganization -- Distributions Relating to Allowed Insured Claims."
Pursuant to the Plan, holders of Allowed General Unsecured
Claims will not be deemed to have received 100% of the value of their Allowed
General Unsecured Claims unless and until the aggregate value of all
distributions to such holders under the Plan equals the amount of their Allowed
General Unsecured Claims, plus interest from the Commencement Date through and
including the Effective Date at a rate of 8.89%. The 8.89% interest rate is the
result of negotiations with the Creditors' Committee and represents the weighted
average of (i) the contract rate with respect to the Debtors' outstanding
institutional debt and (ii) the federal judgment rate with respect to the
balance of the Debtors' General Unsecured Claims.
11. CLASS 8 -- EDISON EQUITY INTERESTS
The Edison Equity Interests are shares of common stock or
other instruments evidencing an ownership interest in Edison, whether or not
transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
Pursuant to the Plan, each holder of an Allowed Edison Equity
Interest as of the Record Date, shall receive a Pro Rata Share of the Warrants
in the Warrant Distribution Pool on the later of the Initial Distribution Date
and the date such Allowed Edison Equity Interest becomes an Allowed Edison
Equity Interest, or as soon thereafter as is practicable. The Warrant
Distribution Pool means approximately 1,008,791 Warrants.
Pursuant to the Plan, each holder of an Allowed Edison Equity
Interest also will receive a Pro Rata Share of the Rights on or about the
Effective Date. For a description of the Rights and the procedures for the
exercise thereof, see Section V.B.3., "The Plan of Reorganization -- Securities
to be Issued Under the Plan -- New Common Stock, Rights, Warrants, Management
Options, Director Options and Restricted Stock."
D&B Spinoff Stockholders (including those that are holders of
Allowed Edison Equity Interests and those that are not) may participate in the
D&B Spinoff Settlement Offer. For a description of the D&B Spinoff and the terms
of the D&B Spinoff Settlement Offer, see Section IV.F., "Events During the
Chapter 11 Cases -- Investigation of Claims Arising Out of the D&B Spinoff" and
Section V.P., "The Plan of Reorganization -- The D&B Spinoff Settlement."
B. SECURITIES TO BE ISSUED UNDER THE PLAN.
1.NEW NOTES
The New Notes will be issued by Reorganized Edison pursuant to
a trust indenture and first supplemental trust indenture (the "New Notes
Indentures"), which will be qualified under the Trust Indenture Act of 1939, as
amended. An indenture trustee will be selected prior to the Confirmation
Hearing.
The New Notes will be issued in the aggregate principal amount
of $100,000,000 (subject to increase as described in Section 1.15 of the Plan)
and distributed to holders of Allowed General Unsecured Claims. The New Notes
will bear interest at a fixed annual rate of 11%, payable semi-annually on
January 31 and July 31. Interest under the New Notes shall begin accruing on the
earlier of the Effective Date and July 31, 1997. The first interest payment
under the New Notes shall be made on January 31, 1998. One-hundred percent of
the outstanding principal amount of the New Notes shall be payable upon the
maturity of the New Notes, which shall occur on the later of the tenth
anniversary of the Effective Date and July 31, 2007. The New Notes shall be
unsecured. Through the establishment of an escrow (the "Funding Escrow")
pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, approximately the
first three years of interest payable by Reorganized Edison under the New Notes
shall be prefunded by the Debtors with $16,000,000 in Cash and the documents of
title to certain parcels of real property owned by the Debtors. The agent (the
"Funding Escrow Agent") under the agreement governing the Funding Escrow (the
"Funding Escrow Agreement") will be granted mortgages on such parcels of real
property to secure the first three years of interest payments by Reorganized
Edison under the New Notes. For a description of terms and conditions of the
Funding Escrow, see Section V.F., "The Plan of Reorganization -- The Funding
Escrow."
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The New Notes Indentures will contain the following covenants:
o Mandatory Principal Prepayment. In the event that the net
proceeds of extraordinary asset sales (excluding individual
sales of assets for which the consideration received is less
than $250,000) not otherwise required to be paid to the
working capital facility lenders shall exceed $5,000,000, 50%
of such excess shall be used to pay down principal under the
New Notes.
o Optional Redemption. The New Notes may be redeemed in whole or
in part at the option of Reorganized Edison in increments of
not less than $5,000,000 in accordance with the following
schedule:
Effective Date - June 30, 1998: 100% of par
July 1, 1998 - June 30, 1999: 104% of par
July 1, 1999 - June 30, 2000: 103% of par
July 1, 2000 - June 30, 2001: 102% of par
July 1, 2001 - June 30, 2002: 101% of par
July 1, 2002 - Maturity: 100% of par
o Mandatory Redemption Upon Change of Control. Upon a "Change in
Control," the New Notes held by each holder may, at such
holder's option, be redeemed at 101% of par. A "Change of
Control" will be defined under the New Notes Indentures as the
occurrence of any of the following events: (a) any "person"
(other than an Exempt Person (as defined below)) or "group"
(other than a group that includes any Exempt Person that
received or was entitled to receive at any time an aggregate
of 3.0% or more of the Voting Stock (as defined below)
pursuant to the Plan and/or certain Affiliates (as defined in
the New Notes Indentures) of an Exempt Person) (as the terms
"person" and "group" are used in the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) is or becomes the
"beneficial owner" (as defined under the Exchange Act) of more
than 50% of the total voting power of all classes of stock
entitled to vote generally in the election of directors of
Reorganized Edison ("Voting Stock"); (b) certain fundamental
transactions involving Reorganized Edison (including certain
mergers and sales of substantially all assets) pursuant to
which the outstanding Voting Stock is converted into cash,
securities or other property; (c) during any consecutive
two-year period, individuals who at the beginning of such
period constituted the Board of Directors (together with
certain permitted additional directors) cease for any reason
to constitute a majority of the Board of Directors then in
office; or (d) the dissolution or liquidation of Reorganized
Edison to the extent such dissolution or liquidation does not
constitute a default thereunder. An "Exempt Person" shall be
defined under the New Notes Indentures as any person or entity
to whom or which shares of New Common Stock of Reorganized
Edison are distributed pursuant to the Plan at any time (and
their respective Affiliates).
The New Notes Indentures also will contain customary and usual
affirmative covenants as may be mutually agreeable to the Debtors and the
Creditors' Committee, including compliance with laws, payment of taxes and
maintenance of corporate existence, properties and insurance, and negative
covenants, including limitations on (i) the incurrence of new indebtedness and
liens, subject to permitted exceptions, (ii) dispositions of assets, (iii)
transactions with affiliates and (iv) restricted payments. Events of default for
the New Notes will be usual for indebtedness of this kind, with customary grace
and notice provisions, including non-payment of principal and interest,
violation of covenants, cross-default and cross-acceleration, material judgments
and bankruptcy.
As described in more detail below in Section VIII.,
"Securities Laws Matters," Reorganized Edison will use its reasonable commercial
efforts to cause the New Notes to be listed on a national securities exchange or
the Nasdaq National Market. There is no assurance, however, that Reorganized
Edison will be successful and, even if successful, that an active market in
which to trade the New Notes will develop. See Section X.A.4., "Certain Risk
Factors to be Considered -- Overall Risks to Recovery by Holders of Claims --
Lack of Trading Market for New Notes."
Reorganized Edison will be a reporting company under Section
12 of the Exchange Act.
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2.SERIES 1997 BONDS
Reorganized Edbro Missouri will cause the City to issue the
Series 1997 A Bonds in the aggregate principal amount of $2,482,000 and will
distribute the Series 1997 A Bonds to the Series 1977 Bondholders with each such
holder to receive Series 1997 A Bonds in authorized denominations, as provided
in the Plan, in an aggregate principal amount equal to 85% of the principal
amount of Series 1985 Bonds held by such holder. The Series 1997 A Bonds will be
issued with the same interest rate, amortization schedule (but on a prospective
basis only) and maturity as the Series 1977 Bonds. The Series 1997 A Bonds will
be issued, together with the Series 1997 B Bonds, pursuant to the New Indenture
under a loan structure (rather than a lease structure) whereby Reorganized Edbro
Missouri will execute the Series 1997 Loan Documents, which will be assigned to
the New Trustee as security for the Series 1997 A Bonds and Series 1997 B Bonds.
Reorganized Edbro Missouri will cause the City to issue the
Series 1997 B Bonds in the aggregate principal amount of $4,235,000 and will
distribute the Series 1997 B Bonds to the Series 1985 Bondholders with each such
holder to receive Series 1997 B Bonds in authorized denominations, as provided
in the Plan, in an aggregate principal amount equal to 77% of the principal
amount of Series 1985 Bonds held by such holder. The Series 1997 B Bonds will be
issued with the same interest rate and maturity as the Series 1977 Bonds but the
amortization schedule shall be modified such that the required amortization
payment to be made on November 1, 2006 and on each November 1 thereafter through
maturity shall be equal to $847,000. The Series 1997 B Bonds will be issued,
together with the Series 1997 A Bonds, pursuant to the New Indenture under a
loan structure (rather than a lease structure) whereby Reorganized Edbro
Missouri will execute the Series 1997 Loan Documents, which will be assigned to
the New Trustee as security for the Series 1997 A Bonds and Series 1997 B Bonds.
The Series 1997 Bonds also will contain such other terms as
may be mutually agreeable to Edbro Missouri, the City and the Trustee.
3.NEW COMMON STOCK, RIGHTS, WARRANTS, MANAGEMENT OPTIONS, DIRECTOR
OPTIONS AND RESTRICTED STOCK
A. NEW COMMON STOCK
Pursuant to the Plan, on the Effective Date, all Edison Equity
Interests will be cancelled. Pursuant to the Plan, Reorganized Edison will be
authorized to issue 100,000,000 shares of New Common Stock of which an aggregate
of approximately 10,000,000 shares of New Common Stock will be issued commencing
on the Initial Distribution Date to (i) holders of Allowed General Unsecured
Claims and (ii) holders of Allowed Edison Equity Interests (or their
transferees) who exercise Rights.
Holders of the New Common Stock will be entitled to one vote
per share on all matters to be voted upon by the stockholders. Holders of a
plurality of the shares voting for the election of directors can elect all of
the directors since the holders of the New Common Stock will not have cumulative
voting rights. For a more detailed description of the process by which
Reorganized Edison will elect its Board of Directors, see Section VII.A.1.a.,
"Management of the Reorganized Debtors -- Board of Directors and Management --
Composition of the Board of Directors -- Reorganized Edison."
B. RIGHTS
A general description of the Rights, and of the procedures for
the exercise thereof, is set forth below. Certain particulars relating to the
Rights will be included in the form of Rights Exercise Notice and related Rights
Exercise Instructions, which will be mailed to holders of Allowed Edison Equity
Interests on or as promptly as practicable following the Effective Date. Certain
information relating to the results of exercises of Rights will be included in
the confirmation statement which will be mailed as promptly as practicable
following the Rights Expiration Date.
On the Effective Date, Reorganized Edison will issue
10,000,000 Rights for pro rata distribution to holders of Allowed Edison Equity
Interests. The Rights will be transferable, will not be evidenced by
certificates and will expire on the Rights Expiration Date, which is defined as
5:00 p.m., Eastern Time on the date that is 30 days after the Effective Date or,
if such date is not a Business Day, the next following Business Day. The Rights
Exercise Price is $16.40 per Right.
The Rights will represent, in the aggregate, the right to
purchase (i) the New Common Stock and (ii) at the election of the holders
thereof, (a) the Class A Membership Units in the EBS Litigation, L.L.C. or (b)
if the holders also are D&B Spinoff Stockholders, the right to participate in
the D&B Spinoff Settlement. For a description of the terms and conditions
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of the D&B Spinoff Settlement, see Section V.P., "The Plan of Reorganization --
The D&B Spinoff Settlement." The Rights Exercise Proceeds, if any, will be
distributed to holders of Allowed General Unsecured Claims as a component of the
Cash Distribution Pool.
(i) Procedures for Transfer of Rights
The Rights will be registered on the books of Reorganized
Edison maintained at the principal office of the Rights Agent (the "Rights
Register") as they are issued. Reorganized Edison and the Rights Agent will be
entitled to treat the registered owner of any Right as the owner in fact thereof
for all purposes and will not be bound to recognize any equitable or other claim
to or interest in such Right on the part of any other person. The Rights Agent
shall initially register ownership of Rights in the Rights Register in
accordance with the written instructions of Reorganized Edison. Subject to the
terms of Section 10.1 of the Plan and the receipt of such documentation as the
Rights Agent may reasonably require, the Rights Agent will, on each Business Day
during the Rights Exercise Period, register the transfer of any outstanding
Rights in the Rights Register upon tender of a written instrument or instruments
of transfer in form reasonably satisfactory to the Rights Agent, duly executed
by the registered holder(s) thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney.
(ii) Procedures for Exercise of Rights
On the date upon which the Rights Exercise Period commences,
the Rights Agent will mail to each holder of an Allowed Edison Equity Interest a
Rights Exercise Notice together with the Rights Exercise Instructions. In order
for an exercise of Rights to be valid and effective, the holder of the Rights
seeking to effect such an exercise must deliver to the Rights Agent prior to the
Rights Expiration Date a properly completed and duly executed Rights Exercise
Notice which (i) indicates the number of Rights sought to be exercised and (ii)
is accompanied by a certified check or bank draft drawn upon a United States
bank or a wire transfer, in an amount equal to the product of the Rights
Exercise Price and the number of Rights sought to be exercised. The foregoing
items will not be deemed to have been timely delivered to the Rights Agent (and
thus the attempted exercise of Rights will not be valid or effective) unless
they are completed and executed in conformity with the Rights Exercise
Instructions and are actually received by the Rights Agent, at the address
specified therefor in the Rights Exercise Instructions, on or prior to the
Rights Expiration Date.
All determinations as to proper completion, due execution,
timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted exercise of any Rights will be made by the Rights
Agent, whose determination will be final and binding. The Rights Agent in its
sole discretion may waive or reject the attempted exercise of any Right subject
to any such defect or irregularity. Deliveries required to be received by the
Rights Agent in connection with a attempted exercise of Rights will not be
deemed to have been so received or accepted until actual receipt thereof by the
Rights Agent has occurred and any defects or irregularities have been waived or
cured within such time as the Rights Agent may determine in its sole discretion.
Neither the Debtors, the Reorganized Debtors or the Rights Agent will have any
obligation to give notice to any holder of a Right of any defect or irregularity
in connection with any attempted exercise thereof or incur any liability as a
result of any failure to give any such notice.
On or as promptly as practicable following the Initial
Distribution Date, the Rights Agent will mail (or cause to be mailed) to each
holder of Rights who has sought to exercise Rights a written statement
specifying the number of Rights that were validly and effectively exercised by
such holder and the consideration purchased upon such exercise of such Rights,
together with (i) a stock certificate representing the shares of New Common
Stock so purchased and (ii) if elected by the holder, a Membership Certificate
representing the Class A Membership Units in the EBS Litigation, L.L.C. so
purchased.
(iv) Participation in the D&B Spinoff Settlement Through
Exercise of Rights
For a description of the D&B Spinoff Settlement and the manner
in which a holder's exercise of Rights may render such holder a Released D&B
Spinoff Stockholder, thereby resulting in the release of any and all Avoidance
Claims against such holder, see Section V.P., "The Plan of Reorganization -- The
D&B Spinoff Settlement."
C. WARRANTS
On the Initial Distribution Date, Reorganized Edison will
issue to holders of Allowed Edison Equity Interests, pursuant to the Plan,
approximately 1,008,791 Warrants to purchase approximately 9.0% of the shares of
New Common Stock issued pursuant to the Plan, on a fully diluted basis, at an
exercise price of $16.40 per share of New Common Stock, subject to
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adjustment in certain circumstances as described below. The Warrants will be
exercisable until 5:00 p.m., New York City time, on the eighth anniversary of
the Effective Date (or, if such date is not a Business Day, the next succeeding
Business Day). The Warrants will have no voting rights, will not be entitled to
receive dividends or other distributions declared on the New Common Stock and
will not be entitled to share in any of the assets of Reorganized Edison upon
any liquidation, dissolution or winding-up of Reorganized Edison. Warrant
holders will receive from Reorganized Edison all public reports that holders of
New Common Stock are entitled to receive. The number of shares of New Common
Stock for which a Warrant will be exercisable and the exercise price of the
Warrants will be subject to adjustment upon the occurrence of certain events,
including, without limitation, (i) stock dividends, subdivisions and
combinations affecting the New Common Stock and (ii) reorganizations,
reclassifications, consolidations and mergers involving Reorganized Edison.
Reorganized Edison will be under no obligation to repurchase the Warrants.
However, if at any time the Daily Market Price (as such term is defined in the
agreement governing the Warrants (the "Warrant Agreement")) of the New Common
Stock exceeds 200% of the then current exercise price of the Warrants on any 10
Trading Days (as such term is defined in the Warrant Agreement), whether or not
consecutive, during any period of 15 consecutive Trading Days, Reorganized
Edison will have the right upon written notice to repurchase the Warrants for a
purchase price of $1.00 per Warrant on the 45th day following delivery of such
notice (or, if such day is not a Business Day, the next succeeding Business
Day); provided, however, that a holder of Warrants is not precluded from
exercising any portion of such Warrants exercisable at any time prior to the
effective date of such repurchase. The other terms and provisions governing the
Warrants will be set forth in the Warrant Agreement, which will be filed with
the Bankruptcy Court as part of the Plan Supplement at least 10 days prior to
the last day upon which holders of Claims and Equity Interests may vote to
accept or reject the Plan.
As a result of the rounding provisions in the Plan, and based
upon the number of shares of old Edison common stock ("Old Common Stock")
outstanding as of June 2, 1997 (as described below), a holder of Edison Equity
Interests would have to hold at least approximately 11 shares of Old Common
Stock to be entitled to receive a Warrant. See Section V.C., "The Plan of
Reorganization -- Methods of Distributions Under the Plan."
D. MARKET INFORMATION
As of June 2, 1997, approximately 22,201,778 shares of Old
Common Stock, $1.00 par value per share were outstanding. As indicated above,
all Edison Equity Interests will be cancelled on the Effective Date pursuant to
the Plan. As of June 2, 1997, the Old Common Stock traded on the New York Stock
Exchange, Inc. ("NYSE") under the symbol "EBS." The NYSE has notified Edison of
its intention to delist the Old Common Stock, subject to Edison's right to
appeal. Edison is considering whether to appeal if such delisting occurs. The
following table sets forth, for the periods indicated, the high and low sales
prices per share for the Old Common Stock on the NYSE composite tape:
High Low
1997 First Fiscal Quarter $ 2.00 $ 0.34
1996 First Fiscal Quarter $ 2.94 $ 1.31
Second Fiscal Quarter $ 3.88 $ 1.63
Third Fiscal Quarter $ 1.81 $ 1.06
Fourth Fiscal Quarter $ 2.19 $ 1.06
1995 First Fiscal Quarter $15.75 $12.38
Second Fiscal Quarter $16.75 $10.25
Third Fiscal Quarter $10.25 $ 4.60
Fourth Fiscal Quarter $ 2.88 $ 1.38
As described in more detail below in Section VIII.,
"Securities Laws Matters," Reorganized Edison will use reasonable commercial
efforts to cause the shares of New Common Stock and the Warrants to be listed on
a national securities exchange or the Nasdaq National Market. There can be no
assurance, however, that Reorganized Edison will be successful and, even if
successful, that an active market in which to trade such securities will
develop. See Section X.A.3., "Certain Risk Factors to be Considered -- Overall
Risks to Recovery by Holders of Claims -- Lack of Established Market for New
Common Stock and Warrants."
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E. MANAGEMENT OPTIONS, DIRECTOR OPTIONS AND RESTRICTED STOCK
Reorganized Edison will issue to certain of its senior
executives an aggregate of 225,000 shares of restricted New Common Stock (the
"Restricted Stock") pursuant and subject to restricted stock agreements (the
"Restricted Stock Agreements") with such executives. Reorganized Edison also
will issue to certain of its key employees options to purchase in the aggregate
approximately 800,000 shares of New Common Stock (the "Management Options")
pursuant and subject to the Edison Brothers Stores, Inc. 1997 Stock Option Plan
(the "Stock Option Plan"). Reorganized Edison also will issue to its outside
directors as of the Effective Date and reserve for issuance to its outside
directors elected or appointed thereafter options to purchase in the aggregate
approximately 200,000 shares of New Common Stock (the "Director Options")
pursuant and subject to the Edison Brothers Stores, Inc. 1997 Directors Stock
Option Plan (the "Director Stock Option Plan"). See Section VII.C., "Management
of the Reorganized Debtors -- Stock Option Plan, Director Stock Option Plan and
Restricted Stock Agreements."
C. METHOD OF DISTRIBUTIONS UNDER THE PLAN.
Subject to Bankruptcy Rule 9010, all distributions under the
Plan shall be made by Reorganized Edison to the holder of each Allowed Claim at
the address of such holder as listed on the Debtors' Schedules as of the Record
Date, and to the holder of each Allowed Edison Equity Interest at the address of
such holder as listed in the transfer ledger for Edison Equity Interests as of
the Record Date, unless the Debtors or Reorganized Debtors have been notified in
writing of a change of address, including, without limitation, by the filing of
a proof of Claim or Equity Interest by such holder that provides an address for
such holder different from the address reflected on the Debtors' Schedules (for
holders of Allowed Claims) or on the transfer ledger as of the Record Date (for
holders of Allowed Edison Equity Interests).
As at the close of business on the Record Date, the claims
register (for Claims) and the transfer ledgers (for Edison Equity Interests)
shall be closed, and there shall be no further changes in the record holders of
any Claims or Edison Equity Interests. Edison and Reorganized Edison shall have
no obligation to recognize any transfer of any Claims or Edison Equity Interests
occurring after the Record Date. Edison and Reorganized Edison shall instead be
entitled to recognize and deal for all purposes under the Plan (except as to
voting to accept or reject the Plan) with only those record holders stated on
the claims register (for Claims) and transfer ledgers (for Edison Equity
Interests) as of the close of business on the Record Date.
Any payment of Cash made by Reorganized Edison pursuant to the
Plan shall be made by check drawn on a domestic bank. No payment of Cash less
than $100 shall be made by Reorganized Edison to any holder of a Claim unless a
request therefor is made in writing to Reorganized Edison. No fractional shares
of New Common Stock or fractional Rights, Warrants or Class A Membership Units,
or Cash in lieu thereof, shall be distributed under the Plan. When any
distribution on account of an Allowed Claim or Allowed Edison Equity Interest
pursuant to the Plan would otherwise result in the issuance of a number of
shares of New Common Stock, Rights, Warrants or Class A Membership Units that is
not a whole number, the actual distribution of shares of New Common Stock,
Rights, Warrants or Class A Membership Units shall be rounded as follows: (i)
fractions of 1/2 or greater shall be rounded to the next higher whole number;
and (ii) fractions of less than 1/2 shall be rounded to the next lower whole
number. The total number of shares of New Common Stock, Rights, Warrants or
Class A Membership Units to be distributed to a Class of Claims or Edison Equity
Interests, as the case may be, shall be adjusted as necessary to account for
rounding. New Notes shall only be issued in multiples of $1,000. Any New Notes
that would have been distributed in multiples of other than $1,000 shall be
aggregated by the indenture trustee under the New Notes Indentures or the
disbursing agent appointed by the Reorganized Debtors (the "Disbursing Agent")
and sold. The Cash proceeds from such sale shall be distributed on a pro rata
basis to those holders of Allowed General Unsecured Claims that would have been
entitled to New Notes in multiples of other than $1,000.
Any payment or distribution required to be made under the Plan
on a day other than a Business Day shall be made on the next succeeding Business
Day.
Except with respect to distributions under the Plan to holders
of Allowed General Unsecured Claims, any distributions under the Plan that are
unclaimed for a period of one year after distribution thereof shall be revested
in Reorganized Edison and any entitlement of any holder of any Claim or Equity
Interest to such distributions shall be extinguished and forever barred.
Distributions under the Plan to holders of Allowed General Unsecured Claims that
are unclaimed for a period of one year after distribution thereof shall be added
to the Reserve and any entitlement of such holders of Allowed General Unsecured
Claims to such distributions shall be extinguished and forever barred.
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D. TIMING OF DISTRIBUTIONS UNDER THE PLAN.
1.DISTRIBUTIONS ON THE EFFECTIVE DATE
Payments and distributions to holders of Allowed
Administrative Expense Claims, Allowed Priority Tax Claims, Allowed Other
Priority Tax Claims, Allowed Secured Series 1977 Bondholder Claims, Allowed
Secured Series 1985 Bondholder Claims, Allowed Secured Tax Claims, Allowed Other
Secured Claims and Allowed Convenience Claims shall be made on the later of the
Effective Date and the date such Claims become Allowed Claims, or as soon
thereafter as is practicable.
2.DISTRIBUTIONS TO HOLDERS OF GENERAL UNSECURED CLAIMS
Payments and distributions to holders of General Unsecured
Claims are dependent upon the total amount of Allowed General Unsecured Claims.
Under the Plan, Reorganized Edison will not distribute any Cash, New Notes, New
Common Stock or Class A Membership Units to the holders of Disputed General
Unsecured Claims unless such Disputed Claims become Allowed Claims. To provide
for distributions to holders of Disputed General Unsecured Claims as such
Disputed Claims are Allowed, the Plan provides for Reorganized Edison to reserve
from distributions that would otherwise be made to holders of General Unsecured
Claims on the Initial Distribution Date and each Subsequent Distribution Date,
the Cash, New Notes and New Common Stock to which holders of Disputed General
Unsecured Claims would be entitled to under the Plan as of such dates as if such
Disputed Claims were Allowed Claims in their Disputed Claim Amounts. Subject to
Section 6.4(b) of the Plan, Reorganized Edison shall also hold in the Reserve
the Class B Membership Units. The Initial Distribution Date means that date that
is 60 days subsequent to the Effective Date, or as soon thereafter as is
practicable. A Subsequent Distribution Date means the twentieth day after the
end of the Quarter following the Initial Distribution Date and the twentieth day
after each subsequent Quarter.
Because initial distributions to holders of Allowed General
Unsecured Claims will not be made until the Initial Distribution Date, on the
Effective Date, Reorganized Edison shall deposit the Cash in the Cash
Distribution Pool in a segregated bank account or accounts. Reorganized Edison
shall invest the Cash held in such account or accounts in a manner consistent
with investment guidelines to be agreed upon by the Debtors and the Creditors'
Committee, which investment guidelines shall be included in the Plan Supplement.
Reorganized Edison shall pay, or cause to be paid, out of the funds held in such
account, any tax imposed on such account or accounts by any governmental unit
with respect to income generated by the property held in such account or
accounts. The yield earned on such invested Cash for the period commencing on
the Effective Date and continuing through and including the Initial Distribution
Date (net of applicable taxes), shall be distributed to each holder of an
Allowed General Unsecured Claim on the Initial Distribution Date, based upon
each holder's Pro Rata Share.
Cash held in the Reserve established pursuant to the Plan for
Disputed General Unsecured Claims (including interest paid on New Notes held in
the Reserve and dividends paid on New Common Stock held in the Reserve, if any)
also shall be deposited in a segregated bank account or accounts in the name of
Reorganized Edison and designated as held in trust for the benefit of holders of
Allowed General Unsecured Claims. Cash held in the Reserve shall not constitute
property of the Reorganized Debtors. Reorganized Edison shall invest the Cash
held in the Reserve in a manner consistent with investment guidelines to be
agreed upon by the Debtors and the Creditors' Committee, which investment
guidelines shall be included in the Plan Supplement. Reorganized Edison shall
pay, or cause to be paid, out of the funds held in the Reserve, any tax imposed
on the Reserve by any governmental unit with respect to income generated by the
property held in the Reserve. The yield earned on such invested Cash (net of
applicable taxes) shall be distributed to each holder of an Allowed General
Unsecured Claim on the last Subsequent Distribution Date under the Plan, based
upon each holder's Pro Rata Share. New Notes, New Common Stock and Class B
Membership Units held in the Reserve shall be held in trust by the Reorganized
Debtors for the benefit of the potential claimants of such securities and shall
not constitute property of the Reorganized Debtors.
Initial payments and distributions to holders of Allowed
General Unsecured Claims that are Allowed prior to the Effective Date, including
pro rata interest payments on invested Cash, as described above, shall be made
on the Initial Distribution Date. Holders of Disputed General Unsecured Claims
that become Allowed Claims subsequent to the Initial Distribution Date shall
receive distributions of Cash, New Notes and New Common Stock from the amounts
in the Reserve and, in accordance with Section 6.4(b) of the Plan, Class A
Membership Units, on the next Subsequent Distribution Date that follows the
Quarter during which such Disputed General Unsecured Claims become Allowed
Claims pursuant to a Final Order; however, distributions of New Common Stock and
Class A Membership Units in the EBS Litigation, L.L.C. may be reduced as a
result of the exercise of Rights by holders of Allowed Edison Equity Interests
(or their transferees) and in such event, the
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Cash to be distributed to holders of Allowed General Unsecured Claims will
increase by an amount equal to the Rights Exercise Proceeds. Such distributions
shall be made in accordance with the Plan based upon the distributions that
would have been made to such holder under the Plan if the Disputed General
Unsecured Claim had been an Allowed Claim on or prior to the Effective Date,
without any post-Effective Date interest thereon.
As described above, the following consideration shall
constitute Surplus Distributions pursuant to the Plan: (i) pursuant to Section
6.3(g) of the Plan, distributions under the Plan to holders of Allowed General
Unsecured Claims that are unclaimed for a period of one year after distribution
thereof; (ii) to the extent that a Disputed General Unsecured Claim is not
Allowed or becomes an Allowed Claim in an amount less than the Disputed Claim
Amount, the excess of the amount of Cash, New Notes and New Common Stock held in
the Reserve over the amount of Cash, New Notes and New Common Stock actually
distributed on account of such Disputed General Unsecured Claim; and (iii) to
the extent that a Disputed General Unsecured Claim is not Allowed or becomes an
Allowed Claim in an amount less than the Disputed Claim Amount, a number of
Class A Membership Units equal to the number of Class B Membership Units held in
the Reserve on account of such excess. The Surplus Distributions shall be
distributed and allocated to the holders of Allowed General Unsecured Claims
based upon their Pro Rata Share. In order to afford the Reorganized Debtors
sufficient time to attempt to resolve a significant portion of the Disputed
General Unsecured Claims, the first and second distributions of the Surplus
Distributions under the Plan shall occur on the Subsequent Distribution Dates
that occur on the twentieth day after the end of the second and fourth Quarters,
respectively, following the Quarter in which the Initial Distribution Date
occurs. Subsequent distributions of the Surplus Distributions shall occur on
each Subsequent Distribution Date thereafter. Notwithstanding the foregoing, the
Reorganized Debtors are not required to make any Surplus Distributions on a
Subsequent Distribution Date unless the Cash portion of the Surplus
Distributions to be distributed on a Subsequent Distribution Date aggregates
$1,000,000 or more, unless the distribution is the last distribution under the
Plan.
The Debtors or the Reorganized Debtors will appoint the
Disbursing Agent to (i) fulfill the obligations that the Reorganized Debtors
have under the Plan with respect to distributions to holders of Allowed General
Unsecured Claims, including, without limitation, holding all reserves and
accounts pursuant to the Plan, including the Reserve, and (ii) effectuate the
D&B Spinoff Settlement on behalf of the EBS Litigation, L.L.C., pursuant to
Section 10.2 of the Plan. For a description of the terms of the D&B Spinoff
Settlement, see Section V.P., "The Plan of Reorganization -- The D&B Spinoff
Settlement."
E. THE LIMITED LIABILITY COMPANIES.
1.FORMATION AND TRANSFER OF CONSIDERATION
Prior to the Effective Date, Edison will organize and form the
EBS Litigation, L.L.C., the EBS Building, L.L.C. and the EBS Pension, L.L.C.
(the "LLCs") in accordance with the applicable provisions of the Delaware
Limited Liability Company Act (the "LLC Act"). As described below, the holders
of Allowed General Unsecured Claims shall be entitled to receive a Pro Rata
Share of 10,000,000 Class A Membership Units in the EBS Litigation, L.L.C., a
Pro Rata Share of 10,000,000 Class A Membership Units in the EBS Building,
L.L.C. and a Pro Rata Share of 10,000,000 Class A Membership Units in the EBS
Pension, L.L.C. (which, upon the completion of the distributions to holders of
Allowed General Unsecured Claims under the Plan, shall represent 100% of the
ownership interests in the LLCs); however, in the event that holders of Allowed
Edison Equity Interests (or their transferees) exercise Rights, the number of
Class A Membership Units in the EBS Litigation, L.L.C. otherwise distributable
to holders of Allowed General Unsecured Claims could decrease, depending upon
whether those holders of Allowed Edison Equity Interests electing to exercise
Rights who are also D&B Spinoff Stockholders elect to forego receipt of Class A
Membership Units in the EBS Litigation, L.L.C. in favor of participating in the
D&B Spinoff Settlement Offer. See Section V.B.3., "The Plan of Reorganization --
Securities to be Issued Under the Plan -- New Common Stock, Rights, Warrants,
Management Options, Director Options and Restricted Stock" and Section V.P.,
"The Plan of Reorganization -- The D&B Spinoff Settlement." The EBS Litigation,
L.L.C., the EBS Building, L.L.C. and the EBS Pension, L.L.C. will be governed by
the EBS Litigation LLC Members Agreement, the EBS Building LLC Members Agreement
and the EBS Pension LLC Members Agreement, respectively, and the LLC Act. The
EBS Litigation LLC Members Agreement, the EBS Building LLC Members Agreement and
the EBS Pension LLC Members Agreement will be included as part of the Plan
Supplement filed with the Bankruptcy Court at least 10 days prior to the last
day upon which holders of Claims and Equity Interests may vote to accept or
reject the Plan.
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The following consideration shall be transferred to the EBS
Litigation, L.L.C. by the Debtors or Reorganized Debtors:
o On the Effective Date, all Unresolved Avoidance Claims. The
Unresolved Avoidance Claims are all fraudulent transfer Causes
of Action that one or more of the Debtors or Debtors in
Possession may have under sections 544, 548 and 550 of the
Bankruptcy Code or otherwise applicable state law in
connection with or arising out of the D&B Spinoff, that are
not, prior to the Effective Date, the subject of a compromise
and settlement approved pursuant to Bankruptcy Rule 9019 by
Final Order or otherwise resolved, discontinued, abandoned or
dismissed. The D&B Spinoff means the June 29, 1995
distribution by Edison of its 85% equity interest in Dave &
Buster's, Inc., a Missouri corporation, as a stock dividend,
to holders of Edison common stock as of June 19, 1995 and all
related transactions. See Section IV.F., "Events During the
Chapter 11 Cases -- Investigation of Claims Arising Out of the
D&B Spinoff." The Cash proceeds received by the Debtors as a
consequence of Avoidance Claims that are settled or resolved
prior to the Effective Date (the "Resolved Avoidance Claims
Proceeds"), if any, shall be added to the Cash Distribution
Pool. If, as of the Effective Date, there are no Unresolved
Avoidance Claims and the Resolved Avoidance Claims Proceeds
have been added to the Cash Distribution Pool, the EBS
Litigation, L.L.C. will be terminated.
In addition, as promptly as is practicable after the D&B Spinoff Settlement
Expiration Date, the Disbursing Agent shall transfer the D&B Spinoff Settlement
Proceeds, if any, to the EBS Litigation, L.L.C. For a description of the terms
of the D&B Spinoff Settlement, see Section V.P., "The Plan of Reorganization --
The D&B Spinoff Settlement."
The following consideration shall be transferred to the EBS
Pension, L.L.C. by the Debtors or Reorganized Debtors:
o On the Effective Date, the right to receive the Cash proceeds
received by the Debtors or Reorganized Debtors as a
consequence of the termination of the Edison Brothers Stores
Pension Plan (the "Pension Plan"), net of (a) the Pension Plan
assets transferred to a qualified replacement pension plan
within the meaning of section 4980(d)(2) of the Internal
Revenue Code of 1986, as amended (the "Tax Code") (which
assets in excess of accrued benefits are not to exceed the
statutory minimum required to limit excise taxes relating to
the termination of the Pension Plan to 20%), (b) all costs,
fees and expenses incurred or for which a reserve is
established in connection with, arising from or related to
such termination and the establishment of a replacement
pension plan and (c) all applicable taxes incurred or for
which a reserve is established in connection with, arising
from or related to the termination of the Pension Plan,
including, without limitation, income and excise taxes (the
"Pension Plan Proceeds"), within five days after the date (the
"Pension Plan Payment Date") upon which there is a final
distribution of assets from the Pension Plan. The Debtors or
Reorganized Debtors will reserve $7,000,000 from the Pension
Plan Proceeds in order to fund any taxes that may arise as a
result of the termination of the Pension Plan. The Debtors are
seeking a private letter ruling from the IRS to the effect
that income realized from the reversion of the Pension Plan
Proceeds will be offset by net operating loss carryovers and
certain deductions realized by the Debtors in the taxable
year. If such ruling is obtained, the amount of tax
attributable to the Pension Plan Proceeds should not exceed
$1,000,000. The receipt of such ruling is not a condition to
the termination of the Pension Plan or the effectiveness of
the Plan. The $7,000,000 reserved amount, less any taxes
required to paid in connection with the termination of the
Pension Plan, shall be transferred by the Reorganized Debtors
to the EBS Pension, L.L.C. as soon as is practicable after the
issuance of such ruling. If the Pension Plan Proceeds are
received by the Debtors prior to the Effective Date, such
proceeds shall be added to the Cash Distribution Pool. See
Section V.G., "The Plan of Reorganization -- The Pension
Plan." If the Pension Plan Proceeds are added to the Cash
Distribution Pool, the EBS Pension, L.L.C. shall be
terminated.
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The following consideration shall be transferred to the EBS
Building, L.L.C. by the Debtors or Reorganized Debtors:
o On the Effective Date, the Debtors' corporate headquarters
building (the "Corporate Headquarters Building"). If, however,
the Debtors have entered into a contract to sell, sell and
leaseback or otherwise dispose of the Corporate Headquarters
Building, which contract has been approved by the Bankruptcy
Court, and the Cash proceeds of such disposition are received
by the Debtors prior to the Effective Date, such proceeds, net
of all costs and expenses incurred by the Debtors in
connection with such disposition, including, without
limitation, all applicable taxes, brokers' fees, advertising
fees, legal fees and filing fees (the "Corporate Headquarters
Building Proceeds") shall be added to the Cash Distribution
Pool and the Corporate Headquarters Building shall not be
transferred to the EBS Building, L.L.C. and the EBS Building,
L.L.C. shall be terminated. If the Debtors have entered into a
contract to sell, sell and leaseback or otherwise dispose of
the Corporate Headquarters Building, which contract has been
approved by the Bankruptcy Court, but the Debtors have not
received the Corporate Headquarters Building Proceeds as of
the Effective Date, the Debtors or Reorganized Debtors shall,
in lieu of transferring the Corporate Headquarters Building to
the EBS Building, L.L.C., transfer the right to receive the
Corporate Headquarters Building Proceeds to the EBS Building,
L.L.C.; provided, however, that if such contract does not
thereafter result in the sale or -------- ------- other
disposition contemplated thereby within 60 days after the
Effective Date, the Reorganized Debtors shall promptly
transfer the Corporate Headquarters Building to the EBS
Building, L.L.C.
In addition to the foregoing, on the Effective Date, the
Debtors will transfer Cash to the EBS Litigation, L.L.C., the EBS Pension,
L.L.C. and the EBS Building, L.L.C. in respective amounts designated to the
Debtors by the Creditors' Committee, in writing, within 10 days prior to the
Confirmation Date, but in no event to exceed the Cash Distribution Pool, in the
aggregate, for the purpose of funding the LLCs (the "LLC Funding Amount"). The
LLC Funding Amount shall be deducted from the Cash Distribution Pool. Other than
Reorganized Edison's obligations under the Corporate Headquarters Building Lease
(as defined and described below), neither the Debtors nor the Reorganized
Debtors shall have any further obligation to the LLCs.
On the Effective Date, the EBS Building, L.L.C., as lessor,
and Reorganized Edison, as lessee, shall enter into a lease for the Corporate
Headquarters Building (the "Corporate Headquarters Building Lease"), the terms
and conditions of which are described in Exhibit A to the Plan. A copy of the
Corporate Headquarters Building Lease will be filed with the Bankruptcy Court as
part of the Plan Supplement at least 10 days prior to the last day upon which
holders of Claims and Equity Interests may vote to accept or reject the Plan.
Any sale, sale/leaseback, mortgage or other disposition of the Corporate
Headquarters Building by the EBS Building, L.L.C. will be subject to the
Corporate Headquarters Building Lease and such other terms and conditions
acceptable to Reorganized Edison.
2. STRUCTURE OF THE LLCS
A. MEMBERSHIP UNITS
Each of the LLCs will have two classes of membership units
(which shall represent ownership interests therein): (i) the Class A Membership
Units and (ii) the Class B Membership Units. Initially, 10,000,000 Class B
Membership Units in each LLC (representing 100% of the ownership interests in
such LLC) will be issued to Edison. In connection with each distribution of
Class A Membership Units described in Section V.D.2 above, Edison will surrender
for cancellation a number of Class B Membership Units in each LLC equal to the
number of Class A Membership Units in such LLC that are to be so distributed,
and will receive in exchange therefor, for distribution as described in Section
V.D.2 above, a like number of Class A Membership Units in such LLC. All Class A
Membership Units will be evidenced by Membership Certificates. If and to the
extent that Reorganized Edison becomes obligated to pay any taxes as a
consequence of its holding in the Reserve Class B Membership Units in the EBS
Building, L.L.C., the EBS Litigation, L.L.C. and/or the EBS Pension, L.L.C., as
described above, the EBS Building, L.L.C., the EBS Litigation, L.L.C. and/or the
EBS Pension, L.L.C., as the case may be, shall be obligated pursuant to the
relevant members agreement to pay to Reorganized Edison, in Cash, on a quarterly
basis, an amount sufficient to satisfy Reorganized Edison's tax liability,
computed by applying an assumed federal and state tax rate to Reorganized
Edison's share of taxable income from each LLC.
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B. MANAGEMENT AND OPERATIONS OF THE EBS LITIGATION, L.L.C.
The assets of the EBS Litigation, L.L.C. will be administered
by, and the business and affairs of the EBS Litigation, L.L.C. managed by, a
Manager, under the supervision and direction of an Advisory Committee. The
initial Manager will be selected by the Creditors' Committee. The Advisory
Committee will consist of three individuals selected by the Creditors'
Committee. Any vacancy on the Advisory Committee that may arise after the
Effective Date will be filled by the remaining members of the Advisory
Committee. The EBS Litigation LLC Members Agreement may contain provisions that
permit or require the replacement of the Manager and/or the Advisory Committee
in connection with the exercise of Rights by holders of Allowed Edison Equity
Interests (or their transferees).
The Manager of the EBS Litigation, L.L.C. will be empowered to
prosecute all Unresolved Avoidance Claims, except that the Manager may not
settle or liquidate any Unresolved Avoidance Claims without the approval of the
Advisory Committee. The compensation of the Manager shall be determined by the
Advisory Committee. In the event of the death or resignation of the Manager, the
Advisory Committee will have the authority to appoint a successor Manager. In
addition, the Advisory Committee may, with or without cause, remove the Manager
and appoint a successor Manager.
The holders of Class A Membership Units will have no rights to
participate in the management and operations of the EBS Litigation, L.L.C., all
of which management rights will be vested in the Manager and the Advisory
Committee. In addition, holders of Class A Membership Units will not have the
right to remove the Manager or members of the Advisory Committee.
C. MANAGEMENT AND OPERATIONS OF THE EBS PENSION, L.L.C.
The assets of the EBS Pension, L.L.C. will be administered by,
and the business and affairs of the EBS Pension, L.L.C. managed by, a Manager.
The initial Manager will be selected by the Creditors' Committee. The manager
will be responsible for arranging the receipt and distribution of all Pension
Plan Proceeds.
The holders of Class A Membership Units will have no rights to
participate in the management and operations of the EBS Pension, L.L.C., all of
which management rights will be vested in the Manager. In addition, holders of
Class A Membership Units will not have the right to remove the Manager.
D. MANAGEMENT AND OPERATIONS OF THE EBS BUILDING, L.L.C.
The assets of the EBS Building, L.L.C. will be administered
by, and the business and affairs of the EBS Building, L.L.C. managed by, a
Manager. The initial Manager will be selected by the Creditors' Committee. The
Manager will be empowered to cause the EBS Building, L.L.C. to perform all of
its obligations under the Corporate Headquarters Building Lease and, subject to
the terms of the Corporate Headquarters Building Lease, to manage, maintain,
repair, sell or mortgage the Corporate Headquarters Building Lease or any
interest therein.
The holders of Class A Membership Units will have no rights to
participate in the management and operations of the EBS Building, L.L.C., all of
which management rights will be vested in the Manager. In addition, holders of
Class A Membership Units will not have the right to remove the Manager.
E. DISTRIBUTIONS ON ACCOUNT OF CLASS A MEMBERSHIP UNITS
Distributions on account of Class A Membership Units in the
LLCs will be made from time to time as follows:
o The Manager of the EBS Litigation, L.L.C. will distribute all
proceeds generated from the prosecution and/or settlement of
the Avoidance Claims and all D&B Spinoff Settlement Proceeds
(together with any interest earned thereon or other proceeds
thereof), promptly following the receipt thereof, to the
holders of the Class A Membership Units in the EBS Litigation,
L.L.C. in proportion to their respective levels of ownership
of such Class A Membership Units. Prior to making any such
distribution, however, the Manager will deduct from the amount
otherwise so distributable an amount sufficient for the
satisfaction of the following: (i) all taxes and unpaid
administrative expenses, (ii) all unpaid fees and expenses
incurred in employing professional advisors, including the
compensation and fees of the Manager, (iii) repayment in full
of any outstanding loans and (iv) establishment of a reserve
for future anticipated expenses. In addition, during the
period in which any
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Class B Membership Units in the EBS Litigation, L.L.C. are
outstanding, the aggregate amount of each such distribution
shall be reduced by an amount sufficient to satisfy the
transfer to the Reserved Proceeds Account described below.
o The Manager of the EBS Pension, L.L.C. will distribute all
Pension Plan Proceeds (together with any interest earned
thereon or other proceeds thereof), promptly following the
receipt thereof, to the holders of the Class A Membership
Units in the EBS Pension, L.L.C. in proportion to their
respective levels of ownership of such Class A Membership
Units. Prior to making any such distribution, however, the
Manager will deduct from the amount otherwise so distributable
an amount sufficient for the satisfaction of the following:
(i) all taxes and unpaid administrative expenses, (ii) all
unpaid fees and expenses incurred in employing professional
advisors, including the compensation and fees of the Manager,
(iii) repayment in full of any outstanding loans and (iv)
establishment of a reserve for future anticipated expenses. In
addition, during the period in which any Class B Membership
Units in the EBS Pension, L.L.C. are outstanding, the
aggregate amount of each such distribution shall be reduced by
an amount sufficient to satisfy the transfer to the Reserved
Proceeds Account described below.
o The Manager of the EBS Building, L.L.C. will distribute (i)
the net profits of the EBS Building, L.L.C. from time to time
as determined by the Manager, after the establishment of such
reserves for anticipated needs as the Manager deems
appropriate and (ii) the proceeds of any disposition of the
Corporate Headquarters Building (together with any interest
earned thereon or other proceeds thereof), promptly following
the receipt thereof. All such distributions will be made to
the holders of the Class A Membership Units in the EBS
Building, L.L.C. in proportion to their respective levels of
ownership of such Class A Membership Units. Prior to making
any such distribution, however, the Manager will deduct from
the amount otherwise so distributable an amount sufficient for
the satisfaction of the following: (i) any associated taxes
and unpaid administrative expenses, (ii) all unpaid fees and
expenses incurred in employing the professional advisors,
including the compensation and fees of the Manager and (iii)
repayment in full of any outstanding loans. In addition,
during the period in which any Class B Membership Units in the
EBS Building, L.L.C. are outstanding, the aggregate amount of
each such distribution shall be reduced by an amount
sufficient to satisfy the transfer to the Reserved Proceeds
Account described below.
o During the period in which any Class B Membership Units in an
LLC are outstanding, the Manager of such LLC will maintain a
separate account called the "Reserved Proceeds Account" in
which it will deposit, for the benefit of the persons to whom
Class A Membership Units in such LLC may subsequently be
distributed pursuant to the Plan, a portion of each amount
that would otherwise be distributable to the holders of
outstanding Class A Membership Units in such LLC. The portion
of each such amount otherwise so distributable to be so
deposited, expressed as a percentage, will be equal to the
percentage of the total Membership Units in such LLC that, at
the time of such distribution, consists of Class B Membership
Units in such LLC. Each Class A Membership Unit in such LLC
subsequently distributed pursuant to the Plan will be
accompanied by an amount determined by multiplying the total
amount on deposit in the Reserved Proceeds Account for such
LLC immediately prior to such distribution by a fraction, the
numerator of which shall be one and the denominator of which
shall be the number of Class B Membership Units in the
applicable LLC that were outstanding immediately prior to such
distribution.
F. TERM OF EXISTENCE OF LLCS
The existence of the EBS Litigation, L.L.C. will terminate on
the earlier of (i) the third anniversary of the Effective Date (subject to
extension with the approval of the Bankruptcy Court for good cause shown) and
(ii) the date on which the liquidation and distribution of all assets of the EBS
Litigation, L.L.C. shall have been completed and all Disputed General Unsecured
Claims shall have been resolved.
The existence of the EBS Pension, L.L.C. will terminate on the
earlier of (i) the third anniversary of the Effective Date (subject to extension
with the approval of the Bankruptcy Court for good cause shown) and (ii) the
date on which the liquidation and distribution of all assets of the EBS Pension,
L.L.C. shall have been completed (consistent with the indemnification
obligations of the EBS Pension, L.L.C. pursuant to Section 5.1(f) of the Plan)
and all Disputed General Unsecured Claims shall have been resolved.
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The existence of the EBS Building, L.L.C. will terminate on
the earlier of (i) the third anniversary of the Effective Date (subject to
extension with the approval of the Bankruptcy Court for good cause shown) and
(ii) the date on which the liquidation and distribution of all assets of the EBS
Building, L.L.C. shall have been completed and all Disputed General Unsecured
Claims shall have been resolved.
G. TRANSFERS OF MEMBERSHIP UNITS
The Class A Membership Units in the EBS Litigation, L.L.C. and
the EBS Pension, L.L.C. will be transferable only on the terms and conditions
set forth in the EBS Litigation LLC Members Agreement and the EBS Pension LLC
Members Agreement, respectively, which terms and conditions are designed to
ensure that neither the EBS Litigation, L.L.C. nor the EBS Pension, L.L.C.
constitutes a "publicly traded partnership" (which would result in the EBS
Litigation, L.L.C. and/or the EBS Pension, L.L.C., as the case may be, being
taxable as a corporation for federal income tax purposes). In general, subject
to the foregoing and applicable law, a holder of Class A Membership Units in the
EBS Litigation, L.L.C. and/or the EBS Pension, L.L.C. will only be able to
transfer such Class A Membership Units if such transfer (or series of related
transfers) satisfies one of the following tests:
(i) such transfer or series of transfers are made within a
30-day period and involve the transfer of more than 2.0% of
the outstanding Class A Membership Units;
(ii) such transfer or series of transfers by one or more
holders involves the transfer of 50% or more of the
outstanding Class A Membership Units;
(iii) such transfer or series of transfers are effected
through a "Qualified Matching Service" (a matching service
that satisfies the requirements of a qualified matching
service within the meaning of Treasury Regulation ss.
1.7704-1(g)(2)); or
(iv) such transfer is a transfer in which the basis of the
Class A Membership Units in the hands of the transferee is
determined, in whole or in part, by reference to its basis in
the hands of the transferor.
Any transferee of a Class A Membership Unit will be subject to the foregoing
restrictions on transfer.
Because it is anticipated that the EBS Building, L.L.C. will
qualify for an exception to the definition of "publicly traded partnership"
under applicable federal income tax regulations, the restrictions referred to
above will not apply to transfer of Class A Membership Units in the EBS
Building, L.L.C. However, holders of Class A Membership Units in the EBS
Building, L.L.C. will be obligated to notify the Manager of the EBS Building,
L.L.C. of any proposed transfer and the Manager may disapprove any transfer that
would cause adverse tax consequences to the EBS Building, L.L.C. In addition,
any such transfer will be subject to applicable state and federal securities
laws.
Edison or Reorganized Edison may not effect any transfer of
its Class B Membership Units in the LLCs except by operation of law to a person
who shall succeed to Edison's or Reorganized Edison's obligations to distribute
all previously undistributed Class A Membership Units in the LLCs pursuant to
the Plan.
H. INDEMNIFICATION
Except with respect to any Unresolved Avoidance Claims that
the EBS Litigation, L.L.C. may have against present or former officers,
directors or employees of the Debtors in their capacities other than as present
or former officers, directors or employees, the EBS Litigation, L.L.C. and the
EBS Pension, L.L.C. shall indemnify, defend and hold harmless the Reorganized
Debtors and their present or former officers, directors and employees (the
"Indemnified Parties") from and against any direct losses, claims, damages,
expenses, liabilities and actions arising from or relating to the EBS
Litigation, L.L.C. and any actions taken or proceedings commenced by the EBS
Litigation, L.L.C. (the "LLC Related Claims"); provided, however, that the
foregoing indemnification (except with respect to costs and expenses as provided
in the penultimate sentence of this paragraph) shall be satisfied solely from
the funds, if any, received by the EBS Litigation, L.L.C. from the compromise
and settlement or successful prosecution of the Unresolved Avoidance Claims. As
more particularly set forth in the EBS Pension LLC Members Agreement, the EBS
Pension, L.L.C. shall establish a reserve from the Pension Plan Proceeds for the
benefit of the Indemnified Parties in the amount of $1,500,000 to pay the costs
and expenses incurred by the Indemnified Parties in defending against the LLC
Related Claims; provided, however, that the Indemnified Parties shall, in the
first instance, seek
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reimbursement of the costs and expenses of defending against the LLC Related
Claims from any applicable officers' and directors' insurance policy. Any
amounts remaining in the reserve upon the final adjudication, including any
appeals, of the LLC Related Claims or the compromise and settlement of such
claims, shall be released and distributed pursuant to the terms of the EBS
Pension LLC Members Agreement.
Each LLC will indemnify and hold harmless its Manager,
Advisory Committee members, and any member, partner, shareholder, director,
officer, agent, affiliate and advisor of any of them, from and against any
losses, costs, damages, expenses or liabilities by reason of such indemnified
person taking any action in connection with the business and affairs of such
LLC, except to the extent that such loss or liability results from such
indemnified person's gross negligence or willful breach of the applicable
Members Agreement which results in material damage to such LLC. To the extent
commercially reasonable, the Manager of each LLC shall cause such LLC to
purchase and maintain insurance on behalf of the persons to be indemnified by
the LLC.
I. DISSOLUTION
Upon the dissolution of an LLC, the remaining assets of such
LLC, if any, will be distributed to its members in accordance with each member's
capital account balances.
F. THE FUNDING ESCROW.
The Plan provides for the establishment of the Funding Escrow
pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, for the benefit of the
Reorganized Debtors and the holders of New Notes. The Funding Escrow provides
for the "prefunding" by Reorganized Edison of approximately the first three
years of interest payable by Reorganized Edison under the New Notes. On the
Effective Date, Reorganized Edison shall enter into the Funding Escrow Agreement
and deposit $16,000,000 in Cash and the documents of title to certain parcels of
real property owned by the Debtors (the "Funding Escrow Properties") into the
Funding Escrow. The Funding Escrow Properties are: (i) a parcel of land
containing a 13-story building with accompanying driveways and parking facility
located at 400 South 14th Street, St. Louis, Missouri; (ii) a parcel of land
containing a five-story building plus basement comprising the whole of Block 282
of the City of St. Louis located at 1230 North Second Street, St. Louis,
Missouri; (iii) a parcel of land containing a four-story building plus basement
located in Cook County, Illinois at 131-133 South State Street, Chicago,
Illinois; (iv) a parcel of land containing approximately 15.02 acres together
with a building thereon containing approximately 309,444 square feet of ground
floor space with accompanying parking facility and truck areas located at 1351
Redmond Road, Rome, Georgia; and (v) a parcel of land in Princeton, Potaka
County, Illinois, containing approximately 41.19 acres together with a building
thereon containing approximately 369,000 square feet of ground floor space with
accompanying parking facility and truck areas located at U.S. 41 and Highway
100, Princeton, Indiana. If, however, the Debtors have, prior to the Effective
Date, entered into a contract to sell, sell and lease back or otherwise dispose
of one or more of the Funding Escrow Properties, the Cash proceeds of such
transaction or, if such Cash proceeds have not been received prior to the
Effective Date, the right to receive such Cash proceeds, shall be transferred
into the Funding Escrow in lieu of the Funding Escrow Property or Funding Escrow
Properties disposed of. Neither the Debtors nor the Reorganized Debtors shall
have any further obligation to the Funding Escrow.
Pursuant to the Funding Escrow Agreement, which shall be filed
with the Bankruptcy Court as part of the Plan Supplement at least 10 days prior
to the last day upon which holders of Claims and Equity Interests may vote to
accept or reject the Plan, Reorganized Edison shall have the following rights
and obligations with respect to the Funding Escrow:
(i) Reorganized Edison shall have the right in its sole
discretion to direct the Funding Escrow Agent to transfer to Reorganized
Edison Cash from the Funding Escrow in amounts necessary to pay the
interest payments required under the New Notes through and including July
31, 2000;
(ii) Reorganized Edison shall have the right in its sole
discretion to cause the Funding Escrow Agent to deliver to Reorganized
Edison any documents of title to enable Reorganized Edison to sell, sell
and lease back or otherwise dispose of one or more of the Funding Escrow
Properties and retain the proceeds therefrom in the Funding Escrow;
(iii) Reorganized Edison shall have the right to use of the
Funding Escrow Properties for no cost at all times during the existence
of the Funding Escrow, unless and until the Funding Escrow Properties are
sold, sold and leased back or otherwise disposed of;
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(iv) Reorganized Edison shall be required to pay the taxes
relating to and operating costs of the Funding Escrow Properties, unless
and until the Funding Escrow Properties are sold, sold and leased back or
otherwise disposed of; and
(v) Reorganized Edison shall have the right in its sole
discretion to substitute $14,000,000 in Cash for the Funding Escrow
Properties at any time during the existence of the Funding Escrow, unless
and until the Funding Escrow Properties are sold, sold and leased back or
otherwise disposed of; provided, however, that if the Debtors have, prior
to the Effective Date, entered into a contract to sell, sell and lease
back or otherwise dispose of one or more of the Funding Escrow
Properties, the amount of Cash that Reorganized Edison may substitute for
the Funding Escrow Properties ($14,000,000) shall be reduced by the Cash
proceeds of such transaction or transactions.
Subject to the requirement that all interest payments required under the New
Notes have been paid by Reorganized Edison through and including July 31, 2000,
any funds in the Funding Escrow that have not been distributed and the documents
of title relating to the Funding Escrow Properties that have not been sold or
otherwise disposed of by the Funding Escrow Agent on or before August 1, 2000,
shall be returned to Reorganized Edison by the Funding Escrow Agent free and
clear of all claims, liens, encumbrances and contractually imposed restrictions
arising under or related to the Funding Escrow Agreement and the Plan. Unless
Reorganized Edison (i) directs the Funding Escrow Agent to sell or otherwise
dispose of a Funding Escrow Property or (ii) fails to make all interest payments
required under the New Notes through and including July 31, 2000, the documents
of title relating to the Funding Escrow shall not be transferred or recorded.
The Funding Escrow Agent will be granted mortgages on the
Funding Escrow Properties to secure the payment of interest by Reorganized
Edison on the New Notes for the first three years (the "Funding Escrow
Mortgages"); provided, however, that if the Debtors have, prior to the Effective
Date, entered into a contract to sell, sell and lease back or otherwise dispose
of one or more of the Funding Escrow Properties, there shall be no Funding
Escrow Mortgage on such Funding Escrow Property or Funding Escrow Properties;
provided, further, that if such contract does not thereafter result in the sale
or other disposition contemplated thereby within 60 days after the Effective
Date, there shall be a Funding Escrow Mortgage on such Funding Escrow Property
or Funding Escrow Properties. Upon Reorganized Edison's payment of all interest
payments required to be made under the New Notes through and including July 31,
2000 or upon the consummation by Reorganized Edison of its right to substitute
Cash for the Funding Escrow Properties, as described above, all of the Funding
Escrow Mortgages shall be released. Upon the consummation by Reorganized Edison
of a sale, sale and lease back or other disposition of one of the Funding Escrow
Properties, as described in and subject to Section 5.2(b) of the Plan, the
corresponding Funding Escrow Mortgage shall be released.
The Funding Escrow Agent shall be appointed by the Debtors no
later than 10 days prior to the date of the Confirmation Hearing. The name of
the person appointed in that capacity shall be disclosed at or prior to the
Confirmation Hearing. The Funding Escrow Agent shall serve for the duration of
the Funding Escrow subject to his or her earlier death, resignation, incapacity
or removal as provided in the Funding Escrow Agreement.
From and after the Effective Date, the Funding Escrow Agent's
powers shall be as provided for in the Funding Escrow Agreement. The Funding
Escrow Assets shall be distributed in accordance with the provisions of the Plan
and the Funding Escrow Agreement and the Funding Escrow and the Funding Escrow
Agreement shall terminate on the thirtieth day after the distribution of all of
the Funding Escrow Assets in accordance with the provisions of the Plan and the
Funding Escrow Agreement. The Funding Escrow shall indemnify, defend and hold
harmless the Reorganized Debtors and their officers, directors and employees
from and against any losses, claims, damages, expenses, liabilities and actions
arising from or relating to the Funding Escrow.
G. THE PENSION PLAN.
Currently, the Pension Plan is overfunded, with assets as of
April 30, 1997, aggregating approximately $145,000,000 and an accrued benefit
obligation to Pension Plan participants as of May 31, 1997, the date that the
Debtors terminated the Pension Plan (the "Termination Date"), aggregating
approximately $60,300,000. The Debtors have determined to terminate the Pension
Plan and establish a qualified replacement pension plan, as defined in section
4980(d)(2) of the Tax Code, which may consist of more than one plan. Pursuant to
the Plan, the Debtors and Reorganized Debtors shall take all actions necessary
and appropriate to generate the Pension Plan Proceeds. As described above, the
Pension Plan Proceeds are the Cash proceeds received by the Debtors or
Reorganized Debtors as a consequence of the termination of the Pension Plan, net
of (i) the Pension Plan assets transferred to a qualified replacement pension
plan within the meaning of section 4980(d)(2) of the
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Tax Code (which assets in excess of accrued benefits are not to exceed the
statutory minimum required to limit excise taxes relating to the termination of
the Pension Plan to 20%), (ii) all costs, fees and expenses incurred or for
which a reserve is established in connection with, arising from or related to
such termination and the establishment of a replacement pension plan and (iii)
all applicable taxes incurred or for which a reserve is established in
connection with, arising from or related to the termination of the Pension Plan,
including, without limitation, income and excise taxes. The exact amount of the
Pension Plan Proceeds can only be determined after annuity contracts are
purchased to provide for benefits under the Pension Plan for actively employed
participants who do not elect to transfer their accrued benefits to the
replacement pension plan and for eligible inactive participants who do not elect
to receive a lump sum distribution of their accrued benefits. Unless the Pension
Plan Proceeds are received by the Debtors prior to the Effective Date, in which
event they shall be added to the Cash Distribution Pool, the Pension Plan
Proceeds shall, within five days after the Pension Plan Payment Date, be
transferred by the Debtors to the EBS Pension, L.L.C. pursuant to Section 5.1(b)
of the Plan. The Debtors or Reorganized Debtors will reserve $7,000,000 from the
Pension Plan Proceeds in order to fund any taxes that may arise as a result of
the termination of the Pension Plan. The Debtors are seeking a private letter
ruling (the "Pension Ruling") from the IRS to the effect that income realized
from the reversion of the Pension Plan Proceeds will be offset by net operating
loss carryovers and certain deductions realized by the Debtors in the taxable
year. If the Pension Ruling is obtained, the amount of tax attributable to the
Pension Plan Proceeds should not exceed $1,000,000. The receipt of the Pension
Ruling is not a condition to the termination of the Pension Plan or the
effectiveness of the Plan. The $7,000,000 reserved amount, less any taxes
required to paid in connection with the termination of the Pension Plan, shall
be transferred by the Reorganized Debtors to the EBS Pension, L.L.C. as soon as
is practicable after the issuance of the Pension Ruling.
Within 120 days after the Termination Date, the Debtors will
notify the Pension Benefit Guaranty Corporation ("PBGC") of the termination of
the Pension Plan effective as of the Termination Date. The Debtors also have
requested an additional ruling from the IRS that the Pension Plan will retain
its favorable tax treatment upon termination. The receipt of a favorable ruling
is not a condition to the termination of the Pension Plan or the effectiveness
of the Plan. There can be no assurance that the IRS will issue this ruling.
By order dated May 20, 1997, the Bankruptcy Court approved the
termination of the Pension Plan and the use of the excess assets to establish a
replacement pension plan and pay holders of Allowed General Unsecured Claims
pursuant to the Plan.
For a discussion of the tax consequences attendant to the
termination of the Pension Plan and the establishment of a replacement pension
plan, see Section XI.E., "Certain Federal Income Tax Consequences of the Plan --
Termination of the Pension Plan."
H. CONSOLIDATION OF THE DEBTORS.
1.SUBSTANTIVE CONSOLIDATION
Substantive consolidation is an equitable remedy that a
bankruptcy court may be asked to apply in chapter 11 cases involving affiliated
debtors. Substantive consolidation involves the pooling and merging of the
assets and liabilities of the affected debtors. All of the debtors in the
substantively consolidated group are treated as if they were a single corporate
and economic entity. Consequently, a creditor of one of the substantively
consolidated debtors is treated as a creditor of the substantively consolidated
group of debtors and issues of individual corporate ownership of property and
individual corporate liability on obligations are ignored.
Substantive consolidation of two or more debtors' estates
generally results in the deemed consolidation of the assets and liabilities of
the debtors, the deemed elimination of intercompany claims, subsidiary equity or
ownership interests, multiple and duplicative creditor claims, joint and several
liability claims and guarantees, and the payment of allowed claims from a common
fund.
By order dated May 13, 1997, the Bankruptcy Court approved the
substantive consolidation of the Chapter 11 Cases for all purposes related to
the Plan, including, without limitation, for purposes of voting, confirmation
and distribution. Pursuant to such order, (i) all assets and liabilities of the
Subsidiaries shall be deemed merged or treated as though they were merged into
and with the assets and liabilities of Edison, (ii) no distributions shall be
made under the Plan on account of intercompany claims among the Debtors, (iii)
no distributions under the Plan shall be made on account of Subsidiary Equity
Interests, (iv) all guarantees of the Debtors of the obligations of any other
Debtor shall be deemed eliminated so that any claim
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against any Debtor and any guarantee thereof executed by any other Debtor and
any joint or several liability of any of the Debtors shall be deemed to be one
obligation of the consolidated Debtors and (v) each and every Claim filed or to
be filed in the Chapter 11 Case of any of the Debtors shall be deemed filed
against the consolidated Debtors, and shall be deemed one Claim against and
obligation of the consolidated Debtors. Such substantive consolidation shall not
(other than for purposes related to the Plan) affect (i) the legal and corporate
structures of the Reorganized Debtors, subject to the right of the Debtors or
Reorganized Debtors to effect restructurings as provided in Section 8.2 of the
Plan, (ii) intercompany claims by and among the Debtors or Reorganized Debtors,
(iii) Subsidiary Equity Interests and (iv) pre- and post-Commencement Date
guarantees that are required to be maintained (a) in connection with executory
contracts or unexpired leases that were entered into during the Chapter 11 Cases
or that have been or will be assumed, or (b) pursuant to the Plan.
2.MERGER OF CORPORATE ENTITIES
The Plan provides that, on or as of the Effective Date, within
the sole and exclusive discretion of the Debtors, any or all of the Subsidiaries
may be merged into one or more of the Debtors or dissolved. Upon the occurrence
of any such merger, all assets of the merged entities shall be transferred to
and become the assets of the surviving corporation, and all liabilities of the
merged entities, except to the extent discharged, released or extinguished
pursuant to the Plan and the Confirmation Order, shall be assumed by and shall
become the liabilities of the surviving corporation. All mergers and
dissolutions shall be effective as of the Effective Date pursuant to the
Confirmation Order without any further action by the stockholders or directors
of any of the Debtors, the Debtors in Possession or the Reorganized Debtors. The
Debtors will determine whether any or all of the Subsidiaries will be merged
into one or more of the Debtors or dissolved, and disclose the same (and the
post-merger and/or dissolution structure of the Reorganized Debtors) to the
Bankruptcy Court, prior to the Confirmation Hearing.
I. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
The Bankruptcy Code grants the Debtors the power, subject to
the approval of the Bankruptcy Court, to assume or reject executory contracts
and unexpired leases. If an executory contract or unexpired lease is rejected,
the other party to the agreement may file a claim for damages incurred by reason
of the rejection. In the case of rejection of leases of real property, such
damage claims are subject to certain limitations imposed by the Bankruptcy Code.
Pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy
Code, all executory contracts and unexpired leases that exist between the
Debtors and any person shall be deemed assumed by the Reorganized Debtors as of
the Effective Date, except for any executory contract or unexpired lease (i)
which has been assumed pursuant to an order of the Bankruptcy Court entered
prior to the Confirmation Date, (ii) which has been rejected pursuant to an
order of the Bankruptcy Court entered prior to the Confirmation Date, (iii) as
to which a motion for approval of the rejection of such executory contract or
unexpired lease has been filed and served prior to the Confirmation Date or (iv)
which is set forth in Schedule 7.1(a)(x) (executory contracts) or Schedule
7.1(a)(y) (unexpired leases), which Schedules shall be included as part of the
Plan Supplement, which will be filed with the Bankruptcy Court at least 10 days
prior to the last day upon which holders of Claims and Equity Interests may vote
to accept or reject the Plan. The Debtors or Reorganized Debtors reserve the
right, at any time on or prior to the Confirmation Date, to amend Schedules
7.1(a)(x) or 7.1(a)(y) to delete any executory contract or unexpired lease
therefrom or add any executory contract or unexpired lease thereto, in which
event such executory contract(s) or unexpired lease(s) shall be deemed to be,
respectively, assumed or rejected. The Debtors or Reorganized Debtors shall
provide notice of any amendments to Schedules 7.1(a)(x) or 7.1(a)(y) to the
parties to the executory contracts and unexpired leases affected thereby. The
listing of an agreement on Schedules 7.1(a)(x) and 7.1(a)(y) shall not
constitute an admission by the Debtors or Reorganized Debtors that such
agreement is an executory contract or an unexpired lease or that the Debtors or
Reorganized Debtors have any liability thereunder.
Pursuant to the Plan, each executory contract and unexpired
lease listed or to be listed on Schedules 7.1(a)(x) or 7.1(a)(y) that relates to
the use or occupancy of real property shall include (i) modifications,
amendments, supplements, restatements or other agreements made directly or
indirectly by any agreement, instrument or other document that in any manner
affects such executory contract or unexpired lease, without regard to whether
such agreement, instrument or other document is listed on Schedules 7.1(a)(x) or
7.1(a)(y) and (ii) executory contracts or unexpired leases appurtenant to the
premises listed on Schedules 7.1(a)(x) or 7.1(a)(y), including, without
limitation, all easements, licenses, permits, rights, privileges, immunities,
options, rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vault, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights in rem relating to such premises to the
extent any of the foregoing are executory contracts or unexpired leases, unless
any of the foregoing agreements previously have been assumed.
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Pursuant to the Plan, each of the Debtors' insurance policies
and any agreements, documents or instruments relating thereto, including,
without limitation, any retrospective premium rating plans relating to such
policies, shall be treated as executory contracts under the Plan.
Notwithstanding the foregoing, distributions under the Plan to any holder of a
Claim covered by any of such insurance policies and related agreements,
documents or instruments that are assumed under the Plan, shall be in accordance
with the treatment provided under Article IV and Section 6.6 of the Plan. The
treatment of the Debtors' insurance policies and any agreements, documents or
instruments relating thereto as executory contracts under the Plan shall not
constitute or be deemed a waiver of any Cause of Action that the Debtors may
hold against any entity, including, without limitation, the insurer under any of
the Debtors' policies of insurance. See Section V.K., "The Plan of
Reorganization -- Distributions Relating to Allowed Insured Claims."
Except as provided in Sections 7.1(a) of the Plan, all
employment and severance practices and policies and all compensation and benefit
plans, policies and programs of the Debtors applicable to their directors,
officers or employees, including, without limitation, all savings plans,
retirement plans, health care plans, severance benefit plans, incentive plans,
workers' compensation programs and life, disability and other insurance plans
are treated as executory contracts under the Plan and are assumed under the Plan
pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code.
The entry of the Confirmation Order by the Bankruptcy Court
shall constitute (i) the approval of all assumptions pursuant to the Plan, (ii)
the approval of all rejections pursuant to the Plan and (iii) the approval,
pursuant to section 365(d)(4) of the Bankruptcy Code, of the extension of time
within which the Debtors may assume or reject unexpired leases pursuant to the
Plan, through the date of entry of an order approving the assumption or
rejection of such unexpired leases.
Except as may otherwise be agreed to by the parties, within 60
days after the Effective Date, the Reorganized Debtors shall cure any and all
undisputed defaults under any executory contract or unexpired lease assumed
pursuant to the Plan in accordance with section 365(b)(1) of the Bankruptcy
Code. All disputed defaults that are required to be cured shall be cured either
within 30 days of the entry of a Final Order determining the amount, if any, of
the Debtors' or Reorganized Debtors' liability with respect thereto, or as may
otherwise be agreed to by the parties.
Claims arising out of the rejection of executory contracts or
unexpired leases pursuant to the Plan must be filed with the Bankruptcy Court
and/or served upon the Debtors or Reorganized Debtors as otherwise may be
provided in the Confirmation Order, by no later than 30 days after the later of
(i) notice of entry of an order approving the rejection of such executory
contract or unexpired lease, (ii) notice of entry of the Confirmation Order and
(iii) notice of an amendment to Schedule 7.1(a)(x) or 7.1(a)(y). Any Claims not
filed within such time will be forever barred from assertion against the
Debtors, their estates, the Reorganized Debtors and their property. Unless
otherwise ordered by the Bankruptcy Court, all Claims arising from the rejection
of executory contracts and unexpired leases shall be treated as General
Unsecured Claims under the Plan.
J. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS AND EQUITY INTERESTS.
Except as to applications for allowances of compensation and
reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code, the
Debtors or Reorganized Debtors shall have the exclusive right to make and file
objections to Administrative Expense Claims, Claims and Equity Interests
subsequent to the Confirmation Date. All objections shall be litigated to Final
Order, subject to the Debtors' and Reorganized Debtors' right to compromise,
settle, otherwise resolve or withdraw any such objections, without approval of
the Bankruptcy Court. Unless otherwise ordered by the Bankruptcy Court, the
Debtors or Reorganized Debtors shall file all objections to Administrative
Expense Claims that are the subject of proofs of claim or requests for payment
filed with the Bankruptcy Court (other than applications for allowances of
compensation and reimbursement of expenses), Claims and Equity Interests and
serve such objections upon the holder of the Administrative Expense Claim, Claim
or Equity Interest as to which the objection is made as soon as is practicable,
but in no event later than 60 days after the Effective Date or such later date
as may be approved by the Bankruptcy Court.
As described in detail below, the Plan provides for the
establishment of a Claims Resolution Committee by the Creditors' Committee. See
Section V.O.11., "The Plan of Reorganization -- Summary of Other Provisions of
the Plan -- The Claims Resolution Committee." On the last day of each month or
as otherwise agreed to in writing by the Debtors and the Creditors' Committee,
the Reorganized Debtors shall provide counsel to the Claims Resolution Committee
with written notice by overnight delivery service or facsimile transmission of
each Disputed Claim that they intend to compromise, settle or resolve, other
than such compromises, settlements or resolutions that fall within the
parameters of (i) prior orders of the Bankruptcy
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Court authorizing the Debtors to compromise or settle certain Claims without
approval of the Bankruptcy Court, (ii) settlement guidelines to be agreed upon
by the Debtors and the Creditors' Committee prior to the Confirmation Date, or
(iii) settlement guidelines to be agreed upon by the Debtors and the Claims
Resolution Committee subsequent to the Effective Date. Within 15 days after the
receipt of such notice, the Claims Resolution Committee shall provide the
Reorganized Debtors with written notice of any such compromises, settlements or
resolutions with which it does not concur. If the Reorganized Debtors and the
Claims Resolution Committee cannot reach agreement with respect to any such
compromise, settlement or resolution, the Claims Resolution Committee will be
permitted to file with the Bankruptcy Court and serve on the Reorganized Debtors
an objection to the reasonableness of any such compromise, settlement or
resolution within 15 days after the date that the Claims Resolution Committee
provides the Reorganized Debtors with written notice of such compromise,
settlement or resolution with which it does not concur, or within such other
time period as may be agreed upon by the Reorganized Debtors and the Creditors'
Committee, and the reasonableness of such compromise, settlement or resolution
shall be determined by the Bankruptcy Court. If the Claims Resolution Committee
fails to timely file and serve an objection to a compromise, settlement or
resolution, such compromise, settlement or resolution shall be deemed resolved
on the terms and subject to the conditions agreed to by the Reorganized Debtors.
Notwithstanding the foregoing, the Claims Resolution Committee shall have the
authority to compel the Debtors to compromise, settle or resolve any Disputed
Claim without the consent of the Reorganized Debtors.
Notwithstanding any other provision of the Plan, if any
portion of a Claim or Equity Interest is Disputed, no payment or distribution
provided under the Plan will be made on account of any of such Claim or Equity
Interest, unless such Disputed Claim or Disputed Equity Interest becomes
Allowed. Payments and distributions to each holder of a Claim or Equity Interest
that is Disputed or is not Allowed, to the extent that such Claim or Equity
Interest ultimately becomes Allowed, will be made in accordance with the
provisions of the Plan governing the Class of Claims or Equity Interests in
which such Claim or Equity Interest is classified. See Section V.A., "The Plan
of Reorganization -- Classification and Treatment of Claims and Equity
Interests."
Pursuant to the Disclosure Statement Orders, copies of which
are annexed hereto as Exhibit B, the Bankruptcy Court has allowed certain
Disputed Claims in certain amounts solely for the purpose of permitting holders
thereof to vote to accept or reject the Plan. The specific provisions relating
to the voting of such claims are set forth in such orders.
K. DISTRIBUTIONS RELATING TO ALLOWED INSURED CLAIMS.
Distributions under the Plan to each holder of an Allowed
Claim arising from an incident or occurrence that is covered under the Debtors'
insurance policies (the "Allowed Insured Claims") shall be in accordance with
the treatment provided under the Plan for the Class in which such Allowed
Insured Claim is classified, but solely to the extent that such Allowed Insured
Claim is not satisfied from proceeds payable to the holder thereof under any
pertinent insurance policies and applicable law. Nothing contained in the
preceding sentence shall constitute or be deemed a waiver of any Cause of Action
that the Debtors or any entity may hold against any other entity, including,
without limitation, insurers under any policies of insurance.
L. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN.
The Plan shall not become effective unless and until the
following conditions shall have been satisfied or waived pursuant to Section
11.3 of the Plan:
1. the Confirmation Order, in form and substance reasonably acceptable
to the Debtors and the Creditors' Committee, shall have been signed by the judge
presiding over the Chapter 11 Cases, and there shall not be a stay or injunction
in effect with respect thereto;
2. the Debtors shall have at least $10,000,000 in Cash as of August 7,
1997, after giving effect to the distributions of Cash projected to be made
under the Plan;
3. the Reorganized Debtors shall have credit availability under a
working capital credit facility, in form and substance acceptable to the Debtors
and reasonably acceptable to the Creditors' Committee, to provide the
Reorganized Debtors with working capital sufficient to meet ordinary and peak
requirements;
4. the New Notes Indentures shall have been qualified under the Trust
Indenture Act of 1939, as amended;
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5. (i) the Funding Escrow shall have been established and the Funding
Escrow Agent under the Funding Escrow Agreement shall have been appointed in
accordance with Section 5.2 of the Plan; and (ii) subject to Section 5.1 of the
Plan, the EBS Litigation, L.L.C., the EBS Pension, L.L.C. and the EBS Building,
L.L.C. shall have been established in accordance with the EBS Litigation LLC
Members Agreement, the EBS Pension LLC Members Agreement and the EBS Building
LLC Members Agreement.
6. subject to Section 5.1(c) of the Plan, the EBS Building, L.L.C.
shall have entered into the Corporate Headquarters Building Lease with
Reorganized Edison;
7. all actions, documents and agreements necessary to implement the
Plan shall have been effected or executed;
8. the Debtors shall have received all authorizations, consents,
regulatory approvals, rulings, letters, no-action letters, opinions or documents
that are determined by the Debtors to be necessary to implement the Plan,
including, without limitation, no-action letters from the Commission and letter
or other rulings from the IRS; and
9. each of the Amended Edison Certificate of Incorporation, the Amended
Edison Bylaws, the amended certificates of incorporation of the Reorganized
Subsidiaries, the EBS Litigation LLC Members Agreement, the EBS Pension LLC
Members Agreement, the EBS Building LLC Members Agreement, the Funding Escrow
Agreement, the Rights documents, the D&B Spinoff Settlement documents, the
Funding Escrow Mortgages, the New Notes, the New Notes Indentures, the Corporate
Headquarters Building Lease, the Registration Rights Agreement, the Stock Option
Plan, the Director Stock Option Plan, the Employment Contracts and the
Restricted Stock Agreements, in form and substance reasonably acceptable to the
Debtors and the Creditors' Committee, shall have been effected or executed.
The Debtors may waive, by a writing signed by an authorized
representative of the Debtors and subsequently filed with the Bankruptcy Court,
one or more of the conditions precedent set forth in (2), (6) and (7) (exclusive
of those documents and agreements set forth in (9)) above. The Debtors, with the
written consent of the Creditors' Committee (which consent shall not be
unreasonably withheld), may waive, by a writing signed by an authorized
representative of the Debtors and subsequently filed with the Bankruptcy Court,
one or more of the conditions precedent set forth in (1), (3), (4), (5), (8) and
(9) above. In the event that the conditions precedent have not occurred on or
before 60 days after the Confirmation Date, upon notification submitted by the
Debtors to the Bankruptcy Court and counsel for the Creditors' Committee and the
Equity Committee, (i) the Confirmation Order shall be vacated, (ii) no
distributions under the Plan shall be made, (iii) the Debtors and all holders of
Claims and Equity Interests shall be restored to the status quo ante as of the
day immediately preceding the Confirmation Date as though the Confirmation Date
never occurred and (iv) all of the Debtors' obligations with respect to Claims
and Equity Interests shall remain unchanged and nothing contained in the Plan
shall constitute or be deemed a waiver or release of any Claims or Equity
Interests by or against the Debtors or any other person or to prejudice in any
manner the rights of the Debtors or any person in any further proceedings
involving the Debtors.
The Debtors anticipate that the Effective Date will occur
within 30 days after the Confirmation Date.
M. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE PLAN.
Except as provided in Sections 5.1, 5.2 and 10.3 of the Plan,
the property of the estates of the Debtors shall revest in the Reorganized
Debtors on the Effective Date, and shall be free and clear of all liens, claims
and interests of holders of Claims and Equity Interests, except as provided in
the Plan. From and after the Effective Date, the Reorganized Debtors may operate
their businesses, and may use, acquire and dispose of property free of any
restrictions imposed under the Bankruptcy Code. All injunctions or stays
provided for in the Chapter 11 Cases under sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall remain in
full force and effect until the Effective Date.
N. DISCHARGE AND INJUNCTION.
The rights afforded in the Plan and the treatment of all
Claims and Equity Interests in the Plan shall be in exchange for and in complete
satisfaction, discharge and release of Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Commencement Date, against the Debtors and the Debtors in Possession, or any of
their assets or properties. Except as otherwise provided in the Plan, (i) on the
Effective Date, all such Claims against and Equity Interests in the Debtors
shall be satisfied, discharged and released in full, and (ii) all persons shall
be precluded from asserting against the Reorganized Debtors, their successors,
or their assets or properties any other or further
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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.
Except as otherwise expressly provided in the Plan, the
Confirmation Order or a separate order of the Bankruptcy Court, all entities who
have held, hold or may hold Claims against or Equity Interests in any or all of
the Debtors, are permanently enjoined, on and after the Effective Date, from (i)
commencing or continuing in any manner any action or other proceeding of any
kind with respect to any such Claim or Equity Interest, (ii) the enforcement,
attachment, collection or recovery by any manner or means of any judgment,
award, decree or order against the Debtors on account of any such Claim or
Equity Interest, (iii) creating, perfecting or enforcing any encumbrance of any
kind against the Debtors or against the property or interests in property of the
Debtors on account of any such Claim or Equity Interest and (iv) asserting any
right of setoff, subrogation or recoupment of any kind against any obligation
due from the Debtors or against the property or interests in property of the
Debtors on account of any such Claim or Equity Interest. Such injunction shall
extend to successors of the Debtors (including, without limitation, the
Reorganized Debtors) and their respective properties and interests in property.
O. SUMMARY OF OTHER PROVISIONS OF THE PLAN.
The following paragraphs summarize certain other significant
provisions of the Plan. The Plan should be referred to for the complete text of
these and other provisions of the Plan.
1.RETIREE BENEFITS
The Plan provides that, pursuant to section 1114(a) of the
Bankruptcy Code, payments, if any, due to any person for the purpose of
providing or reimbursing payments for retired employees and their spouses and
dependents for medical, surgical or hospital care benefits, or benefits in the
event of sickness, accident, disability or death under any plan, fund or program
(through the purchase of insurance or otherwise) maintained or established in
whole or in part by the Debtors prior to the Commencement Date shall be
continued for the duration of the period the Debtors have obligated themselves
to provide such benefits. Pursuant to the terms of the Debtors' retiree benefits
plans, the Debtors reserve the right to modify or terminate benefits under such
plans. The Debtors, however, have no present intention to modify or terminate
such benefits. The Equity Committee believes that if such retiree benefits were
terminated, the reorganization values of the Debtors would be higher. See
Section IX., "Valuation."
2.AMENDED BYLAWS AND AMENDED CERTIFICATES OF INCORPORATION
The amended and restated Bylaws of Reorganized Edison (the
"Amended Edison Bylaws"), the amended and restated Certificate of Incorporation
of Reorganized Edison (the "Amended Edison Certificate of Incorporation") and
the certificates of incorporation of each of the Reorganized Subsidiaries shall
be amended and restated as of the Effective Date to the extent necessary to,
among other things, (a) prohibit the issuance of nonvoting equity securities as
required by section 1123(a)(6) of the Bankruptcy Code, subject to further
amendment of such certificates of incorporation and bylaws as permitted by
applicable law and (b) effectuate the provisions of the Plan, in each case
without any further action by the stockholders or directors of the Debtors, the
Debtors in Possession or the Reorganized Debtors.
The following is a summary of certain additional provisions
anticipated to be included in the Amended Edison Certificate of Incorporation.
The proposed form of Amended Edison Certificate of Incorporation will be
included in the Plan Supplement.
(a) Number of Directors. Under the Amended Edison Certificate
of Incorporation, on the Effective Date, Reorganized Edison's Board of
Directors will consist of nine directors.
(b) Stockholder Action by Written Consent; Special Meetings.
The Amended Edison Certificate of Incorporation will not permit action by
stockholders by written consent in lieu of meeting. The Amended Edison
Certificate of Incorporation will provide that special meetings of
stockholders may be called only by the Chairman of the Board, the
President, a majority of the Board of Directors, or any holder or holders
of at least 51% of the outstanding shares of the New Common Stock.
(c) Preferred Stock. The Amended Edison Certificate of
Incorporation will provide that the Board of Directors is authorized,
without action by the stockholders, to issue up to 10,000,000 shares of
preferred stock, par value
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$.01 per share (the "Preferred Stock"), in one or more series, to
establish the number of shares to be included in each such series and to
fix the designations, voting powers, preferences and relative,
participating, optional and other rights, of the shares of each such
series, and the qualifications, limitations and restrictions thereof.
Such matters may include, among others, voting rights, conversion and
exchange privileges, dividend rates, redemption rights, sinking fund
provisions and liquidation rights that could be superior and prior to New
Common Stock. The issuance of one or more series of the Preferred Stock
could, under certain circumstances, adversely affect the voting power of
the holders of New Common Stock and could have the effect of discouraging
or making more difficult any attempt by a person or group to effect a
change in control of Reorganized Edison.
(d) Delaware Business Combination Statute. Edison is, and
Reorganized Edison will be, a Delaware corporation, and subject to
Section 203 ("Section 203") of the Delaware General Corporation Law (the
"DGCL"). In general, Section 203 will prevent an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's
outstanding voting stock) of Reorganized Edison from engaging in a
"business combination" (as therein defined) with Reorganized Edison for
three years following the date such person becomes an interested
stockholder, unless (i) before such person became an interested
stockholder, the Board of Directors of Reorganized Edison approved the
business combination in question or the transaction that resulted in such
person becoming an interested stockholder, (ii) upon consummation of the
transaction that resulted in such person becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of Reorganized Edison outstanding at the time such transaction
commenced (excluding stock held by directors who are also officers of
Reorganized Edison and by employee stock plans that do not provide
employees with rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer), or
(iii) at the time of or following the transaction in which such person
became an interested stockholder, the business combination is approved by
the Board of Directors of Reorganized Edison and authorized at a meeting
of stockholders by the affirmative vote of the holders of not less than
66-2/3% of the outstanding voting stock of Reorganized Edison, excluding
stock owned by the interested stockholder. Under Section 203, the
restrictions described above do not apply to certain business
combinations proposed by an interested stockholder following the
announcement (or notification) of one of certain extraordinary
transactions involving Reorganized Edison and a person who has not been
an interested stockholder during the preceding three years or who becomes
an interested stockholder with the approval of Reorganized Edison's
directors, and which transactions are approved or not opposed by a
majority of the members of the Board of Directors then in office who were
directors prior to any person becoming an interested stockholder during
the previous three years or were recommended for election or elected to
succeed such directors by a majority of such directors.
3.AMENDMENTS OR MODIFICATIONS OF THE PLAN
Alterations, amendments or modifications of the Plan may be
proposed in writing by the Debtors at any time prior to the Confirmation Date,
provided that the Plan, as altered, amended or modified, satisfies the
conditions of sections 1122 and 1123 of the Bankruptcy Code, and the Debtors
shall have complied with section 1125 of the Bankruptcy Code; provided, however,
that, prior to the date of the commencement of solicitation of votes to accept
or reject the Plan, no alteration, amendment or modification of the Plan that
would materially and adversely change the treatment of General Unsecured Claims
may be made without prior approval of the Creditors' Committee, which approval
shall not be unreasonably withheld. The Plan may be altered, amended or modified
at any time after the Confirmation Date and before substantial consummation,
provided that the Plan, as altered, amended or modified, satisfies the
requirements of sections 1122 and 1123 of the Bankruptcy Code and the Bankruptcy
Court, after notice and a hearing, confirms the Plan, as altered, amended or
modified, under section 1129 of the Bankruptcy Code and the circumstances
warrant such alterations, amendments or modifications. A holder of a Claim or
Equity Interest that has accepted the Plan shall be deemed to have accepted the
Plan, as altered, amended or modified, if the proposed alteration, amendment or
modification does not materially and adversely change the treatment of the Claim
or Equity Interest of such holder.
4.INDEMNIFICATION
Pursuant to the Plan, the obligations of the Debtors to
defend, indemnify, reimburse or limit the liability of their present and any
former directors, officers or employees who were directors, officers or
employees, respectively, on or after the Commencement Date against any claims or
obligations pursuant to the Debtors' certificates of incorporation or bylaws,
applicable state law or specific agreement, or any combination of the foregoing,
shall survive confirmation of the Plan, remain unaffected thereby, and not be
discharged irrespective of whether indemnification, defense, reimbursement or
limitation is owed
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in connection with an event occurring before, on or after the Commencement Date.
The Debtors are not aware of any material indemnification claims.
5.RELEASES
Pursuant to the Plan, the Debtors release and are permanently
enjoined from any prosecution or attempted prosecution of any and all Causes of
Action which they have, may have or claim to have against any present or former
director, officer or employee of the Debtors. The preceding sentence shall not,
however, operate as a waiver of or release from (i) any Causes of Action arising
out of any express contractual obligation owing by any such director, officer or
employee to the Debtors or any reimbursement obligation of any such director,
officer or employee with respect to a loan or advance made by the Debtors to
such director, officer or employee and (ii) any Avoidance Claims that any such
director, officer or employee may be subject to in their capacities other than
as present or former director, officer or employee.
6.CANCELLATION AND SURRENDER OF EXISTING SECURITIES AND AGREEMENTS
Pursuant to the Plan, on the Effective Date, the promissory
notes, share certificates and other instruments evidencing any Claim or Edison
Equity Interest shall be deemed cancelled without further act or action under
any applicable agreement, law, regulation, order or rule and the obligations of
the Debtors under the agreements, indentures and certificates of designations
governing such Claims and Edison Equity Interests, as the case may be, shall be
discharged.
Each holder of a promissory note, share certificate, bond or
other instrument evidencing a Claim or Edison Equity Interest shall surrender
such promissory note, share certificate, bond or instrument to the Reorganized
Debtors, unless such requirement is waived by the Reorganized Debtors. No
distribution of property under the Plan shall be made to or on behalf of any
such holders unless and until such promissory note, share certificate, bond or
instrument is received by the Reorganized Debtors or the unavailability of such
promissory note, share certificate, bond or instrument is established to the
reasonable satisfaction of the Reorganized Debtors or such requirement is waived
by the Reorganized Debtors. The Reorganized Debtors may require any holder that
is unable to surrender or cause to be surrendered any such promissory notes,
share certificates, bonds or instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to the Reorganized
Debtors. Any holder that fails within the later of one year after the
Confirmation Date and the date of Allowance of its Claim or Edison Equity
Interest (i) if possible, to surrender or cause to be surrendered such
promissory note, share certificate, bond or instrument, (ii) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to the Reorganized Debtors and (iii) if requested, to furnish a bond reasonably
satisfactory to the Reorganized Debtors, shall be deemed to have forfeited all
rights, claims and Causes of Action against the Debtors and Reorganized Debtors
and shall not participate in any distribution hereunder.
Section 1143 of the Bankruptcy Code provides, as follows:
If a plan requires presentment or surrender of a security or
the performance of any other act as a condition to
participation in distribution under the plan, such action
shall be taken no later than five years after the date of the
entry of the order of confirmation. Any entity that has not
within such time presented or surrendered such entity's
security or taken any such other action that the plan requires
may not participate in distribution under the plan.
Pursuant to section 1143, a plan of reorganization may provide for a deadline
for the reversion of assets to the reorganized debtor that is not later than
five years after confirmation. Section 1143, however, does not prohibit a
shorter reversion deadline. Accordingly, the one-year deadline provided for in
the Plan -- the later of one year after the Confirmation Date and the date of
Allowance -- satisfies the requirements of section 1143 of the Bankruptcy Code.
7.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 prior
to the Confirmation Date, then the Plan shall be deemed null and void. In such
event, nothing contained in the Plan shall constitute or be deemed a waiver or
release of any claims by or against the Debtors or any other person or prejudice
in any manner the rights of the Debtors or any person in any further proceedings
involving the Debtors.
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8.PRESERVATION OF CAUSES OF ACTION
Except with respect to the Unresolved Avoidance Claims
transferred by the Debtors to the EBS Litigation, L.L.C. pursuant to Section 5.1
of the Plan, as of the Effective Date, pursuant to section 1123(b)(3)(B) of the
Bankruptcy Code, any and all Causes of Action accruing to the Debtors and
Debtors in Possession, including, without limitation, actions under sections
545, 549, 550 and 551 of the Bankruptcy Code, but excluding avoidance or
recovery actions under sections 544, 547, 548 and 553 of the Bankruptcy Code,
shall become assets of the Reorganized Debtors, and the Reorganized Debtors
shall have the authority to prosecute such Causes of Action for the benefit of
the estates of the Debtors. The Reorganized Debtors shall have the authority to
compromise and settle, otherwise resolve, discontinue, abandon or dismiss all
such Causes of Action without approval of the Bankruptcy Court. The Debtors
presently are unaware of any material Causes of Action preserved under the Plan
that will be pursued by the Debtors or Reorganized Debtors prior to or
subsequent to the Effective Date.
9.INJUNCTION REGARDING WORTHLESS STOCK DEDUCTION
At the Confirmation Hearing, Edison may request that the
Bankruptcy Court include in the Confirmation Order a provision enjoining any
"50-percent shareholder" of Edison within the meaning of section 382(g)(4)(D) of
the Tax Code, from claiming a worthless stock deduction with respect to its
Edison Equity Interest for any taxable year of such shareholder ending prior to
the Effective Date. Section 382(g)(4)(D) of the Tax Code provides that if any
stock held by a 50-percent shareholder is treated by such shareholder as
becoming worthless during the taxable year of such shareholder and such stock is
held by such shareholder as of the close of such taxable year, such shareholder
will be treated as acquiring such shares on the first day of his or her next
taxable year and will not be treated as having owned such shares during the year
in which they became worthless. The effect of this rule is that such a
50-percent shareholder would cause an ownership change of the corporation that
might destroy its net operating loss carryovers and certain other tax attributes
in whole or in part. The rule does not preclude a 50- percent shareholder whose
equity interest is cancelled pursuant to a plan of reorganization from claiming
a loss, but would apply to a loss claimed in respect of a prior taxable year.
The Debtors are not aware of the existence of any 50-percent shareholder of
Edison to whom this injunction would apply.
10. TERMINATION OF COMMITTEES
Pursuant to the Plan, the appointments of the Creditors'
Committee and the Equity Committee shall terminate on the later of the Effective
Date and the date of the hearing to consider applications for final allowances
of compensation and reimbursement of expenses.
11. CLAIMS RESOLUTION COMMITTEE
Pursuant to the Plan, the Creditors' Committee shall, prior to
the Effective Date, establish the Claims Resolution Committee. The functions of
the Claims Resolution Committee will be (i) to monitor the Reorganized Debtors'
progress in (a) reconciling and resolving Disputed Claims and (b) making
distributions on account of such Claims once such Claims become Allowed Claims,
(ii) to compel the Debtors to compromise, settle or resolve Disputed Claims and
(iii) to review and assert objections to the reasonableness of compromises,
settlements or other resolutions of Disputed Claims, as provided in Section
6.5(b) of the Plan. The Claims Resolution Committee will consist of three
holders of Claims, each of whom previously has served as a member of the
Creditors' Committee.
The Claims Resolution Committee will adopt bylaws that will
control its functions. These bylaws, unless modified by the Claims Resolution
Committee, will provide the following: (i) a majority of the Claims Resolution
Committee will constitute a quorum; (ii) one member of the Claims Resolution
Committee will be designated by the majority of its members as its chairperson;
(iii) meetings of the Claims Resolution Committee will be called by its
chairperson on such notice and in such manner as its chairperson may deem
advisable; and (iv) the Claims Resolution Committee will function by decisions
made by a majority of its members in attendance at any meeting.
The Claims Resolution Committee will be authorized to retain
one law firm. The role of the Claims Resolution Committee's attorneys will be
strictly limited to assisting the Claims Resolution Committee in its functions
as set forth herein. The Reorganized Debtors will pay the actual, necessary,
reasonable and documented fees and expenses of the attorneys retained by the
Claims Resolution Committee, as well as the actual, necessary, reasonable and
documented expenses incurred by each member of the Claims Resolution Committee
in the performance of its duties, in accordance with the Reorganized Debtors'
normal business practice for compensating and reimbursing professionals. Other
than as specified in the
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preceding sentence, the members of the Claims Resolution Committee will serve
without compensation. If there is any unresolved dispute between the Reorganized
Debtors and the Claims Resolution Committee, its attorneys or its members as to
any fees or expenses, such dispute will be submitted to the Bankruptcy Court for
resolution.
Subject to further order of the Bankruptcy Court, the Claims
Resolution Committee will dissolve upon the earlier to occur of (i) the date
that an officer of Reorganized Edison files with the Bankruptcy Court and serves
upon counsel to the Claims Resolution Committee by overnight delivery service or
facsimile transmission a certification that the aggregate Disputed Claim Amount
for all remaining Disputed Claims is equal to or less than $5,000,000 (the
"Certification") and (ii) the third anniversary of the Effective Date. The
Claims Resolution Committee may file with the Bankruptcy Court and serve upon
the Reorganized Debtors an objection to such Certification within 10 days of the
receipt thereof, in which event the aggregate Disputed Claim Amount for all
remaining Disputed Claims will be determined by the Bankruptcy Court. If the
Bankruptcy Court determines that the aggregate Disputed Claim Amount for all
remaining Disputed Claims is greater than $5,000,000, the Claims Resolution
Committee will continue in existence, subject to the conditions set forth in the
first sentence of this paragraph. If the Bankruptcy Court determines that the
aggregate Disputed Claim Amount for all remaining Disputed Claims is equal to or
less than $5,000,000, the Claims Resolution Committee will dissolve effective as
of the date that the Certification is served and filed. The attorneys retained
by, and members of, the Claims Resolution Committee, will not be entitled to
compensation or reimbursement of expenses for services rendered after the date
of dissolution of the Claims Resolution Committee.
12. EXCULPATION
Pursuant to the Plan, neither the Debtors, the Reorganized
Debtors, the Creditors' Committee or the Equity Committee or any of their
respective members, officers, directors, employees, advisors or agents shall
have or incur any liability to any holder of a Claim or Equity Interest for any
act or omission in connection with, related to, or arising out of, the Chapter
11 Cases, the pursuit of confirmation of the Plan, the consummation of the Plan
or the administration of the Plan or the property to be distributed under the
Plan, except for willful misconduct or gross negligence, and, in all respects,
the Debtors, the Reorganized Debtors, the Creditors' Committee, the Equity
Committee and each of their respective members, officers, directors, employees,
advisors and agents shall be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities under the Plan. Nothing contained
in the Plan, however, shall exculpate, satisfy, discharge or release any
Avoidance Claims against present or former officers, directors or employees of
the Debtors in their capacities other than as present or former officers,
directors or employees.
13. EFFECTUATING DOCUMENTS, FURTHER TRANSACTIONS AND CORPORATE ACTION
Pursuant to the Plan, each of the Debtors or Reorganized
Debtors is authorized to execute, deliver, file or record such contracts,
instruments, releases, indentures and other agreements or documents and take
such actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan and any notes or securities issued
pursuant to the Plan. In addition, on the Effective Date, all matters provided
for under the Plan that would otherwise require approval of the stockholders,
directors or members of one or more of the Debtors or Reorganized Debtors or
their successors in interest under the Plan, including, without limitation, the
authorization to issue or cause the issuance of preferred stock, the issuance of
New Common Stock, Rights, Restricted Stock, New Notes, Series 1997 Bonds,
Warrants, Management Options, Director Options, Class A Membership Units and
Class B Membership Units, the effectiveness of the Amended Edison Certificate of
Incorporation, the Amended Edison Bylaws and the amended and restated
certificates of incorporation of the Reorganized Subsidiaries, corporate mergers
or dissolutions effectuated pursuant to the Plan, the election or appointment,
as the case may be, of directors and officers of the Debtors pursuant to the
Plan, the authorization and approval of the D&B Spinoff Settlement Offer, the
Employment Contracts, the Stock Option Plan, the Director Stock Option Plan and
the Restricted Stock Agreements and the creation of the EBS Litigation, L.L.C.,
the EBS Pension, L.L.C., the EBS Building, L.L.C., the Funding Escrow and the
Funding Escrow Mortgages shall be deemed to have occurred and shall be in effect
from and after the Effective Date pursuant to the applicable general corporation
law of the states in which the Debtors or Reorganized Debtors are incorporated,
without any requirement of further action by the stockholders or directors of
the Debtors or Reorganized Debtors. On the Effective Date or as soon thereafter
as is practicable, each of the Reorganized Debtors shall, if required, file its
amended certificate of incorporation with the Secretary of State of the state in
which such Reorganized Debtor is incorporated, in accordance with the applicable
general corporation law of such states.
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14. SUPPLEMENTAL DOCUMENTS
Forms of the documents relating to the Amended Edison
Certificate of Incorporation, the Amended Edison Bylaws, the EBS Litigation LLC
Members Agreement, the EBS Pension LLC Members Agreement, the EBS Building LLC
Members Agreement, the Funding Escrow Agreement, the Funding Escrow Mortgages,
the New Notes, the New Notes Indentures, the Series 1997 Bonds, the Rights, the
D&B Spinoff Settlement, the investment guidelines referred to in Sections 6.4(a)
and 6.4(c)(ii) of the Plan, Schedules 7.1(a)(x) and 7.1(a)(y) to the Plan, the
Warrants, the Warrant Agreement, the Corporate Headquarters Building Lease and
the Registration Rights Agreement shall be contained in the Plan Supplement and
filed with the Clerk of the Bankruptcy Court at least 10 days prior to the last
day upon which holders of Claims and Equity Interests may vote to accept or
reject the Plan. Upon its filing with the Bankruptcy Court, the Plan Supplement
may be inspected in the office of the Clerk of the Bankruptcy Court during
normal court hours. Holders of Claims or Equity Interests may obtain a copy of
the Plan Supplement upon written request to Edison in accordance with Section
13.14 of the Plan.
P. THE D&B SPINOFF SETTLEMENT
A general description of the D&B Spinoff Settlement, and of
the procedures for participation in the D&B Spinoff Settlement, is set forth
below. Certain particulars relating to the D&B Spinoff Settlement will be
included in the form of D&B Spinoff Settlement Notice and instructions included
therein, which will be mailed to D&B Spinoff Stockholders on or as promptly as
practicable following the Effective Date. Certain information relating to the
determination of whether a D&B Spinoff Stockholder qualifies as a Released D&B
Spinoff Stockholder will be included in the confirmation statement which will be
mailed as promptly as practicable following the D&B Spinoff Settlement
Expiration Date.
Section 10.2 of the Plan contains the provisions by which the
EBS Litigation, L.L.C. will extend the D&B Spinoff Settlement Offer to all D&B
Spinoff Stockholders. Section 10.2 of the Plan provides that each D&B Spinoff
Stockholder will have the right, at any time during the D&B Spinoff Settlement
Period (from the Effective Date through and including the date that is 30 days
after the Effective Date), to participate in the D&B Spinoff Settlement by
qualifying as a Released D&B Spinoff Stockholder, and thereby will be released
from any and all Avoidance Claims that the Debtors, Reorganized Debtors or EBS
Litigation, L.L.C. ever had, now has or hereafter can, shall or may have against
any Released D&B Spinoff Stockholder, if such D&B Spinoff Settlement Stockholder
satisfies one of three settlement criteria: (i) the exercise of a number of
Rights greater than or equal to the D&B Spinoff Release Minimum Rights (and the
election to participate in the D&B Spinoff Settlement in respect of each Right
exercised) (the "Rights Exercise Release Option"), (ii) payment of an amount
greater than or equal to the D&B Spinoff Release Minimum Purchase Price (the
"Direct Purchase Release Option") or (iii) (a) the exercise of a number of
Rights less than the D&B Spinoff Release Minimum Rights (and the election to
participate in the D&B Spinoff Settlement in respect of each Right exercised)
and (b) payment of an amount equal to the D&B Spinoff Release Shortfall Amount
(the "Combined Rights/Purchase Option" and, collectively with the Rights
Exercise Release Option and the Direct Purchase Release Option, the "Settlement
Options").
1.ILLUSTRATIVE NUMERICAL EXAMPLE
The following is a numerical example illustrating the three
Settlement Options pursuant to which a hypothetical D&B Spinoff Stockholder (the
"Hypothetical D&B Spinoff Stockholder") may qualify as a Released D&B Spinoff
Stockholder. This numerical example is provided for illustrative purposes only
and is not a prediction of any amount which actually will be utilized in making,
or result from making, any such calculation.
For purposes of the following example, it has been assumed
that the Hypothetical D&B Spinoff Stockholder (a) receives 60,000 Rights in the
Rights Offering, (b) if exercising any Rights, would elect to participate in the
D&B Spinoff Settlement in respect of each Right exercised (instead of receiving
Class A Membership Units in EBS Litigation, L.L.C.) and (c) was entitled to
receive 25,000 shares of D&B Common Stock in the D&B Spinoff.
a. Rights Exercise Release Option: Under the Rights Exercise
Release Option, a D&B Spinoff Stockholder is required to
exercise the D&B Spinoff Release Minimum Rights and elect to
participate in the D&B Spinoff Settlement in respect of each
Right exercised. For the Hypothetical D&B Spinoff Stockholder,
the D&B Spinoff Release Minimum Rights is 56,593 Rights,
calculated as follows:
(D&B Spinoff Release Rights Multiplier) x (number of shares of
D&B Common Stock received by Hypothetical D&B Spinoff
Stockholder) = (2.2637) x (25,000) = 56,593
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As long as the Hypothetical D&B Spinoff Stockholder exercises
56,593 of the 60,000 Rights it received under the Plan, such
Hypothetical D&B Spinoff Stockholder will qualify as a
Released D&B Spinoff Stockholder.
b. Direct Purchase Release Option: Under the Direct Purchase
Release Option, a D&B Spinoff Stockholder is required to pay
the D&B Spinoff Release Minimum Purchase Price. Assuming that
the Hypothetical D&B Spinoff Stockholder (i) does not receive
any Rights under the Plan or (ii) elects not to exercise any
Rights received under the Plan, the Hypothetical D&B Spinoff
Stockholder could qualify as a Released D&B Spinoff
Stockholder by paying the D&B Spinoff Release Minimum Purchase
Price, which for the Hypothetical D&B Spinoff Stockholder
would be $141,482.00, calculated as follows:
(5.6593) x (number of shares of D&B Common Stock received by
Hypothetical D&B Spinoff Stockholder) = (5.6593) x (25,000) =
$141,482.00
c. Combined Rights/Purchase Option: Assuming that the
Hypothetical D&B Spinoff Stockholder elected to exercise
50,000 Rights, the Hypothetical D&B Spinoff Stockholder could
qualify as a Released D&B Spinoff Stockholder by (i) validly
exercising 50,000 Rights (and electing to participate in the
D&B Spinoff Settlement in respect of each Right exercised) and
(ii) paying the D&B Spinoff Release Shortfall Amount, which
for such Hypothetical D&B Spinoff Stockholder would be
$16,482.65, calculated as follows:
D&B Spinoff Release Shortfall Amount = (5.6593) x ((D&B
Spinoff Release Minimum Rights - Number of Rights Exercised) /
(D&B Spinoff Release Rights Multiplier))
where:
"Number of Rights Exercised" means the number of Rights
exercised by the Hypothetical D&B Stockholder in accordance
with Section 10.1 of the Plan.
D&B Spinoff Release Shortfall Amount = (5.6593) x ((56,593 -
50,000) / (2.2637)) = $16,482.65
NO PARTIAL RELEASES OF AVOIDANCE CLAIMS WILL BE GRANTED IN
CONNECTION WITH THE D&B SPINOFF SETTLEMENT OFFER. Accordingly, the Plan provides
that any and all Avoidance Claims against any and all D&B Spinoff Stockholders
who do not constitute Released D&B Spinoff Stockholders are expressly reserved
by the Debtors and EBS Litigation, L.L.C. The Plan further provides that nothing
contained therein shall constitute a release, waiver or discharge of any
Avoidance Claims against any person other than a Released D&B Spinoff
Stockholder, and that Avoidance Claims against such other persons are expressly
reserved and must be transferred to the EBS Litigation, L.L.C. in accordance
with section 1123(b)(3)(B) of the Bankruptcy Code, the EBS Litigation LLC
Members Agreement and Section 5.1 of the Plan.
2.PROCEDURE FOR PARTICIPATING IN THE D&B SPINOFF SETTLEMENT
On the date upon which the D&B Spinoff Settlement Period
commences (the Effective Date), the Disbursing Agent, on behalf of the EBS
Litigation, L.L.C., will mail to each D&B Spinoff Stockholder a D&B Spinoff
Settlement Notice. In order to participate in the D&B Spinoff Settlement, the
D&B Spinoff Stockholder seeking to become a Released D&B Spinoff Stockholder
must deliver to the Disbursing Agent prior to the D&B Spinoff Settlement
Expiration Date a properly completed and duly executed D&B Spinoff Settlement
Notice, which (i) if the D&B Spinoff Stockholder has exercised Rights in
accordance with Section 10.1 of the Plan (and elected to participate in the D&B
Spinoff Settlement in respect of each Right exercised), indicates the number of
Rights so exercised, and if such number is less than the D&B Spinoff Release
Minimum Rights, is accompanied by a certified check or bank draft drawn on a
United States bank or a wire transfer, in an amount equal to the D&B Spinoff
Release Shortfall Amount or (ii) if the D&B Spinoff Stockholder has not
exercised any Rights, is accompanied by a certified check or bank draft drawn
upon a United States bank or a wire transfer, in an amount equal to the D&B
Spinoff Release Minimum Purchase Price. The foregoing items will not be deemed
to have been timely delivered to the Disbursing Agent (and thus the attempted
participation in the D&B Spinoff Settlement will not be valid or effective)
unless they are completed and executed in conformity with the instructions
contained in the D&B Spinoff Settlement Notice and are actually received by the
Disbursing Agent, at the address specified therefor in the D&B Spinoff
Settlement Notice, on or prior to the D&B Spinoff Settlement Expiration Date (30
days after the Effective Date).
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All determinations as to proper completion, due execution,
timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted participation in the D&B Spinoff Settlement will
be made by the Disbursing Agent, on behalf of the EBS Litigation, L.L.C., whose
determination will be final and binding. Deliveries required to be received by
the Disbursing Agent in connection with an attempted participation in the D&B
Spinoff Settlement will not be deemed to have been so received or accepted until
actual receipt thereof by the Disbursing Agent has occurred and any defects or
irregularities have been waived or cured within such time as the Disbursing
Agent may determine in its sole discretion. Neither the Debtors, the Reorganized
Debtors, the EBS Litigation, L.L.C. or the Disbursing Agent will have any
obligation to give notice to any D&B Spinoff Stockholder of any defect or
irregularity in connection with any attempted participation in the D&B Spinoff
Settlement or incur any liability as a result of any failure to give any such
notice.
On or as promptly as practicable following the Initial
Distribution Date, the Disbursing Agent, on behalf of the EBS Litigation,
L.L.C., will mail (or cause to be mailed) to each D&B Spinoff Stockholder who
sought to participate in the D&B Spinoff Settlement a written statement
specifying whether such D&B Spinoff Stockholder constitutes a Released D&B
Spinoff Stockholder.
As promptly as is practicable following the D&B Spinoff
Settlement Expiration Date, the Disbursing Agent, on behalf of the EBS
Litigation, L.L.C., shall transfer the D&B Spinoff Settlement Proceeds, if any,
to the EBS Litigation, L.L.C.
THIS SUMMARY OF THE D&B SPINOFF SETTLEMENT OFFER DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PLAN, INCLUDING THE DEFINITIONS OF TERMS CONTAINED THEREIN.
VI. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken
to confirm the Plan:
A. SOLICITATION OF VOTES.
In accordance with sections 1126 and 1129 of the Bankruptcy
Code, the Claims and Equity Interests in Classes 2, 3, 4, 6, 7 and 8 of the Plan
are impaired and the holders of Allowed Claims and Allowed Equity Interests in
each of such Classes are entitled to vote to accept or reject the Plan. Claims
in Classes 1 and 5 are unimpaired. The holders of Allowed Claims in each of such
Classes are conclusively presumed to have accepted the Plan and the solicitation
of acceptances with respect to such Classes is not required under section
1126(f) of the Bankruptcy Code.
As to classes of claims entitled to vote on a plan, the
Bankruptcy Code defines acceptance of a plan by a class of creditors as
acceptance by holders of at least two-thirds in dollar amount and more than
one-half in number of the claims of that class that have timely voted to accept
or reject a plan.
As to classes of interests entitled to vote on a plan,
acceptance is defined as acceptance by holders of at least two-thirds of the
number of shares in such class that have timely voted to accept or reject a
plan.
A vote may be disregarded if the Bankruptcy Court determines,
after notice and a hearing, that acceptance or rejection was not solicited or
procured in good faith or in accordance with the provisions of the Bankruptcy
Code.
Any creditor in an impaired Class (i) whose Claim has been
listed by the Debtors in the Debtors' Schedules filed with the Bankruptcy Court
(provided that such Claim has not been scheduled as disputed, contingent or
unliquidated) or (ii) who filed a proof of claim on or before August 1, 1996
(or, if not filed by such date, any proof of claim filed within any other
applicable period of limitations or with leave of the Bankruptcy Court), which
Claim is not the subject of an objection or request for estimation, is entitled
to vote. Pursuant to the Disclosure Statement Orders, holders of Allowed Edison
Equity Interests as of May 13, 1997, are entitled to vote their Edison Equity
Interests.
WITH RESPECT TO HOLDERS OF GENERAL UNSECURED CLAIMS, A VOTE IN
FAVOR OF THE PLAN ALSO WILL CONSTITUTE A VOTE IN FAVOR OF THE ADOPTION OF THE
STOCK OPTION PLAN AND THE DIRECTOR STOCK OPTION PLAN AND THE ISSUANCE BY
REORGANIZED EDISON OF THE RESTRICTED STOCK (PURSUANT TO THE RESTRICTED STOCK
AGREEMENTS), THE MANAGEMENT OPTIONS AND THE DIRECTOR OPTIONS; PROVIDED, HOWEVER,
THAT IF MORE THAN 50% OF THE RIGHTS ARE EXERCISED, THEN WITH RESPECT TO HOLDERS
OF EDISON EQUITY INTERESTS, A VOTE IN FAVOR OF THE PLAN ALSO WILL CONSTITUTE A
VOTE IN FAVOR OF THE ADOPTION OF THE STOCK
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OPTION PLAN AND THE DIRECTOR STOCK OPTION PLAN AND THE ISSUANCE BY REORGANIZED
EDISON OF THE RESTRICTED STOCK (PURSUANT TO THE RESTRICTED STOCK AGREEMENTS),
THE MANAGEMENT OPTIONS AND THE DIRECTOR OPTIONS. SEE SECTION VII.C., "MANAGEMENT
OF THE REORGANIZED DEBTORS -- STOCK OPTION PLAN, DIRECTOR STOCK OPTION PLAN AND
RESTRICTED STOCK AGREEMENTS."
B. THE CONFIRMATION HEARING.
The Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a confirmation hearing. The Confirmation Hearing in respect of
the Plan has been scheduled for August 14, 1997 at 10:00 a.m., Eastern Time,
before the Honorable Peter J. Walsh, United States Bankruptcy Judge at the
United States Bankruptcy Court, 84 Market Street, 5th Floor, Wilmington,
Delaware 19801. The Confirmation Hearing may be adjourned from time to time by
the Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing. Any objection to confirmation
must be made in writing and specify in detail the name and address of the
objector, all grounds for the objection and the amount of the Claim or number of
shares of common stock of Edison held by the objector. Any such objection must
be filed with the Bankruptcy Court and served so that it is received by the
Bankruptcy Court and the following parties on or before July 28, 1997 at 4:00
p.m., Eastern Time:
<TABLE>
<S> <C>
Edison Brothers Stores, Inc.
501 North Broadway
St. Louis, Missouri 63102
Attn: Alan A. Sachs, Esq.
Weil, Gotshal & Manges LLP Young, Conaway, Stargatt & Taylor
Attorneys for the Debtors Attorneys for the Debtors
767 Fifth Avenue 1110 North Market Street
New York, New York 10153 Rodney Square North, 11th Floor
Attn: Richard P. Krasnow, Esq. Wilmington, Delaware 19801
Attn: Laura Davis Jones, Esq.
Jones, Day, Reavis & Pogue Richards, Layton & Finger
Attorneys for the Creditors' Committee Attorneys for the Creditors' Committee
77 West Wacker One Rodney Square
Chicago, Illinois 60601-1692 Wilmington, Delaware 19801
Attn: David Kurtz, Esq. Attn: Thomas L. Ambro, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison Duane Morris & Heckscher
Attorneys for the Equity Committee Attorneys for the Equity Committee
1285 Avenue of the Americas 1201 Market Street
New York, New York 10019 Wilmington, Delaware 19801
Attn: Alan W. Kornberg, Esq. Attn: Teresa K.D. Currier, Esq.
Office of the United States Trustee
601 Walnut Street
Curtis Center, Suite 950 West
Philadelphia, Pennsylvania 19106
Attn: Maria D. Giannirakis, Esq.
</TABLE>
Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014.
C. CONFIRMATION.
At the Confirmation Hearing, the Bankruptcy Court will confirm
the Plan only if all of the requirements of section 1129 of the Bankruptcy Code
are met. Among the requirements for confirmation of a plan are that the plan is
(i) accepted by all impaired classes of claims and equity interests or, if
rejected by an impaired class, that the plan "does not discriminate unfairly"
and is "fair and equitable" as to such class, (ii) feasible and (iii) in the
"best interests" of creditors and stockholders that are impaired under the plan.
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<PAGE>
1.ACCEPTANCE
Classes 2, 3, 4, 6, 7 and 8 of the Plan are impaired under the
Plan and are entitled to vote to accept or reject the Plan. Classes 1 and 5 of
the Plan are unimpaired and, therefore, are conclusively presumed to have voted
to accept the Plan. The Debtors reserve the right to amend the Plan in
accordance with Section 13.10 of the Plan or seek nonconsensual confirmation of
the Plan under section 1129(b) of the Bankruptcy Code or both with respect to
any Class of Claims or Equity Interests that is entitled to vote to accept or
reject the Plan, if such Class rejects the Plan. In that regard, the Debtors
have agreed that if Class 8 of the Plan -- Edison Equity Interests -- rejects
the Plan, the Debtors will seek confirmation of the Plan under section 1129(b)
of the Bankruptcy Code, barring any material change in the facts and
circumstances existing as of February 27, 1997, the date on which the initial
version of the Plan was filed with the Bankruptcy Court. If the facts and
circumstances do materially change subsequent to February 27, 1997, the Edison
Board of Directors, in the exercise of its fiduciary responsibilities under
applicable law, shall be free to take such actions as are then appropriate.
2.UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS
To obtain nonconsensual confirmation of the Plan, it must be
demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
nonaccepting Class. The Bankruptcy Code provides a non-exclusive definition of
the phrase "fair and equitable." The Bankruptcy Code establishes "cram down"
tests for secured creditors, unsecured creditors and equity holders, as follows:
(a) Secured Creditors. Either (i) each impaired secured
creditor retains its liens securing its secured claim and receives on
account of its secured claim deferred cash payments having a present
value equal to the amount of its allowed secured claim, (ii) each
impaired secured creditor realizes the "indubitable equivalent" of its
allowed secured claim or (iii) the property securing the claim is sold
free and clear of liens with such liens to attach to the proceeds of
the sale and the treatment of such liens on proceeds to be as provided
in clause (i) or (ii) of this subparagraph.
(b) Unsecured Creditors. Either (i) each impaired unsecured
creditor receives or retains under the plan property of a value equal
to the amount of its allowed claim or (ii) the holders of claims and
interests that are junior to the claims of the dissenting class will
not receive any property under the plan.
(c) Equity Interests. Either (i) each holder of an equity
interest will receive or retain under the plan property of a value
equal to the greatest of the fixed liquidation preference to which such
holder is entitled, the fixed redemption price to which such holder is
entitled or the value of the interest or (ii) the holder of an interest
that is junior to the nonaccepting class will not receive or retain any
property under the plan.
3.FEASIBILITY
The Bankruptcy Code permits a plan to be confirmed if it is
not likely to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Plan meets this
requirement, the Debtors have analyzed their ability to meet their obligations
under the Plan. As part of this analysis, the Debtors have prepared projections
of their financial performance for each of the three fiscal years in the period
ending January 29, 2000 (the "Projection Period"). These projections, and the
assumptions on which they are based, are included in the Edison Brothers Stores,
Inc. et al. Projected Financial Information, annexed hereto as Exhibit D. Based
upon such projections, the Debtors believe that they will be able to make all
payments required pursuant to the Plan and, therefore, that confirmation of the
Plan is not likely to be followed by liquidation or the need for further
reorganization. The Debtors further believe that they will be able to repay or
refinance all of the then-outstanding indebtedness under the Plan at or prior to
the maturity of such indebtedness.
The financial information and projections appended to the
Disclosure Statement include for the three fiscal years in the Projection
Period:
o Pro Forma Consolidated Balance Sheet of the Reorganized
Debtors as of July 5, 1997;
o Projected Consolidated Balance Sheet of the Reorganized
Debtors as of January 31, 1998, January 30, 1990 and January
29, 2000;
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<PAGE>
o Projected Consolidated Statements of Operation of the
Reorganized Debtors for the 22-week period ending July 5,
1997, including confirmation adjustments, the 30-week period
ending January 31, 1998 and for each of the two fiscal years
in the period ending January 29, 2000;
o Projected Consolidated Statements of Cash Flow of the
Reorganized Debtors for the 22-week period ending July 5,
1997, including confirmation adjustments, the 30-week period
ending January 31, 1998 and for each of the two fiscal years
in the period ending January 29, 2000; and
o Projected Capitalization Table of the Reorganized Debtors as
of January 31, 1998, January 30, 1999 and January 29, 2000.
The pro forma financial information and the projections are
based on the assumption that the Plan will be confirmed by the Bankruptcy Court
and, for projection purposes, that the Effective Date under the Plan will occur
on July 5, 1997. Although the projections and information are based upon a July
5, 1997 Effective Date, the Debtors believe that an actual Effective Date in the
third or fourth quarter of fiscal 1997, as is likely to be the case, would not
have any material effect on the projections.
The Debtors have prepared these financial projections based
upon certain assumptions that they believe to be reasonable under the
circumstances. Those assumptions considered to be significant are described in
the financial projections, which are annexed hereto as Exhibit D. The financial
projections have not been examined or compiled by independent accountants. The
Debtors make no representation as to the accuracy of the projections or their
ability to achieve the projected results. Many of the assumptions on which the
projections are based are subject to significant uncertainties. Inevitably, some
assumptions will not materialize and unanticipated events and circumstances may
affect the actual financial results. Therefore, the actual results achieved
throughout the Projection Period may vary from the projected results and the
variations may be material. All holders of Claims and Equity Interests that are
entitled to vote to accept or reject the Plan are urged to examine carefully all
of the assumptions on which the financial projections are based in evaluating
the Plan.
4.BEST INTERESTS TEST
With respect to each impaired Class of Claims and Equity
Interests, confirmation of the Plan requires that each holder of a Claim or
Equity Interest either (i) accept the Plan or (ii) receive or retain under the
Plan property of a value, as of the Effective Date, that is not less than the
value such holder would receive or retain if the Debtors were liquidated under
chapter 7 of the Bankruptcy Code. To determine what holders of Claims and Equity
Interests of each impaired Class would receive if the Debtors were liquidated
under chapter 7, the Bankruptcy Court must determine the dollar amount that
would be generated from the liquidation of the Debtors' assets and properties in
the context of a chapter 7 liquidation case. The Cash amount that would be
available for satisfaction of Unsecured Claims and Equity Interests would
consist of the proceeds resulting from the disposition of the unencumbered
assets and properties of the Debtors, augmented by the unencumbered Cash held by
the Debtors at the time of the commencement of the liquidation case. Such Cash
amount would be reduced by the amount of the costs and expenses of the
liquidation and by such additional administrative and priority claims that might
result from the termination of the Debtors' business and the use of chapter 7
for the purposes of liquidation.
The Debtors' costs of liquidation under chapter 7 would
include the fees payable to a trustee in bankruptcy, as well as those fees that
might be payable to attorneys and other professionals that such a trustee might
engage. In addition, claims would arise by reason of the breach or rejection of
obligations incurred and leases and executory contracts assumed or entered into
by the Debtors during the pendency of the Chapter 11 Cases. The foregoing types
of claims and other claims that might arise in a liquidation case or result from
the pending Chapter 11 Cases, including any unpaid expenses incurred by the
Debtors during the Chapter 11 Cases such as compensation for attorneys,
financial advisors and accountants, would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
prepetition Unsecured Claims.
To determine if the Plan is in the best interests of each
impaired class, the present value of the distributions from the proceeds of a
liquidation of the Debtors' unencumbered assets and properties, after
subtracting the amounts attributable to the foregoing claims, are then compared
with the value of the property offered to such Classes of Claims and Equity
Interests under the Plan.
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<PAGE>
After considering the effects that a chapter 7 liquidation
would have on the ultimate proceeds available for distribution to creditors in
the Chapter 11 Cases, including (i) the increased costs and expenses of a
liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy
and professional advisors to such trustee, (ii) the erosion in value of assets
in a chapter 7 case in the context of the expeditious liquidation required under
chapter 7 and the "forced sale" atmosphere that would prevail and (iii) the
substantial increases in claims which would be satisfied on a priority basis or
on parity with creditors in the Chapter 11 Cases, the Debtors have determined
that confirmation of the Plan will provide each holder of an Allowed Claim or
Equity Interest with a recovery that is not less than such holder would receive
pursuant to liquidation of the Debtors under chapter 7.
The Debtors also believe that the value of any distributions
to each class of Allowed Claims in a chapter 7 case, including all Secured
Claims, would be less than the value of distributions under the Plan because
such distributions in a chapter 7 case would not occur for a substantial period
of time. It is likely that distribution of the proceeds of the liquidation could
be delayed for two years after the completion of such liquidation in order to
resolve claims and prepare for distributions. In the likely event litigation was
necessary to resolve claims asserted in the chapter 7 case, the delay could be
prolonged.
The Debtors' Liquidation Analysis is attached hereto as
Exhibit E. The information set forth in Exhibit E provides a summary of the
liquidation values of the Debtors' assets, assuming a chapter 7 liquidation in
which a trustee appointed by the Bankruptcy Court would liquidate the assets of
the Debtors' estates. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis. The
Liquidation Analysis was prepared by the Debtors with the assistance of E&Y.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Debtors and their
management. The Liquidation Analysis is also based on assumptions with regard to
liquidation decisions that are subject to change. Accordingly, the values
reflected might not be realized if the Debtors were, in fact, to undergo such a
liquidation. The chapter 7 liquidation period is assumed to be a period of more
than one year, allowing for, among other things, the (i) discontinuation of
operations, (ii) selling of assets and (iii) collection of receivables.
D. CONSUMMATION.
The Plan will be consummated on the Effective Date. The
Effective Date of the Plan will occur on the first Business Day on which the
conditions precedent to the effectiveness of the Plan, as set forth in Section
11.1 of the Plan, have been satisfied or waived pursuant to Section 11.3 of the
Plan. For a more detailed discussion of the conditions precedent to the Plan and
the consequences of the failure to meet such conditions, see Section V.L., "The
Plan of Reorganization -- Conditions Precedent to Effectiveness of the Plan."
The Plan is to be implemented pursuant to its terms,
consistent with the provisions of the Bankruptcy Code.
E. EXIT FINANCING.
As a condition to the effectiveness of the Plan, Edison must
have credit availability under a working capital credit facility, in form and
substance acceptable to the Debtors and reasonably acceptable to the Creditors'
Committee, to provide the Reorganized Debtors with working capital sufficient to
meet their ordinary and peak requirements (the "Exit Financing Facility"). Based
upon discussions with potential lenders, Edison believes that it will be able to
negotiate and effectuate an Exit Financing Facility that will satisfy the
foregoing condition and that such facility will be a five-year secured revolving
credit facility in the principal amount of $200,000,000, with a letter of credit
subfacility providing for the issuance of letters of credit of up to an
aggregate amount at any time outstanding of $150,000,000.
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<PAGE>
VII. MANAGEMENT OF THE REORGANIZED DEBTORS
A. BOARD OF DIRECTORS AND MANAGEMENT.
1.COMPOSITION OF BOARDS OF DIRECTORS
A. REORGANIZED EDISON
The initial Board of Directors of Reorganized Edison will
consist of nine individuals, two of whom will be representatives of Edison's
senior management, one of whom will be a current outside director of Edison, and
six of whom will be selected by the Creditors' Committee, after consultation
with management of Edison. The names of such individuals will be disclosed prior
to the date of the Confirmation Hearing. Each of the members of the initial
Edison Board of Directors shall serve until the first annual meeting of
stockholders of Reorganized Edison and until their successors have been duly
elected and qualified or their earlier resignation or removal in accordance with
the Amended Edison Certificate of Incorporation or Amended Edison Bylaws, as the
same may be amended from time to time.
B. REORGANIZED SUBSIDIARIES
The initial Board of Directors of each of the Reorganized
Subsidiaries will consist of officers or employees of Reorganized Edison whose
names will be disclosed prior to the date of the Confirmation Hearing. Each of
the members of each such initial Board of Directors shall serve until the first
meeting of stockholders of the respective Reorganized Subsidiary or their
earlier resignation or removal in accordance with the certificate of
incorporation or bylaws of such Reorganized Subsidiary.
2.IDENTITY OF OFFICERS
The officers of the Debtors immediately prior to the Effective
Date will continue in their then-current positions as the officers of the
Reorganized Debtors. However, as described in section VII.A.3, "Management of
the Reorganized Debtors -- Board of Directors and Management -- Chief Executive
Officer," Alan D. Miller has determined to resign as Chairman of the Board,
President and Chief Executive Officer of Edison effective as of the commencement
of employment of a successor chief executive officer or such earlier time after
the Confirmation Date as may be mutually agreed upon by Mr. Miller and the
Edison Board of Directors. Set forth below is the name, age and position with
Edison of each executive officer of Edison, together with certain biographical
information:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
David B. Cooper, Jr. 41 Director since 1995; Executive Vice President and
Chief Financial Officer since 1994
Paul D. Eisen 42 President of JW/Jeans West since 1995; President
of Oaktree since 1994; President and General
Merchandise Manager of Jeans West 1989-1994
Michael J. Fine 45 President of Edison Footwear and Womenswear
Group since 1996; President of 5-7-9 Shops since
1994
Eric A. Freesmeier 44 Executive Vice President - Human
Resources since 1992; Vice President - Human
Resources 1986-1992
Karl W. Michner 49 Senior Executive Vice President since 1995;
Director since 1989; President of Edison
Menswear Group since 1987
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<PAGE>
Alan D. Miller 44 Chairman of the Board, President and Chief
Executive Officer since 1995; President of Edison
Footwear Group 1993-1995; Director since 1992;
President of Bakers/Leeds/Precis 1991-1993;
President of 5-7-9 Shops 1987-1991
Alan A. Sachs 50 Executive Vice President and General Counsel
since 1992; Vice President and General Counsel
1990-1992; Director since 1990; Secretary since
1987; Vice President - Law 1985-1990
Steven R. Thomas 42 President of Edison Big & Tall since 1997;
President of Repp Ltd Big & Tall 1996-1997;
General Manager of Zeidler & Zeidler 1995-1996.
</TABLE>
3.CHIEF EXECUTIVE OFFICER
As described above, Alan D. Miller has served since April 1995
as Chairman of the Board, President and Chief Executive Officer of Edison. Mr.
Miller's leadership and guidance prior to and during the administration of the
Chapter 11 Cases has materially contributed to the successful reorganization of
the Debtors. Mr. Miller, however, has determined to resign as Chairman of the
Board, President and Chief Executive Officer of Edison effective as of the
commencement of employment of a successor chief executive officer or such
earlier time after the Confirmation Date as may be mutually agreed upon by Mr.
Miller and the Edison Board of Directors. During the transition period, which is
anticipated to extend through the Effective Date, Mr. Miller will continue to
discharge his current duties and assist the Edison Board of Directors in its
executive search.
In recognition of Mr. Miller's service as Chairman of the
Board, President and Chief Executive Officer of Edison and his leadership and
guidance in the prosecution of the Chapter 11 Cases, Mr. Miller will be provided
with certain additional compensation subject to confirmation of the Plan. As of
the date hereof, the terms of such compensation have not been finalized. It is
anticipated that such terms will be finalized prior to the Confirmation Date and
disclosed to the Bankruptcy Court at the Confirmation Hearing.
B. COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth all cash compensation paid by
Edison to each of the five most highly compensated executive officers of Edison,
for services rendered in their respective capacities for fiscal year 19965:
<TABLE>
<CAPTION>
Name of Individual Capacities in Which Served Compensation
------------------ -------------------------- ------------
Salary Bonus Other
------ ----- -----
<S> <C> <C> <C> <C>
Alan D. Miller Chairman, President and Chief $450,000 $300,000 $600
Executive Officer
Karl W. Michner Senior Executive Vice President and $350,000 $282,333 $600
President of Edison Menswear
Group
</TABLE>
- -----------------------
5 The Bonus amounts in the table are comprised of two elements: (i) "retention"
bonuses paid in September 1996 in accordance with the Amended and Restated
Employment Agreements between Edison and each of the named executive officers;
and (ii) bonuses paid in April 1997 in respect of fiscal 1996 performance
pursuant to Edison's 1996 Executive Performance Incentive Compensation Plan,
which plan provides for annual bonuses contingent upon the attainment of certain
financial goals approved by the Special Compensation Subcommittee of the Edison
Board of Directors. The "Other" amounts in the table were contributed by Edison
to the Edison Brothers Stores Savings Plan for the accounts of the named
individuals during fiscal 1996.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
David B. Cooper, Jr. Executive Vice President and Chief $320,000 $213,333 --
Financial Officer
Alan A. Sachs Executive Vice President, General $285,000 $190,000 $600
Counsel and Secretary
Michael J. Fine President of Edison Footwear and $260,606 $192,993 __
Womenswear Groups
</TABLE>
C. STOCK OPTION PLAN, DIRECTOR STOCK OPTION PLAN AND RESTRICTED STOCK
AGREEMENTS.
1. DESCRIPTION
A. BACKGROUND
The purpose of the Stock Option Plan, the Director Stock
Option Plan and the Restricted Stock Agreements is to secure for Reorganized
Edison and its stockholders the benefits of the incentive inherent in the
ownership of New Common Stock by the key employees and outside directors of
Reorganized Edison who will be largely responsible for the Reorganized Debtors'
future growth and financial success. In connection with and pursuant to the
Plan, the Stock Option Plan and the Director Stock Option Plan will be adopted
and certain of the Management Options will be granted to certain persons under
the Stock Option Plan, effective as of the Effective Date. In connection with
and pursuant to the Plan, the Restricted Stock Agreements will be authorized,
effective as of the Effective Date.
Acceptance of the Plan by the holders of General Unsecured
Claims will constitute approval of the Stock Option Plan, the Director Stock
Option Plan and the Restricted Stock Agreements by such holders; provided,
however, that if more than 50% of the Rights are exercised, then acceptance of
the Plan by the holders of Edison Equity Interests, rather than the holders of
General Unsecured Claims, will constitute approval of the Stock Option Plan, the
Director Stock Option Plan and the Restricted Stock Agreements by such holders.
The following description of the Stock Option Plan, the Director Stock Option
Plan and the Restricted Stock Agreements is qualified in its entirety by
reference to the full text of the Stock Option Plan and the Director Stock
Option Plan and the form of Restricted Stock Agreement, each of which is
contemplated to be in substantially the form annexed to the Disclosure Statement
as Exhibit F.
B. SHARES AVAILABLE
The Stock Option Plan makes available for Management Options
an aggregate of 800,000 shares of New Common Stock, subject to certain
adjustments. No individual may be granted Management Options in respect of more
than 200,000 shares of New Common Stock in any 12-month period. If any
Management Option expires or is terminated or cancelled without having been
exercised in full, the unpurchased shares subject thereto will again be
available under the Stock Option Plan.
The Director Stock Option Plan makes available for Director
Options an aggregate of 200,000 shares of New Common Stock, subject to certain
adjustments. If any Director Option expires or is terminated or cancelled
without having been exercised in full, the unpurchased shares subject thereto
will again be available under the Director Stock Option Plan.
Pursuant to the Restricted Stock Agreements, 225,000 shares of
Restricted Stock will be issued.
C. ADMINISTRATION OF STOCK OPTION PLAN AND DIRECTOR STOCK OPTION
PLAN
Following the Effective Date, the Stock Option Plan will be
administered by the Compensation Committee (the "Committee") of the Board of
Directors of Reorganized Edison (the "Reorganized Edison Board") or such other
committee as the Reorganized Edison Board may designate from time to time. The
Committee will consist of two or more members of the Reorganized Edison Board
each of whom (i) meets the definition of "outside director" as such term is used
in Section 162(m) of the Tax Code and (ii) meets the definition of "non-employee
director" as such term is used in Rule 16b-3(b)(3) under the
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<PAGE>
Exchange Act. Other than with respect to the granting of the Management Options
granted as of the Effective Date, subject to the terms of the Stock Option Plan,
the Committee will have complete authority to (1) interpret the Stock Option
Plan, (2) prescribe, amend and rescind rules and regulations relating to the
Stock Option Plan, (3) determine the individuals to whom, and the time or times
at which, Management Options will be granted, (4) determine the number of shares
to be subject to each Management Option, the price at which such shares may be
purchased, and all other terms and provisions of each option agreement and (5)
make all other such determinations that it considers necessary or desirable for
the administration of the Stock Option Plan.
Following the Effective Date, the Director Stock Option Plan
will be administered by a Committee (the "Director Plan Committee") appointed by
the Reorganized Edison Board that will consist of two or more members of the
Reorganized Edison Board each of whom shall be a "non-employee director" as
defined in Rule 16b-3(b)(3) under the Exchange Act. Other than with respect to
the granting of the Director Options, the number and timing of which are
specified in the Director Stock Option Plan, the Director Plan Committee will
have complete authority to (1) interpret the Director Stock Option Plan, (2)
prescribe, amend and rescind rules and regulations relating to the Director
Stock Option Plan and (3) make all other such determinations that it considers
necessary or desirable for the administration of the Director Stock Option Plan.
D. ELIGIBILITY FOR PARTICIPATION
Key employees of Reorganized Edison are eligible to
participate in the Stock Option Plan. Outside directors of Reorganized Edison
are eligible to participate in the Director Stock Option Plan.
E. STOCK OPTIONS, DIRECTOR OPTIONS AND RESTRICTED STOCK
The Stock Option Plan provides for the grant of Management
Options to purchase shares of New Common Stock. The purchase price of the New
Common Stock under each Management Option will be the fair market value thereof
at the time of grant. The Committee may adopt any criterion for the
determination of such fair market value as it may in good faith determine to be
appropriate.
The Director Stock Option Plan provides for the grant of (a) a
Director Option to purchase 3,500 shares of New Common Stock to each Director
who is a Director as of the close of business on the Effective Date, (b) a
Director Option to purchase 3,500 shares of New Common Stock to each Director
who is first elected or appointed a Director after the Effective Date, as of the
date of such election or appointment, and (c) a Director Option to each Director
described in the foregoing clause (a) or (b) who remains a Director as of the
completion of each Annual Meeting of Stockholders of Reorganized Edison in each
calendar year following the calendar year in which such Director received such
grant of Director Options described in such clause (a) or (b) as of the date of
completion of each Annual Meeting of Stockholders of Reorganized Edison to
purchase that number of shares of New Common Stock (rounded to the nearest whole
number) equal to $20,000 divided by the Fair Market Value (as hereinafter
defined) of a share of New Common Stock as of such date, effective on the day of
completion of such Annual Meeting, in each case subject to the terms of the
Director Stock Option Plan. The purchase price of the New Common Stock under
each Director Option will be the Fair Market Value thereof at the time of grant.
The Fair Market Value is defined in the Director Stock Option Plan to mean, as
of a particular date, the average of the highest and lowest selling prices of a
share of New Common Stock as reported for that date (or, if none is reported,
the most recent date for which such prices are quoted) on the New York Stock
Exchange or, if the New Common Stock is not listed thereon, on such other
national securities exchange on which the New Common Stock is listed or, if not
so listed, as quoted on the Nasdaq National Market or, if not so quoted, as
determined according to such criteria as the Director Plan Committee may in good
faith determine to be appropriate.
The Restricted Stock Agreements provide for the issuance of
Restricted Stock without payment as additional compensation for services to
Edison and Reorganized Edison. The Restricted Stock will have full dividend and
voting rights. The Restricted Stock will vest over a two-year period, 50% each
year. The Restricted Stock Agreements provide for accelerated vesting in certain
circumstances, including death, disability, termination of employment by
Reorganized Edison Without Cause (as defined therein) or by the employee for
Good Reason (as defined therein), and upon a Change of Control (as defined
therein).
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F. OTHER TERMS OF MANAGEMENT OPTIONS, DIRECTOR OPTIONS AND
RESTRICTED STOCK
The Stock Option Plan and the Director Stock Option Plan,
respectively, provide that Management Options and Director Options shall not be
transferable other than by will or the laws of descent and distribution and may
not be sold or otherwise disposed of in the absence of registration under the
Securities Act or an exemption therefrom. Under the Restricted Stock Agreements,
the Restricted Stock may not be sold or otherwise disposed of in the absence of
registration under the Securities Act or an exemption therefrom.
The Stock Option Plan and the Director Stock Option Plan,
respectively, contain provisions governing the exercise and/or termination of
outstanding Management Options and Director Options in the event of termination
of an optionee's employment or service as Director or in the event of his or her
death, disability or retirement.
The Stock Option Plan and the Director Stock Option Plan will
take effect as of the Effective Date and will terminate 10 years thereafter.
Management Options and Director Options outstanding at the termination of the
Stock Option Plan and the Director Stock Option Plan, respectively, will
continue in full force and effect and will not be affected thereby.
The Reorganized Edison Board may at any time terminate the
Stock Option Plan or make such modifications thereof as it shall deem advisable;
provided, however, that the Board may not, without approval by the holders of
New Common Stock, increase the number of shares as to which Management Options
may be granted thereunder (except as described below), change the class of
persons to whom options may be granted, or materially increase the benefits
accruing to participants thereunder. No modification or termination of the Stock
Option Plan may, without the written consent of an employee to whom a Management
Option shall have been granted, adversely affect the rights of such employee
under such Management Option, which rights shall include all rights of the
holder of the Management Option under the Stock Option Plan as it existed as of
the date of the grant of the Management Option.
The Reorganized Edison Board may at any time terminate the
Director Stock Option Plan or make such modifications thereof as it shall deem
advisable; provided, however, that no modification or termination of the
Director Stock Option Plan may, without the written consent of an optionee to
whom any Director Option shall have been granted, adversely affect the rights of
such optionee under such Director Option, which rights shall include all rights
of the holder of the Director Option under the Director Stock Option Plan as it
existed as of the date of the grant of the Director Option.
The Stock Option Plan, the Director Stock Option Plan and the
Restricted Stock Agreements, respectively, contain provisions for equitable
adjustment of Management Options, Director Options and Restricted Stock in the
event of a merger, consolidation, recapitalization, stock dividend, stock split,
spin-off, combination of shares, exchange of shares or other like change in the
New Common Stock.
The Stock Option Plan and the Restricted Stock Agreements
provide that, in the event of a Change in Control (as defined therein), all
Management Options then outstanding will become immediately and fully
exercisable and the Restricted Stock shall immediately vest. Under the Stock
Option Plan and the Restricted Stock Agreements, a "Change in Control" will be
deemed to have occurred upon the occurrence of certain events, including any
"person" or "group" (as such terms are used in the Exchange Act) becoming the
"beneficial owner" (as determined pursuant to the Exchange Act) of securities of
Reorganized Edison having more than 33% of the total voting power of all classes
of capital stock of Reorganized Edison entitled to vote generally in the
election of directors of Reorganized Edison.
The Director Stock Option Plan provides that Director Options
shall vest over a three-year period. Each Director Option shall (i) become
exercisable for one-third of the shares of New Common Stock covered thereby
after one year from the date of grant, (ii) become exercisable for an additional
one-third of the shares of New Common Stock covered thereby after two years from
the date of grant and (iii) become exercisable for the remaining one-third of
the shares of New Common Stock covered thereby after three years from the date
of grant.
Under the Stock Option Plan, the Committee, in its sole
discretion, may grant tax-offset bonus rights ("TOBRs") with respect to
Management Options. Such TOBRs may be granted to an optionee at the time of the
grant of the related Management Option or subsequent thereto. A TOBR will
entitle the optionee to receive from Reorganized Edison upon exercise of the
related Management Option an amount in cash equal to (i) the excess, if any, of
the aggregate market price of the shares acquired by the exercise of the
Management Option on the date of exercise over the aggregate purchase price of
the shares acquired by such exercise multiplied by (ii) a percentage (either
fixed or by formula) determined solely by the
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Committee. The Committee shall determine all other terms and provisions of any
TOBR. No TOBR will be assignable or transferable except to the extent the
Committee permits such TOBR to be assigned by will or through the laws of
descent and distribution.
Reorganized Edison intends to file a Registration Statement on
Form S-8 with the Commission to register under the Securities Act the Restricted
Stock and the shares of New Common Stock issuable upon exercise of the
Management Options and the Director Options.
2. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax
treatment that will generally apply to Management Options awarded under the
Stock Option Plan, Director Options awarded under the Director Stock Option Plan
and Restricted Stock issued under the Restricted Stock Agreements, based on
federal income tax laws in effect on the date hereof. The exact federal income
tax treatment of Management Options, Director Options and Restricted Stock will
depend on the specific nature of any such Management Option, Director Option or
Restricted Stock. BECAUSE THE FOLLOWING PROVIDES ONLY A BRIEF SUMMARY OF THE
GENERAL FEDERAL INCOME TAX RULES, INDIVIDUALS SHOULD NOT RELY THEREON FOR
INDIVIDUAL TAX ADVICE, AS EACH TAXPAYER SITUATION AND THE CONSEQUENCES OF ANY
PARTICULAR TRANSACTION WILL VARY DEPENDING UPON THE SPECIFIC FACTS AND
CIRCUMSTANCES INVOLVED. RATHER, EACH TAXPAYER IS ADVISED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR FOR PARTICULAR FEDERAL, AS WELL AS STATE AND LOCAL, INCOME
AND ANY OTHER TAX ADVICE.
A. MANAGEMENT OPTIONS
All Management Options granted under the Stock Option Plan
will be options that do not qualify as "incentive stock options" within the
meaning of Section 422 of the Tax Code. An employee who receives a Management
Option will not recognize any taxable income upon grant. However, the employee
generally will recognize ordinary income upon exercise of the Management Option
in an amount equal to the excess of the fair market value of the shares of New
Common Stock at the time of exercise over the exercise price.
As a result of Section 16(b) of the Exchange Act, under
certain circumstances, the timing of income recognition may be deferred
(generally for up to six months following the exercise (the "Deferral Period"))
for any individual who is an officer or director of Reorganized Edison or the
beneficial owner of more than 10 percent of any class of equity securities of
Reorganized Edison. Absent a Section 83(b) election (as described below for
Restricted Stock Agreements), recognition of income by the individual will be
deferred until the expiration of the Deferral Period, if any.
The ordinary income recognized with respect to the receipt of
shares or cash upon exercise of a Management Option will be subject to both wage
withholding and other employment taxes. In addition to the customary methods of
satisfying the withholding tax liabilities that arise upon the exercise,
Reorganized Edison may satisfy the liability in whole or in part by withholding
shares of New Common Stock from those that otherwise would be issuable to the
individual or by the employee tendering other shares owned by him or her, valued
at their fair market value as of the date that the tax withholding obligation
arises.
A federal income tax deduction generally will be allowed to
Reorganized Edison in an amount equal to the ordinary income included by the
individual with respect to his or her Management Option, provided that such
amount constitutes an ordinary and necessary business expense to Reorganized
Edison and is reasonable and the limitations of Sections 280G and 162(m) of the
Tax Code do not apply.
If an individual exercises a Management Option by delivering
shares of New Common Stock, the individual will not recognize gain or loss with
respect to the exchange of such shares, even if their then-fair market value is
different from the individual's tax basis. The individual, however, will be
taxed as described above with respect to the exercise of the Management Option
as if he or she had paid the exercise price in cash, and Reorganized Edison
likewise generally will be entitled to an equivalent tax deduction.
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B. DIRECTOR OPTIONS
An outside director who receives a Director Option will not
recognize any taxable income upon such grant. However, the director generally
will recognize ordinary income upon exercise of the Director Option in an amount
equal to the excess of the fair market value of the shares of New Common Stock
at the time of exercise over the exercise price.
As a result of Section 16(b) of the Exchange Act, the timing
of income recognition upon the exercise of a Director Option may be deferred in
the same manner as described above for shares of New Common Stock acquired
pursuant to the exercise of a Management Option.
A federal income tax deduction generally will be allowed to
Reorganized Edison in an amount equal to the ordinary income included by the
individual with respect to his or her Director Option, provided that such amount
constitutes an ordinary and necessary business expense to Reorganized Edison and
is reasonable and the limitations of Section 280G of the Tax Code do not apply.
If an individual exercises a Director Option by delivering
shares of New Common Stock, the individual will not recognize gain or loss with
respect to the exchange of such shares, even if their then-fair market value is
different from the individual's tax basis. The individual, however, will be
taxed as described above with respect to the exercise of the Director Option as
if he or she had paid the exercise price in Cash, and Reorganized Edison
likewise generally will be entitled to an equivalent tax deduction.
C. RESTRICTED STOCK
When shares of New Common Stock received under a Restricted
Stock Agreement are either transferable or no longer subject to a substantial
risk of forfeiture (as defined in the Tax Code and the regulations thereunder),
employees generally will recognize ordinary income equal to the fair market
value of the New Common Stock at the time the forfeiture and transferability
restrictions lapse. For individuals subject to Section 16(b) of the Exchange
Act, the timing of income recognition may be deferred in the same manner as
described above for shares of New Common Stock acquired pursuant to the exercise
of a Management Option.
With respect to shares of New Common Stock that are restricted
as to transferability and subject to a substantial risk of forfeiture -- absent
a written election pursuant to Section 83(b) of the Tax Code filed with the IRS
within 30 days after the date of issuance of such shares pursuant to the award
(a "Section 83(b) election") -- an individual will recognize ordinary income at
the earlier of the time at which (i) the shares become transferable or (ii) the
restrictions that impose a substantial risk of forfeiture of such shares lapse,
in an amount equal to the fair market value (on such date) of such shares. If a
Section 83(b) election is made, the individual will recognize ordinary income,
as of the date of issuance, in an amount equal to the fair market value of the
New Common Stock as of that date, and the individual will not recognize taxable
income again until he or she makes a taxable disposition of the New Common
Stock. Under the terms of the Restricted Stock Agreements, if the employee does
not make a Section 83(b) election, then at the time the shares become
transferable or the restrictions that impose a substantial risk of forfeiture of
such shares lapse (unless such events result from the death, disability or
termination of employment of the employee), Reorganized Edison will pay to the
employee in cash such sum as is necessary (after taking into account all
federal, state and local income taxes payable by the employee as a result of the
receipt of such sum) to place the employee in the same after-tax position as the
employee would have been in if no federal, state or local income taxes were
payable by the employee in respect of his or her receipt of such shares.
The ordinary income recognized with respect to the receipt of
shares of New Common Stock under a Restricted Stock Agreement will be subject to
both wage withholding and other employment taxes.
Reorganized Edison generally will be allowed a deduction for
federal income tax purposes in an amount equal to the ordinary income recognized
by the employee, provided that such amount constitutes an ordinary and necessary
business expense and is reasonable and the limitations of Sections 280G and
162(m) of the Tax Code do not apply.
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D. DIVIDENDS AND DIVIDEND EQUIVALENTS
To the extent shares of New Common Stock received under a
Restricted Stock Agreement or acquired upon the exercise of a Management Option
under the Stock Option Plan or a Director Option under the Director Stock Option
Plan earn dividends or dividend equivalents, an individual generally will
recognize ordinary income with respect to such dividends.
E. CHANGE IN CONTROL
In general, if the total amount of payments to an individual
that are contingent upon a "change of control" of Reorganized Edison (as defined
in Section 280G of the Tax Code), including payments under the Stock Option Plan
and Restricted Stock Agreements that vest upon a "change in control," equals or
exceeds three times the individual's "base amount" (generally, such individual's
average annual compensation for the five calendar years preceding the change in
control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Tax Code, in which case a portion of such
payments would be non-deductible to Reorganized Edison and the individual would
be subject to a 20% excise tax on such portion of the payments.
F. CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
With certain exceptions, Section 162(m) of the Tax Code denies
a deduction to publicly held corporations for compensation paid to certain
executive officers in excess of $1 million per executive per taxable year,
including any deduction with respect to the exercise of a Management Option or a
grant of Restricted Stock. This limitation applies to compensation paid to each
executive officer who, on the last day of the taxable year, is either the chief
executive officer or one of the four most highly compensated officers other than
the chief executive officer.
3. MANAGEMENT OPTIONS AND DIRECTOR OPTIONS TO BE GRANTED AND RESTRICTED
STOCK TO BE ISSUED
In connection with and pursuant to the Plan, as of the
Effective Date Management Options will be granted to approximately 175 key
employees of Reorganized Edison entitling such persons to purchase in the
aggregate up to 500,000 shares of New Common Stock. The largest grant to any one
employee will not exceed Management Options to purchase 50,000 shares of New
Common Stock. Within six months after the Effective Date, Management Options
will be granted to certain key employees of Reorganized Edison entitling such
persons to purchase in the aggregate up to 300,000 shares of New Common Stock.
In connection with and pursuant to the Plan, as of the Effective Date, Director
Options will be granted to outside Directors of Reorganized Edison entitling
each such person to purchase 3,500 shares of New Common Stock. Each outside
Director who is thereafter elected or appointed also will receive a Director
Option to purchase 3,500 shares of New Common Stock. In addition, each such
Director who remains a Director as of the completion of the Annual Meeting of
Stockholders of Reorganized Edison in each calendar year following the calendar
year in which such Director received such Director Option granted initially will
receive an additional Director Option to purchase that number of shares of New
Common Stock (rounded to the nearest whole number) equal to $20,000 divided by
the Fair Market Value (as defined in the Director Stock Option Plan) of a share
of New Common Stock as of such date. The total numbers of shares of New Common
Stock available for grants of Director Options under the Director Stock Option
Plan shall be 200,000. Under the Restricted Stock Agreements, a total of 225,000
shares of Restricted Stock will be issued to approximately eight senior
executives of Reorganized Edison as of the Effective Date.
D. AMENDED EMPLOYMENT CONTRACTS.
As of the Effective Date, the Debtors or Reorganized Debtors
will have entered into employment contracts or amended employment contracts with
approximately nine key executives (the "Employment Contracts"). Each Employment
Contract will have a two year base term.6 The aggregate annualized base
compensation to be paid to such executives pursuant to the Employment Contracts
is $2,367,000.
- -------------------
6 As described in section VII.A.3, "Management of the Reorganized Debtors --
Board of Directors and Management -- Chief Executive Officer," Alan D. Miller
has determined to resign as Chairman, Chief Executive Officer and President of
Edison.
Accordingly, Mr. Miller will not receive an Employment Contract.
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Set forth below is a summary of certain provisions anticipated
to be included in the Employment Contracts as contemplated by the Plan. The
proposed form of Employment Contract is annexed to the Disclosure Statement as
Exhibit F.
Each Employment Contract will become effective as of the
Effective Date for the base term, and may be extended by mutual agreement
between Reorganized Edison and the employee, or terminated as described below;
provided, however, that in the event an Employment Contract Change in Control
(as defined below) occurs less than 18 months prior to the end of such term,
such term will be extended for a period ending 18 months after such occurrence.
Upon a termination of employment by Reorganized Edison for
Cause (as defined in the Employment Contracts), or a termination by the employee
for other than Good Reason (as defined in the Employment Contracts), the
employee will be entitled to earned but unpaid amounts (including base salary)
through the date of termination. Upon a termination of employment by Reorganized
Edison Without Cause (as defined in the Employment Contracts) or by the employee
for Good Reason, the employee will be entitled to (1) the amounts the employee
would receive in the event of a termination by Reorganized Edison for Cause or a
termination by the employee for other than Good Reason, (2) a lump sum cash
amount equal to the employee's highest monthly salary multiplied by the greater
of 12 or the number of months remaining until the end of the base term, (3) the
continuation for a specified period of certain life insurance, medical, dental
and disability benefits to which the employee was entitled immediately prior to
such termination, and (4) a lump sum cash amount equal to 1/12 of the employee's
"target bonus" for the then-current fiscal year under Reorganized Edison's
Executive Performance-Based Bonus Plan multiplied by the greater of 12 or the
number of months remaining until the end of the base term. In the event an
Employment Contract Change in Control occurs after the end of the base term but
at a time when the employee is still employed by Reorganized Edison, and if,
within 18 months after such occurrence, the employee's employment is terminated
by Reorganized Edison Without Cause or by the employee for Good Reason, then the
employee shall be entitled to all of the amounts the employee would have
received had his or her employment been terminated Without Cause during the base
term (for purposes of computing such amounts, the end of the base term will be
deemed to be the last day of such 18-month period).
Under the Employment Contracts, an "Employment Contract Change
in Control" means the occurrence of any of certain events, including any
"person" or "group" (as such terms are used in the Exchange Act) becoming the
"beneficial owner" (as determined under the Exchange Act) of securities of
Reorganized Edison having more than 33% of the total voting power of all classes
of capital stock of Reorganized Edison entitled to vote generally in the
election of directors of Reorganized Edison.
E. RETENTION/PERFORMANCE BONUSES.
As of the Effective Date, Edison or Reorganized Edison will
have adopted a retention/bonus program that will result in payments aggregating
approximately $750,000 to certain key executives in 1998, provided that such
executives remain employed with Reorganized Edison through the date of such
payments. In addition, as of the Effective Date, in recognition of the
successful restructuring of the Debtors, Edison or Reorganized Edison will have
adopted a bonus program that will result in payments aggregating approximately
$2,200,000 to approximately 20 key executives instrumental to such
restructuring. Such restructuring bonuses will be paid on or after the Effective
Date.
F. CONTINUATION OF EXISTING SEVERANCE PLANS AND D&O INSURANCE .
All employment and severance practices and policies, and all
compensation and benefit plans, policies and programs of the Debtors applicable
to their directors, officers or employees, are treated as executory contracts
and assumed under the Plan. The Debtors have maintained and will continue to
maintain appropriate insurance on behalf of their officers and directors.
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G. POST-EFFECTIVE DATE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth those entities (including
affiliates and related entities) which, based upon the Debtors' estimate of
Allowed Claims as reflected on the claims register as of May 1, 1997, will own
beneficially more than 5.0% of the New Common Stock as of the Effective Date:
<TABLE>
<CAPTION>
Name and Address Estimated Amount of Estimated Percentage
of Beneficial Holder Beneficial Ownership of Beneficial Ownership
- -------------------- -------------------- -----------------------
<S> <C> <C>
Swiss Bank Corporation 1,309,556 shares of New 13.10%
c/o Swiss Bank Corporation, Common Stock
New York Branch
45 Broadway
New York, New York 10006
Morgens, Waterfall, Vintiadis 976,000 shares of New 9.76%
& Co., Inc. Common Stock
10 East 50th Street
New York, New York 10022
Citibank, N.A. 814,695 shares of New 8.15%
599 Lexington Avenue Common Stock
New York, New York 10043
Principal Mutual Life Insurance Co. 776,761 shares of New 7.77%
711 High Street Common Stock
Des Moines, Iowa 50392-0800
Oppenheimer & Co., Inc. et al. 719,165 shares of New 7.19%
One World Financial Center Common Stock
Eighth Floor
200 Liberty Street
New York, New York 10281
Merrill Lynch, Pierce, Fenner & Smith 577,176 shares of New 5.77%
World Financial Center Common Stock
North Tower, 16th Floor
New York, New York 10281
</TABLE>
The foregoing percentages are calculated based upon the
assumption that no Rights are exercised. If the Rights are exercised by certain
current holders of Allowed Edison Equity Interests (or their transferees), the
percentage holdings of the foregoing holders of Allowed Claims may decrease and
certain holders of Allowed Edison Equity Interests (or their transferees) could,
upon consummation of the Plan, receive distributions of shares of New Common
Stock representing in excess of five percent of the outstanding shares of the
New Common Stock. For a description of the Rights, see Section V.B.3., "The Plan
of Reorganization -- Securities to be Issued Under the Plan -- New Common Stock,
Rights, Warrants, Management Options, Director Options and Restricted Stock."
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VIII. SECURITIES LAWS MATTERS
No registration statement will be filed under the Securities
Act of 1933, as amended (the "Securities Act"), or any state securities laws
with respect to the offer and distribution under the Plan of New Common Stock,
New Notes, Rights, Warrants (including the New Common Stock issuable upon
exercise thereof) and Class A Membership Units (collectively, the "Plan
Securities"). The Debtors believe that the provisions of section 1145(a)(1)
(and, with respect to the New Common Stock issuable upon exercise of the
Warrants and the New Common Stock and Class A Membership Units in the EBS
Litigation, L.L.C. distributable upon exercise of the Rights, section 1145(a)(2)
of the Bankruptcy Code) and with respect to the Class B Membership Units,
section 4(2) of the Securities Act, exempt the offer and distribution of the
Plan Securities and the Class B Membership Units from federal and state
securities registration requirements.
A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS.
1.INITIAL OFFER AND SALE OF PLAN SECURITIES
Section 1145(a)(1) of the Bankruptcy Code exempts the offer
and sale of securities under a plan of reorganization from registration under
the Securities Act and state laws if three principal requirements are satisfied:
(i) the securities must be offered and sold under a plan of reorganization and
must be securities of the debtor, of an affiliate participating in a joint plan
with the debtor or of a successor to the debtor under the plan; (ii) the
recipients of the securities must hold a prepetition or administrative expense
claim against the debtor or an interest in the debtor; and (iii) the securities
must be issued entirely in exchange for the recipient's claim against or
interest in the debtor, or principally in such exchange and partly for cash or
property. The Debtors believe that the offer and sale of the Plan Securities
under the Plan satisfies the requirements of section 1145(a)(1) of the
Bankruptcy Code and are, therefore, exempt from registration under the
Securities Act and state securities laws.
With respect to the LLCs, the Debtors believe that (i) each of
the LLCs is a "successor" to the Debtors within the meaning of section
1145(a)(1) of the Bankruptcy Code and (ii) the offer and sale of the Class A
Membership Units in each LLC otherwise satisfies the requirements of such
section (to the extent such units constitute "securities" within the meaning of
the Securities Act). In connection with prior cases under the Bankruptcy Code,
the staff of the Commission has taken no-action positions with respect to the
nonregistration under the Securities Act of interests issued under a plan of
reorganization by a liquidating entity to former holders of claims or interests
in a debtor, where such entity is subject to the jurisdiction of a bankruptcy
court and is organized to liquidate, within a reasonable period of time, certain
assets of such debtor and to distribute the proceeds thereof to the holders of
such interests. Various theories have been advanced to justify the related
no-action requests, including the view that such a liquidating entity
constitutes a "successor" to the debtor under section 1145(a)(1) of the
Bankruptcy Code and that the securities issued by such entity are exempt from
registration under the Securities Act by virtue of such section. The Debtors
believe that the organization of the LLCs and the issuance of the Class A
Membership Units and Class B Membership Units pursuant to the Plan is consistent
with the relevant facts set forth in such no-action requests.
In connection with prior cases under the Bankruptcy Code, the
Commission also has taken no-action positions with respect to the
nonregistration of a liquidating entity under the Investment Company Act of
1940, as amended (the "Investment Company Act"), where certain conditions were
met, including (i) where such liquidating entity (a) existed solely to liquidate
its assets and to distribute the proceeds thereof to its beneficiaries, (b) was
prohibited from conducting a trade or business and from making any investments,
except for temporary investments pending distribution of liquidation proceeds to
beneficiaries, (c) did not hold itself out to be an investment company, but
rather, a liquidating entity in the process of liquidation, (d) was under the
continuing jurisdiction of a bankruptcy court, and (e) terminated on or before
the third anniversary of its effective date, unless extended by the bankruptcy
court, and (ii) to the extent beneficial interests in such entity were
transferable, (a) such interests were not listed on any national securities
exchange or the Nasdaq National Market, (b) neither such entity nor its
management engaged the services of any active market maker, facilitated the
development of an active trading market or encouraged others to do so, placed
any advertisements in the media promoting investments in such entity, or
collected or published information about prices at which such interest might be
transferred, (c) an active trading market in such interests was unlikely to
develop, and (d) such entity complied with the registration and reporting
requirements of the Exchange Act. Each of the LLCs will comply with the
registration and reporting requirements of the Exchange Act, and the Debtors
believe that each of the foregoing conditions will be satisfied with respect to
the LLCs.
Section 1145(a)(2) of the Bankruptcy Code exempts the offer of
a security through any warrant, option or right to subscribe that was sold in
the manner specified in section 1145(a)(1) of the Bankruptcy Code and the sale
of a security upon
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the exercise of such a warrant, option or right to subscribe. The Debtors
believe that the offer and sale of (i) New Common Stock pursuant to the Warrants
and (ii) New Common Stock and Class A Membership Units in the EBS Litigation,
L.L.C. pursuant to the Rights, satisfies the requirements of section 1145(a)(2)
of the Bankruptcy Code and are, therefore, exempt from registration under the
Securities Act and state securities laws.
2.SUBSEQUENT TRANSFERS OF PLAN SECURITIES
In general, all resales and subsequent transactions in (i) the
New Common Stock, New Notes, Rights, Warrants and Class A Membership Units
distributed under the Plan, (ii) the New Common Stock issued upon the exercise
of Warrants or (iii) the New Common Stock and Class A Membership Units in the
EBS Litigation, L.L.C. issued upon exercise of the Rights will be exempt from
registration under the Securities Act pursuant to section 4(1) of the Securities
Act, unless the holder thereof is deemed to be an "underwriter" with respect to
such securities, an "affiliate" of the issuer of such securities or a "dealer."
Section 1145(b) of the Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in or a
claim for administrative expense against the debtor with a
view to distributing any security received in exchange for
such a claim or interest ("accumulators");
(ii) persons who offer to sell securities offered under a plan
for the holders of such securities ("distributors");
(iii) persons who offer to buy securities from the holders of
such securities, if the offer to buy is (a) with a view to
distributing such securities and (b) made under a
distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities,
as the term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate"
of the issuer, which means any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with the
issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who
engages either for all or part of his or her time, directly or indirectly, as
agent, broker or principal, in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person. Whether or
not any particular person would be deemed to be an "underwriter" or an
"affiliate" with respect to any Plan Security or to be a "dealer" would depend
upon various facts and circumstances applicable to that person. Accordingly, the
Debtors express no view as to whether any person would be an "underwriter" or an
"affiliate" with respect to any Plan Security or would be a "dealer."
The Commission has taken the position that resales by
accumulators and distributors of securities distributed under a plan of
reorganization who are not affiliates of the issuer of such securities are
exempt from registration under the Securities Act if effected in "ordinary
trading transactions." The staff of the Commission has indicated in this context
that a transaction by such non-affiliates may be considered an "ordinary trading
transaction" if it is made on an exchange or in the over-the-counter market and
does not involve any of the following factors:
(i) (a) concerted action by the recipients of
securities issued under a plan in connection with
the sale of such securities or (b) concerted action
by distributors on behalf of one or more such
recipients in connection with such sales;
(ii) the use of informational documents concerning the
offering of the securities prepared or used to
assist in the resale of such securities, other than
a bankruptcy court-approved disclosure statement
and supplements thereto, and documents filed with
the Commission pursuant to the Exchange Act; or
(iii) the payment of special compensation to brokers and
dealers in connection with the sale of such
securities designed as a special incentive to the
resale of such securities (other than the
compensation that would be paid pursuant to
arm's-length negotiations between a seller and a
broker or dealer, each acting unilaterally, not
greater than the compensation that would be paid
for a routine similar- sized sale of similar
securities of a similar issuer).
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The views of the Commission on the matter have not, however, been sought by the
Debtors and, therefore, no assurance can be given regarding the proper
application of the "ordinary trading transaction" exemption described above. Any
person intending to rely on such exemption is urged to consult his or her own
counsel as to the applicability thereof to his or her circumstances.
Securities Act Rule 144 provides an exemption from
registration under the Securities Act for certain limited public resales of
unrestricted securities by "affiliates" of the issuer of such securities. Rule
144 allows a holder of unrestricted securities that is an affiliate of the
issuer of such securities to sell, without registration, within any three-month
period a number of shares of such unrestricted securities that does not exceed
the greater of one percent (1%) of the number of outstanding securities in
question or the average weekly trading volume in the securities in question
during the four calendar weeks preceding the date on which notice of such sale
was filed pursuant to Rule 144, subject to the satisfaction of certain other
requirements of Rule 144 regarding the manner of sale, notice requirements and
the availability of current public information regarding the issuer. The Debtors
believe that, pursuant to section 1145(c) of the Bankruptcy Code, the Plan
Securities will be unrestricted securities for purposes of Rule 144.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A
PARTICULAR PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE PLAN SECURITIES. THE DEBTORS
RECOMMEND THAT HOLDERS OF CLAIMS AND INTERESTS CONSULT THEIR OWN COUNSEL
CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.
State securities laws generally provide registration
exemptions for subsequent transfers by a bona-fide owner for his or her own
account and subsequent transfers to institutional or accredited investors. Such
exemptions are generally expected to be available for subsequent transfers of
New Common Stock, New Notes, Rights, Warrants and Class A Membership Units.
3. CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers
effecting transactions in the New Common Stock, New Notes, Rights, Warrants or
Class A Membership Units prior to the expiration of 40 days after the
Confirmation Date are required to deliver to the purchaser of such securities a
copy of this Disclosure Statement (and supplements hereto, if any, if ordered by
the Bankruptcy Court) at or before the time of delivery of such securities to
such purchaser. In connection with prior cases under the Bankruptcy Code, the
staff of the Commission has taken so-called "no-action" positions with respect
to noncompliance by stockbrokers with such requirement in circumstances in which
the debtor was, and the reorganized debtor was to continue to be, subject to and
in compliance with the periodic reporting requirements of the Exchange Act. The
views of the Commission on the matter have not, however, been sought by the
Debtors and, therefore, no assurance can be given regarding the possible
consequences of noncompliance by stockbrokers with the disclosure statement
delivery requirements of section 1145(a)(4). Stockbrokers are urged to consult
their own counsel with respect to such requirements.
4. TRANSACTIONS WITH INSIDERS
The Debtors are not aware of any material "insider"
transactions.
B. REGISTRATION RIGHTS.
Pursuant to the Plan, Reorganized Edison will agree to enter
into agreements (collectively, the "Registration Rights Agreement") with certain
entities providing for the registration of the New Common Stock, the shares of
New Common Stock issuable upon exercise of the Warrants, the shares of New
Common Stock distributable upon exercise of the Rights and the New Notes under
the Securities Act. Only entities entitled to receive distributions pursuant to
the Plan of New Common Stock or New Notes representing at least 10% of the
aggregate New Common Stock or New Notes, as the case may be, issuable pursuant
to the Plan (collectively, "Eligible Holders") will be entitled to enter into
the Registration Rights Agreement. Reorganized Edison has agreed to use
reasonable commercial efforts to cause the New Common Stock, the New Notes and
the Warrants to be listed on a national securities exchange or the Nasdaq
National Market and to cause to become effective within 90 days after the
Effective Date a shelf Registration Statement on Form S-3 covering resales of
the New Common Stock and New Notes owned by Eligible Holders. Under the
Registration Rights Agreement, during the period commencing on the 91st day
after the Effective Date and ending on the second anniversary of the Effective
Date, Reorganized Edison will be required upon the request of any Eligible
Holder that owns at least 10% of the outstanding shares of New Common Stock or
that certifies
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to Reorganized Edison that such Eligible Holder may be deemed to be an
"affiliate" of Reorganized Edison, to effect the registration under the
Securities Act of resales by such Eligible Holder of New Common Stock or New
Notes, as the case may be (which registration may be effected by such shelf
registration); provided, however, that in no event will Reorganized Edison be
required to so register such New Common Stock or New Notes at any time prior to
the 91st day after the Effective Date or pursuant to a Registration Statement
other than a shelf Registration Statement at any time when a shelf Registration
Statement of Reorganized Edison covering such New Common Stock or New Notes, as
the case may be, is effective under the Securities Act. No more than two such
requests for registration of resales of New Common Stock and no more than one
such request for registration of resales of New Notes may be made. Eligible
Holders also will be entitled to customary "piggyback" registration rights.
THE DEBTORS DO NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR
INTERPRETATIVE REQUESTS TO THE COMMISSION WITH RESPECT TO ANY SECURITIES LAWS
MATTERS.
IX. VALUATION
A. DEBTORS' VALUATION.
1. REORGANIZATION VALUES
The Debtors have been advised by Peter J. Solomon Company Ltd.
("PJSC") with respect to the value of the Reorganized Debtors. PJSC has
undertaken its valuation analysis for the purpose of determining the value
available to distribute to creditors and equity interest holders pursuant to the
Plan and to analyze the relative recoveries to creditors and equity interest
holders thereunder. The analysis is based on the financial projections as well
as current market conditions and statistics. The values are as of an assumed
Effective Date of July 5, 1997 and are based upon information available to and
analyses undertaken by PJSC in June 1997. The range of reorganization values for
the Reorganized Debtors includes (i) the going concern value of the Debtors'
business, (ii) the $119,000,000 in Cash that will be distributed under the Plan
and (iii) the value of certain other assets -- the Pension Plan Proceeds and the
Corporate Headquarters Building (the "Other Assets"), but excludes the
Unresolved Avoidance Claims and the proceeds, if any, generated by the Rights
and the D&B Spinoff Settlement Offer. Based upon the foregoing assumptions, the
reorganization value of the Reorganized Debtors was assumed for purposes of the
Plan by the Debtors, based on advice from PJSC, to be approximately $447,300,000
to $467,300,000. The reorganization value includes $14,500,000 of Cash that will
be used to satisfy administrative claims and pay financing costs prior to the
Confirmation Date. The value of the Other Assets is assumed to be $68,800,000,
consisting of $48,800,000 in Pension Plan Proceeds and an estimated value of
$20,000,000 for the Corporate Headquarters Building. The going concern value of
the Debtors' business after the distribution under the Plan of Cash and Other
Assets to holders of Allowed Claims is assumed for purposes of the Plan to range
from approximately $245,000,000 to $265,000,000. The going concern value of the
Debtors' business includes excess working capital of $5,000,000, calculated by
subtracting the projected average Exit Financing Facility revolver balance for
the 12 months subsequent to the Confirmation Date, which amount equals
$3,900,000, from the projected average excess Cash balances of $8,900,000 for
the same period. The average excess Exit Financing Facility and excess Cash
balances were used in calculating the going concern value of the Debtors'
business due to the seasonal nature of such business and the Debtors' borrowing
requirements. Such calculation assumes that, pursuant to the Debtors' business
plan, the significant portion of the $33,900,000 in Cash on the Debtors' balance
sheet at July 5, 1997 not used as store Cash will be used in the Debtors'
business as working capital to ensure that there will be sufficient availability
under the Exit Financing Facility at peak borrowing periods.
Based upon the going concern value of the Debtors' business
and an assumed total debt (including capital lease obligations and tax claims
payable in installments) of approximately $117,400,000, the Debtors have
employed an assumed range of equity values for the Reorganized Debtors of
approximately $127,600,000 to $147,600,000, with a midpoint of $137,600,000. The
assumed equity values for the Reorganized Debtors were then reduced by
$11,300,000 to $13,700,000 to adjust for the issuance of the Warrants to
purchase approximately 9.0% of the New Common Stock and the Management Options
to purchase approximately 8.0% of the New Common Stock. See Section IX.A.2.,
"Valuation -- Debtors' Valuation -- Warrant, Management Option and Director
Option Values." Based on the adjusted range of equity values for the Reorganized
Debtors of $116,300,000 to $133,900,000, with a midpoint of $125,100,000, and
the distribution of 10,000,000 shares of New Common Stock and 225,000 shares of
Restricted Stock, the value per share of the New Common Stock is estimated to
range from $11.37 to $13.10.
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PJSC used modified discounted cash flow and comparable company
multiple methodologies to arrive at the going concern value of the Debtors'
business. These valuation techniques reflect both the market's current view of
the Debtors' value as well as a longer-term focus on the intrinsic value of the
cash flow projections in the Debtors' business plan. The valuation multiples and
discount rates used by PJSC to arrive at the going concern value of the Debtors'
business were based on the public market valuation of selected public companies
deemed generally comparable to the operating businesses of the Debtors. In
selecting such companies, PJSC considered factors such as the focus of the
comparable companies' businesses as well as such companies' current and
projected operating performance relative to the Debtors and other industry
participants and the significant turnaround required for the Debtors' businesses
to perform as projected. In developing these valuations, no independent value
was ascribed to the Funding Escrow because (i) the Funding Escrow is required to
support the valuation of the New Notes at par; (ii) Cash from the Funding Escrow
may only be used to fund interest payments required under the New Notes; and
(iii) significant uncertainty exists as to whether or not any funds will remain
in the Funding Escrow subsequent to July 31, 2000. In addition, the $21,200,000
of excess Pension Plan assets to be used to establish a replacement pension plan
were not considered excess assets of the Reorganized Debtors because (i) the
replacement plan assets cannot be distributed to parties in interest or used by
the Reorganized Debtors except to fund post-retirement benefit expenses and (ii)
PJSC reduced the on-going pension benefit costs incorporated in the Debtors'
financial projections to reflect the availability of the excess pension asset.
The foregoing valuations also are based on a number of additional assumptions,
including a successful reorganization of the Debtors' business and finances in a
timely manner, the achievement of the forecasts reflected in the financial
projections, the amount of available Cash at the Effective Date, the
availability of certain tax attributes, the continuation of current market
conditions through the Effective Date and the Plan becoming effective in
accordance with its terms.
The financial advisors to the Equity Committee after having
reviewed substantially the same information as the Debtors' advisors, have
concluded that the range of the Debtors' reorganization values may be higher
than the Debtors' valuation indicates.
Estimates of value do not purport to be appraisals or
necessarily reflect the values that may be realized if assets are sold. The
estimates of value represent hypothetical reorganization values of the
Reorganized Debtors as the continuing owner and operator of their business and
assets. Such estimates reflect computations of the estimated reorganization
value of the Reorganized Debtors through the application of various valuation
techniques and do not purport to reflect or constitute appraisals, liquidation
values or estimates of the actual market value that may be realized through the
sale of any securities to be issued pursuant to the Plan, which may be
significantly different than the amounts set forth herein. The value of an
operating business such as the Debtors' business is subject to uncertainties and
contingencies that are difficult to predict and will fluctuate with changes in
factors affecting the financial condition and prospects of such a business. AS A
RESULT, THE ESTIMATE OF THE RANGE OF REORGANIZATION VALUES AND THE GOING CONCERN
VALUE OF THE DEBTORS' BUSINESS SET FORTH HEREIN IS NOT NECESSARILY INDICATIVE OF
ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE
SET FORTH HEREIN. BECAUSE SUCH ESTIMATE IS INHERENTLY SUBJECT TO UNCERTAINTIES,
NEITHER THE DEBTORS, PJSC, OR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR ITS
ACCURACY. IN ADDITION, THE VALUATION OF NEWLY-ISSUED SECURITIES SUCH AS THE NEW
COMMON STOCK AND THE WARRANTS IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. Actual market prices of
such securities at issuance will depend upon, among other things, prevailing
interest rates, conditions in the financial markets, the anticipated initial
securities holdings of prepetition creditors, some of which may prefer to
liquidate their investment rather than hold it on a long-term basis, and other
factors that generally influence the prices of securities. It should be noted
that there is presently no trading market for the New Common Stock and the
Warrants and there can be no assurance that such a trading market will develop.
In preparing a range of the estimated reorganization value of
the Reorganized Debtors and the going concern value of the Debtors' business,
PJSC: (i) reviewed certain historical financial information of the Debtors for
recent years and interim periods, (ii) reviewed certain internal financial and
operating data of the Debtors, including financial projections provided by
management relating to its business and prospects, (iii) met with certain
members of senior management of the Debtors to discuss operations and future
prospects, (iv) reviewed publicly available financial data and considered the
market values of public companies deemed generally comparable to the operating
business of the Debtors, (v) reviewed the financial terms to the extent publicly
available of certain acquisitions of companies that PJSC believes were
comparable to the operating businesses of the Debtors, (vi) considered certain
economic and industry information relevant to the operating business and (vii)
conducted such other analyses as PJSC deemed appropriate. Although PJSC
conducted a review and analysis of the Debtors' business, operating assets and
liabilities and business plans, PJSC assumed and relied on the accuracy and
completeness of all financial and other information furnished to it by the
Debtors and publicly available information. In addition, PJSC did not
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independently verify management's projections in connection with such valuation
and, other than with respect to certain real property, no independent
evaluations or appraisals of the Debtors' assets were sought or were obtained in
connection therewith.
The Equity Committee's financial advisors, after having
evaluated and analyzed substantially the same information as the Debtors'
financial advisors, have reached a different conclusion regarding the range of
reorganization values for the Reorganized Debtors. The Equity Committee's
financial advisors believe the reorganization values of the Reorganized Debtors
may exceed those described by the Debtors.
2. WARRANT, MANAGEMENT OPTION AND DIRECTOR OPTION VALUES
As a result of Plan negotiations, the Plan contemplates the
distribution of the Warrants to holders of Allowed Edison Equity Interests, the
Management Options to certain key executives and the Director Options to outside
directors of Reorganized Edison. The exercise price of the Warrants is greater
than the estimated equity value per share of New Common Stock; and the exercise
prices of the Management Options and the Director Options are assumed for
purposes of this analysis to equal the estimated equity value per share of New
Common Stock. The exercise of the Warrants requires the payment to Reorganized
Edison of Cash in the amount of the exercise price. The exercise of the
Management Options and the Director Options requires the payment to Reorganized
Edison of Cash and/or shares of New Common Stock. Given the limited number of
Director Options granted on the Effective Date pursuant to the Director Stock
Option Plan and the uncertainty regarding the timing and size of future Director
Option grants, PJSC has determined that the value of the Director Options is
immaterial to the value of the Reorganized Debtors. Notwithstanding the fact
that the Reorganized Edison Board will be authorized to issue certain of the
Management Options at its discretion, for purposes of this analysis it is
assumed that all Warrants and Management Options are issued as of the Effective
Date. While warrants may be valued using complex mathematical computations,
these computations are based upon highly subjective assumptions, including,
among others, the estimated trading prices of the equity securities into which
the warrants may be converted and the projected volatility of price movements of
those shares. Based on (i) an assumed trading price equal to the assumed range
of unadjusted equity values for the Reorganized Debtors of approximately
$127,600,000 to $147,600,000, with a midpoint of $137,600,000, (ii) a
distribution of approximately 10,000,000 shares of New Common Stock and 225,000
shares of Restricted Stock and (iii) an estimated trading volatility of between
30% and 50% (based on observed historical trading volatilities of publicly
traded companies that are comparable to the Debtors), PJSC computed the
theoretical value of a Warrant, using a variant of a standard computation
methodology for the valuation of warrants, to be in a range from $5.08 to $8.78
per Warrant, with an aggregate value in a range from $5,100,000 to $8,900,000.
Utilizing the same methodology, PJSC computed the theoretical value of a
Management Option to be in a range from $5.74 to $8.19 per Management Option,
with an aggregate value in a range from $4,600,000 to $6,600,000. The aggregate
value range for the Warrants and Management Options was calculated using the
average of the Warrant and Management Option values calculated at estimated
trading volatilities of 30% and 50% for the assumed range of equity values for
the Reorganized Debtors outlined above.
THERE CAN BE NO ASSURANCE THAT THE NEW COMMON STOCK WILL TRADE
AT THE ESTIMATED REORGANIZATION EQUITY VALUE PER SHARE, THAT THE TRADING
VOLATILITY OF THE NEW COMMON STOCK WILL BE PERCEIVED TO BE IN A RANGE OF 30% TO
50%, OR THAT THE MARKET VALUES OF THE WARRANTS AND THE MANAGEMENT OPTIONS WILL
BE IN THE RANGES DESCRIBED ABOVE. IN ADDITION, THE MATHEMATICAL COMPUTATION
METHODOLOGY USED DOES NOT ACCOUNT FOR THE POTENTIAL DILUTIVE IMPACT OF THE
WARRANTS AND THE MANAGEMENT OPTIONS. FINALLY, ACTUAL TRADING VALUES FOR WARRANTS
AND OPTIONS FREQUENTLY DIFFER MATERIALLY FROM THOSE VALUES DERIVED FROM
MATHEMATICAL COMPUTATIONS. ACCORDINGLY, THE FOREGOING COMPUTATION OF VALUE
CANNOT BE RELIED UPON AS A MEASURE OF REALIZABLE VALUE OF THE WARRANTS OR
MANAGEMENT OPTIONS.
THE VALUATIONS HEREIN REPRESENT ESTIMATED REORGANIZATION
VALUES AND WARRANT AND MANAGEMENT OPTION VALUES AND DO NOT NECESSARILY REFLECT
VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE EQUITY VALUES
AND WARRANT AND MANAGEMENT OPTION VALUES ASCRIBED IN THE ANALYSIS DO NOT PURPORT
TO BE ESTIMATES OF THE POST-REORGANIZATION MARKET TRADING VALUES. SUCH TRADING
VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION EQUITY VALUE
AND WARRANT AND MANAGEMENT OPTION VALUE RANGES ASSOCIATED WITH THE VALUATION
ANALYSIS.
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B. CREDITORS' COMMITTEE'S VALUATION.
1. REORGANIZATION VALUES
The Blackstone Group L.P, ("Blackstone") has undertaken a
valuation of the Reorganized Debtors on behalf of the Creditors' Committee. The
valuation is based on the financial projections as well as current market
conditions and statistics. The values are as of an assumed Effective Date of
July 5, 1997 and are based upon information available to and analyses undertaken
by Blackstone in May 1997. The range of reorganization values for the
Reorganized Debtors includes (i) the going concern value of the Debtors'
business, (ii) Cash that will be distributed under the Plan, and (iii) the value
of the Other Assets, but excludes the value of any recoveries that holders of
Allowed General Unsecured Claims may receive as a consequence of the prosecution
of Unresolved Avoidance Claims by the EBS Litigation, L.L.C. Based upon the
foregoing assumptions, the reorganization value of the Reorganized Debtors is
estimated to be approximately $394,500,000 to $434,500,000, with a midpoint
value of $414,500,000. The going concern value of the Debtors' business after
the distribution under the Plan of Cash and Other Assets to holders of Allowed
Claims is assumed for purposes of the Plan to range from approximately
$200,000,000 to $240,000,000 with a mid-point value of $220,000,000. Based upon
the going concern value of the Debtors' business and assumed total debt
(including capital lease obligations and tax claims payable in installments) of
approximately $117,300,000, Blackstone estimates a range of equity values for
the Reorganized Debtors of approximately $76,900,000 to $112,800,000, with a
mid-point value of $94,900,000. Based upon a distribution of approximately
10,000,000 shares of New Common Stock and 225,000 shares of Restricted Stock,
and after adjustment to reflect the issuance of the Warrants to purchase
approximately 9.0% of the shares of New Common Stock and the Management Options
to purchase approximately 8.0% of the shares of New Common Stock, the value per
share of New Common Stock is estimated by Blackstone to range from $7.52 to
$11.03, with a mid-point value of $9.28. Based upon these valuations and the
distributions as set forth under the Plan, Blackstone estimates that recoveries
to holders of Allowed General Unsecured Claims in Class 7 will range from 78.9%
to 86.7%, with a mid-point of 82.8%.
Blackstone used a discounted cash flow methodology to arrive
at the going concern value of the Debtors' business. The valuation technique
reflects both the market's current view of the Debtors' value as well as a
longer-term focus on the intrinsic value of the cash flow projections in the
Debtors' business plan. Blackstone has made certain assumptions with regards to
discount rates and terminal valuations in order to adequately reflect the risk
in the Debtors' ability to achieve their financial projections. The foregoing
valuation also is based on a number of additional assumptions, including a
successful reorganization of the Debtors' business and finances in a timely
manner, the achievement of the forecasts reflected in the financial projections,
the amount of available Cash at the Effective Date, the availability of certain
tax attributes, the continuation of current market conditions through the
Effective Date and the Plan becoming effective in accordance with its terms.
In preparing a range of the estimated reorganization value of
the Reorganized Debtors and the going concern value of the Debtors' business,
Blackstone: (i) reviewed certain historical financial information of the Debtors
for recent years and interim periods, (ii) reviewed certain internal financial
and operating data of the Debtors, including financial projections provided by
management relating to its business and prospects, (iii) met with certain
members of senior management of the Debtors to discuss operations and future
prospects, (iv) reviewed publicly available financial data and considered the
market values of public companies deemed generally comparable to the operating
business of the Debtors, (v) considered certain economic and industry
information relevant to the operating business, and (vi) conducted such other
analyses as Blackstone deemed appropriate. Although Blackstone conducted a
review and analysis of the Debtors' business, operating assets and liabilities
and business plans, Blackstone assumed and relied on the accuracy and
completeness of all financial and other information furnished to it by the
Debtors and publicly available information. In addition, Blackstone did not
independently verify management's projections in connection with such valuation,
and, other than with respect to certain real property, no independent
evaluations or appraisals of the Debtors' assets were sought or were obtained in
connection therewith.
2. WARRANT VALUES
The Plan contemplates the distribution of the Warrants to
holders of Allowed Edison Equity Interests and the Management Options to certain
key employees of Reorganized Edison. Notwithstanding the fact that the Board of
Directors of Reorganized Edison will be authorized to issue certain of the
Management Options at its discretion, for purposes of this analysis it is
assumed that all Warrants and all Management Options are issued as of the
Effective Date. While warrants may be valued using complex mathematical
computations, these computations are based upon highly subjective assumptions,
including, among others, the estimated trading prices of the equity securities
into which the warrants may be converted and the projected volatility
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of price movements of those shares. Based on (i) an assumed trading price equal
to the assumed range of equity values for the Reorganized Debtors of
approximately $76,900,000 to $112,800,000 with a midpoint of $94,900,000, (ii) a
distribution of approximately 10,000,000 shares of New Common Stock and 225,000
shares of Restricted Stock, and (iii) an estimated trading volatility of 35%
(based on observed historical trading volatilities of publicly traded companies
that are comparable to the Debtors), Blackstone estimates the theoretical value
of a Warrant, using a variant of a standard computation methodology for
valuation of warrants, to be in a range from $2.15 to $4.46 per Warrant, with an
aggregate value in a range from $2,200,000 to $4,500,000. THERE CAN BE NO
ASSURANCE THAT THE NEW COMMON STOCK WILL TRADE AT THE ESTIMATED REORGANIZATION
EQUITY VALUE PER SHARE, THAT THE TRADING VOLATILITY OF THE NEW COMMON STOCK WILL
BE PERCEIVED TO BE 35%, OR THAT THE MARKET VALUE OF THE WARRANTS WILL BE IN THE
RANGE DESCRIBED ABOVE. IN ADDITION, ACTUAL TRADING VALUES FOR WARRANTS
FREQUENTLY DIFFER MATERIALLY FROM THOSE VALUES DERIVED FROM MATHEMATICAL
COMPUTATIONS. ACCORDINGLY, THE FOREGOING COMPUTATION OF VALUE CANNOT BE RELIED
UPON AS A MEASURE OF REALIZABLE VALUE OF THE WARRANTS.
C. EQUITY COMMITTEE'S VALUATION.
1. REORGANIZATION VALUES
Chilmark Partners, L.L.C. ("Chilmark"), has undertaken a
valuation of the Reorganized Debtors on behalf of the Equity Committee. Such
valuation is based on financial projections, current market conditions,
statistics and operating performance. The values are as of an assumed Effective
Date of July 5, 1997 and are based upon information available to and analyses
undertaken by Chilmark in June 1997. The range of reorganization values for the
Reorganized Debtors include (i) the going concern value of the Debtors'
business, (ii) Cash that will be distributed under the Plan and (iii) the value
of certain other assets. Chilmark's estimated range of the value of the
Reorganized Debtors, based upon the foregoing assumptions, is higher than the
valuation disclosed by the Debtors or the Creditors' Committee. However, even
though Chilmark estimates a higher value for the Reorganized Debtors, Chilmark
and the Equity Committee believe that the distribution to be received by the
holders of Allowed Edison Equity Interests is fair from a financial point of
view.
Chilmark used a discounted cash flow methodology and a
comparable company methodology to arrive at the going concern value of the
Debtors' business. The valuation technique reflects both the market's current
view of the Debtors' value as well as a longer term focus on the intrinsic value
of the cash flow projections in the Debtors' business plan. Chilmark has made
certain assumptions with regard to discount rates and terminal valuations in
order to adequately reflect the risk and the Debtors' ability to achieve their
financial projections. The foregoing valuation also is based on a number of
additional assumptions, including a successful reorganization of the Debtors'
business and finances in a timely manner, the achievement of the forecasts
reflected in the financial projections, the amount of available Cash at the
Effective Date, the availability of certain tax attributes, the continuation of
the current market conditions through the Effective Date and the Plan becoming
effective in accordance with its terms.
In arriving at an estimated reorganization value of the
Reorganized Debtors and the going concern value of the Debtors' business,
Chilmark (i) reviewed certain historical financial information of the Debtors
for recent years and interim periods, (ii) reviewed certain internal financial
and operating data of the Debtors, including financial projections provided by
management relating to its business and prospects, (iii) met with certain
members of senior management of the Debtors to discuss operations and future
prospects, (iv) reviewed publicly available financial data and considered the
market values of public companies deemed generally comparable to the operating
business of the Debtors, (v) considered certain economic and industry
information relevant to the operating business and (vi) conducted such other
analyses as Chilmark deemed appropriate. Although Chilmark conducted a review
and analysis of the Debtors' business, operating assets and liabilities and
business plans, Chilmark assumed and relied on the accuracy and completeness of
all financial and other information furnished to it by the Debtors and publicly
available information. In addition, Chilmark did not independently verify
management's projections in connection with such valuation, and no independent
evaluations or appraisals of the Debtors' assets were sought or were obtained in
connection therewith. THERE CAN BE NO ASSURANCE THAT THE NEW COMMON STOCK OR THE
WARRANTS OR RIGHTS WILL TRADE AT VALUES CONSISTENT WITH CHILMARK'S ESTIMATED
VALUATION RANGE. ACCORDINGLY, THE VALUATION RANGE CANNOT BE RELIED UPON TO
DETERMINE A REALIZABLE VALUE OF ANY COMPONENT OF THE DISTRIBUTION. NEITHER
CHILMARK NOR THE EQUITY COMMITTEE MAKES ANY RECOMMENDATIONS REGARDING EXERCISE
OF THE RIGHTS OR PARTICIPATION IN THE D&B SPINOFF SETTLEMENT.
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X. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST, AND EQUITY INTERESTS IN, THE
DEBTORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL
AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE
DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR
TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER,
BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN
AND ITS IMPLEMENTATION.
A. OVERALL RISKS TO RECOVERY BY HOLDERS OF CLAIMS.
The ultimate recoveries under the Plan to holders of Claims
and Equity Interests (other than those holders who are paid solely in Cash under
the Plan) depend upon the realizable value of the New Notes, New Common Stock,
Class A Membership Units, Rights and Warrants. The securities to be issued
pursuant to the Plan are subject to a number of material risks, including, but
not limited to, those specified below. The factors specified below assume that
the Plan is approved by the Bankruptcy Court and that the Effective Date occurs
on or about July 5, 1997. Although such risk factors are based upon a July 5,
1997 Effective Date, the Debtors believe that an actual Effective Date in the
third quarter of fiscal 1997 would not have any material effect on the risk
factors.
1. ABILITY TO REFINANCE CERTAIN INDEBTEDNESS
Following the Effective Date of the Plan, the Reorganized
Debtors' seasonal working capital borrowings and letters of credit requirements
are anticipated to be funded under the Exit Financing Facility. See Section
VI.E., "Confirmation and Consummation Procedure -- Exit Financing." There can be
no assurance that the Reorganized Debtors, upon expiration of the Exit Financing
Facility, will be able to obtain replacement financing to fund future seasonable
borrowings and letters of credit, or that such replacement financing, if
obtained, would be on terms equally favorable to the Reorganized Debtors.
2. SIGNIFICANT HOLDERS
Upon the consummation of the Plan, certain holders of Claims
may receive distributions of shares of the New Common Stock representing in
excess of five percent of the outstanding shares of the New Common Stock. See
Section VII.G., "Management of the Reorganized Debtors -- Post-Effective Date
Security Ownership of Certain Beneficial Owners." If the Rights are exercised by
certain current holders of Allowed Edison Equity Interests, such holders could,
upon consummation of the Plan, receive distributions of shares of the New Common
Stock representing in excess of five percent of the outstanding shares of the
New Common Stock. See Section V.B.3., "The Plan of Reorganization -- Securities
to be Issued Under the Plan -- New Common Stock, Rights, Warrants, Management
Options, Director Options and Restricted Stock." If holders of significant
numbers of shares of New Common Stock were to act as a group, such holders could
be in a position to control the outcome of actions requiring stockholder
approval, including the election of directors. This concentration of ownership
could also facilitate or hinder a negotiated change of control of the
Reorganized Debtors and, consequently, have an impact upon the value of the New
Common Stock.
Further, the possibility that one or more of the holders of
significant numbers of shares of New Common Stock may determine to sell all or a
large portion of their shares of New Common Stock in a short period of time may
adversely affect the market price of the New Common Stock.
3. LACK OF ESTABLISHED MARKET FOR NEW COMMON STOCK, RIGHTS AND
WARRANTS
Reorganized Edison shall use reasonable commercial efforts to
cause the New Common Stock and Warrants to be listed on a national securities
exchange or the Nasdaq National Market. There can be no assurance that such an
application will be approved.
The New Common Stock will be issued to holders of
pre-Commencement Date claims (and/or holders of Allowed Edison Equity Interests
who exercise Rights (or their transferees)), some or all of whom may prefer to
liquidate their investment rather than to hold it on a long-term basis. There
currently is no trading market for the New Common Stock nor is it known whether
or when one would develop. Further, there can be no assurance as to the degree
of price volatility in any such market. While the Plan was developed based on an
assumed reorganization value of $11.37 to $13.09 per share of the
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New Common Stock, such valuation is not an estimate of the price at which the
New Common Stock may trade in the market. The Debtors have not attempted to make
any such estimate in connection with the development of the Plan. No assurance
can be given as to the market prices that will prevail following the Effective
Date.
There can be no assurance that an active trading market for
the Warrants will develop. Further, there can be no assurance as to the degree
of price volatility in any such market. While the Plan was developed based on an
assumed reorganization value of $5.08 to $8.78 per Warrant, such valuation is
not an estimate of the price at which the Warrants may trade in the market. The
Debtors have not attempted to make any such estimate in connection with the
development of the Plan. No assurance can be given that a holder of the Warrants
will be able to sell such securities or at what price any such sale may be made.
The value of the Warrants is closely linked to the value of the New Common Stock
and the risks thereof as described above.
There currently is no trading market for the Rights nor is it
known whether or when one will develop. The value of the Rights is closely
linked to the value of the New Common Stock and the risks thereof as described
above.
4. LACK OF TRADING MARKET FOR NEW NOTES
Reorganized Edison will use reasonable commercial efforts to
cause the New Notes to be listed on a national securities exchange or the Nasdaq
National Market. There can be no assurance that such an application will be
approved.
After the issuance of the New Notes pursuant to the Plan,
there can be no assurance that an active trading market will develop therefor.
Further, there can be no assurance as to the degree of price volatility in any
such market. Accordingly, no assurance can be given that any holder of such
securities will be able to sell such securities or as to the price at which any
sale may occur. If such market were to exist, such securities could trade at
prices higher or lower than the value attributed to such securities hereunder,
depending upon many factors, including, without limitation, the prevailing
interest rates, markets for similar securities, industry conditions and the
performance of, and investor expectations for, the Reorganized Debtors.
5. DIVIDEND POLICIES
Reorganized Edison does not anticipate paying any dividends on
the New Common Stock in the foreseeable future. In addition, the covenants in
certain debt instruments to which Reorganized Edison will be a party may limit
the ability of Reorganized Edison to pay dividends. Certain institutional
investors may only invest in dividend-paying equity securities or may operate
under other restrictions which may prohibit or limit their ability to invest in
New Common Stock.
6. PREFERRED STOCK
Until such time (if any) as the Board of Directors of
Reorganized Edison determines that Reorganized Edison should issue preferred
stock and establishes the respective rights of the holders of one or more series
thereof, it is not possible to state the actual effect of authorization of the
preferred stock upon the rights of holders of New Common Stock. The effects of
such issuance could include, however: (i) reduction of the amount of cash
otherwise available for payment of dividends on New Common Stock if dividends
were also payable on the preferred stock, (ii) restrictions on dividends on New
Common Stock if dividends on the preferred stock were in arrears, (iii) dilution
of the voting power of New Common Stock (if the preferred stock were to have
voting rights (including, without limitation, votes pertaining to the removal of
directors)) and (iv) restriction of the rights of holders of New Common Stock to
share in Reorganized Edison's assets upon liquidation until satisfaction of any
liquidation preference granted to the holders of preferred stock. In addition,
so-called "blank check" preferred stock may be viewed as having possible
anti-takeover effects, if it were used to make a third party's attempt to gain
control of Reorganized Edison more difficult, time consuming or costly.
Edison has no current plans pursuant to which preferred stock
would be issued as an anti-takeover device or otherwise.
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7. PROJECTED FINANCIAL INFORMATION
The financial projections included in this Disclosure
Statement are dependent upon the successful implementation of the business plan
and the validity of the other assumptions contained therein. These projections
reflect numerous assumptions, including confirmation and consummation of the
Plan in accordance with its terms, the anticipated future performance of the
Debtors, retail industry performance, certain assumptions with respect to
competitors of Debtors, general business and economic conditions and other
matters, many of which are beyond the control of the Debtors. In addition,
unanticipated events and circumstances occurring subsequent to the preparation
of the projections may affect the actual financial results of the Debtors.
Although the Debtors believe that the projections are reasonably attainable,
variations between the actual financial results and those projected may occur
and be material.
8. BUSINESS FACTORS AND COMPETITIVE CONDITIONS
The specialty retailing business is subject to fluctuations
resulting from changes in customer preferences dictated by fashion and season.
This is especially true for stores emphasizing fashion over classic basics. In
addition, merchandise usually must be ordered a significant time in advance of
the season and sometimes before fashion trends are evidenced by customer
purchases. It has been the general practice of the Debtors and other apparel
retailers to build up inventory levels prior to peak selling seasons, which
further increases the Debtors' vulnerability to demand and pricing shifts and to
errors in selection and timing of the purchases of merchandise.
The apparel and footwear retailing industries are highly
competitive. The Debtors' stores are in competition with numerous other
independent retailers, department stores, mail order companies and discount and
manufacturer's outlets, many of which have greater sales, assets and financial
resources than the Debtors. Because the Debtors' stores primarily are located in
regional shopping malls, each store typically is confronted with several
national and local competitors.
The Debtors' retail stores are located primarily in shopping
malls. The level of sales in such mall-based stores is affected not only by
competitive factors within each mall, but also by the increasing array of
retailing options that are being offered to consumers, such as free-standing
retail fashion stores, mail order companies and discount and manufacturer's
outlet stores. Within each mall, the Debtors' stores face competition from other
nearby retailers, and a store's sales can be affected not only by its location
in relation to its competitors but also by its proximity to other points of
attraction. Management believes that the Debtors currently have advantageous
locations within a large number of mall settings. However, failure to locate new
stores in advantageous locations or failure to obtain renewal of the Debtors'
current attractive mall locations may have a material adverse effect on the
Debtors' earnings.
9. ADVERSE AND UNSEASONAL WEATHER CONDITIONS
As a mall-based retailer, the Debtors' sales can be adversely
affected by weather conditions that discourage consumers from traveling to malls
for shopping. In addition, unseasonal weather can lead to reduced sales of the
apparel and footwear being emphasized by the Debtors' stores for that season.
10. FOREIGN SOURCING OF MERCHANDISE
The Debtors' purchase approximately 75% of their merchandise
from foreign suppliers. The Debtors do not manufacture any merchandise. The
Debtors' importing operations are subject to the contingencies generally
associated with foreign operations, including, without limitation, fluctuations
in currency values, customs duty increases, quota limitations and other
developments that could cause a disruption of import supply, any of which could
have a material adverse effect on the Debtors' operations.
11. SEASONALITY
Sales in the fourth quarter traditionally are higher than in
other quarterly periods because of holiday buying patterns. Accordingly, the
Debtors' sales and profits traditionally have been higher in the fourth quarter
of the year than in the other three quarters and the Debtors anticipate that
this trend will continue. Approximately 24% of the Debtors' annual sales are
generated during the Christmas selling season of November and December.
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12. HART-SCOTT-RODINO ACT REQUIREMENTS
Holders of Claims that acquired such Claims after the
commencement of the Chapter 11 Cases and that are to receive New Common Stock
under the Plan on account of such Claims may have to observe the filing and
waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"). Holders required to make HSR Act filings cannot receive
any such distribution of New Common Stock until the expiration or early
termination of the waiting periods under the HSR Act. Such holders should
consult their own counsel regarding their potential responsibilities under the
HSR Act.
13. RISK RELATING TO EBS LITIGATION, L.L.C.
The assets of the EBS Litigation, L.L.C. will consist of the
Unresolved Avoidance Claims. See Section V.G., "The Plan of Reorganization --
The Pension Plan." The value of the Class A Membership Units in the EBS
Litigation, L.L.C. and the ability of the EBS Litigation, L.L.C. to make any
distribution with respect thereto depend to a significant extent on the
successful prosecution or settlement of the relevant causes of action. There can
be no assurance that such causes of action can be successfully prosecuted to
judgment or settled in a manner that will result in any meaningful recovery.
Moreover, the prosecution of such causes of action to conclusion, including any
appellate proceedings, could take years. Consequently, there is a significant
risk that no recovery will ever be obtained on such causes of action or that any
recovery may not occur for years.
XI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. INTRODUCTION.
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN OF THE
SIGNIFICANT FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO THE DEBTORS AND
REORGANIZED DEBTORS AND TO HOLDERS OF CLAIMS AND EQUITY INTERESTS AND IS BASED
ON THE TAX CODE, TREASURY REGULATIONS PROMULGATED AND PROPOSED THEREUNDER,
JUDICIAL DECISIONS AND PUBLISHED ADMINISTRATIVE RULES AND PRONOUNCEMENTS OF THE
IRS AS IN EFFECT ON THE DATE HEREOF. CHANGES IN SUCH RULES OR NEW
INTERPRETATIONS THEREOF COULD SIGNIFICANTLY AFFECT THE TAX CONSEQUENCES
DESCRIBED BELOW. EXCEPT WITH RESPECT TO CERTAIN CONSEQUENCES OF THE TERMINATION
OF THE PENSION PLAN, NO RULINGS HAVE BEEN REQUESTED FROM THE IRS. MOREOVER, NO
LEGAL OPINIONS HAVE BEEN REQUESTED FROM COUNSEL WITH RESPECT TO ANY OF THE TAX
ASPECTS OF THE PLAN.
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE
PLAN TO THE HOLDERS OF CLAIMS AND EQUITY INTERESTS MAY VARY BASED UPON THE
INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. IN ADDITION, THIS DISCUSSION DOES NOT
COVER ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO THE DEBTORS
OR THE REORGANIZED DEBTORS OR HOLDERS OF ALLOWED CLAIMS OR EQUITY INTERESTS, NOR
DOES THE DISCUSSION DEAL WITH TAX ISSUES PECULIAR TO CERTAIN TYPES OF TAXPAYERS
(SUCH AS DEALERS IN SECURITIES, S CORPORATIONS, LIFE INSURANCE COMPANIES,
FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS). NO
ASPECT OF FOREIGN, STATE, LOCAL OR ESTATE AND GIFT TAXATION IS ADDRESSED.
THE FOLLOWING SUMMARY IS, THEREFORE, NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH
HOLDER OF A CLAIM OR EQUITY INTEREST. HOLDERS OF CLAIMS OR EQUITY INTERESTS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER
TAX CONSEQUENCES PECULIAR TO THEM UNDER THE PLAN.
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B. CONSEQUENCES TO HOLDERS OF CLAIMS.
1. REALIZATION AND RECOGNITION OF GAIN OR LOSS IN GENERAL
The federal income tax consequences of the implementation of
the Plan to a holder of a Claim will depend, among other things, upon the origin
of the holder's Claim, when the holder's Claim becomes an Allowed Claim, when
the holder receives payment in respect of such Claim, whether the holder reports
income using the accrual or cash method of accounting, whether the holder has
taken a bad debt deduction or worthless security deduction with respect to such
Claim and whether the holder's Claim constitutes a "security" for federal income
tax purposes.
Generally, a holder of an Allowed Claim will realize gain or
loss on the exchange under the Plan of its Allowed Claim for stock and other
property (such as cash, new debt instruments and warrants), in an amount equal
to the difference between (i) the sum of the amount of any cash, the issue price
of any debt instrument, and the fair market value on the date of the exchange of
any other property received by the holder (other than any consideration
attributable to a Claim for accrued but unpaid interest) and (ii) the adjusted
basis of the Allowed Claim exchanged therefor (other than basis attributable to
accrued but unpaid interest previously included in the holder's taxable income).
With respect to the treatment of accrued but unpaid interest and amounts
allocable thereto, see Section XI.B.5., "Allocation of Consideration to
Interest."
Whether or not such realized gain or loss will be recognized
(i.e., taken into account) for federal income tax purposes will depend in part
upon whether such exchange qualifies as a recapitalization or other
"reorganization" as defined in the Tax Code, which may in turn depend upon
whether the Claim exchanged is classified as a "security" for federal income tax
purposes. If the Claim is a capital asset in the hands of the exchanging holder,
any gain or loss recognized generally will be capital gain or loss (except to
the extent any amount realized is attributable to accrued but unpaid interest or
accrued market discount as described below, see Section XI.B.5., "Allocation of
Consideration to Interest" and Section XI.B.6, "Market Discount") and such gain
would be long-term capital gain or loss if the holder's holding period for the
Claim surrendered exceeded one year at the time of the exchange.
The term "security" is not defined in the Tax Code or in the
regulations. One of the most significant factors considered in determining
whether a particular debt instrument is a security is the original term thereof.
In general, the longer the term of an instrument, the greater the likelihood
that it will be considered a security. As a general rule, a debt instrument
having an original term of 10 years or more will be classified as a security,
and a debt instrument having an original term of fewer than five years will not.
Debt instruments having a term of at least five years but less than ten years
are likely to be treated as securities, but may not be, depending upon their
resemblance to ordinary promissory notes, whether they are publicly traded,
whether the instruments are secured, the financial condition of the debtor at
the time the debt instruments are issued and other factors. Each holder of an
Allowed Claim should consult his or her own tax advisor to determine whether his
or her Allowed Claim constitutes a security for federal income tax purposes.
2. HOLDERS OF ALLOWED ADMINISTRATIVE EXPENSE CLAIMS
(UNCLASSIFIED) AND ALLOWED OTHER PRIORITY CLAIMS
(CLASS 1)
Holders of Allowed Administrative Expense Claims and Allowed
Other Priority Claims generally will be paid in full in Cash on the Effective
Date. Such holders must include such amounts in their gross income in the
taxable year in which such amounts are actually or constructively received by
them. Amounts of income tax and employment tax will be withheld from such
payments as required by law.
3. HOLDERS OF ALLOWED SECURED CLAIMS (CLASSES 2, 3, 4 AND 5)
In general, a holder of an Allowed Secured Claim will realize
gain or loss in an amount equal to the difference between (a) the holder's basis
in the Allowed Secured Claim and (b) the sum of (i) the amount of Cash received,
(ii) the issue price of any note received and (iii) the fair market value of any
other property received. If any of the Secured Claims are impaired such that the
value of the Collateral is less than the amount of the Secured Claim, the
deficiency amount will be treated as an Allowed General Unsecured Claim, unless
the holder of such Claim has elected treatment pursuant to section 1111(b) of
the Bankruptcy Code.
If both the holder's Allowed Secured Claim and any portion of
the consideration received by such holder constitute "stock or securities" for
federal income tax purposes, (i) any realized loss will not be recognized for
federal income
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tax purposes and (ii) any realized gain will be recognized in an amount equal to
the lesser of (a) the gain realized or (b) the amount of cash and the fair
market value of any other property received in excess of the amount allocated to
accrued but unpaid interest. Otherwise, the entire amount of such realized gain
or loss will be recognized (i.e., taken into account) for federal income tax
purposes.
A. SECURED SERIES 1977 BONDHOLDER CLAIMS (CLASS 2)
AND SECURED SERIES 1985 BONDHOLDER CLAIMS
(CLASS 3)
Pursuant to the Plan, a Series 1977 Bondholder or a Series
1985 Bondholder will receive a Pro Rata Share of the Series 1997 A Bonds or the
Series 1997 B Bonds, respectively, for that portion of the Series 1977
Bondholder Claim or Series 1985 Bondholder Claim, as applicable, that becomes an
Allowed Secured Claim. However, for the portion of any Series 1977 Bondholder
Claim or Series 1985 Bondholder Claim, as applicable, that becomes an Allowed
General Unsecured Claim, the Series 1977 Bondholders and Series 1985
Bondholders, respectively, shall receive a Pro Rata Share of (a) the Cash
Distribution Pool less the amount of Cash in the Reserve, (b) the New Notes
Distribution Amount less the aggregate principal amount of New Notes in the
Reserve, (c) the New Common Stock Distribution Pool less the number of shares of
New Common Stock in the Reserve and (d) subject to Sections 5.1(c) and 10.1 of
the Plan and in accordance with Section 6.4(b) of the Plan, the Class A
Membership Units. While not free from doubt, the Debtors believe that each
Series 1977 Bondholder Claim and Series 1985 Bondholder Claim will be treated as
a single Claim for federal income tax purposes and treated as a security,
notwithstanding that such Claims may be treated as two separate Claims (i.e.,
secured and unsecured) under the Bankruptcy Code. The Debtors also believe that
both the Series 1997 A Bonds and the Series 1997 B Bonds constitute "securities"
for federal income tax purposes. Additionally, the Debtors believe that the New
Common Stock and the New Notes constitute "stock or securities." Consequently,
the Series 1977 Bondholders or Series 1985 Bondholders will not recognize loss
upon the exchange of such Claims. However, the Series 1977 Bondholders or Series
1985 Bondholders who realize gain upon such exchange will recognize the gain to
the extent of the amount of Cash received plus the fair market value of the
Class A Membership Units received. A holder's basis in his Series 1997 Bonds,
New Notes or New Common Stock received will be equal to such holder's basis in
his Series 1977 Bonds or Series 1985 Bonds, respectively, decreased by the
amount of Cash received, further decreased by the fair market value of the Class
A Membership Units received and increased by any recognized gain. Such basis
will be allocated among the Series 1997 A Bonds or Series 1997 B Bonds, the New
Notes and the New Common Stock in proportion to their relative fair market
values.
B. OTHER SECURED CLAIMS (CLASS 5)
Pursuant to the Plan, at the sole discretion of the Debtors or
Reorganized Debtors, (i) each Allowed Other Secured Claim shall be reinstated
and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy
Code, (ii) each holder of an Allowed Other Secured Claim shall receive Cash in
an amount equal to such Allowed Other Secured Claim, including any required
interest thereon, or (iii) each holder of an Allowed Other Secured Claim shall
receive the Collateral securing its Allowed Other Secured Claim and any required
interest thereon, in full and complete satisfaction of such Allowed Other
Secured Claim on the later of the Effective Date and the date such Allowed Other
Secured Claim becomes an Allowed Other Secured Claim, or as soon thereafter as
practicable. The tax consequences of the satisfaction of an Allowed Other
Secured Claim will depend upon the nature of such Claims. Holders of such Claims
should consult their own tax advisors.
4. HOLDERS OF CONVENIENCE CLAIMS AND GENERAL UNSECURED CLAIMS
(CLASSES 6 AND 7)
Pursuant to the Plan, holders of Allowed General Unsecured
Claims shall receive a Pro Rata Share of (a) the Cash Distribution Pool less the
amount of Cash in the Reserve, (b) the New Notes Distribution Amount less the
aggregate principal amount of New Notes in the Reserve, (c) the New Common Stock
Distribution Pool less the number of shares of New Common Stock in the Reserve
and (d) subject to Sections 5.1(c) and 10.1 of the Plan and in accordance with
Section 6.4(b) of the Plan, the Class A Membership Units. Holders of Allowed
Convenience Claims will be paid in full in Cash. In general, holders of Allowed
Convenience Claims or Allowed General Unsecured Claims will realize gain or loss
in an amount equal to the difference between (a) the holder's basis in the
Allowed Convenience Claim or Allowed General Unsecured Claims and (b) the sum of
(i) the amount of Cash received, (ii) the issue price of any New Notes received
and (iii) the fair market value of any stock or other property received.
If the Claim is a capital asset in the hands of the exchanging
holder, any gain or loss recognized generally will be capital gain or loss
(except to the extent that any amount received is attributable to accrued but
unpaid interest or any gain is attributable to accrued market discount, see
Section XI.B.5., "Allocation of Consideration to Interest" and XI.B.6., "Market
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Discount") and such gain or loss would be long-term capital gain or loss if the
holder's holding period for the Claim surrendered exceeded one year at the time
of the exchange. Otherwise, the character of any gain or loss recognized will
depend on the nature of the Claims. Such holders should consult their own tax
advisors.
If both the holder's Claim and any portion of the
consideration received by such holder constitute "stock or securities" for
federal income tax purposes, (i) any realized loss will not be recognized for
federal income tax purposes and (ii) any realized gain will be recognized in an
amount equal to the lesser of (a) the gain realized or (b) the amount of Cash
and the fair market value of any other property received in excess of the amount
allocated to accrued but unpaid interest. Otherwise, the entire amount of such
realized gain or loss will be recognized (i.e., taken into account) for federal
income tax purposes.
A holder's basis in his New Notes and New Common Stock
received will be equal to such holder's basis in his General Unsecured Claim,
decreased by the amount of Cash received, further decreased by the fair market
value of the Class A Membership Units received and increased by any recognized
gain. Such basis will be allocated between the New Notes and the New Common
Stock in proportion to their relative fair market values.
5. ALLOCATION OF CONSIDERATION TO INTEREST
The consideration received pursuant to the Plan in exchange
for certain Claims may be allocated between the principal and the accrued, but
unpaid interest, if any. The tax consequences of the receipt of consideration
allocable to accrued but unpaid interest may differ from the tax consequences of
the receipt of consideration allocable to the principal amount of the Claim.
Holders of Claims will recognize ordinary income to the extent that any
consideration received under the Plan in exchange therefor is allocable to
accrued but unpaid interest that has not already been included in the holder's
taxable income. If, on the other hand, amounts of accrued but unpaid interest
previously included in the holder's taxable income exceed the amount of
consideration allocable to such interest, the holder generally should be treated
as recognizing an ordinary loss.
The proper allocation between principal and interest of
amounts received in exchange for the discharge of a Claim at a discount is
unclear and may be affected by, among other things, the rules in the Tax Code
relating to imputed interest, original issue discount, market discount and bond
issuance premium. The Plan will provide that, for federal income tax purposes,
consideration to be distributed pursuant to the Plan will be allocated to the
principal amount of a Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
Generally, amounts allocated to principal will be treated as a recovery of
capital and not taxable unless a holder's basis is less than the principal
amount of the Claim. Nevertheless, it is possible that the IRS may take the
position that a pro rata portion of the consideration received by each holder of
an interest-bearing obligation must be allocated to interest or that
consideration must be allocated first to accrued but unpaid interest and then to
principal. In this regard, holders of Claims should consult their own tax
advisors.
6. MARKET DISCOUNT
Market discount is defined generally in the Tax Code as the
excess, if any, of (i) the "stated redemption price at maturity" of a debt
obligation over (ii) the adjusted basis of the debt obligation in the hands of a
holder immediately after its acquisition. In the case of any bond having
original issue discount, the stated redemption price at maturity shall be
treated as equal to its revised issue price. A market discount bond is defined
as any bond having market discount. Debt instruments in the hands of original
holders are not market discount bonds. Moreover, under a de minimis exception,
there is no market discount if the excess of the stated redemption price at
maturity of a debt instrument over the holder's adjusted basis in the debt
instrument is less than 0.25% of the stated redemption price at maturity
multiplied by the number of complete years after the acquisition date to the
date of maturity. Unless the holder elects otherwise, the accrued market
discount for an old debt instrument generally is the amount calculated by
multiplying the market discount for such debt instrument by a factor, the
numerator of which is the number of days an old debt instrument has been held by
the holder and the denominator of which is the number of days after the
acquisition of the old debt instrument up to and including its maturity date.
Holders of old debt instruments in whose hands such
instruments are market discount bonds will be required to treat as ordinary
income any gain recognized on the exchange of such instruments pursuant to the
Plan to the extent of the market discount accrued during the holder's period of
ownership, unless the holder has elected to include the market discount in
income as it accrued. Any additional gain would be characterized as discussed
above.
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The Treasury Department is expected to promulgate regulations
that will provide that any accrued "market discount" not treated as ordinary
income upon a tax-free exchange of market discount bonds would carry over to the
nonrecognition property received in the exchange.
7. SUBSEQUENT DISTRIBUTIONS
Holders of Allowed General Unsecured Claims will receive a
distribution of New Common Stock, New Notes, Class A Membership Units and Cash
on the Initial Distribution Date. On each Subsequent Distribution Date, holders
of Disputed General Unsecured Claims which thereafter become Allowed Claims will
receive distributions of New Common Stock, New Notes, Class A Membership Units
and Cash under the Plan. The Plan contemplates that as a result of the
disallowance of Disputed General Unsecured Claims, holders of Allowed General
Unsecured Claims as of the Initial Distribution Date may receive additional
distributions of New Common Stock, New Notes, Class A Membership Units and Cash
on one or more Subsequent Distribution Dates. As a result of such possibility,
the IRS is likely to take the position that a holder of an Allowed General
Unsecured Claim who receives an initial distribution of Cash, Class A Membership
Units, New Notes and New Common Stock having an aggregate fair market value less
than the adjusted basis of such Allowed Claim will not be able to recognize a
loss until the last possible date on which such holder can receive additional
shares of New Common Stock, New Notes, Class A Membership Units and Cash because
the holder will not know at the time of the initial distribution whether the
holder will in fact realize loss and will not be able to measure the amount
thereof. Therefore, there can be no assurance that the holder of an Allowed
General Unsecured Claim will be able to recognize a loss for federal income tax
purposes until some time in the future. In addition, even if a holder has an
overall loss as a result of the implementation of the Plan, or if a holder would
otherwise be entitled to nonrecognition of gain or loss upon the receipt of New
Common Stock and New Notes in exchange for Claims constituting "stock or
securities" for federal income tax purposes, a portion of any distribution
received by the holder of an Allowed General Unsecured Claim on a Subsequent
Distribution Date will be treated in part as a payment of principal on such
Allowed General Unsecured Claim and in part as imputed interest. At the time of
any such subsequent distribution, the Reorganized Debtors will mail to the
holder of an Allowed General Unsecured Claim receiving an additional
distribution an appropriate tax information return setting forth the amount of
such distribution constituting interest for federal or state tax purposes.
C. EDISON EQUITY INTERESTS.
Holders of Allowed Edison Equity Interests shall receive, on
account of such interests, Warrants to purchase approximately 9.0 percent of the
shares of New Common Stock issued pursuant to the Plan on a fully diluted basis,
as well as Rights to purchase (i) New Common Stock and (ii) at the election of
the holders thereof, either (a) the Class A Membership Units in the EBS
Litigation, L.L.C. or (b) if such holders also are D&B Spinoff Stockholders, the
right to participate in the D&B Spinoff Settlement. A holder of an Allowed
Edison Equity Interest will realize and recognize gain, if any, equal to the
difference between (i) the fair market value of the Warrants and Rights received
and (ii) the holder's adjusted tax basis in the Allowed Edison Equity Interest
exchanged therefor. A holder's tax basis in the Warrants and Rights received by
such holder will be equal to the respective fair market values thereof. The
holding period for any such Warrants and Rights will begin on the day after the
exchange.
If the holder's adjusted tax basis in the Allowed Edison
Equity Interest exceeds the fair market value of the Warrants and Rights on the
date of the exchange, then the loss attributable thereto will not be immediately
recognizable.
Although not free from doubt, the Debtors believe that the
"wash sale" rule of section 1091 of the Tax Code will defer the loss on the
exchange. Because the Warrants entitle the holders to acquire up to 9.0 percent
of the value of Reorganized Edison, the Debtors believe the basis of the Allowed
Edison Equity Interest will be allocated 9.0 percent to the Warrants and 91% to
the Rights. The deferred loss attributable to the Warrants will be recognizable
only at such time as the Warrants expire or are disposed of in a taxable
disposition, but if the Warrants are exercised, the basis attributable to the
Warrants will be added to the basis of any New Common Stock received upon the
exercise thereof. The Debtors believe that the remainder of any loss should be
attributable to the Rights and such loss will be realized and recognized for tax
purposes at the time the Rights expire or are otherwise disposed of in a taxable
transaction. Because the Rights must be exercised within 30 days of the
Effective Date, any loss attributable to the Rights will not result in deferral
beyond the current taxable year. If the Rights are exercised, then any basis in
the Rights will be added to the basis of any property acquired in accordance
with the principles hereinafter set forth.
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BECAUSE THE APPLICATION OF THE WASH SALE RULE IS NOT CLEAR,
HOLDERS OF ALLOWED EDISON EQUITY INTERESTS SHOULD CONSULT THEIR OWN TAX
ADVISORS.
The Treasury Department has recently promulgated proposed
regulations that provide that stock rights issued by a corporation that is a
party to a reorganization are to be treated as "stock or securities," which have
no principal amount for purposes of sections 354, 355 and 356 of the Tax Code.
The Debtors believe that notwithstanding the proposed regulations, holders of
Allowed Edison Equity Interests will recognize gain or loss as described herein
even if such regulations become final before the Effective Date.
Upon the exercise of a Right, a holder thereof must allocate
the sum of the tax basis allocated to the Right and the amount of the exercise
price (i.e., $16.40) between the New Common Stock acquired upon exercise and
either the Class A Membership Units in the EBS Litigation, L.L.C. or the right
to participate in the D&B Spinoff Settlement, as the case may be. No gain or
loss will be realized upon the exercise of the Right. The tax holding period of
any New Common Stock acquired upon the exercise of the Right will not include
the period during which the Right was held.
The tax consequences of the ownership and disposition of a
Class A Membership Unit in the EBS Litigation, L.L.C. or the right to
participate in the D&B Spinoff Settlement, as the case may be, acquired by the
holder of an Allowed Edison Equity Interest upon the exercise of a Right are not
clear. The Debtors believe that the following tax consequences will result:
1. A holder who exercises Rights and determines to participate
in the D&B Spinoff Settlement by exercising the D&B Spinoff Release Minimum
Rights will (i) to the extent he or she continues to hold D&B Common Stock at
the date of the exercise of the Rights, add the allocated basis in the right to
participate in the D&B Spinoff Settlement, as determined above, to his or her
basis for his or her D&B Common Stock and (ii) if he or she has disposed of his
or her entire interest in D&B Common Stock, realize a loss in an amount equal to
the allocated basis for the right to participate in the D&B Spinoff Settlement
as determined above. The character of such loss will be the same as the
character of any gain or loss previously realized by the holder on the
disposition of his or her D&B Common Stock.
2. If a holder exercises Rights, elects to participate in the
D&B Spinoff Settlement and is required to pay and pays the D&B Spinoff Release
Shortfall Amount, then (i) to the extent he or she continues to hold D&B Common
Stock at the date of the exercise of the right to participate in the D&B Spinoff
Settlement he or she will add the allocated basis in the right to participate in
the D&B Spinoff Settlement, as determined above, plus the D&B Spinoff Shortfall
Amount to his or her basis for his or her D&B Common Stock and (ii) if he or she
has disposed of his or her entire interest in D&B Common Stock, then he or she
will realize a loss in an amount equal to the sum of the allocated basis for the
right to participate in the D&B Spinoff Settlement, as determined above, plus
the D&B Spinoff Release Shortfall Amount. The character of such loss will be the
same as the character of any gain or loss previously realized by the holder on
the disposition of his or her D&B Common Stock.
3. If a holder elects to participate in the D&B Spinoff
Settlement by paying the D&B Spinoff Release Minimum Purchase Price to obtain a
release, then (i) to the extent he or she continues to hold D&B Common Stock at
the date of the exercise of the Right he or she will add the allocated basis in
the right to participate in the D&B Spinoff Settlement, as determined above,
plus the D&B Spinoff Release Minimum Purchase Price to his or her basis for his
or her D&B Common Stock and (ii) if he or she has disposed of his or her entire
interest in D&B Common Stock, then he or she will realize a loss in an amount
equal to the sum of his or her allocated basis in the right to participate in
the D&B Spinoff Settlement, as described above, and the D&B Spinoff Release
Minimum Purchase Price. The character of such loss will be the same as the
character of any gain or loss previously realized by the holder on the
disposition of his or her D&B Common Stock.
4. If the holder of an Allowed Edison Equity Interest
exercises a Right and receives in exchange therefor a Class A Membership Unit in
the EBS Litigation, L.L.C. and subsequently receives a distribution from the EBS
Litigation, L.L.C., the consequences to such a holder will be the same as for
other holders of Class A Membership Units in the EBS Litigation, L.L.C. See
Section XI.F., "Certain Federal Income Tax Consequences of the Plan -- Taxation
of the LLCs."
HOLDERS OF ALLOWED EDISON EQUITY INTERESTS WHO CONTEMPLATE
EXERCISING RIGHTS SHOULD CONSULT THEIR OWN TAX ADVISORS.
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D. CONSEQUENCES TO DEBTORS OR REORGANIZED DEBTORS.
1. DISCHARGE-OF-INDEBTEDNESS INCOME GENERALLY
In general, the discharge of a debt obligation by a debtor for
an amount less than the adjusted issue price (generally, the amount received
upon incurring the obligation plus the amount of any previously amortized
original issue discount and less the amount of any previously amortized bond
issue premium) gives rise to cancellation-of-indebtedness ("COD") income which
must be included in a debtor's income for federal income tax purposes, unless,
in accordance with section 108(e)(2) of the Tax Code, payment of the liability
would have given rise to a deduction. A corporate debtor that issues its own
stock in satisfaction of its debt is treated as realizing COD income to the
extent the fair market value of the stock issued is less than the adjusted issue
price of the debt. COD income is not recognized by a taxpayer that is a debtor
in a title 11 (bankruptcy) case if a discharge is granted by the court or
pursuant to a plan approved by the court (the "bankruptcy exclusion rules").
Pursuant to the Plan, Administrative Expense Claims, Priority
Tax Claims, Other Priority Claims, Secured Tax Claims and Convenience Claims
generally will be paid in full and, therefore, treatment of such Claims should
not give rise to COD income. With respect to other Claims, there could be COD
income if such Claims are not satisfied in full. Based upon current estimates of
value, the Debtors believe that consummation of the Plan will give rise to
approximately $38,000,000 of COD income that will be excluded from gross income
as described above, but will reduce attributes as described below.
2. ATTRIBUTE REDUCTION
The relief accorded to COD income by the bankruptcy exclusion
rules is not without cost. If a taxpayer excludes COD income because of the
bankruptcy exclusion rules, it is required to reduce prescribed tax attributes
in the following order and at the following rates: (i) net operating losses
("NOLs") for the taxable year of the discharge and NOL carryovers to such
taxable year, dollar for dollar; (ii) general business credit carryovers, 33-1/3
cents for each dollar of excluded income; (iii) the minimum tax credit available
under section 53(b) of the Tax Code as of the beginning of the taxable year
immediately following the taxable year of the discharge, 33-1/3 cents for each
dollar of excluded income; (iv) any capital losses for the taxable year of the
discharge and any capital loss carryovers to such taxable year, dollar for
dollar; (v) the basis of the taxpayer's assets both depreciable and
nondepreciable, dollar for dollar, but the basis cannot be reduced below an
amount based on the taxpayer's aggregate liabilities immediately after the
discharge; (vi) passive activity loss or credit carryovers of the taxpayer under
section 469(b) of the Tax Code from the taxable year of the discharge, dollar
for dollar in the case of loss carryovers and 33-1/3 cents for each dollar of
excludible income in the case of any passive activity credit carryovers; and
(vii) foreign tax credit carryovers, 33-1/3 cents for each dollar of excluded
income. However, the taxpayer may elect to avoid the prescribed order of
attribute reduction and instead reduce the basis of depreciable property first,
without regard to the "aggregate liabilities" limitation. This election extends
to stock of a subsidiary if the subsidiary consents to reduce the basis of its
depreciable property. If the Reorganized Debtors make this election, the
limitation prohibiting the reduction of asset basis below the amount of its
remaining undischarged liability does not apply. Based on the statute and recent
IRS rulings, the Debtors believe that, in the case of affiliated corporations
filing a consolidated return (such as the Debtors or Reorganized Debtors), the
attribute reduction rules apply separately to the particular corporation whose
debt is being discharged, and not to the entire group without regard to the
identity of the debtor. If a substantial NOL exists, the Debtors or Reorganized
Debtors will consider making the election to reduce the basis of their
depreciable assets first under section 108(b)(5) of the Tax Code.
3. UTILIZATION OF NET OPERATING LOSS CARRYOVERS
In general, whenever there is a 50% ownership change of a
debtor corporation during a three-year period, the ownership change rules in
section 382 of the Tax Code limit the utility of NOLs on an annual basis to the
product of the fair market value of the corporate equity immediately before the
ownership change, multiplied by a hypothetical interest rate published monthly
by the IRS called the "long-term tax-exempt rate." In any given year, this
limitation may be increased by certain built-in gains realized after, but
accruing economically before, the ownership change and the carryover of unused
section 382 limitations from prior years. The long-term tax-exempt rate as of
the date of this Disclosure Statement is 5.64%.
The harsh effects of the ownership change rules can be
ameliorated by an exception that applies in the case of reorganizations under
the Bankruptcy Code. Under the so-called "Section 382(l)(5) bankruptcy
exception" to section 382 of the Tax Code, if the reorganization results in an
exchange by qualifying creditors and stockholders of their claims and interests
for at least 50% of the debtor's stock (in vote and value), then the general
ownership change rules will not apply. Instead, the
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debtor will be subject to a different tax regime under which the NOL is not
limited on an annual basis but is reduced by the amount of interest deductions
claimed during the three taxable years preceding the date of the reorganization,
and during the part of the taxable year prior to and including the
reorganization, in respect of debt converted into stock in the reorganization.
Moreover, if the section 382(l)(5) bankruptcy exception applies, any further
ownership change of the debtor within a two-year period will result in
forfeiture of all of the debtor's NOLs incurred prior to the date of the second
ownership change.
If the debtor would otherwise qualify for the section
382(l)(5) bankruptcy exception, but the NOL reduction rules mandated thereby
would greatly reduce the NOL, the debtor may elect instead to be subject to the
annual limitation rules of section 382 of the Tax Code, but is permitted to
value the equity of the corporation for purposes of applying the formula by
using the value immediately after the ownership change (by increasing the value
of the old loss corporation to reflect any surrender or cancellation of
creditors' claims) instead of immediately before the ownership change (the
"Section 382(l)(6) limitation"). Alternatively, if the debtor does not qualify
for the section 382(l)(5) bankruptcy exception, the utility of its NOL would
automatically be governed by the section 382(l)(6) limitation.
Because a substantial amount of Claims have been acquired by
investors during the case, the Debtors are not sure whether they will meet the
requirements of section 382(l)(5), specifically, the requirement that
indebtedness must be held by a creditor for at least 18 months prior to the
Commencement Date for the creditor to be treated as a qualifying creditor.
Consequently, the Reorganized Debtors' use of the NOL may be governed by the
section 382(l)(6) exception. If utilization of the Reorganized Debtors' NOL is
governed by section 382(l)(6), rather than section 382(l)(5), it is possible
that the Reorganized Debtors' use of such NOL against taxable income resulting
from the termination of the Pension Plan, see Section XI.E.2., "Termination of
Pension Plan -- Tax Consequences of Termination of the Pension Plan to the
Debtors and/or Reorganized Debtors," will be limited and a significant tax
liability to the Reorganized Debtors could result.
In addition to the foregoing, the potential exercise of Rights
by holders of Allowed Edison Equity Interests (or their transferees) could
implicate section 382. For example, if holders of Allowed Edison Equity
Interests (or their transferees) exercise Rights in an amount sufficient to
create another ownership change following shortly after the ownership change
created as a result of the implementation of the Plan, a new section 382
limitation would arise. The computation of that section 382 limitation would
depend upon the value of the equity of Reorganized Edison at the time of the
second ownership change and the long-term tax-exempt rate at that time. Although
it may be unlikely, it is possible that the value of the equity of Reorganized
Edison at the time of the latter ownership change may be less than the value of
the equity of Reorganized Edison at the time of the first ownership change, thus
reducing the amount of the annual section 382 limitation.
Even if Rights are not exercised in an amount sufficient to
give rise to an ownership change solely as a result of such exercise, there
would nevertheless be an increase in ownership by the holders of such Rights,
which could contribute toward an ownership change during an applicable
three-year period that would not otherwise have occurred, but for the exercise
of such Rights. In such case, the section 382 limitation would be measured at
the date that sufficient owner shifts had occurred within a three-year period to
give rise to an ownership change. If the value on that date were less than the
value on the Effective Date, then the annual section 382 limitation could be
reduced from and after that date.
Based on their returns as filed and upon estimates for the
current taxable year, the Debtors believe they will have an NOL between $50
million and $70 million. However, the amount of the NOL could be reduced or
eliminated because of (i) audit adjustments by the IRS that result from current
IRS examinations of the Debtors' returns; (ii) the Pension Plan reversion; (iii)
realization of income by Debtors or Reorganized Debtors as a result of transfer
of the Avoidance Claims and the Corporate Headquarters Building (or the sale or
other disposition thereof by the Reorganized Debtors) to the EBS Litigation,
L.L.C. and EBS Building, L.L.C., respectively; or (iv) any COD income as a
result of the attribute reduction rules discussed above in Section XI.D.2.,
"Certain Federal Income Tax Consequences of the Plan -- Consequences to Debtors
or Reorganized Debtors -- Attribute Reduction."
Holders of Claims should note, however, that the amount of
NOLs available to the Debtors or Reorganized Debtors is based on factual and
legal issues with respect to which there can be no certainty. The actual annual
utility of the NOL carryovers will be determined by actual market value and the
actual long-term tax exempt rate at the date of reorganization and may be
different from amounts described herein.
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4. CONSOLIDATED RETURN ITEMS
The confirmation of the Plan may result in the recognition of
income or loss attributable to the existence of deferred intercompany
transactions, excess loss accounts or similar items. The Debtors, however, do
not believe that the consequence of such items (if any) would have a material
effect on them.
5. ALTERNATIVE MINIMUM TAX
A corporation is required to pay alternative minimum tax to
the extent that 20% of "alternative minimum taxable income" ("AMTI") exceeds the
corporation's regular tax liability for the year. AMTI is generally equal to
regular taxable income with certain adjustments. For purposes of computing AMTI,
a corporation is entitled to offset no more than 90% of its AMTI with NOLs (as
computed for alternative minimum tax purposes). Thus, if the Reorganized
Debtors' consolidated group is subject to the alternative minimum tax in future
years, a federal tax of 2% (20% of the 10% of AMTI not offset by NOLs) will
apply to any net taxable income earned by the Reorganized Debtors' consolidated
group in future years that is otherwise offset by NOLs.
E. TERMINATION OF THE PENSION PLAN.
1. OVERVIEW
Currently, the Pension Plan is overfunded, with assets as of
April 30, 1997 aggregating approximately $145,000,000 and an accrued benefit
obligation to Pension Plan participants as of the Termination Date (May 31,
1997), aggregating approximately $60,300,000. The Debtors have determined to
terminate the Pension Plan and establish a replacement pension plan. After the
Pension Plan's liabilities to participants are satisfied and the costs of
terminating the Pension Plan and establishing the replacement pension plan are
paid, 25% of the remaining assets will be transferred to the replacement pension
plan. The balance of remaining assets -- the Pension Plan Proceeds -- will be
paid to the Debtors or Reorganized Debtors. Thereafter, within five days after
the Pension Plan Payment Date, the Pension Plan Proceeds, shall be transferred
to the EBS Pension, L.L.C. For a description of the EBS Pension, L.L.C. and the
termination of the Pension Plan and the establishment of a replacement plan, see
Section V.E., "The Plan of Reorganization -- The Limited Liability Companies"
and Section V.G., "The Plan of Reorganization -- The Pension Plan."
Generally, when an employer terminates a pension plan and
receives excess assets, it must pay a nondeductible excise tax equal to 50% of
the value of the excess assets it receives. However, if the employer establishes
a "qualified replacement plan" within the meaning of section 4980 of the Tax
Code, the excise tax is reduced to 20%. A qualified replacement plan must be
funded with 25% of the excess assets. The Debtors intend to create such a
qualified replacement plan. The Debtors anticipate that approximately
$18,750,000 of the excess assets will be transferred to the qualified
replacement plan. After payment of applicable excise and income taxes and costs,
the net remaining excess assets, which are estimated at approximately
$48,800,000, will be distributed to the Debtors or Reorganized Debtors.
Thereafter, within five days after Pension Plan Payment Date such excess assets
less costs and expenses, will be transferred to the EBS Pension, L.L.C. The
exact amount of excess assets that will be transferred to the replacement plan
and to the Debtors can only be determined after all benefit liabilities under
the Pension Plan have been satisfied.
Within 120 days after the Termination Date, the Debtors will
notify the PBGC of the termination of the Pension Plan effective as of the
Termination Date. By application dated March 24, 1997, the Debtors requested a
ruling from the IRS that the Pension Plan will retain its favorable tax
treatment upon termination. The receipt of a favorable ruling from the IRS is
not a condition to the termination of the Pension Plan or the effectiveness of
the Plan. There can be no assurance that the IRS will issue this ruling.
2. TAX CONSEQUENCES OF TERMINATION OF THE PENSION PLAN TO THE
DEBTORS AND/OR REORGANIZED DEBTORS
As a result of terminating the Pension Plan and establishing a
qualified replacement plan, the Reorganized Debtors must pay a nondeductible 20%
excise tax on the value of the excess assets they receive. Thus, the Reorganized
Debtors must pay approximately $12,700,000 as the excise tax on the
approximately $63,500,000 of excess assets that is estimated to revert to them.
Additionally, the Reorganized Debtors will realize the total $63,500,000 as
taxable income. The Debtors may be able to offset the $63,500,000 with the NOL
and other deductions. However, if there is COD income and the $63,500,000 is
subject to tax after the taxable year of confirmation, the Debtors would have to
pay tax on the $63,500,000 because the NOL
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would have been substantially reduced or eliminated by the COD income. See
Section XI.D.2., "Certain Federal Income Tax Consequences of the Plan --
Consequences to Debtors or Reorganized Debtors -- Attribute Reduction". To the
extent that the Debtors reduce taxable income because of the application of
NOLs, they may be subject to Alternative Minimum Tax. See Section XI.D.5.,
"Certain Federal Income Tax Consequences of the Plan -- Consequences to Debtors
- -- Alternative Minimum Tax."
The tax consequences of the receipt by the Debtors of the
Pension Plan reversion during the taxable year in which the Effective Date
occurs are uncertain. Depending upon the Debtors' results of operations for the
current taxable year and the allocation of the Debtors' income and deductions
for the taxable year arising out of the transactions contemplated by the Plan,
it is possible that the Debtors will have positive taxable income for the
postchange portion of the year that will create a significant federal income tax
liability.
F. TAXATION OF THE LLCS.
The taxation of the LLCs and of the members therein is complex
and, to some extent, uncertain.
Each of the LLCs intends to treat itself as a partnership for
federal income tax purposes and not as a corporation. However, there can be no
assurance that the IRS will agree with this treatment.
A partnership that constitutes a "publicly traded partnership"
is taxable as a corporation. As it is anticipated that the EBS Building, L.L.C.
will qualify for an exception to the publicly traded partnership rules so long
as at least 90% of its gross income consists of real property rents or gain from
the sale or disposition of real property, transfers of Class A Membership Units
in the EBS Building, L.L.C. should not cause that LLC to become taxable as a
corporation.
As the EBS Litigation, L.L.C. and the EBS Pension, L.L.C. will
not qualify for any exception to the publicly traded partnership rules, the
organizational documents of the EBS Litigation, L.L.C. and the EBS Pension,
L.L.C. generally limit transfers of Class A Membership Units to those that will
not cause the EBS Litigation, L.L.C. or the EBS Pension, L.L.C. to be treated as
a corporation for publicly traded partnership purposes.
If an LLC were treated as a corporation for federal income tax
purposes, the LLC's taxable income would be subject to tax at regular corporate
rates and would not flow through to the members for reporting on their own
returns. Moreover, distributions by an LLC would be taxable as ordinary
dividends to the distributee-members to the extent of the LLC's earnings and
profits, and would not be deductible by the LLC.
The Debtors intend to take the position that, on the Effective
Date, (a) the Debtors or Reorganized Debtors contributed all Unresolved
Avoidance Claims to the EBS Litigation, L.L.C. in exchange for Class A
Membership Units in the EBS Litigation, L.L.C., (b) the Debtors or Reorganized
Debtors contributed the right to receive the Pension Plan Proceeds to the EBS
Pension, L.L.C. in exchange for Class A Membership Units in the EBS Pension,
L.L.C., (c) the Debtors or Reorganized Debtors contributed the Corporate
Headquarters Building to the EBS Building, L.L.C. in exchange for Class A
Membership Units in the EBS Building, L.L.C. and (d) the Reorganized Debtors
transferred to the holders of Allowed General Unsecured Claims all Class A
Membership Units in the LLCs other than (i) Class A Membership Units in the EBS
Litigation, L.L.C. transferred to holders of Allowed Edison Equity Interests
that elect to exercise Rights (or their transferees) and receive Class A
Membership Units in the EBS Litigation, L.L.C. and (ii) Class A Membership Units
held for subsequent distribution once the status of Disputed General Unsecured
Claims is resolved. It is anticipated that recipients of Class A Membership
Units in the LLCs will have a basis in those interests equal to their respective
fair market values at the time of receipt.
Assuming that the LLCs qualify as partnerships for federal
income tax purposes, each member in each LLC must take into account its
distributed share of LLC items of income, gain, loss, and deduction in the
member's taxable year in which the taxable year of the LLC ends, whether or not
cash distributions with respect to those items are made to the members. Those
taxable items will have the same character (ordinary or capital) in the hands of
each member as they have in the hands of the LLCs. In the first instance these
LLC items will be reported in the annual federal information returns filed by
the LLCs.
Members generally will be required to either treat LLC items
on their tax returns in a manner that is consistent with the treatment accorded
those items on the LLC's return or notify the IRS of any inconsistency. It is
possible that the federal information returns the LLCs are required to file will
be audited. It is anticipated that such an audit would generally be conducted at
the LLC level in a single proceeding rather than in a separate proceeding with
each member.
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G. INFORMATION REPORTING AND BACKUP WITHHOLDING.
Under the backup withholding rules of the Tax Code, holders of
Claims may be subject to backup withholding at a rate of 31% with respect to
distributions or payments made pursuant to the Plan, unless such holder (i)
comes within certain exempt categories (generally including corporations) and,
when required, demonstrates this fact, or (ii) provides a correct taxpayer
identification number and certifies under penalty of perjury that the taxpayer
identification number is correct and that the holder is not subject to backup
withholding because of a failure to report all dividend and interest income.
Backup withholding is not an additional tax, but merely an advance payment,
which may be refunded to the extent it results in an overpayment of tax. Holders
of Claims may be required to establish exemption from backup withholding or to
make arrangements with respect to the payment of backup withholding.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX ASPECTS OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF AN ALLOWED
CLAIM OR EQUITY INTEREST.
XII. ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the Debtors'
alternatives include (i) liquidation of the Debtors under chapter 7 of the
Bankruptcy Code and (ii) the preparation and presentation of an alternative plan
or plans of reorganization.
A. LIQUIDATION UNDER CHAPTER 7.
If no chapter 11 plan can be confirmed, the Chapter 11 Cases
may be converted to cases under chapter 7 of the Bankruptcy Code in which a
trustee would be elected or appointed to liquidate the assets of the Debtors. A
discussion of the effect that a chapter 7 liquidation would have on the recovery
of holders of Claims and Equity Interests is set forth in Section VI.C.4.,
"Confirmation and Consummation Procedure -- Confirmation -- Best Interests
Test." The Debtors believe that liquidation under chapter 7 would result in (i)
smaller distributions being made to creditors than those provided for in the
Plan because of the additional administrative expenses involved in the
appointment of a trustee and attorneys and other professionals to assist such
trustee, (ii) additional expenses and claims, some of which would be entitled to
priority, which would be generated during the liquidation and from the rejection
of leases and other executory contracts in connection with a cessation of the
Debtors' operations and (iii) the failure to realize the greater, going concern
value of the Debtors' assets.
B. ALTERNATIVE PLAN OF REORGANIZATION.
If the Plan is not confirmed, the Debtors or any other party
in interest could attempt to formulate a different plan of reorganization. Such
a plan might involve either a reorganization and continuation of the Debtors'
business or an orderly liquidation of their assets. During the course of
negotiation of the Plan, the Debtors explored various other alternatives and
concluded that the Plan represented the best alternative to protect the
interests of creditors and other parties in interest. The Debtors have not
changed their conclusions.
The Debtors believe that the Plan enables the Debtors to
successfully and expeditiously emerge from chapter 11, preserves their business
and allows creditors and equity interest holders to realize the highest
recoveries under the circumstances. In a liquidation under chapter 11 of the
Bankruptcy Code, the assets of the Debtors would be sold in an orderly fashion
which could occur over a more extended period of time than in a liquidation
under chapter 7 and a trustee need not be appointed. Accordingly, creditors
would receive greater recoveries than in a chapter 7 liquidation. Although a
chapter 11 liquidation is preferable to a chapter 7 liquidation, the Debtors
believe that a liquidation under chapter 11 is a much less
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attractive alternative to creditors and equity interest holders because a
greater return to creditors and equity interest holders is provided for in the
Plan.
XIII. CONCLUSION AND RECOMMENDATION
The Debtors believe that confirmation and implementation of
the Plan is preferable to any of the alternatives described above because it
will provide the greatest recoveries to holders of Claims and Equity Interests.
Other alternatives would involve significant delay, uncertainty and substantial
additional administrative costs. The Debtors urge holders of impaired Claims and
Equity Interests entitled to vote on the Plan to vote to accept the Plan and to
evidence such acceptance by returning their Ballots so that they will be
received not later than 4:00 p.m., Central Time, on July 28, 1997.
Dated: Wilmington, Delaware
June 30, 1997
EDISON BROTHERS STORES, INC., a Delaware corporation
(for itself and on behalf of each of the Subsidiaries)
By: /s/ Alan D. Miller
---------------------------------------------------
Name: Alan D. Miller
Title: Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT A
TO DISCLOSURE STATEMENT
-----------------------
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- --------------------------------------------X
:
In re : CHAPTER 11
:
EDISON BROTHERS STORES, INC., et al., : Case No. 95-1354 (PJW)
:
Debtors. : JOINTLY ADMINISTERED
:
- --------------------------------------------X
DEBTORS' AMENDED JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
-----------------------------------------------
WEIL, GOTSHAL & MANGES LLP
Attorneys for the Debtors
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
and
YOUNG, CONAWAY, STARGATT & TAYLOR
Attorneys for the Debtors
1110 N. Market St.
P. O. Box 391
Rodney Square North, 11th Floor
Wilmington, Delaware 19801
(302) 571-6600
Dated: Wilmington, Delaware
June 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I.
<S> <C>
DEFINITIONS AND CONSTRUCTION OF TERMS.........................................................................................A-1
1.1. Administrative Expense Claim................................................................................A-1
1.2. Administrative Reclamation Claim............................................................................A-1
1.3. Allowed.....................................................................................................A-1
1.4. Amended Edison Bylaws.......................................................................................A-2
1.5. Amended Edison Certificate of Incorporation.................................................................A-2
1.6. Authorized Denominations....................................................................................A-2
1.7. Avoidance Claims............................................................................................A-2
1.8. Ballot......................................................................................................A-2
1.9. Bankruptcy Code.............................................................................................A-2
1.10. Bankruptcy Court............................................................................................A-2
1.11. Bankruptcy Rules............................................................................................A-2
1.12. Bond Counsel................................................................................................A-2
1.13. Business Day................................................................................................A-2
1.14. Cash........................................................................................................A-2
1.15. Cash Distribution Pool......................................................................................A-2
1.16. Causes of Action............................................................................................A-2
1.17. Chapter 11 Cases............................................................................................A-2
1.18. Claim.......................................................................................................A-2
1.19. Claims Resolution Committee.................................................................................A-2
1.20. Class.......................................................................................................A-3
1.21. Class A Membership Units....................................................................................A-3
1.22. Class B Membership Units....................................................................................A-3
1.23. Collateral..................................................................................................A-3
1.24. Commencement Date...........................................................................................A-3
1.25. Confirmation Date...........................................................................................A-3
1.26. Confirmation Hearing........................................................................................A-3
1.27. Confirmation Order..........................................................................................A-3
1.28. Convenience Claim...........................................................................................A-3
1.29. Corporate Headquarters Building.............................................................................A-3
1.30. Corporate Headquarters Building Lease.......................................................................A-3
1.31. Corporate Headquarters Building Proceeds....................................................................A-3
1.32. Creditors' Committee........................................................................................A-3
1.33. D&B Common Stock............................................................................................A-3
1.34. D&B Spinoff.................................................................................................A-3
1.35. D&B Spinoff Release Minimum Rights..........................................................................A-3
1.36. D&B Spinoff Release Minimum Purchase Price..................................................................A-4
1.37. D&B Spinoff Release Rights Multiplier.......................................................................A-4
1.38. D&B Spinoff Release Shortfall Amount........................................................................A-4
1.39. D&B Spinoff Settlement......................................................................................A-4
1.40. D&B Spinoff Settlement Period...............................................................................A-4
1.41. D&B Spinoff Settlement Expiration Date......................................................................A-4
1.42. D&B Spinoff Settlement Notice...............................................................................A-4
1.43. D&B Spinoff Settlement Offer................................................................................A-4
1.44. D&B Spinoff Settlement Proceeds.............................................................................A-4
1.45. D&B Spinoff Stockholders....................................................................................A-4
1.46. Debtors.....................................................................................................A-4
A-i
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Page
1.47. Debtors in Possession.......................................................................................A-4
1.48. Director Options............................................................................................A-5
1.49. Director Stock Option Plan..................................................................................A-5
1.50. Disbursing Agent............................................................................................A-5
1.51. Disclosure Statement........................................................................................A-5
1.52. Disputed....................................................................................................A-5
1.53. Disputed Claim Amount.......................................................................................A-5
1.54. EBS Building, L.L.C.........................................................................................A-5
1.55. EBS Building LLC Members Agreement..........................................................................A-5
1.56. EBS Litigation, L.L.C.......................................................................................A-5
1.57. EBS Litigation LLC Members Agreement........................................................................A-5
1.58. EBS Pension, L.L.C..........................................................................................A-5
1.59. EBS Pension LLC Members Agreement...........................................................................A-5
1.60. Edbro Missouri..............................................................................................A-5
1.61. Edbro Missouri Facility.....................................................................................A-5
1.62. Edison......................................................................................................A-5
1.63. Edison Equity Interest......................................................................................A-5
1.64. Effective Date..............................................................................................A-6
1.65. Employment Contracts........................................................................................A-6
1.66. Equity Committee............................................................................................A-6
1.67. Equity Interest.............................................................................................A-6
1.68. Final Order.................................................................................................A-6
1.69. Funding Escrow..............................................................................................A-6
1.70. Funding Escrow Assets.......................................................................................A-6
1.71. Funding Escrow Agent........................................................................................A-6
1.72. Funding Escrow Agreement....................................................................................A-6
1.73. Funding Escrow Mortgages....................................................................................A-6
1.74. Funding Escrow Properties...................................................................................A-6
1.75. General Unsecured Claim.....................................................................................A-6
1.76. Initial Distribution Date...................................................................................A-7
1.77. Insured Claim...............................................................................................A-7
1.78. Issuer......................................................................................................A-7
1.79. Lien........................................................................................................A-7
1.80. LLC Funding Amount..........................................................................................A-7
1.81. Management Options..........................................................................................A-7
1.82. Membership Certificates.....................................................................................A-7
1.83. Mercantile..................................................................................................A-7
1.84. New Common Stock............................................................................................A-7
1.85. New Common Stock Distribution Pool..........................................................................A-7
1.86. New Notes...................................................................................................A-7
1.87. New Notes Distribution Amount...............................................................................A-7
1.88. New Notes Indentures........................................................................................A-7
1.89. Original Bondholder.........................................................................................A-7
1.90. Original Bonds..............................................................................................A-7
1.91. Other Priority Claim........................................................................................A-7
1.92. Other Secured Claim.........................................................................................A-7
1.93. Pension Plan................................................................................................A-7
1.94. Pension Plan Payment Date...................................................................................A-7
1.95. Pension Plan Proceeds.......................................................................................A-8
1.96. Plan........................................................................................................A-8
1.97. Plan Supplement.............................................................................................A-8
1.98. Priority Tax Claim..........................................................................................A-8
1.99. Pro Rata Share..............................................................................................A-8
A-ii
<PAGE>
Page
1.100. Quarter.....................................................................................................A-8
1.101. Record Date.................................................................................................A-8
1.102. Registration Rights Agreement...............................................................................A-8
1.103. Released D&B Spinoff Stockholder............................................................................A-8
1.104. Remarketing Agent...........................................................................................A-8
1.105. Reorganized Debtors.........................................................................................A-8
1.106. Reorganized Edbro Missouri..................................................................................A-8
1.107. Reorganized Edison..........................................................................................A-8
1.108. Reorganized Subsidiaries....................................................................................A-8
1.109. Reserve.....................................................................................................A-8
1.110. Restricted Stock............................................................................................A-8
1.111. Restricted Stock Agreements.................................................................................A-9
1.112. Resolved Avoidance Claims...................................................................................A-9
1.113. Resolved Avoidance Claims Proceeds..........................................................................A-9
1.114. Rights......................................................................................................A-9
1.115. Rights Agent................................................................................................A-9
1.116. Rights Aggregate Consideration..............................................................................A-9
1.117. Rights Exercise Instructions................................................................................A-9
1.118. Rights Exercise Notice......................................................................................A-9
1.119. Rights Exercise Period......................................................................................A-9
1.120. Rights Exercise Price.......................................................................................A-9
1.121. Rights Exercise Proceeds....................................................................................A-9
1.122. Rights Expiration Date......................................................................................A-9
1.123. Schedules...................................................................................................A-9
1.124. Secured Claim...............................................................................................A-9
1.125. Secured Series 1977 Bondholder Claim........................................................................A-9
1.126. Secured Series 1985 Bondholder Claim........................................................................A-9
1.127. Secured Tax Claim...........................................................................................A-9
1.128. Series 1977 Bond Documents.................................................................................A-10
1.129. Series 1977 Bond Ordinance.................................................................................A-10
1.130. Series 1977 Bondholder Claim...............................................................................A-10
1.131. Series 1977 Bondholders....................................................................................A-10
1.132. Series 1977 Bonds..........................................................................................A-10
1.133. Series 1977 Guaranty.......................................................................................A-10
1.134. Series 1977 Lease Agreement................................................................................A-10
1.135. Series 1985 Bank Agreement.................................................................................A-10
1.136. Series 1985 Bond Documents.................................................................................A-10
1.137. Series 1985 Bond Indenture.................................................................................A-10
1.138. Series 1985 Bondholder Claim...............................................................................A-10
1.139. Series 1985 Bondholders....................................................................................A-10
1.140. Series 1985 Bonds..........................................................................................A-10
1.141. Series 1985 Guaranty.......................................................................................A-10
1.142. Series 1985 Lease Agreement................................................................................A-10
1.143. Series 1997 A Bondholders..................................................................................A-10
1.144. Series 1997 B Bondholders..................................................................................A-11
1.145. Series 1997 A Bonds........................................................................................A-11
1.146. Series 1997 B Bonds........................................................................................A-11
1.147. Series 1997 Bond Indenture.................................................................................A-11
1.148. Series 1997 Bondholders....................................................................................A-11
1.149. Series 1997 Bonds..........................................................................................A-11
1.150. Series 1997 Collateral Documents...........................................................................A-11
1.151. Series 1997 Guaranty.......................................................................................A-11
1.152. Series 1997 Loan...........................................................................................A-11
A-iii
<PAGE>
Page
1.153. Series 1997 Loan Agreement.................................................................................A-11
1.154. Series 1997 Loan Documents.................................................................................A-11
1.155. Series 1997 Note...........................................................................................A-11
1.156. Series 1997 Refunding Conditions...........................................................................A-11
1.157. Stock Option Plan..........................................................................................A-11
1.158. Subsequent Distribution Date...............................................................................A-11
1.159. Subsidiary.................................................................................................A-11
1.160. Subsidiary Equity Interest.................................................................................A-11
1.161. Surplus Distributions......................................................................................A-11
1.162. Tort Claim.................................................................................................A-11
1.163. Trustee....................................................................................................A-12
1.164. Unresolved Avoidance Claims................................................................................A-12
1.165. Unsecured Claim............................................................................................A-12
1.166. Warrants...................................................................................................A-12
1.167. Warrant Distribution Pool..................................................................................A-12
ARTICLE II.
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS.......................................................................................A-12
2.1. Administrative Expense Claims..............................................................................A-12
2.2. Professional Compensation and Reimbursement Claims.........................................................A-12
2.3. Priority Tax Claims........................................................................................A-12
ARTICLE III.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS................................................................................A-13
ARTICLE IV.
TREATMENT OF CLAIMS AND EQUITY INTERESTS.....................................................................................A-13
4.1. CLASS 1 -- OTHER PRIORITY CLAIMS...........................................................................A-13
4.2. CLASS 2 -- SECURED SERIES 1977 BONDHOLDER CLAIMS...........................................................A-13
4.3. CLASS 3 -- SECURED SERIES 1985 BONDHOLDER CLAIMS...........................................................A-14
4.4. CLASS 4 -- SECURED TAX CLAIMS..............................................................................A-14
4.5. CLASS 5 -- OTHER SECURED CLAIMS............................................................................A-15
4.6. CLASS 6 -- CONVENIENCE CLAIMS..............................................................................A-15
4.7. CLASS 7 -- GENERAL UNSECURED CLAIMS........................................................................A-15
4.8. CLASS 8 -- EDISON EQUITY INTERESTS.........................................................................A-15
ARTICLE V.
ESTABLISHMENT OF LIMITED LIABILITY
COMPANIES AND FUNDING ESCROW; PENSION PLAN...................................................................................A-16
5.1. EBS Litigation, L.L.C., EBS Pension, L.L.C. and EBS Building, L.L.C........................................A-16
5.2. Funding Escrow.............................................................................................A-17
5.3. Pension Plan...............................................................................................A-18
A-iv
<PAGE>
Page
ARTICLE VI.
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT AND UNLIQUIDATED ADMINISTRATIVE
EXPENSE CLAIMS, CLAIMS AND EQUITY INTERESTS..................................................................................A-18
6.1. Voting of Claims and Equity Interests......................................................................A-18
6.2. Nonconsensual Confirmation.................................................................................A-18
6.3. Method of Distributions Under the Plan.....................................................................A-18
6.4. General Unsecured Claims...................................................................................A-19
6.5. Objections to and Resolution of Administrative Expense Claims, Claims and Equity Interests.................A-21
6.6. Distributions Relating to Allowed Insured Claims...........................................................A-21
6.7. Cancellation and Surrender of Existing Securities and Agreements...........................................A-22
6.8. Registration of New Common Stock...........................................................................A-22
6.9. Listing of New Common Stock, New Notes and Warrants........................................................A-22
6.10. Full Recovery for Holders of Allowed General Unsecured Claims..............................................A-22
ARTICLE VII.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES.....................................................................................A-22
7.1. Assumption or Rejection of Executory Contracts and Unexpired Leases........................................A-22
7.2. Releases...................................................................................................A-23
7.3. Indemnification Obligations................................................................................A-24
7.4. Compensation and Benefit Programs..........................................................................A-24
7.5. Retiree Benefits...........................................................................................A-24
ARTICLE VIII.
CONSOLIDATION OF EDISON AND THE SUBSIDIARIES.................................................................................A-24
8.1. Substantive Consolidation..................................................................................A-24
8.2. Merger of Corporate Entities...............................................................................A-24
ARTICLE IX.
PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF THE REORGANIZED DEBTORS....................................................................................A-25
9.1. General....................................................................................................A-25
9.2. Meetings of Reorganized Edison Stockholders................................................................A-25
9.3. Directors and Officers of Reorganized Debtors..............................................................A-25
9.4. Amended Bylaws and Amended Certificates of Incorporation...................................................A-25
9.5. Issuance of New Securities.................................................................................A-25
9.6. Stock Option Plan..........................................................................................A-26
9.7. Director Stock Option Plan.................................................................................A-26
9.8. Restricted Stock Agreements................................................................................A-26
9.9. Employment Contracts.......................................................................................A-26
9.10. Retention/Performance Bonuses..............................................................................A-26
ARTICLE X.
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN............................................................................A-27
10.1. Procedures for Exercise of Rights..........................................................................A-27
10.2. The D&B Spinoff Settlement Offer...........................................................................A-28
10.3. Term of Bankruptcy Injunction or Stays.....................................................................A-29
A-v
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Page
10.4. Revesting of Assets........................................................................................A-29
10.5. Causes of Action...........................................................................................A-29
10.6. Discharge of Debtors.......................................................................................A-29
10.7. Injunction.................................................................................................A-29
ARTICLE XI.
EFFECTIVENESS OF THE PLAN....................................................................................................A-30
11.1. Conditions Precedent to Effectiveness......................................................................A-30
11.2. Effect of Failure of Conditions............................................................................A-30
11.3. Waiver of Conditions.......................................................................................A-30
ARTICLE XII.
RETENTION OF JURISDICTION....................................................................................................A-31
ARTICLE XIII.
MISCELLANEOUS PROVISIONS.....................................................................................................A-32
13.1. Effectuating Documents and Further Transactions............................................................A-32
13.2. Corporate Action...........................................................................................A-32
13.3. Exemption from Transfer Taxes..............................................................................A-32
13.4. Injunction Regarding Worthless Stock Deduction.............................................................A-32
13.5. Exculpation................................................................................................A-32
13.6. Termination of Committees..................................................................................A-32
13.7. Claims Resolution Committee................................................................................A-33
13.8. Post-Confirmation Date Fees and Expenses...................................................................A-33
13.9. Payment of Statutory Fees..................................................................................A-33
13.10. Amendment or Modification of the Plan......................................................................A-33
13.11. Severability...............................................................................................A-34
13.12. Revocation or Withdrawal of the Plan.......................................................................A-34
13.13. Binding Effect.............................................................................................A-34
13.14. Notices....................................................................................................A-34
13.15. Governing Law..............................................................................................A-35
13.16. Withholding and Reporting Requirements.....................................................................A-35
13.17. Plan Supplement............................................................................................A-35
13.18. Allocation of Plan Distributions Between Principal and Interest............................................A-35
13.19. Headings...................................................................................................A-35
13.20. Exhibits/Schedules.........................................................................................A-35
13.21. Filing of Additional Documents.............................................................................A-36
A-vi
</TABLE>
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Exhibit A...............................................................Summary of Terms of Corporate Headquarters Building Lease
Exhibit B...........................................................................................Summary of Terms of New Notes
Exhibit C............................................................................................Summary of Terms of Warrants
Schedule 1..........................................................................................Issuance of Series 1997 Bonds
Schedule 2.......................................................................................Series 1997 Refunding Conditions
Schedule 3...........................................................................................Terms of Series 1997 A Bonds
Schedule 4...........................................................................................Terms of Series 1997 B Bonds
</TABLE>
A-vii
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- ---------------------------------------------------X
:
In re : CHAPTER 11
:
EDISON BROTHERS STORES, INC., et al., : Case No. 95-1354 (PJW)
:
Debtors. : JOINTLY ADMINISTERED
:
- ---------------------------------------------------X
DEBTORS' AMENDED JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
---------------------------------------
Edison Brothers Stores, Inc. and its 65 affiliate Debtors
propose the following joint plan of reorganization under section 1121(a) of
title 11 of the United States Code:
ARTICLE I.
DEFINITIONS AND CONSTRUCTION OF TERMS
Definitions. As used herein, the following terms have the respective
meanings specified below, unless the context otherwise requires:
1.1. Administrative Expense Claim means any right to payment
constituting a cost or expense of administration of any of the Chapter 11 Cases
under sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without
limitation, any actual and necessary costs and expenses of preserving the
estates of the Debtors, any actual and necessary costs and expenses of operating
the business of the Debtors, any indebtedness or obligations incurred or assumed
by the Debtors in Possession in connection with the conduct of their business,
including, without limitation, for the acquisition or lease of property or an
interest in property or the rendition of services, all compensation and
reimbursement of expenses to the extent Allowed by the Bankruptcy Court under
section 330 or 503 of the Bankruptcy Code, any Administrative Reclamation Claim,
and any fees or charges assessed against the estates of the Debtors under
section 1930 of chapter 123 of title 28 of the United States Code.
1.2. Administrative Reclamation Claim means any Claim under section
546(c) of the Bankruptcy Code, which, at the election of the holder thereof
pursuant to an order of the Bankruptcy Court dated June 4, 1996, is deemed an
Administrative Expense Claim under the Plan.
1.3. Allowed means, with reference to any Claim or Equity Interest, (a)
any Claim against or Equity Interest in the Debtors which has been listed by the
Debtors in their Schedules, as such Schedules may be amended by the Debtors from
time to time in accordance with Bankruptcy Rule 1009, as liquidated in amount
and not disputed or contingent and for which no contrary proof of claim or
interest has been filed, (b) any Claim or Equity Interest allowed hereunder, (c)
any Claim or Equity Interest which is not Disputed, or (d) any Claim or Equity
Interest which, if Disputed, (i) as to which, pursuant to the Plan or a Final
Order of the Bankruptcy Court, the liability of the Debtors and the amount
thereof are determined by a final order of a court of competent jurisdiction
other than the Bankruptcy Court, or (ii) has been Allowed by Final Order;
provided, however, that any Claims or Equity Interests allowed solely for the
purpose of voting to accept or reject the Plan pursuant to an order of the
Bankruptcy Court shall not be considered "Allowed Claims" or "Allowed Equity
Interests" hereunder. Unless otherwise specified herein or by order of the
Bankruptcy Court, "Allowed Administrative Expense Claim," "Allowed Claim," or
"Allowed Equity Interest" shall not, for purposes of computation of
distributions under the Plan, include interest on such Administrative Expense
Claim, Claim or Equity Interest from and after the Commencement Date.
1
<PAGE>
1.4. Amended Edison Bylaws means the amended and restated Bylaws of
Reorganized Edison, which shall be in substantially the form contained in the
Plan Supplement.
1.5. Amended Edison Certificate of Incorporation means the amended and
restated Certificate of Incorporation of Reorganized Edison, which shall be in
substantially the form contained in the Plan Supplement.
1.6. Authorized Denominations means $4,000 or any integral multiple of
$250 in excess thereof.
1.7. Avoidance Claims means all fraudulent transfer Causes of Action
under sections 544, 548 and 550 of the Bankruptcy Code or otherwise applicable
state law that one or more of the Debtors or Debtors in Possession may have in
connection with or arising out of the D&B Spinoff.
1.8. Ballot means the form distributed to each holder of an impaired
Claim or Equity Interest on which is to be indicated acceptance or rejection of
the Plan.
1.9. Bankruptcy Code means title 11 of the United States Code, as
amended from time to time, as applicable to the Chapter 11 Cases.
1.10. Bankruptcy Court means the United States District Court for the
District of Delaware having jurisdiction over the Chapter 11 Cases and, to the
extent of any reference under section 157 of title 28 of the United States Code,
the unit of such District Court under section 151 of title 28 of the United
States Code.
1.11. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure
as promulgated by the United States Supreme Court under section 2075 of title 28
of the United States Code, and any Local Rules of the Bankruptcy Court.
1.12. Bond Counsel means an attorney or firm of attorneys of nationally
recognized standing in matters pertaining to the validity and enforceability of,
and the tax-exempt nature of interest on, obligations issued by states and/or
cities and their political subdivisions or authorities.
1.13. Business Day means any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York are required or
authorized to close by law or executive order.
1.14. Cash means legal tender of the United States of America and
equivalents thereof.
1.15. Cash Distribution Pool means $119,000,000 (a) plus the sum of (i)
the Pension Plan Proceeds to the extent received by the Debtors prior to the
Effective Date, (ii) the Corporate Headquarters Building Proceeds to the extent
received by the Debtors prior to the Effective Date, (iii) the Resolved
Avoidance Claims Proceeds and (iv) the Rights Exercise Proceeds, if any, and (b)
minus the LLC Funding Amount; provided, however, that the Debtors shall have the
right, at or prior to the Confirmation Hearing, (i) in their sole discretion,
upon notice to the Creditors' Committee, to reduce the amount of the Cash
Distribution Pool by up to $15,000,000, in $5,000,000 increments, and (ii) with
the consent of the Creditors' Committee, to reduce the Cash Distribution Pool by
an additional $5,000,000, provided that, as a consequence of any such reduction
and contemporaneously therewith, the New Notes Distribution Amount shall be
increased by the amount of such reduction.
1.16. Causes of Action means, without limitation, any and all actions,
causes of action, liabilities, obligations, rights, suits, debts, sums of money,
damages, judgments, claims and demands whatsoever, whether known or unknown, in
law, equity or otherwise.
1.17. Chapter 11 Cases means the cases under chapter 11 of the
Bankruptcy Code commenced by the Debtors, styled In re Edison Brothers Stores,
Inc. et al., Chapter 11 Case No. 95-1354 (PJW), Jointly Administered, currently
pending in the Bankruptcy Court.
1.18. Claim has the meaning set forth in section 101 of the Bankruptcy
Code.
1.19. Claims Resolution Committee means the committee to be established
pursuant to Section 13.7 of the Plan.
1.20. Class means a category of holders of Claims or Equity Interests as
set forth in Article III of the Plan.
2
<PAGE>
1.21. Class A Membership Units means 10,000,000 Class A Membership Units
in the EBS Litigation, L.L.C., 10,000,000 Class A Membership Units in the EBS
Pension, L.L.C. and 10,000,000 Class A Membership Units in the EBS Building,
L.L.C.
1.22. Class B Membership Units means 10,000,000 Class B Membership Units
in the EBS Litigation, L.L.C., 10,000,000 Class B Membership Units in the EBS
Pension, L.L.C. and 10,000,000 Class B Membership Units in the EBS Building,
L.L.C.
1.23. Collateral means any property or interest in property of the
estates of the Debtors subject to a Lien to secure the payment or performance of
a Claim, which Lien is not subject to avoidance under the Bankruptcy Code or
otherwise invalid under the Bankruptcy Code or applicable state law.
1.24. Commencement Date means November 3, 1995, the date on which the
Debtors commenced the Chapter 11 Cases.
1.25. Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket.
1.26. Confirmation Hearing means the hearing held by the Bankruptcy
Court to consider confirmation of the Plan pursuant to section 1129 of the
Bankruptcy Code, as such hearing may be adjourned or continued from time to
time.
1.27. Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
1.28. Convenience Claim means any Unsecured Claim in the amount of
$1,000 or less and any Unsecured Claim that is reduced to $1,000 by the election
of the holder thereof on such holder's Ballot.
1.29. Corporate Headquarters Building means the Debtors' corporate
headquarters building located at 501 North Broadway in St. Louis, Missouri.
1.30. Corporate Headquarters Building Lease means the lease for the
Corporate Headquarters Building between the EBS Building, L.L.C., as lessor, and
Reorganized Edison, as lessee, on the terms and subject to the conditions
described in Exhibit A annexed hereto, which shall be in substantially the form
contained in the Plan Supplement.
1.31. Corporate Headquarters Building Proceeds means the Cash proceeds
received by the Debtors or Reorganized Debtors as a consequence of the sale,
sale/leaseback or other disposition of the Corporate Headquarters Building, net
of all costs and expenses incurred by the Debtors or Reorganized Debtors in
connection with such sale, sale/leaseback or other similar disposition,
including, without limitation, all applicable taxes, brokers' fees, advertising
fees, legal fees and filing fees.
1.32. Creditors' Committee means the statutory committee of unsecured
creditors appointed in the Chapter 11 Cases pursuant to section 1102 of the
Bankruptcy Code.
1.33. D&B Common Stock means, collectively, the 4,417,498 shares of
common stock in Dave & Buster's, Inc. (a Missouri corporation) which D&B Spinoff
Stockholders were entitled to receive in connection with the D&B Spinoff.
1.34. D&B Spinoff means the June 29, 1995 distribution by Edison of its
85% equity interest in Dave & Buster's, Inc. (a Missouri corporation), as a
stock dividend, to holders of Edison common stock as of June 19, 1995 and all
related transactions.
1.35. D&B Spinoff Release Minimum Rights means, when used with reference
to a particular D&B Spinoff Stockholder, a number of Rights equal to the product
of (a) the D&B Spinoff Release Rights Multiplier and (b) the number of shares of
D&B Common Stock that such D&B Spinoff Stockholder was entitled to receive in
connection with the D&B Spinoff.
1.36. D&B Spinoff Release Minimum Purchase Price means, when used with
reference to a particular D&B Spinoff Stockholder, an amount equal to the
product of (a) $5.6593 and (b) the number of shares of D&B Common Stock that
such D&B Spinoff Stockholder was entitled to receive in connection with the D&B
Spinoff.
3
<PAGE>
1.37. D&B Spinoff Release Rights Multiplier means 2.2637, determined by
dividing the aggregate number of Rights (10,000,000) by the aggregate number of
shares of D&B Common Stock (4,417,498).
1.38. D&B Spinoff Release Shortfall Amount means, when used with
reference to a particular D&B Spinoff Stockholder, an amount determined in
accordance with the following formula:
(5.6593) x ((D&B Spinoff Release Minimum Rights - Number of Rights Exercised by
D&B Spinoff Stockholder) / (D&B Spinoff Release Rights Multiplier))
1.39. D&B Spinoff Settlement means the settlement, the terms of which
are set forth in Section 10.2 of the Plan, between (a) the EBS Litigation,
L.L.C. and (b) each Released D&B Spinoff Stockholder, pursuant to which each
Released D&B Spinoff Stockholder will be released from any and all Avoidance
Claims against such Released D&B Spinoff Stockholder.
1.40. D&B Spinoff Settlement Period means the period commencing on or
about the Effective Date and concluding on the D&B Spinoff Settlement Expiration
Date.
1.41. D&B Spinoff Settlement Expiration Date means 5:00 p.m., Eastern
Time on the day that is 30 days after the Effective Date or, if such day is not
a Business Day, the next following Business Day.
1.42. D&B Spinoff Settlement Notice means the form of notice that will
provide for the participation in the D&B Spinoff Settlement by certain D&B
Spinoff Stockholders in accordance with Section 10.2 of the Plan, which notice
shall contain instructions for the proper completion and due execution of such
notice and timely delivery thereof, together with other requirements relating to
the valid and effective exercise of the right to participate in the D&B Spinoff
Settlement.
1.43. D&B Spinoff Settlement Offer means the offer by the EBS
Litigation, L.L.C. to all D&B Spinoff Stockholders, pursuant to Section 10.2 of
the Plan, to participate in the D&B Spinoff Settlement.
1.44. D&B Spinoff Settlement Proceeds means the aggregate Cash proceeds
generated by the D&B Spinoff Settlement Offer, excluding any Rights Exercise
Proceeds.
1.45. D&B Spinoff Stockholders means, collectively, the record holders
of Edison common stock, determined in accordance with Edison's books and
records, as of the June 19, 1995 record date used to determine the holders of
Edison common stock entitled to participate in the D&B Spinoff.
1.46. Debtors means, collectively, Edison, Edison Brothers Apparel
Stores, Inc., Edison Brothers Shoe Stores, Inc., Edison Paymaster, Inc., Edison
Brothers Redevelopment Corporation, Edbro Missouri, Edison Alabama Stores, Inc.,
Edison Arkansas Stores, Inc., Edison Colorado Stores, Inc., Edison Brothers
Company, Edison Hawaii Stores, Inc., Edison Illinois Stores, Inc., Edison Kansas
Stores, Inc., Edison Kentucky Stores, Inc., Edison Louisiana Stores, Inc.,
Edison Maryland Stores, Inc., Edison Massachusetts Stores, Inc., Edison Michigan
Stores, Inc., Edison Minnesota Stores, Inc., Edison Mississippi Stores, Inc.,
Edison Nebraska Stores, Inc., Edison New Jersey Stores, Inc., Edison New Mexico
Stores, Inc., Edison New York Stores, Inc., Edison Ohio Stores, Inc., Edison
Oklahoma Stores, Inc., Edison Oregon Stores, Inc., Edison Pennsylvania Stores,
Inc., Edison Tennessee Stores, Inc., Edison Texas Stores, Inc., Edison Utah
Stores, Inc., Edbro Ohio Realty, Inc., EBSS-Montana, Inc., EBSS-North Central,
Inc., EBSS-Indiana, Inc., EBSS-Iowa, Inc., EBSS-Kansas, Inc., EBSS-Wisconsin,
Inc., EBSS-Northeast, Inc., EBSS-South, Inc., EBSS-Mideast, Inc., EBSS-Michigan,
Inc., EBSS-East, Inc., EBSS-Ohio, Inc., EBSS-Pennsylvania, Inc., EBSS-Texas,
Inc., EBSS-West, Inc., Edison Puerto Rico Stores, Inc., Ebscat, Inc., Edison
Brothers Mall Entertainment, Inc., Horizon Entertainment, Inc., Edison Brothers
Stores International, Inc., Edisur, Inc., EBS Holdings Corp., Edison Whittier
Warehouse, Inc., Edbro California USG -- 2, Inc., Edbro Missouri USG -- 2, Inc.,
Edbro California USG -- 1, Inc., Industrial Design, Inc., Webster Clothes, Inc.,
Z&Z Fashions, Ltd., Webster-Rossville, Inc., Time-Out Family Amusement Centers,
Inc., Tofac of Puerto Rico, Inc., Sacha Shoes Ltd. and Mandel's of California.
1.47. Debtors in Possession means the Debtors in their capacity as
debtors in possession in the Chapter 11 Cases pursuant to sections 1101, 1107(a)
and 1108 of the Bankruptcy Code.
1.48. Director Options shall have the meaning set forth in Section 9.7
of the Plan.
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1.49. Director Stock Option Plan means the Edison Brothers Stores, Inc.
1997 Director Stock Option Plan, which shall be in substantially the form
annexed to the Disclosure Statement as Exhibit F.
1.50. Disbursing Agent shall have the meaning set forth in Section
6.4(g) of the Plan.
1.51. Disclosure Statement means the disclosure statement relating to
the Plan, including, without limitation, all exhibits and schedules thereto, as
approved by the Bankruptcy Court pursuant to section 1125 of the Bankruptcy
Code.
1.52. Disputed means, with reference to any Claim or Equity Interest,
any Claim or Equity Interest proof of which was timely and properly filed and
which has been or hereafter is listed on the Schedules as unliquidated, disputed
or contingent, and in either case or in the case of an Administrative Expense
Claim, any Administrative Expense Claim, Claim or Equity Interest which is
disputed under the Plan or as to which the Debtors or, if not prohibited by the
Plan, any other party in interest has interposed a timely objection and/or
request for estimation in accordance with section 502(c) of the Bankruptcy Code
and Bankruptcy Rule 3018, which objection and/or request for estimation has not
been withdrawn or determined by a Final Order, and any Claim or Equity Interest
proof of which was required to be filed by order of the Bankruptcy Court but as
to which a proof of claim or interest was not timely or properly filed.
1.53. Disputed Claim Amount means the amount set forth in the proof of
claim relating to a Disputed Claim or, if an amount is estimated in respect of a
Disputed Claim in accordance with section 502(c) of the Bankruptcy Code and
Bankruptcy Rule 3018 for purposes of, among other things, Section 6.4(c)(i) of
the Plan, the amount so estimated pursuant to an order of the Bankruptcy Court.
1.54. EBS Building, L.L.C. means the Delaware limited liability company
formed pursuant to the EBS Building LLC Members Agreement.
1.55. EBS Building LLC Members Agreement means that certain Members
Agreement to govern the EBS Building, L.L.C., which shall be in substantially
the form contained in the Plan Supplement.
1.56. EBS Litigation, L.L.C. means the Delaware limited liability
company formed pursuant to the EBS Litigation LLC Members Agreement.
1.57. EBS Litigation LLC Members Agreement means that certain Members
Agreement to govern the EBS Litigation, L.L.C., which shall be in substantially
the form contained in the Plan Supplement.
1.58. EBS Pension, L.L.C. means the Delaware limited liability company
formed pursuant to the EBS Pension LLC Members Agreement.
1.59. EBS Pension LLC Members Agreement means that certain Members
Agreement to govern the EBS Pension, L.L.C., which shall be in substantially the
form contained in the Plan Supplement.
1.60. Edbro Missouri means Edbro Missouri Realty Company, Inc., a
Missouri corporation.
1.61. Edbro Missouri Facility means all land and improvements presently
leased to Edbro Missouri pursuant to the Series 1977 Lease Agreement or the
Series 1985 Lease Agreement, together with any fixtures appurtenant thereto and
any personalty located thereon and related to the foregoing which is owned by
Edbro Missouri or leased by Edbro Missouri under the terms of the Series 1977
Lease Agreement and/or the Series 1985 Lease Agreement.
1.62. Edison means Edison Brothers Stores, Inc., a Delaware corporation.
1.63. Edison Equity Interest means any share of common stock or other
instrument evidencing a present ownership interest in Edison, whether or not
transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
1.64. Effective Date means the first Business Day on which the
conditions specified in Section 11.1 of the Plan have been satisfied or waived.
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1.65. Employment Contracts means the employment contracts or amended
employment contracts entered into between the Reorganized Debtors and certain of
their key executives, which shall be in substantially the form annexed to the
Disclosure Statement as Exhibit F.
1.66. Equity Committee means the committee of equity security holders
appointed in the Chapter 11 Cases pursuant to section 1102 of the Bankruptcy
Code.
1.67. Equity Interest means any share of common stock or other
instrument evidencing an ownership interest in any of the Debtors, whether or
not transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
1.68. Final Order means an order of the Bankruptcy Court as to which the
time to appeal, petition for certiorari, or move for reargument or rehearing has
expired and as to which no appeal, petition for certiorari, or other proceedings
for reargument or rehearing shall then be pending or as to which any right to
appeal, petition for certiorari, reargue, or rehear shall have been waived in
writing in form and substance satisfactory to the Debtors or the Reorganized
Debtors or, in the event that an appeal, writ of certiorari, or reargument or
rehearing thereof has been sought, such order of the Bankruptcy Court shall have
been determined by the highest court to which such order was appealed, or
certiorari, reargument or rehearing shall have been denied and the time to take
any further appeal, petition for certiorari or move for reargument or rehearing
shall have expired; provided, however, that the possibility that a motion under
Rule 59 or Rule 60 of the Federal Rules of Civil Procedure, or any analogous
rule under the Bankruptcy Rules, may be filed with respect to such order shall
not cause such order not to be a Final Order.
1.69. Funding Escrow means the escrow established pursuant to Section
5.2 of the Plan and governed by the Funding Escrow Agreement.
1.70. Funding Escrow Assets means (a) $16,000,000, (b) the documents of
title to the Funding Escrow Properties and (c) anything deposited in or
transferred to or earned by the Funding Escrow on or after the Effective Date;
provided, however, that if the Debtors have, prior to the Effective Date,
entered into a contract to sell, sell and lease back or otherwise dispose of one
or more of the Funding Escrow Properties, the Cash proceeds of such transaction
or, if such Cash proceeds have not been received prior to the Effective Date,
the right to receive such Cash proceeds, shall be transferred into the Funding
Escrow in lieu of the Funding Escrow Property or Funding Escrow Properties
disposed of.
1.71. Funding Escrow Agent means the escrow agent appointed pursuant to
Section 5.2 of the Plan and the Funding Escrow Agreement.
1.72. Funding Escrow Agreement means the escrow agreement governing the
Funding Escrow, which shall be in substantially the form contained in the Plan
Supplement.
1.73. Funding Escrow Mortgages means the mortgages on the Funding Escrow
Properties, which shall be in substantially the form contained in the Plan
Supplement.
1.74. Funding Escrow Properties means the following properties owned by
the Debtors: (a) a parcel of land containing a 13-story building with
accompanying driveways and parking facility located at 400 South 14th Street,
St. Louis, Missouri; (b) a parcel of land containing a five-story building plus
basement comprising the whole of Block 282 of the City of St. Louis located at
1230 North Second Street, St. Louis, Missouri; (c) a parcel of land containing a
four-story building plus basement located in Cook County, Illinois at 131-133
South State Street, Chicago, Illinois; (d) a parcel of land containing
approximately 15.02 acres together with a building thereon containing
approximately 309,444 square feet of ground floor space with accompanying
parking facility and truck areas located at 1351 Redmond Road, Rome, Georgia;
and (e) a parcel of land in Princeton, Potaka County, Illinois, containing
approximately 41.19 acres together with a building thereon containing
approximately 369,000 square feet of ground floor space with accompanying
parking facility and truck areas located at U.S. 41 and Highway 100, Princeton,
Indiana.
1.75. General Unsecured Claim means any Unsecured Claim other than a
Convenience Claim.
1.76. Initial Distribution Date means the date that is 60 days
subsequent to the Effective Date, or as soon thereafter as is practicable.
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1.77. Insured Claim means any Claim arising from an incident or
occurrence that is covered under the Debtors' insurance policies.
1.78. Issuer means the City of Washington, Franklin County, Missouri, as
the issuer of the Original Bonds or the Series 1997 Bonds, as applicable.
1.79. Lien has the meaning set forth in section 101 of the Bankruptcy
Code.
1.80. LLC Funding Amount means an amount determined in the sole
discretion of the Creditors' Committee and specified in a writing provided to
the Debtors by no later than 10 days prior to the date of the Confirmation
Hearing; provided, however, that such amount shall in no event be greater than
the Cash Distribution Pool.
1.81. Management Options shall have the meaning set forth in Section 9.6
of the Plan.
1.82. Membership Certificates means, collectively, the certificates
which will be delivered to each person who is to receive a distribution under
the Plan (including distributions to be made following an exercise of Rights) of
Class A Membership Units.
1.83. Mercantile means Mercantile Bank National Association (f/k/a
Mercantile Bank of St. Louis, National Association, f/k/a Mercantile Trust
Company National Association).
1.84. New Common Stock means the common stock of Reorganized Edison
authorized and to be issued pursuant to the Plan. The New Common Stock shall
have a par value of $.01 per share and such rights with respect to dividends,
liquidation, voting and other matters as are provided for by applicable
nonbankruptcy law or in the Amended Edison Certificate of Incorporation and the
Amended Edison Bylaws.
1.85. New Common Stock Distribution Pool means 10,000,000 shares of New
Common Stock minus the number of shares of New Common Stock issuable as a
consequence of valid exercises of Rights pursuant to Section 10.1 of the Plan.
1.86. New Notes means the promissory notes authorized and to be issued
pursuant to the Plan on the terms and subject to the conditions described in
Exhibit B annexed hereto.
1.87. New Notes Distribution Amount means $100,000,000 in principal
amount of New Notes; provided, however, that the principal amount of the New
Notes may be increased as described in Section 1.15 of the Plan.
1.88. New Notes Indentures means the trust indenture and first
supplemental trust indenture between Reorganized Edison, as issuer, and the
indenture trustee, which shall be in substantially the form contained in the
Plan Supplement.
1.89. Original Bondholder means any of the Series 1977 Bondholders or
any of the Series 1985 Bondholders.
1.90. Original Bonds means, collectively, the Series 1977 Bonds and
Series 1985 Bonds.
1.91. Other Priority Claim means any Claim, other than an Administrative
Expense Claim or a Priority Tax Claim, entitled to priority in right of payment
under section 507(a) of the Bankruptcy Code.
1.92. Other Secured Claim means any Secured Claim, other than a Secured
Series 1977 Bondholder Claim, a Secured Series 1985 Bondholder Claim or a
Secured Tax Claim.
1.93. Pension Plan means the Edison Brothers Stores Pension Plan, as the
same may have been or may be amended, modified, revised or restated.
1.94. Pension Plan Payment Date means the date upon which there is a
final distribution of assets from the Pension Plan.
1.95. Pension Plan Proceeds means the Cash proceeds received by the
Debtors or Reorganized Debtors as a consequence of the termination of the
Pension Plan, net of (a) the Pension Plan assets transferred to a qualified
replacement
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pension plan within the meaning of section 4980(d)(2) of the Internal Revenue
Code (which assets in excess of accrued benefits are not to exceed the statutory
minimum required to limit excise taxes relating to the termination of the
Pension Plan to 20%), (b) all costs, fees and expenses incurred or for which a
reserve is established in connection with, arising from or related to such
termination and the establishment of a replacement pension plan and (c) all
applicable taxes incurred or for which a reserve in the amount of $7,000,000 is
established in connection with, arising from or related to the termination of
the Pension Plan, including, without limitation, income and excise taxes.
1.96. Plan means this chapter 11 plan of reorganization, including,
without limitation, the Plan Supplement and all exhibits, supplements,
appendices and schedules hereto, either in its present form or as the same may
be altered, amended or modified from time to time.
1.97. Plan Supplement means the forms of documents specified in Section
13.17 of the Plan.
1.98. Priority Tax Claim means any Claim of a governmental unit of the
kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
1.99. Pro Rata Share means a proportionate share, so that the ratio of
the consideration distributed on account of an Allowed Claim or Allowed Equity
Interest in a Class to the amount of such Allowed Claim or Allowed Equity
Interest is the same as the ratio of the amount of the consideration distributed
on account of all Allowed Claims or Allowed Equity Interests in such Class to
the amount of all Allowed Claims or Allowed Equity Interests in such Class.
1.100. Quarter means the period beginning on the Effective Date and
ending on the next of October 31, January 31, April 30 and July 31, and each
three month period thereafter.
1.101. Record Date means the day that is five days from and after the
Confirmation Date.
1.102. Registration Rights Agreement means a registration rights
agreement to be entered into pursuant to Section 6.8 of the Plan between
Reorganized Edison and any person or entity entitled to become a party to such
registration rights agreement under Section 6.8 of the Plan, which shall be in
substantially the form contained in the Plan Supplement.
1.103. Released D&B Spinoff Stockholder means a D&B Spinoff Stockholder
(a) who exercises, in accordance with Section 10.1 of the Plan, a number of
Rights greater than or equal to the D&B Spinoff Release Minimum Rights (and
elects to participate in the D&B Spinoff Settlement in respect of each Right
exercised), (b) who pays, in accordance with Section 10.2 of the Plan, an amount
greater than or equal to the D&B Spinoff Release Minimum Purchase Price or (c)
who (i) exercises a number of Rights less than the D&B Spinoff Release Minimum
Rights (and elects to participate in the D&B Spinoff Settlement in respect of
each Right exercised) and (ii) pays, in accordance with Section 10.2 of the
Plan, an amount equal to the D&B Spinoff Release Shortfall Amount.
1.104. Remarketing Agent shall have the meaning ascribed to such term in
Schedule 4 to the Plan.
1.105. Reorganized Debtors means Reorganized Edison and each of the
Reorganized Subsidiaries.
1.106. Reorganized Edbro Missouri means Edbro Missouri, or any successor
thereto by merger, consolidation or otherwise, on and after the Effective Date.
1.107. Reorganized Edison means Edison, or any successor thereto by
merger, consolidation or otherwise, on and after the Effective Date.
1.108. Reorganized Subsidiaries means each of the Subsidiaries, or any
successors thereto by merger, consolidation or otherwise, on and after the
Effective Date.
1.109. Reserve shall have the meaning set forth in Section 6.4(c)(i) of
the Plan.
1.110. Restricted Stock shall have the meaning set forth in Section 9.8
of the Plan.
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1.111. Restricted Stock Agreements means the agreements entered into
between Edison and certain of its key executives with respect to the award by
Edison of Restricted Stock to such key executives, which shall be in
substantially the form annexed to the Disclosure Statement as Exhibit F.
1.112. Resolved Avoidance Claims means all Avoidance Claims that are,
prior to the Effective Date, the subject of a compromise and settlement approved
pursuant to Bankruptcy Rule 9019 by Final Order or otherwise resolved,
discontinued, abandoned or dismissed.
1.113. Resolved Avoidance Claims Proceeds means the Cash proceeds
received by the Debtors or Reorganized Debtors prior to the Effective Date as a
consequence of the Resolved Avoidance Claims.
1.114. Rights means 10,000,000 uncertificated, transferable rights,
exercisable in the aggregate to purchase the Rights Aggregate Consideration,
which rights shall be issued to holders of Allowed Edison Equity Interests
pursuant to Section 4.8 of the Plan and be exercisable in accordance with the
provisions of Section 10.1 of the Plan.
1.115. Rights Agent means the person designated by the Debtors as the
Rights agent by no later than 10 days prior to the date of the Confirmation
Hearing.
1.116. Rights Aggregate Consideration means the New Common Stock
Distribution Pool and the Class A Membership Units in EBS Litigation, L.L.C.
1.117. Rights Exercise Instructions means the instructions which will
accompany the Rights Exercise Notice and which will include instructions for the
proper completion and due execution of the Rights Exercise Notice and timely
delivery thereof, together with other requirements relating to the valid and
effective exercise of the Rights.
1.118. Rights Exercise Notice means the form of exercise notice which
will provide for the exercise of the Rights by each holder thereof.
1.119. Rights Exercise Period means the period commencing on or about
the Effective Date and concluding on the Rights Expiration Date.
1.120. Rights Exercise Price means $16.40 per Right.
1.121. Rights Exercise Proceeds means the aggregate Cash proceeds
generated by the exercise of the Rights pursuant to Section 10.1 of the Plan.
1.122. Rights Expiration Date means 5:00 p.m., Eastern Time on the day
that is 30 days after the Effective Date or, if such day is not a Business Day,
the next following Business Day.
1.123. Schedules means the schedules of assets and liabilities, the list
of holders of Equity Interests and the statements of financial affairs filed by
the Debtors under section 521 of the Bankruptcy Code and Bankruptcy Rule 1007,
and all amendments and modifications thereto through the Confirmation Date.
1.124. Secured Claim means any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
1.125. Secured Series 1977 Bondholder Claim means any Series 1977
Bondholder Claim to the extent such Claim is a Secured Claim.
1.126. Secured Series 1985 Bondholder Claim means any Series 1985
Bondholder Claim to the extent such Claim is a Secured Claim.
1.127. Secured Tax Claim means any Secured Claim which, absent its
secured status, would be entitled to priority in right of payment under section
507(a)(8) of the Bankruptcy Code.
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1.128. Series 1977 Bond Documents means, collectively, the Series 1977
Bonds, the Series 1977 Bond Ordinance, the Series 1977 Lease Agreement, the
Series 1977 Guaranty and each of the other documents, instruments, certificates
or agreements executed and delivered in connection with any of the foregoing
documents or otherwise with respect to the issuance of the Series 1977 Bonds, as
heretofore amended, supplemented, restated and/or modified.
1.129. Series 1977 Bond Ordinance means that certain Ordinance No. 4930
adopted by the Issuer on June 9, 1977, pursuant to which the Series 1977 Bonds
were issued.
1.130. Series 1977 Bondholder Claim means any Claim filed by the City on
behalf of all Series 1977 Bondholders, against Edbro Missouri or Edison arising
under or relating to the Series 1977 Bond Documents.
1.131. Series 1977 Bondholders means the person or persons in whose name
or names any Series 1977 Bond shall be registered on the books of the Issuer or
paying agent therefor, kept for that purpose in accordance with the terms of the
Series 1977 Bond Ordinance.
1.132. Series 1977 Bonds means the City of Washington, County of
Franklin, State of Missouri Industrial Revenue Bonds, Series of 1977, issued in
the original aggregate principal amount of $3,950,0000.
1.133. Series 1977 Guaranty means, collectively, that certain Guaranty,
dated December 15, 1976, executed by Edison, and that certain Guaranty, dated
June 6, 1977, executed by Edison, each securing the obligations of Edbro
Missouri under the Series 1977 Lease Agreement.
1.134. Series 1977 Lease Agreement means that certain Agreement of Lease
and Option to Purchase, dated December 15, 1976, between the Issuer and Edbro
Missouri, as amended by that certain First Amendment of Lease and Option to
Purchase, dated June 6, 1977, between the Issuer and Edbro Missouri.
1.135. Series 1985 Bank Agreement means that certain Bank Agreement,
dated as of November 15, 1985, between Edison and Mercantile, in its capacity as
the holder of all Series 1985 Bonds.
1.136. Series 1985 Bond Documents means, collectively, the Series 1985
Bonds, the Series 1985 Bond Indenture, the Series 1985 Lease Agreement, the
Series 1985 Bank Agreement, the Series 1985 Guaranty and each of the other
documents, instruments, certificates or agreements executed and delivered in
connection with any of the foregoing documents or otherwise with respect to the
issuance of the Series 1985 Bonds, as heretofore amended, supplemented, restated
and/or modified.
1.137. Series 1985 Bond Indenture means that certain Indenture of Trust
dated as of November 15, 1985, between the Issuer and the Trustee, pursuant to
which the Series 1985 Bonds were issued, together with any supplements thereto.
1.138. Series 1985 Bondholder Claim means any Claim by the City or the
Trustee, on behalf of all Series 1985 Bondholders, against Edbro Missouri or
Edison arising under or relating to the Series 1985 Bond Documents.
1.139. Series 1985 Bondholders means the person or persons in whose name
or names any Series 1985 Bond shall be registered on the books of the Trustee
kept for that purpose in accordance with the terms of the Series 1985 Bond
Indenture.
1.140. Series 1985 Bonds means the City of Washington, Franklin County,
Missouri Industrial Revenue Refunding Bonds (Edbro Missouri Realty Company, Inc.
Project) Series of 1985, issued in the original aggregate principal amount of
$5,500,000.
1.141. Series 1985 Guaranty means that certain Guaranty Agreement, dated
as of November 15, 1985, among the Issuer, Trustee and Edison, securing the
obligations of Edbro Missouri under the Series 1985 Lease Agreement.
1.142. Series 1985 Lease Agreement means that certain Amended Lease
Agreement, dated November 15, 1985, between the Issuer and Edbro Missouri, as
amended by that certain Amendment to Amended Lease Agreement, dated November 28,
1994, between the Issuer and Edbro Missouri.
1.143. Series 1997 A Bondholders means the registered holders of the
Series 1997 A Bonds.
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1.144. Series 1997 B Bondholders means the registered holders of the
Series 1997 B Bonds.
1.145. Series 1997 A Bonds means those certain tax-exempt industrial
development revenue refunding bonds in the aggregate principal amount of
$2,482,000 issued by the Issuer for the purpose of refunding a portion of the
outstanding Series 1977 Bonds in an aggregate principal amount equal to the
Allowed Secured Series 1977 Bondholder Claim, which Series 1997 A Bonds shall
have the interest rate, maturity and other terms as more specifically described
on Schedule 3 to the Plan.
1.146. Series 1997 B Bonds means those certain tax-exempt industrial
development revenue refunding bonds in the aggregate principal amount of
$4,235,000 issued by the Issuer for the purpose of refunding a portion of the
outstanding Series 1985 Bonds in an aggregate principal amount equal to the
Allowed Secured Series 1985 Bondholder Claim, which Series 1997 B Bonds shall
have the interest rate, maturity and other terms as more specifically described
on Schedule 4 to the Plan.
1.147. Series 1997 Bond Indenture shall have the meaning ascribed to
such term in Schedule 1 to the Plan.
1.148. Series 1997 Bondholders means, collectively, the Series 1997 A
Bondholders and the Series 1997 B Bondholders.
1.149. Series 1997 Bonds means, collectively, the Series 1997 A Bonds
and Series 1997 B Bonds.
1.150. Series 1997 Collateral Documents shall have the meaning ascribed
to such term in Schedule 2 to the Plan.
1.151. Series 1997 Guaranty shall have the meaning ascribed to such term
in Schedule 2 to the Plan.
1.152. Series 1997 Loan shall have the meaning ascribed to such term in
Schedule 1 to the Plan.
1.153. Series 1997 Loan Agreement shall have the meaning ascribed to
such term in Schedule 1 to the Plan.
1.154. Series 1997 Loan Documents means, collectively, the Series 1997
Loan Agreement, the Series 1997 Note, the Series 1997 Collateral Documents, and
any other agreements, instruments, certificates, statements, or other documents
executed by Reorganized Edbro Missouri, Reorganized Edison, or any of the other
Reorganized Debtors in connection with any of the foregoing documents and/or the
making of the Series 1997 Loan and the issuance of the Series 1997 Bonds.
1.155. Series 1997 Note shall have the meaning ascribed to such term in
Schedule 1 to the Plan.
1.156. Series 1997 Refunding Conditions means the conditions described
on Schedule 2 to the Plan.
1.157. Stock Option Plan means the Edison Brothers Stores, Inc. 1997
Stock Option Plan, which shall be in substantially the form annexed to the
Disclosure Statement as Exhibit F.
1.158. Subsequent Distribution Date means the twentieth day after the
end of the Quarter following the Quarter in which the Initial Distribution Date
occurs and the twentieth day after the end of each subsequent Quarter; provided,
however, that solely for purposes of Sections 4.7(b)(ii) and 6.4(e) of the Plan,
the first and second Subsequent Distribution Date shall occur on the twentieth
day after the end of the second and fourth Quarters, respectively, following the
Quarter in which the Initial Distribution Date occurs.
1.159. Subsidiary means any Debtor of which Edison owns directly or
indirectly all of the outstanding capital stock.
1.160. Subsidiary Equity Interest means any share of common stock or
other instrument evidencing a present ownership interest in any of the
Subsidiaries, whether or not transferable, and any option, warrant or right,
contractual or otherwise, to acquire any such interest.
1.161. Surplus Distributions shall have the meaning set forth in Section
6.4(e) of the Plan.
1.162. Tort Claim means any Claim relating to personal injury, property
damage or products liability or other similar Claim asserted against any of the
Debtors that has not been compromised and settled or otherwise resolved.
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1.163. Trustee means, (i) with respect to the Series 1985 Bonds,
Mercantile in its capacity as trustee under the Series 1985 Bond Indenture and
(ii) with respect to the Series 1997 Bonds, the trust company or bank (which
shall be acceptable to Edbro Missouri) which is initially appointed by the
Issuer as Trustee under the Series 1997 Bond Indenture.
1.164. Unresolved Avoidance Claims means all Avoidance Claims that are
not, prior to the Effective Date, the subject of a compromise and settlement
approved pursuant to Bankruptcy Rule 9019 by Final Order or otherwise resolved,
discontinued, abandoned or dismissed.
1.165. Unsecured Claim means any Claim that is not a Secured Claim,
Administrative Expense Claim, Priority Tax Claim or Other Priority Claim.
1.166. Warrants means warrants to purchase New Common Stock, on the
terms and subject to the conditions described in Exhibit C annexed hereto, to be
distributed to the holders of Allowed Edison Equity Interests pursuant to
Section 4.8 of the Plan.
1.167. Warrant Distribution Pool means approximately 1,008,791 Warrants.
Interpretation; Application of Definitions and Rules of Construction.
Wherever from the context it appears appropriate, each term stated in either the
singular or the plural shall include both the singular and the plural and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter. Unless otherwise specified, all section,
article, schedule or exhibit references in the Plan are to the respective
Section in, Article of, Schedule to, or Exhibit to, the Plan. The words
"herein," "hereof," "hereto," "hereunder" and other words of similar import
refer to the Plan as a whole and not to any particular section, subsection or
clause contained in the Plan. The rules of construction contained in section 102
of the Bankruptcy Code shall apply to the construction of the Plan. A term used
herein that is not defined herein, but that is used in the Bankruptcy Code,
shall have the meaning ascribed to that term in the Bankruptcy Code. The
headings in the Plan are for convenience of reference only and shall not limit
or otherwise affect the provisions of the Plan.
ARTICLE II.
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1. Administrative Expense Claims. Except to the extent that any entity
entitled to payment of any Allowed Administrative Expense Claim agrees to a
different treatment, each holder of an Allowed Administrative Expense Claim
shall receive Cash in an amount equal to such Allowed Administrative Expense
Claim on the later of the Effective Date and the date such Administrative
Expense Claim becomes an Allowed Administrative Expense Claim, or as soon
thereafter as is practicable; provided, however, that Allowed Administrative
Expense Claims representing liabilities incurred in the ordinary course of
business by the Debtors in Possession or liabilities arising under loans or
advances to or other obligations incurred by the Debtors in Possession, to the
extent authorized and approved by the Bankruptcy Court if such authorization and
approval was required under the Bankruptcy Code, shall be paid in full and
performed by the Reorganized Debtors in the ordinary course of business in
accordance with the terms and subject to the conditions of any agreements
governing, instruments evidencing or other documents relating to, such
transactions.
2.2. Professional Compensation and Reimbursement Claims. All entities
seeking an award by the Bankruptcy Court of compensation for services rendered
or reimbursement of expenses incurred through and including the Confirmation
Date under sections 503(b)(2), 503(b)(3), 503(b)(4) or 503(b)(5) of the
Bankruptcy Code (a) shall file their respective final applications for
allowances of compensation for services rendered and reimbursement of expenses
incurred through the Confirmation Date by the date that is 60 days after the
Effective Date or such other date as may be fixed by the Bankruptcy Court and,
(b) if granted such an award by the Bankruptcy Court, shall be paid in full in
such amounts as are Allowed by the Bankruptcy Court (i) on the date such
Administrative Expense Claim becomes an Allowed Administrative Expense Claim, or
as soon thereafter as is practicable or (ii) upon such other terms as may be
mutually agreed upon between such holder of an Administrative Expense Claim and
the Debtors in Possession or, on and after the Effective Date, the Reorganized
Debtors.
2.3. Priority Tax Claims. Except to the extent that a holder of an
Allowed Priority Tax Claim has been paid by the Debtors prior to the Effective
Date or agrees to a different treatment, each holder of an Allowed Priority Tax
Claim shall
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<PAGE>
receive, at the sole option of Reorganized Edison, (a) Cash in an amount equal
to such Allowed Priority Tax Claim on the later of the Effective Date and the
date such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon
thereafter as is practicable, or (b) equal annual Cash payments in an aggregate
amount equal to such Allowed Priority Tax Claim, together with interest at a
fixed annual rate equal to 8 1/4%, over a period through the sixth anniversary
of the date of assessment of such Allowed Priority Tax Claim, or upon such other
terms determined by the Bankruptcy Court to provide the holder of such Allowed
Priority Tax Claim deferred Cash payments having a value, as of the Effective
Date, equal to such Allowed Priority Tax Claim.
ARTICLE III.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims, other than Administrative Expense Claims and Priority Tax
Claims, and Equity Interests are classified for all purposes, including voting,
confirmation and distribution pursuant to the Plan, as follows:
<TABLE>
<CAPTION>
Class Status
- ----- ------
<S> <C>
Class 1 -- Other Priority Claims.......................................................................................Unimpaired
Class 2 -- Secured Series 1977 Bondholder Claims.........................................................................Impaired
Class 3 -- Secured Series 1985 Bondholder Claims.........................................................................Impaired
Class 4 -- Secured Tax Claims............................................................................................Impaired
Class 5 -- Other Secured Claims........................................................................................Unimpaired
Class 6 -- Convenience Claims............................................................................................Impaired
Class 7 -- General Unsecured Claims......................................................................................Impaired
Class 8 -- Edison Equity Interests.......................................................................................Impaired
</TABLE>
ARTICLE IV.
TREATMENT OF CLAIMS AND EQUITY INTERESTS
----------------------------------------
4.1. CLASS 1 -- OTHER PRIORITY CLAIMS.
--------------------------------
(a) Impairment and Voting. Class 1 is unimpaired by the Plan. Each
holder of an Allowed Other Priority Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions. Each holder of an Allowed Other Priority Claim shall
receive Cash in an amount equal to such Allowed Other Priority Claim on the
later of the Effective Date and the date such Allowed Other Priority Claim
becomes an Allowed Other Priority Claim, or as soon thereafter as is
practicable.
4.2. CLASS 2 -- SECURED SERIES 1977 BONDHOLDER CLAIMS.
------------------------------------------------
(a) Impairment and Voting. Class 2 is impaired by the Plan. The
beneficial holders of the Secured Series 1977 Bondholder Claims are the Series
1977 Bondholders. Consequently, each Series 1977 Bondholder shall be entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date and upon satisfaction of each
of the Series 1997 Refunding Conditions, Reorganized Edbro Missouri shall cause
the Series 1997 A Bonds to be issued by the Issuer in the original aggregate
principal
13
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amount of $2,482,000 and shall cause the distribution of the Series 1997 A Bonds
to or on behalf of the Series 1977 Bondholders as of the Record Date in
satisfaction of all Allowed Secured Series 1977 Bondholder Claims. The Series
1997 A Bonds shall be issued for the purpose of refunding a portion of the
Series 1977 Bonds in an aggregate principal amount equal to the Allowed Secured
Series 1977 Bondholder Claims. Each Series 1977 Bondholder shall receive Series
1997 A Bonds in Authorized Denominations, in an aggregate principal amount equal
to 85% of the principal amount of the Series 1977 Bonds held by such Series 1977
Bondholder as of the Record Date. The Series 1997 A Bonds will contain such
terms and shall be issued pursuant to such documents as more particularly
described on Schedules 1, 2 and 3 attached hereto and made a part hereof.
(c) Lien Priority. The Trustee, on behalf of and for the benefit of all
Series 1997 Bondholders, shall have a first lien on the Edbro Missouri Facility
to secure the Series 1997 Loan and the other obligations of Reorganized Edbro
Missouri under the Series 1997 Loan Documents. There shall be no priority in
payment or lien rights of the Series 1997 A Bondholders over the payment or lien
rights of the Series 1997 B Bondholders but such payment and lien rights shall
be pari passu with respect to each series of Series 1997 Bonds.
4.3. CLASS 3 -- SECURED SERIES 1985 BONDHOLDER CLAIMS.
------------------------------------------------
(a) Impairment and Voting. Class 3 is impaired by the Plan. The
beneficial holders of the Secured Series 1985 Bondholder Claims are the Series
1985 Bondholders. Consequently, each Series 1985 Bondholder shall be entitled to
vote to accept or reject the Plan.
(b) Distributions. On the Effective Date and upon satisfaction of each
of the Series 1997 Refunding Conditions, Reorganized Edbro Missouri shall cause
the Series 1997 B Bonds to be issued by the Issuer in the original aggregate
principal amount of $4,235,000 and shall cause the distribution of the Series
1997 B Bonds to or on behalf of the Series 1985 Bondholders as of the Record
Date in satisfaction of all Allowed Secured Series 1985 Bondholder Claims. The
Series 1997 B Bonds shall be issued for the purpose of refunding a portion of
the Series 1985 Bonds in an aggregate principal amount equal to the Allowed
Secured Series 1985 Bondholder Claims. Each Series 1985 Bondholder shall receive
Series 1997 B Bonds in Authorized Denominations, in an aggregate principal
amount equal to 77% of the principal amount of the Series 1985 Bonds held by
such Series 1985 Bondholder as of the Record Date. The Series 1997 B Bonds will
contain such terms and shall be issued pursuant to such documents as more
particularly described on Schedules 1, 2 and 3 attached hereto and made a part
hereof.
(c) Lien Priority. The Trustee, on behalf of and for the benefit of all
Series 1997 Bondholders, shall have a first lien on the Edbro Missouri Facility
to secure the Series 1997 Loan and the other obligations of Reorganized Edbro
Missouri under the Series 1997 Loan Documents. There shall be no priority in
payment or lien rights of the Series 1997 A Bondholders over the payment or lien
rights of the Series 1997 B Bondholders but such payment and lien rights shall
be pari passu with respect to each series of Series 1997 Bonds.
4.4. CLASS 4 -- SECURED TAX CLAIMS.
-----------------------------
(a) Impairment and Voting. Class 4 is impaired by the Plan. Each holder
of an Allowed Secured Tax Claim is entitled to vote to accept or reject the
Plan.
(b) Distributions. Except to the extent that a holder of an Allowed
Secured Tax Claim has been paid by the Debtors prior to the Effective Date or
agrees to a different treatment, each holder of an Allowed Secured Tax Claim
shall receive, at the sole option of Reorganized Edison, (i) Cash in an amount
equal to such Allowed Secured Tax Claim, including any interest on such Allowed
Secured Tax Claim required to be paid pursuant to section 506(b) of the
Bankruptcy Code, on the later of the Effective Date and the date such Allowed
Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as
is practicable, or (ii) equal annual Cash payments in an aggregate amount equal
to such Allowed Secured Tax Claim, together with interest at a fixed annual rate
equal to 8 1/4%, over a period through the sixth anniversary of the date of
assessment of such Allowed Secured Tax Claim, or upon such other terms
determined by the Bankruptcy Court to provide the holder of such Allowed Secured
Tax Claim deferred Cash payments having a value, as of the Effective Date, equal
to such Allowed Secured Tax Claim.
(c) Retention of Liens. Each holder of an Allowed Secured Tax Claim
shall retain the Liens (or replacement Liens as may be contemplated under
nonbankruptcy law) securing its Allowed Secured Tax Claim as of the Effective
Date until full
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<PAGE>
and final payment of such Allowed Secured Tax Claim is made as provided herein,
and upon such full and final payment, such Liens shall be deemed null and void
and shall be unenforceable for all purposes.
4.5. CLASS 5 -- OTHER SECURED CLAIMS.
-------------------------------
(a) Impairment and Voting. Class 5 is unimpaired by the Plan. Each
holder of an Allowed Other Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
(b) Distributions/Reinstatement of Claims. Except to the extent that a
holder of an Allowed Other Secured Claim agrees to a different treatment, at the
sole option of Reorganized Edison, (i) each Allowed Other Secured Claim shall be
reinstated and rendered unimpaired in accordance with section 1124(2) of the
Bankruptcy Code, notwithstanding any contractual provision or applicable
nonbankruptcy law that entitles the holder of an Allowed Other Secured Claim to
demand or receive payment of such Allowed Other Secured Claim prior to the
stated maturity of such Allowed Other Secured Claim from and after the
occurrence of a default, (ii) each holder of an Allowed Other Secured Claim
shall receive Cash in an amount equal to such Allowed Other Secured Claim,
including any interest on such Allowed Other Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective
Date and the date such Allowed Other Secured Claim becomes an Allowed Other
Secured Claim, or as soon thereafter as is practicable, or (iii) each holder of
an Allowed Other Secured Claim shall receive the Collateral securing its Allowed
Other Secured Claim and any interest on such Allowed Other Secured Claim
required to be paid pursuant to section 506(b) of the Bankruptcy Code, in full
and complete satisfaction of such Allowed Other Secured Claim on the later of
the Effective Date and the date such Allowed Other Secured Claim becomes an
Allowed Other Secured Claim, or as soon thereafter as is practicable.
4.6. CLASS 6 -- CONVENIENCE CLAIMS.
-----------------------------
(a) Impairment and Voting. Class 6 is impaired by the Plan. Each holder
of an Allowed Convenience Claim is entitled to vote to accept or reject the
Plan.
(b) Distributions. Each holder of an Allowed Convenience Claim as of the
Record Date shall receive Cash in an amount equal to 100% of such Allowed
Convenience Claim on the later of the Effective Date and the date such Allowed
Convenience Claim becomes an Allowed Convenience Claim, or as soon thereafter as
is practicable.
4.7. CLASS 7 -- GENERAL UNSECURED CLAIMS.
-----------------------------------
(a) Impairment and Voting. Class 7 is impaired by the Plan. Each holder
of an Allowed General Unsecured Claim is entitled to vote to accept or reject
the Plan.
(b) Distributions.
(i) On the Initial Distribution Date or as soon thereafter as is
practicable, each holder of an Allowed General Unsecured Claim as of the
Record Date shall receive a Pro Rata Share of (a) the Cash Distribution
Pool less the amount of Cash in the Reserve, (b) the New Notes
Distribution Amount less the aggregate principal amount of New Notes in
the Reserve, (c) the New Common Stock Distribution Pool less the number
of shares of New Common Stock in the Reserve and (d) subject to Sections
5.1(c) and 10.1 of the Plan and in accordance with Section 6.4(b) of the
Plan, the Class A Membership Units, plus any interest required to be
paid pursuant to Section 6.4(a) of the Plan.
(ii) On each Subsequent Distribution Date, each holder of an
Allowed General Unsecured Claim as of the Record Date shall receive a
Pro Rata Share of the amount of Cash, New Notes, New Common Stock and
Class A Membership Units in the Surplus Distributions.
4.8. CLASS 8 -- EDISON EQUITY INTERESTS.
----------------------------------
(a) Impairment and Voting. Class 8 is impaired by the Plan. Each holder
of an Allowed Edison Equity Interest is entitled to vote to accept or reject the
Plan.
(b) Distributions. Each holder of an Allowed Edison Equity Interest as
of the Record Date shall receive a Pro Rata Share of (i) the Warrants in the
Warrant Distribution Pool, on the later of the Initial Distribution Date and the
date such
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<PAGE>
Allowed Edison Equity Interest becomes an Allowed Edison Equity Interest or as
soon thereafter as is practicable and (ii) the Rights, pursuant to section 10.1
of the Plan, on the Effective Date.
ARTICLE V.
ESTABLISHMENT OF LIMITED LIABILITY
COMPANIES AND FUNDING ESCROW; PENSION PLAN
5.1. EBS Litigation, L.L.C., EBS Pension, L.L.C. and EBS Building,
L.L.C.
-------------------------------------------------------------
(a) Creation. Subject to Section 5.1(c) of the Plan, prior to the
Effective Date, (i) the EBS Litigation, L.L.C. shall be established pursuant to
the EBS Litigation LLC Members Agreement and the Plan, (ii) the EBS Pension,
L.L.C. shall be established pursuant to the EBS Pension LLC Members Agreement
and the Plan and (iii) the EBS Building, L.L.C. shall be established pursuant to
the EBS Building LLC Members Agreement and the Plan.
(b) Transfer of Certain Assets to the LLCs.
(i) Subject to Section 5.1(c) of the Plan, on the Effective
Date, the Debtors and the Reorganized Debtors shall transfer to the EBS
Litigation, L.L.C. all of their right, title and interest in and to the
Unresolved Avoidance Claims. Subject to Section 5.1(c) of the Plan and
pursuant to Section 10.2 of the Plan, as promptly as is practicable
after the D&B Spinoff Settlement Expiration Date, the Disbursing Agent
shall transfer the D&B Spinoff Settlement Proceeds, if any, to the EBS
Litigation, L.L.C. The EBS Litigation, L.L.C. shall be appointed the
representative of the Debtors' estates for the purpose of retaining and
enforcing the Unresolved Avoidance Claims in accordance with section
1123(b)(3)(B) of the Bankruptcy Code and the EBS Litigation LLC Members
Agreement.
(ii) Subject to Section 5.1(c) of the Plan, on the Effective
Date, the Debtors and the Reorganized Debtors shall transfer to the EBS
Pension, L.L.C. the right to receive the Pension Plan Proceeds from the
Reorganized Debtors within five days after the Pension Plan Payment
Date.
(iii) Subject to Section 5.1(c) of the Plan, on the Effective
Date, the Debtors and the Reorganized Debtors will transfer to the EBS
Building, L.L.C.: (a) the right to receive the Corporate Headquarters
Building Proceeds if the Debtors or Reorganized Debtors have, as of the
Effective Date, entered into a contract to sell, sell and lease back or
otherwise dispose of the Corporate Headquarters Building and all of the
Corporate Headquarters Building Proceeds have not been received by the
Debtors prior to the Effective Date; provided, however, that if such
contract does not thereafter result in the sale or other disposition
contemplated thereby within 60 days after the Effective Date, the
Debtors shall promptly transfer the Corporate Headquarters Building to
the EBS Building, L.L.C., or (b) if no such contract to sell, sell and
lease back or otherwise dispose of the Corporate Headquarters Building
has been entered into as of the Effective Date, the Corporate
Headquarters Building.
(c) Exceptions to Transfers. If, prior to the Effective Date, the
Debtors have received the Pension Plan Proceeds, the Pension Plan Proceeds shall
be added to the Cash Distribution Pool pursuant to Section 1.15 hereof and the
EBS Pension, L.L.C. shall be terminated. If, prior to the Effective Date, the
Debtors have received the Corporate Headquarters Building Proceeds, the
Corporate Headquarters Building Proceeds shall be added to the Cash Distribution
Pool pursuant to Section 1.15 hereof and the EBS Building, L.L.C. shall be
terminated. If, as of the Effective Date, there are no Unresolved Avoidance
Claims and the Resolved Avoidance Claims Proceeds have been added to the Cash
Distribution Pool pursuant to Section 1.15 hereof, the EBS Litigation, L.L.C.
shall be terminated.
(d) Funding of the LLCs. On the Effective Date, the Debtors or
Reorganized Debtors shall transfer to the EBS Litigation, L.L.C., the EBS
Pension, L.L.C. and the EBS Building, L.L.C. the LLC Funding Amount in the
respective amounts designated to the Debtors by the Creditors' Committee, in
writing, within 10 days prior to the Confirmation Date.
(e) Corporate Headquarters Building Lease. Subject to Section 5.1(c) of
the Plan, on the Effective Date, the EBS Building, L.L.C., as lessor, and
Reorganized Edison, as lessee, shall enter into the Corporate Headquarters
Building Lease.
16
<PAGE>
(f) Indemnification. Except with respect to any Unresolved Avoidance
Claims that the EBS Litigation, L.L.C. may have against present or former
officers, directors or employees of the Debtors in their capacities other than
as present or former officers, directors or employees, the EBS Litigation,
L.L.C. and the EBS Pension, L.L.C. shall indemnify, defend and hold harmless the
Reorganized Debtors and their present or former officers, directors and
employees (the "Indemnified Parties") from and against any direct losses,
claims, damages, expenses, liabilities and actions arising from or relating to
the EBS Litigation, L.L.C and any actions taken or proceedings commenced by the
EBS Litigation, L.L.C. (the "LLC Related Claims"); provided, however, that the
foregoing indemnification (except with respect to costs and expenses as provided
in the penultimate sentence of this Section 5.1(f)) shall be satisfied solely
from the funds, if any, received by the EBS Litigation, L.L.C. from the
compromise and settlement or successful prosecution of the Unresolved Avoidance
Claims. As more particularly set forth in the EBS Pension LLC Members Agreement,
the EBS Pension, L.L.C. shall establish a reserve from the Pension Plan Proceeds
for the benefit of the Indemnified Parties in the amount of $1,500,000 to pay
the costs and expenses incurred by the Indemnified Parties in defending against
the LLC Related Claims; provided, however, that the Indemnified Parties shall,
in the first instance, seek payment of the costs and expenses of defending
against the LLC Related Claims from any applicable officers' and directors'
insurance policy, as such costs and expenses are incurred. Any amounts remaining
in the reserve upon the final adjudication, including any appeals, of the LLC
Related Claims or the compromise and settlement of such claims, shall be
released and distributed pursuant to the terms of the EBS Pension LLC Members
Agreement.
5.2. Funding Escrow.
(a) Creation of the Funding Escrow. On the Effective Date, pursuant to
section 1123(b)(3)(B) of the Bankruptcy Code, the Funding Escrow shall be
created and governed by the Funding Escrow Agreement for the benefit of the
Reorganized Debtors and holders of New Notes.
(b) Funding Escrow Assets. On the Effective Date, Reorganized Edison
shall enter into the Funding Escrow Agreement and deposit the Funding Escrow
Assets in the Funding Escrow for the purpose of "prefunding" the interest
payments required to be made by Reorganized Edison under the New Notes through
and including July 31, 2000. Pursuant to the Funding Escrow Agreement,
Reorganized Edison shall (i) have the right in its sole discretion to direct the
Funding Escrow Agent to transfer to Reorganized Edison Cash from the Funding
Escrow in amounts necessary to pay the interest payments required under the New
Notes through and including July 31, 2000, (ii) have the right in its sole
discretion to cause the Funding Escrow Agent to deliver to Reorganized Edison
any documents of title to enable Reorganized Edison to sell, sell and lease back
or otherwise dispose of one or more of the Funding Escrow Properties and retain
the proceeds therefrom in the Funding Escrow, (iii) have the right to use of the
Funding Escrow Properties for no cost at all times during the existence of the
Funding Escrow, unless and until the Funding Escrow Properties are sold, sold
and leased back or otherwise disposed of pursuant to this Section 5.2(b) and the
Funding Escrow Agreement, (iv) be required to pay the taxes relating to and
operating costs of the Funding Escrow Properties, unless and until the Funding
Escrow Properties are sold, sold and leased back or otherwise disposed of
pursuant to this Section 5.2(b) and the Funding Escrow Agreement and (v) have
the right in its sole discretion to substitute $14,000,000 in Cash for the
Funding Escrow Properties at any time during the existence of the Funding
Escrow, unless and until the Funding Escrow Properties are sold, sold and leased
back or otherwise disposed of pursuant to this Section 5.2(b) and the Funding
Escrow Agreement; provided, however, that if the Debtors have, prior to the
Effective Date, entered into a contract to sell, sell and lease back or
otherwise dispose of one or more of the Funding Escrow Properties, the Cash
proceeds of such transaction or, if such Cash proceeds have not been received
prior to the Effective Date, the right to receive such Cash proceeds, shall be
transferred into the Funding Escrow pursuant to Section 1.70 of the Plan and the
amount of Cash that Reorganized Edison may substitute for the Funding Escrow
Properties ($14,000,000) shall be reduced by the Cash proceeds of such
transaction or transactions. Provided that all interest payments required under
the New Notes have been paid by Reorganized Edison through and including July
31, 2000, any funds in the Funding Escrow that have not been distributed and the
Funding Escrow Properties that have not been sold or otherwise disposed of by
the Funding Escrow Agent on or before August 1, 2000, shall be returned to
Reorganized Edison by the Funding Escrow Agent free and clear of all claims,
liens, encumbrances and contractually imposed restrictions arising under or
related to the Funding Escrow Agreement and the Plan and any documents or
instruments relating thereto.
(c) Funding Escrow Mortgages. The Funding Escrow Agent shall be granted
the Funding Escrow Mortgages to secure the payment of interest by Reorganized
Edison on the New Notes for the first three years; provided, however, that if
the Debtors have, prior to the Effective Date, entered into a contract to sell,
sell and lease back or otherwise dispose of one or more of the Funding Escrow
Properties, there shall be no Funding Escrow Mortgage on such Funding Escrow
Property or Funding Escrow Properties; provided, further, that if such contract
does not thereafter result in the sale or other disposition contemplated thereby
within 60 days after the Effective Date, there shall be a Funding Escrow
Mortgage on such Funding Escrow Property or
17
<PAGE>
Funding Escrow Properties. Upon Reorganized Edison's payment of all interest
payments required to be made under the New Notes through and including July 31,
2000 or upon the consummation by Reorganized Edison of its right to substitute
Cash for the Funding Escrow Properties, as described in Section 5.2(b) of the
Plan, all of the Funding Escrow Mortgages shall be released. Upon the
consummation by Reorganized Edison of a sale, sale and lease back or other
disposition of one of the Funding Escrow Properties, as described in and subject
to Section 5.2(b) of the Plan, the corresponding Funding Escrow Mortgage shall
be released.
(d) Funding Escrow Agent. The Funding Escrow Agent shall be appointed by
the Debtors by no later than 10 days prior to the date of the Confirmation
Hearing. The name of the person appointed in that capacity shall be disclosed at
or prior to the Confirmation Hearing. The Funding Escrow Agent shall serve for
the duration of the Funding Escrow subject to his or her earlier death,
resignation, incapacity or removal as provided in the Funding Escrow Agreement.
(e) Powers of Funding Escrow Agent. From and after the Effective Date,
the Funding Escrow Agent's powers shall be as provided for in the Funding Escrow
Agreement.
(f) Distribution of Funding Escrow Assets. The Funding Escrow Assets
shall be distributed in accordance with the provisions of the Plan and the
Funding Escrow Agreement.
(g) Term of Funding Escrow. The Funding Escrow and the Funding Escrow
Agreement shall terminate on the thirtieth day after the distribution of all of
the Funding Escrow Assets in accordance with the provisions of the Plan and the
Funding Escrow Agreement.
(h) Indemnification. The Funding Escrow shall indemnify, defend and hold
harmless the Reorganized Debtors and their officers, directors and employees
from and against any losses, claims, damages, expenses, liabilities and actions
arising from or relating to the Funding Escrow.
5.3. Pension Plan. The Debtors and Reorganized Debtors shall take all
actions necessary and appropriate to generate the Pension Plan Proceeds. Except
as provided in Section 5.1(c) of the Plan, the Pension Plan Proceeds shall be
transferred to the EBS Pension, L.L.C. in accordance with Section 5.1(b) of the
Plan.
ARTICLE VI.
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT AND UNLIQUIDATED ADMINISTRATIVE
EXPENSE CLAIMS, CLAIMS AND EQUITY INTERESTS
6.1. Voting of Claims and Equity Interests. Each holder of an Allowed
Claim or an Allowed Equity Interest in an impaired Class of Claims or Equity
Interests shall be entitled to vote separately to accept or reject the Plan as
provided in such order as is entered by the Bankruptcy Court establishing
certain procedures with respect to the solicitation and tabulation of votes to
accept or reject the Plan, or any other order or orders of the Bankruptcy Court.
6.2. Nonconsensual Confirmation. If any impaired Class of Claims or
Equity Interests entitled to vote shall not accept the Plan by the requisite
statutory majorities provided in sections 1126(c) or 1126(d) of the Bankruptcy
Code, as applicable, the Debtors reserve the right to amend the Plan in
accordance with Section 13.10 hereof or undertake to have the Bankruptcy Court
confirm the Plan under section 1129(b) of the Bankruptcy Code or both.
6.3. Method of Distributions Under the Plan.
(a) In General. Subject to Bankruptcy Rule 9010, all distributions under
the Plan shall be made by Reorganized Edison to the holder of each Allowed Claim
at the address of such holder as listed on the Schedules as of the Record Date,
and to the holder of each Allowed Edison Equity Interest at the address of such
holder as listed in the transfer ledger for Edison Equity Interests as of the
Record Date, unless the Debtors or Reorganized Debtors have been notified in
writing of a change of address, including, without limitation, by the filing of
a proof of Claim or Equity Interest by such holder that provides an
18
<PAGE>
address for such holder different from the address reflected on the Schedules
(for holders of Allowed Claims) or on the transfer ledger as of the Record Date
(for holders of Allowed Edison Equity Interests).
(b) Distributions of Cash. Any payment of Cash made by Reorganized
Edison pursuant to the Plan shall be made by check drawn on a domestic bank.
(c) Timing of Distributions. Any payment or distribution required to be
made under the Plan on a day other than a Business Day shall be made on the next
succeeding Business Day.
(d) Hart-Scott-Rodino Compliance. Any shares of New Common Stock to be
distributed under the Plan to any entity required to file a Premerger
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall not be distributed until the notification and
waiting periods applicable under such Act to such entity shall have expired or
been terminated.
(e) Minimum Distributions. No payment of Cash less than one-hundred
dollars shall be made by Reorganized Edison to any holder of a Claim unless a
request therefor is made in writing to Reorganized Edison.
(f) Fractional Shares, Rights, Warrants or Class A Membership Units;
Multiples of New Notes. No fractional shares of New Common Stock, fractional
Rights, fractional Warrants or fractional Class A Membership Units or Cash in
lieu thereof shall be distributed under the Plan. When any distribution on
account of an Allowed Claim or Allowed Edison Equity Interest pursuant to the
Plan would otherwise result in the issuance of a number of shares of New Common
Stock, Rights, Warrants or Class A Membership Units that is not a whole number,
the actual distribution of shares of New Common Stock, Rights, Warrants or Class
A Membership Units shall be rounded as follows: (i) fractions of 1/2 or greater
shall be rounded to the next higher whole number and (ii) fractions of less than
1/2 shall be rounded to the next lower whole number. The total number of shares
of New Common Stock, Rights, Warrants or Class A Membership Units to be
distributed to a Class of Claims or Edison Equity Interests, as the case may be,
shall be adjusted as necessary to account for the rounding provided in this
Section 6.3(f). New Notes shall only be issued in multiples of $1,000. Any New
Notes that would otherwise have been distributed in multiples of other than
$1,000 shall be aggregated by the indenture trustee under the New Notes
Indentures or the Disbursing Agent and sold. The Cash proceeds from such sale
shall be distributed on a pro rata basis to those holders of Allowed General
Unsecured Claims that would have been entitled to New Notes in multiples of
other than $1,000.
(g) Unclaimed Distributions. Except with respect to distributions under
the Plan to holders of Allowed General Unsecured Claims, any distributions under
the Plan that are unclaimed for a period of one year after distribution thereof
shall be revested in Reorganized Edison and any entitlement of any holder of any
Claim or Equity Interest to such distributions shall be extinguished and forever
barred. Distributions under the Plan to holders of Allowed General Unsecured
Claims that are unclaimed for a period of one year after distribution thereof
shall be added to the Reserve and any entitlement of such holders of Allowed
General Unsecured Claims to such distributions shall be extinguished and forever
barred.
(h) Distributions to Holders as of the Record Date. As at the close of
business on the Record Date, the claims register (for Claims) and the transfer
ledgers (for Edison Equity Interests) shall be closed, and there shall be no
further changes in the record holders of any Claims or Edison Equity Interests.
Edison and Reorganized Edison shall have no obligation to recognize any transfer
of any Claims or Edison Equity Interests occurring after the Record Date. Edison
and Reorganized Edison shall instead be entitled to recognize and deal for all
purposes under the Plan (except as to voting to accept or reject the Plan
pursuant to Section 6.1 of the Plan) with only those record holders stated on
the claims register (for Claims) and transfer ledgers (for Edison Equity
Interests) as of the close of business on the Record Date.
6.4. General Unsecured Claims.
(a) Cash Held Prior to the Initial Distribution Date. On the Effective
Date, Reorganized Edison shall deposit the Cash in the Cash Distribution Pool in
a segregated bank account or accounts. Reorganized Edison shall invest the Cash
held in such account or accounts in a manner consistent with investment
guidelines to be agreed upon by the Debtors and the Creditors' Committee, which
investment guidelines shall be included in the Plan Supplement. Reorganized
Edison shall pay, or cause to be paid, out of the funds held in such account or
accounts, any tax imposed on such account by any governmental unit with respect
to income generated by the property held in such account or accounts. The yield
earned on such invested Cash for the period commencing on the Effective Date and
continuing through and including the Initial Distribution Date (net of
applicable
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taxes), shall be distributed to each holder of an Allowed General Unsecured
Claim on the Initial Distribution Date, based upon each holders' Pro Rata Share.
(b) Membership Units. On the Effective Date, Reorganized Edison shall
hold 100% of the Class B Membership Units. In connection with each distribution
of Class A Membership Units under the Plan, Reorganized Edison will surrender
for cancellation a number of Class B Membership Units in each of the EBS
Litigation, L.L.C., the EBS Pension, L.L.C. and the EBS Building, L.L.C. equal
to the number of Class A Membership Units in each such LLC that are to be
distributed under the Plan, and will receive in exchange therefor, for
distribution under the Plan, a like number of Class A Membership Units in such
LLC.
(c) Distributions Withheld for Disputed General Unsecured Claims.
(i) Establishment and Maintenance of Reserve. On the Initial
Distribution Date and each Subsequent Distribution Date, Reorganized
Edison shall reserve from the distributions to be made on such dates to
the holders of Allowed General Unsecured Claims, an amount of Cash, New
Notes and New Common Stock equal to 100% of the distributions to which
holders of Disputed General Unsecured Claims would be entitled under the
Plan as of such dates if such Disputed General Unsecured Claims were
Allowed Claims in their Disputed Claim Amounts (the "Reserve"). Subject
to Section 6.4(b) of the Plan, Reorganized Edison shall also hold in the
Reserve the Class B Membership Units.
(ii) Property Held in Reserve. Cash held in the Reserve
(including interest paid on New Notes held in the Reserve and dividends
paid on New Common Stock held in the Reserve, if any) shall be deposited
in a segregated bank account or accounts in the name of Reorganized
Edison and designated as held in trust for the benefit of holders of
Allowed General Unsecured Claims. Cash held in the Reserve shall not
constitute property of the Reorganized Debtors. Reorganized Edison shall
invest the Cash held in the Reserve in a manner consistent with
investment guidelines to be agreed upon by the Debtors and the
Creditors' Committee, which investment guidelines shall be included in
the Plan Supplement. Reorganized Edison shall pay, or cause to be paid,
out of the funds held in the Reserve, any tax imposed on the Reserve by
any governmental unit with respect to income generated by the property
held in the Reserve. The yield earned on such invested Cash (net of
applicable taxes) shall be distributed to each holder of an Allowed
General Unsecured Claim on the last Subsequent Distribution Date under
the Plan, based upon each holders' Pro Rata Share. New Notes, New Common
Stock and Class B Membership Interests held in the Reserve shall be held
in trust by the Reorganized Debtors for the benefit of the potential
claimants of such securities and shall not constitute property of the
Reorganized Debtors.
(d) Distributions Upon Allowance of Disputed General Unsecured Claims.
The holder of a Disputed General Unsecured Claim that becomes an Allowed Claim
subsequent to the Initial Distribution Date shall receive distributions of Cash,
New Notes and New Common Stock from the Reserve and, in accordance with Section
6.4(b) of the Plan, Class A Membership Units, on the next Subsequent
Distribution Date that follows the Quarter during which such Disputed General
Unsecured Claim becomes an Allowed Claim pursuant to a Final Order. Such
distributions shall be made in accordance with the Plan based upon the
distributions that would have been made to such holder under the Plan if the
Disputed General Unsecured Claim had been an Allowed Claim on or prior to the
Effective Date, without any post-Effective Date interest thereon (without regard
to interest earned on property held in the Reserve pursuant to Section 6.4 of
the Plan).
(e) Surplus Distributions to Holders of Allowed General Unsecured
Claims. The following consideration shall constitute surplus distributions (the
"Surplus Distributions") pursuant to the Plan: (i) pursuant to Section 6.3(g) of
the Plan, distributions under the Plan to holders of Allowed General Unsecured
Claims that are unclaimed for a period of one year after distribution thereof;
(ii) to the extent that a Disputed General Unsecured Claim is not Allowed or
becomes an Allowed Claim in an amount less than the Disputed Claim Amount, the
excess of the amount of Cash, New Notes and New Common Stock in the Reserve over
the amount of Cash, New Notes and New Common Stock actually distributed on
account of such Disputed General Unsecured Claim; and (iii) to the extent that a
Disputed General Unsecured Claim is not Allowed or becomes an Allowed Claim in
an amount less than the Disputed Claim Amount, a number of Class A Membership
Units equal to the number of Class B Membership Units held in the Reserve on
account of such excess. The Surplus Distributions shall be distributed to the
holders of Allowed General Unsecured Claims pursuant to Section 4.7(b)(ii) of
the Plan; provided, however, that Reorganized Edison shall not be under any
obligation to make any Surplus Distributions on a Subsequent Distribution Date
unless the Cash portion of the Surplus Distributions to be distributed on a
Subsequent Distribution Date aggregates $1,000,000 or more, unless the
distribution is the last distribution under the Plan.
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(f) Personal Injury Tort Claims. All personal injury Tort Claims are
Disputed Claims. Any personal injury Tort Claim as to which a proof of claim was
timely filed in the Chapter 11 Cases shall be determined and liquidated in the
administrative or judicial tribunal(s) in which it is pending on the Effective
Date or, if no action was pending on the Effective Date, in any administrative
or judicial tribunal of appropriate jurisdiction, or in accordance with any
alternative dispute resolution or similar proceeding as same may be approved by
order of the Bankruptcy Court. Any personal injury Tort Claim determined and
liquidated (i) pursuant to a judgment obtained in accordance with this Section
6.4(f) and applicable nonbankruptcy law which is no longer appealable or subject
to review, or (ii) in any alternative dispute resolution or similar proceeding
as same may be approved by order of the Bankruptcy Court, shall be deemed an
Allowed Claim in such liquidated amount and satisfied in accordance with the
Plan. Nothing contained in this Section 6.4(f) shall impair the Debtors' right
to seek estimation of any and all personal injury Tort Claims in a court or
courts of competent jurisdiction or constitute or be deemed a waiver of any
Cause of Action that the Debtors may hold against any entity, including, without
limitation, in connection with or arising out of any personal injury Tort Claim.
(g) Disbursing Agent. The Debtors or the Reorganized Debtors will
appoint a disbursing agent (the "Disbursing Agent") to (i) fulfill the
obligations that the Reorganized Debtors have under the Plan with respect to
distributions to holders of Allowed General Unsecured Claims, including, without
limitation, holding all reserves and accounts pursuant to the Plan, including
the Reserve, and (ii) effectuate the D&B Spinoff Settlement on behalf of the EBS
Litigation, L.L.C., pursuant to Section 10.2 of the Plan.
6.5. Objections to and Resolution of Administrative Expense Claims,
Claims and Equity Interests.
(a) Except as to applications for allowances of compensation and
reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code, the
Debtors or Reorganized Debtors shall have the exclusive right to make and file
objections to Administrative Expense Claims, Claims and Equity Interests
subsequent to the Confirmation Date. All objections shall be litigated to Final
Order; provided, however, that, subject to Section 6.5(b) of the Plan, the
Reorganized Debtors shall have the authority to compromise, settle, otherwise
resolve or withdraw any objections, without approval of the Bankruptcy Court.
Unless otherwise ordered by the Bankruptcy Court, the Debtors or Reorganized
Debtors shall file all objections to Administrative Expense Claims that are the
subject of proofs of claim or requests for payment filed with the Bankruptcy
Court (other than applications for allowances of compensation and reimbursement
of expenses), Claims and Equity Interests and serve such objections upon the
holder of the Administrative Expense Claim, Claim or Equity Interest as to which
the objection is made as soon as is practicable, but in no event later than 60
days after the Effective Date or such later date as may be approved by the
Bankruptcy Court.
(b) On the last day of each month or as otherwise agreed to in writing
by the Debtors and the Creditors' Committee, the Reorganized Debtors shall
provide counsel to the Claims Resolution Committee with written notice by
overnight delivery service or facsimile transmission of each Disputed Claim that
they intend to compromise, settle or resolve, other than such compromises,
settlements or resolutions that fall within the parameters of (i) prior orders
of the Bankruptcy Court authorizing the Debtors to compromise or settle certain
Claims without approval of the Bankruptcy Court, (ii) settlement guidelines to
be agreed upon by the Debtors and the Creditors' Committee prior to the
Confirmation Date, or (iii) settlement guidelines to be agreed upon by the
Debtors and the Claims Resolution Committee subsequent to the Effective Date.
Within 15 days after the receipt of such notice, the Claims Resolution Committee
shall provide the Reorganized Debtors with written notice of any such
compromises, settlements or resolutions with which it does not concur. If the
Reorganized Debtors and the Claims Resolution Committee cannot reach agreement
with respect to any such compromise, settlement or resolution, the Claims
Resolution Committee will be permitted to file with the Bankruptcy Court and
serve on the Reorganized Debtors an objection to the reasonableness of any such
compromise, settlement or resolution within 15 days after the date that the
Claims Resolution Committee provides the Reorganized Debtors with written notice
of such compromise, settlement or resolution with which it does not concur, or
within such other time period as may be agreed upon by the Reorganized Debtors
and the Creditors' Committee, and the reasonableness of such compromise,
settlement or resolution shall be determined by the Bankruptcy Court. If the
Claims Resolution Committee fails to timely file and serve an objection to a
compromise, settlement or resolution, such compromise, settlement or resolution
shall be deemed resolved on the terms and subject to the conditions agreed to by
the Reorganized Debtors. Notwithstanding the foregoing, the Claims Resolution
Committee shall have the authority to compromise, settle or resolve any Disputed
Claim without the consent of the Reorganized Debtors.
6.6. Distributions Relating to Allowed Insured Claims. Distributions
under the Plan to each holder of an Allowed Insured Claim shall be in accordance
with the treatment provided under the Plan for the Class in which such Allowed
Insured Claim is classified, but solely to the extent that such Allowed Insured
Claim is not satisfied from proceeds payable to the holder
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thereof under any pertinent insurance policies and applicable law. Nothing
contained in this Section 6.6 shall constitute or be deemed a waiver of any
Cause of Action that the Debtors or any entity may hold against any other
entity, including, without limitation, insurers under any policies of insurance.
6.7. Cancellation and Surrender of Existing Securities and Agreements.
(a) On the Effective Date, the promissory notes, share certificates,
bonds and other instruments evidencing any Claim or Edison Equity Interest shall
be deemed cancelled without further act or action under any applicable
agreement, law, regulation, order or rule and the obligations of the Debtors
under the agreements, indentures and certificates of designations governing such
Claims and Edison Equity Interests, as the case may be, shall be discharged.
(b) Each holder of a promissory note, share certificate, bond or other
instrument evidencing a Claim or Edison Equity Interest shall surrender such
promissory note, share certificate, bond or instrument to the Reorganized
Debtors, unless such requirement is waived by the Reorganized Debtors. No
distribution of property hereunder shall be made to or on behalf of any such
holders unless and until such promissory note, share certificate, bond or
instrument is received by the Reorganized Debtors or the unavailability of such
promissory note, share certificate, bond or instrument is established to the
reasonable satisfaction of the Reorganized Debtors or such requirement is waived
by the Reorganized Debtors. The Reorganized Debtors may require any holder that
is unable to surrender or cause to be surrendered any such promissory notes,
share certificates, bonds or instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to the Reorganized
Debtors. Any holder that fails within the later of one year after the
Confirmation Date and the date of Allowance of its Claim or Edison Equity
Interest (i) if possible, to surrender or cause to be surrendered such
promissory note, share certificate, bond or instrument, (ii) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to the Reorganized Debtors and (iii) if requested, to furnish a bond reasonably
satisfactory to the Reorganized Debtors, shall be deemed to have forfeited all
rights, claims and Causes of Action against the Debtors and Reorganized Debtors
and shall not participate in any distribution hereunder.
6.8. Registration of New Common Stock. Each person or entity receiving a
distribution of New Common Stock pursuant to the Plan representing at least 10%
of the aggregate New Common Stock issuable pursuant to the Plan shall be
entitled to become a party to the Registration Rights Agreement.
6.9. Listing of New Common Stock, New Notes and Warrants. Reorganized
Edison shall use reasonable commercial efforts to cause the shares of New Common
Stock, the New Notes and the Warrants to be listed on a national securities
exchange or the Nasdaq National Market.
6.10. Full Recovery for Holders of Allowed General Unsecured Claims.
Holders of Allowed General Unsecured Claims will not be deemed to have received
100% of the value of their Allowed General Unsecured Claims unless and until the
aggregate value of all distributions to such holders under the Plan equals the
amount of their Allowed General Unsecured Claims, plus interest from the
Commencement Date through and including the Effective Date at a rate of 8.89%.
ARTICLE VII.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1. Assumption or Rejection of Executory Contracts and Unexpired
Leases.
(a) Executory Contracts and Unexpired Leases. Pursuant to sections
365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts and
unexpired leases that exist between the Debtors and any person shall be deemed
assumed by the Reorganized Debtors as of the Effective Date, except for any
executory contract or unexpired lease (i) which has been assumed pursuant to an
order of the Bankruptcy Court entered prior to the Confirmation Date, (ii) which
has been rejected pursuant to an order of the Bankruptcy Court entered prior to
the Confirmation Date, (iii) as to which a motion for approval of the rejection
of such executory contract or unexpired lease has been filed and served prior to
the Confirmation Date or (iv) which is set forth in Schedule 7.1(a)(x)
(executory contracts) or Schedule 7.1(a)(y) (unexpired leases), which Schedules
shall be included in the Plan Supplement; provided, however, that the Debtors or
Reorganized Debtors reserve the right, on or prior to the Confirmation Date, to
amend Schedules 7.1(a)(x) or 7.1(a)(y) to delete any executory contract or
unexpired lease therefrom or add any executory contract or unexpired lease
thereto, in which event such executory contract(s) or unexpired lease(s) shall
be deemed
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to be, respectively, assumed or rejected. The Debtors or Reorganized Debtors
shall provide notice of any amendments to Schedules 7.1(a)(x) or 7.1(a)(y) to
the parties to the executory contracts and unexpired leases affected thereby.
The listing of a document on Schedules 7.1(a)(x) and 7.1(a)(y) shall not
constitute an admission by the Debtors or Reorganized Debtors that such document
is an executory contract or an unexpired lease or that the Debtors or
Reorganized Debtors have any liability thereunder.
(b) Schedules of Rejected Executory Contracts and Unexpired Leases;
Inclusiveness. Each executory contract and unexpired lease listed or to be
listed on Schedules 7.1(a)(x) or 7.1(a)(y) that relates to the use or occupancy
of real property shall include (i) modifications, amendments, supplements,
restatements, or other agreements made directly or indirectly by any agreement,
instrument, or other document that in any manner affects such executory contract
or unexpired lease, without regard to whether such agreement, instrument or
other document is listed on Schedules 7.1(a)(x) or 7.1(a)(y) and (ii) executory
contracts or unexpired leases appurtenant to the premises listed on Schedules
7.1(a)(x) or 7.1(a)(y), including, without limitation, all easements, licenses,
permits, rights, privileges, immunities, options, rights of first refusal,
powers, uses, usufructs, reciprocal easement agreements, vault, tunnel or bridge
agreements or franchises, and any other interests in real estate or rights in
rem relating to such premises to the extent any of the foregoing are executory
contracts or unexpired leases, unless any of the foregoing agreements previously
have been assumed.
(c) Insurance Policies. Each of the Debtors' insurance policies and any
agreements, documents or instruments relating thereto, including, without
limitation, any retrospective premium rating plans relating to such policies,
are treated as executory contracts under the Plan. Notwithstanding the
foregoing, distributions under the Plan to any holder of a Claim covered by any
of such insurance policies and related agreements, documents or instruments that
are assumed hereunder, shall be in accordance with the treatment provided under
Article IV and Section 6.6 of the Plan. Nothing contained in this Section 7.1(c)
shall constitute or be deemed a waiver of any Cause of Action that the Debtors
may hold against any entity, including, without limitation, the insurer under
any of the Debtors' policies of insurance.
(d) Approval of Assumption or Rejection of Executory Contracts and
Unexpired Leases. Entry of the Confirmation Order shall constitute (i) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the executory contracts and unexpired leases assumed pursuant
to Section 7.1(a) hereof, (ii) the extension of time, pursuant to section
365(d)(4) of the Bankruptcy Code, within which the Debtors may assume or reject
the unexpired leases specified in Section 7.1(a) hereof through the date of
entry of an order approving the assumption or rejection of such unexpired leases
and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of the
Bankruptcy Code, of the rejection of the executory contracts and unexpired
leases rejected pursuant to Sections 7.1(a) hereof.
(e) Cure of Defaults. Except as may otherwise be agreed to by the
parties, within 60 days after the Effective Date, the Reorganized Debtors shall
cure any and all undisputed defaults under any executory contract or unexpired
lease assumed pursuant to the Plan in accordance with section 365(b)(1) of the
Bankruptcy Code. All disputed defaults that are required to be cured shall be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of the Debtors' or Reorganized Debtors' liability with respect
thereto, or as may otherwise be agreed to by the parties.
(f) Bar Date for Filing Proofs of Claim Relating to Executory Contracts
and Unexpired Leases Rejected Pursuant to the Plan. Claims arising out of the
rejection of an executory contract or unexpired lease pursuant to Section 7.1 of
the Plan must be filed with the Bankruptcy Court and/or served upon the Debtors
or Reorganized Debtors or as otherwise may be provided in the Confirmation
Order, by no later than 30 days after the later of (i) notice of entry of an
order approving the rejection of such executory contract or unexpired lease,
(ii) notice of entry of the Confirmation Order and (iii) notice of an amendment
to Schedule 7.1(a)(x) or 7.1(a)(y). Any Claims not filed within such time will
be forever barred from assertion against the Debtors, their estates, the
Reorganized Debtors and their property. Unless otherwise ordered by the
Bankruptcy Court, all Claims arising from the rejection of executory contracts
and unexpired leases shall be treated as General Unsecured Claims under the
Plan.
7.2. Releases. The Debtors hereby release and are permanently enjoined
from any prosecution or attempted prosecution of any and all Causes of Action
which they have, may have or claim to have against any present or former
director, officer or employee of the Debtors; provided, however, that the
foregoing shall not operate as a waiver of or release from (i) any Causes of
Action arising out of any express contractual obligation owing by any such
director, officer or employee to the Debtors or any reimbursement obligation of
any such director, officer or employee with respect to a loan or advance made by
the Debtors to such director, officer or employee and (ii) any Avoidance Claims
that any such director, officer or employee may be subject to in their
capacities other than as present or former director, officer or employee.
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7.3. Indemnification Obligations. For purposes of the Plan, the
obligations of the Debtors to defend, indemnify, reimburse or limit the
liability of their present and any former directors, officers or employees who
were directors, officers or employees, respectively, on or after the
Commencement Date against any claims or obligations pursuant to the Debtors'
certificates of incorporation or bylaws, applicable state law or specific
agreement, or any combination of the foregoing, shall survive confirmation of
the Plan, remain unaffected thereby, and not be discharged irrespective of
whether indemnification, defense, reimbursement or limitation is owed in
connection with an event occurring before, on or after the Commencement Date.
7.4. Compensation and Benefit Programs. Except as provided in Section
7.1(a) of the Plan, all employment and severance practices and policies, and all
compensation and benefit plans, policies, and programs of the Debtors applicable
to their directors, officers or employees, including, without limitation, all
savings plans, retirement plans, health care plans, severance benefit plans,
incentive plans, workers' compensation programs and life, disability and other
insurance plans are treated as executory contracts under the Plan and are hereby
assumed pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code.
7.5. Retiree Benefits. Payments, if any, due to any person for the
purpose of providing or reimbursing payments for retired employees and their
spouses and dependents for medical, surgical, or hospital care benefits, or
benefits in the event of sickness, accident, disability, or death under any
plan, fund, or program (through the purchase of insurance or otherwise)
maintained or established in whole or in part by the Debtors prior to the
Commencement Date shall be continued for the duration of the period the Debtors
have obligated themselves to provide such benefits.
ARTICLE VIII.
CONSOLIDATION OF EDISON AND THE SUBSIDIARIES
8.1. Substantive Consolidation. By order dated May 13, 1997, the
Bankruptcy Court approved the substantive consolidation of the Chapter 11 Cases
for all purposes related to the Plan, including, without limitation, for
purposes of voting, confirmation and distribution. Pursuant to such order, (i)
all assets and liabilities of the Subsidiaries shall be deemed merged or treated
as though they were merged into and with the assets and liabilities of Edison,
(ii) no distributions shall be made under the Plan on account of intercompany
claims among the Debtors, (iii) no distributions shall be made under the Plan on
account of Subsidiary Equity Interests, (iv) all guarantees of the Debtors of
the obligations of any other Debtor shall be deemed eliminated so that any claim
against any Debtor and any guarantee thereof executed by any other Debtor and
any joint or several liability of any of the Debtors shall be deemed to be one
obligation of the consolidated Debtors and (v) each and every Claim filed or to
be filed in the Chapter 11 Case of any of the Debtors shall be deemed filed
against the consolidated Debtors, and shall be deemed one Claim against and
obligation of the consolidated Debtors. Such substantive consolidation shall not
(other than for purposes related to the Plan) affect (i) the legal and corporate
structures of the Reorganized Debtors, subject to the right of the Debtors or
Reorganized Debtors to effect restructurings as provided in Section 8.2 of the
Plan, (ii) intercompany claims by and among the Debtors or Reorganized Debtors,
(iii) Subsidiary Equity Interests and (iv) pre and post Commencement Date
guarantees that are required to be maintained (a) in connection with executory
contracts or unexpired leases that were entered into during the Chapter 11 Cases
or that have been or will be assumed, or (b) pursuant to the Plan.
8.2. Merger of Corporate Entities. On or as of the Effective Date,
within the sole and exclusive discretion of the Debtors, any or all of the
Subsidiaries may be merged into one or more of the Debtors or dissolved. Upon
the occurrence of any such merger, all assets of the merged entities shall be
transferred to and become the assets of the surviving corporation, and all
liabilities of the merged entities, except to the extent discharged, released or
extinguished pursuant to the Plan and the Confirmation Order, shall be assumed
by and shall become the liabilities of the surviving corporation. All mergers
and dissolutions shall be effective as of the Effective Date pursuant to the
Confirmation Order without any further action by the stockholders or directors
of any of the Debtors, the Debtors in Possession or the Reorganized Debtors.
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ARTICLE IX.
PROVISIONS REGARDING CORPORATE GOVERNANCE
AND MANAGEMENT OF THE REORGANIZED DEBTORS
9.1. General. On the Effective Date, the management, control and
operation of the Reorganized Debtors shall become the general responsibility of
the respective Boards of Directors of the Reorganized Debtors, who shall,
thereafter, have the responsibility for the management, control and operation of
the Reorganized Debtors.
9.2. Meetings of Reorganized Edison Stockholders. In accordance with the
Amended Edison Certificate of Incorporation and the Amended Edison Bylaws, as
the same may be amended from time to time, the first annual meeting of the
stockholders of Reorganized Edison shall be held on a date in 1998 selected by
the Board of Directors of Reorganized Edison, and subsequent meetings of the
stockholders of Reorganized Edison shall be held at least once annually each
year thereafter.
9.3. Directors and Officers of Reorganized Debtors.
(a) Boards of Directors.
(i) Reorganized Edison. The initial Board of Directors of
Reorganized Edison shall consist of nine individuals whose names shall
be disclosed prior to the date of the Confirmation Hearing. Each of the
members of such initial Board of Directors shall serve until the first
annual meeting of stockholders of Reorganized Edison or their earlier
resignation or removal in accordance with the Amended Edison Certificate
of Incorporation or Amended Edison Bylaws, as the same may be amended
from time to time.
(ii) Reorganized Subsidiaries. The initial Board of Directors of
each of the Reorganized Subsidiaries shall consist of officers or
employees of Reorganized Edison whose names shall be disclosed prior to
the date of the Confirmation Hearing. Each of the members of each such
initial Board of Directors shall serve until the first meeting of
stockholders of the respective Reorganized Subsidiary or their earlier
resignation or removal in accordance with the certificate of
incorporation or bylaws of such Reorganized Subsidiary.
(b) Officers. The officers of the respective Debtors immediately prior
to the Effective Date shall serve as the initial officers of the respective
Reorganized Debtors on and after the Effective Date. Such officers shall serve
in accordance with any employment agreement with the Reorganized Debtors and
applicable nonbankruptcy law.
9.4. Amended Bylaws and Amended Certificates of Incorporation. The
Amended Edison Bylaws, the Amended Edison Certificate of Incorporation and the
certificates of incorporation of each of the Reorganized Subsidiaries shall be
amended and restated as of the Effective Date to the extent necessary (a) to
prohibit the issuance of nonvoting equity securities as required by section
1123(a)(6) of the Bankruptcy Code, subject to further amendment of such
certificates of incorporation and bylaws as permitted by applicable law and (b)
to effectuate the provisions of the Plan, in each case without any further
action by the stockholders or directors of the Debtors, the Debtors in
Possession or the Reorganized Debtors.
9.5. Issuance of New Securities. The issuance of the following
securities and notes by Reorganized Edison, or, as applicable, by the EBS
Litigation, L.L.C., the EBS Pension, L.L.C. and the EBS Building, L.L.C. as
successors in interest to the Debtors with respect to certain Edison assets, is
hereby authorized without further act or action under applicable law,
regulation, order or rule:
(a) 100,000,000 shares of New Common Stock;
(b) the Warrants;
(c) the Rights;
(d) the Series 1997 Bonds;
(e) the New Notes;
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(f) the Class A Membership Units and Class B Membership Units;
(g) the Restricted Stock;
(h) the Management Options;
(i) the Director Options; and
(j) 10,000,000 shares of preferred stock.
9.6. Stock Option Plan. If not theretofore adopted by Edison, on the
Effective Date, Reorganized Edison shall adopt the Stock Option Plan. Pursuant
and subject to the Stock Option Plan, Reorganized Edison will issue to certain
of its key employees options to purchase in the aggregate approximately 800,000
shares of New Common Stock (the "Management Options"). Management Options to
purchase approximately 500,000 shares of New Common Stock will be issued as of
the Effective Date. The balance of the Management Options to purchase
approximately 300,000 shares of New Common Stock shall be reserved for issuance
by Reorganized Edison within six months following the Effective Date pursuant
and subject to the Stock Option Plan.
9.7. Director Stock Option Plan. If not theretofore adopted by Edison,
on the Effective Date, Reorganized Edison shall adopt the Director Stock Option
Plan. Pursuant and subject to the Director Stock Option Plan, Reorganized Edison
will make available for issuance to its outside directors options to purchase in
the aggregate approximately 200,000 shares of New Common Stock (the "Director
Options"). A Director Option will be granted to all outside Directors of
Reorganized Edison as of the Effective Date entitling each such person to
purchase 3,500 shares of New Common Stock. Each outside Director who is
thereafter elected or appointed also will receive a Director Option to purchase
3,500 shares of New Common Stock. In addition, each such Director who remains a
Director as of the completion of the Annual Meeting of Stockholders of
Reorganized Edison in each calendar year following the calendar year in which
such Director received such Director Option granted initially will receive an
additional Director Option to purchase that number of shares of New Common Stock
(rounded to the nearest whole number) equal to $20,000 divided by the Fair
Market Value (as defined in the Director Stock Option Plan) of a share of New
Common Stock as of such date.
9.8. Restricted Stock Agreements. If not theretofore executed by Edison
and its key executives designated to receive Restricted Stock, on the Effective
Date, Reorganized Edison and such key executives shall execute the Restricted
Stock Agreements. Pursuant and subject to the Restricted Stock Agreements,
Reorganized Edison will issue to certain of its senior executives an aggregate
of 225,000 shares of restricted New Common Stock (the "Restricted Stock"). All
of the Restricted Stock will be issued as of the Effective Date.
9.9. Employment Contracts. As of the Effective Date, the Debtors or
Reorganized Debtors will have entered into the Employment Contracts.
9.10. Retention/Performance Bonuses. As of the Effective Date, Edison or
Reorganized Edison will have adopted a retention bonus program that will result
in payments aggregating approximately $750,000 to certain key executives in
1998, provided that such executives remain employed with Reorganized Edison
through the date of such payments. In addition, as of the Effective Date, in
recognition of the successful restructuring of the Debtors, Edison or
Reorganized Edison will have adopted a bonus program that will result in
payments aggregating approximately $2,200,000 to certain key executives
instrumental to such restructuring.
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ARTICLE X.
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
10.1. Procedures for Exercise of Rights.
(a) Each Right may be exercised by the holder thereof at any time during
the Rights Exercise Period to purchase, at the Rights Exercise Price, (i) one
share of New Common Stock and (ii) at the election of the holder thereof, (A)
one Class A Membership Unit in the EBS Litigation, L.L.C. or (B) if such holder
is a D&B Spinoff Stockholder, and subject to the terms and conditions of
Sections 10.1(f) and 10.2 of the Plan, the right to participate in the D&B
Spinoff Settlement. All Rights to be exercised by such holder shall be exercised
concurrently. Any exercise of Rights shall be irrevocable.
(b) The Rights shall be registered on the books of Reorganized Edison
maintained at the principal office of the Rights Agent (the "Rights Register")
as they are issued. Reorganized Edison and the Rights Agent shall be entitled to
treat the registered owner of any Right as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Right on the part of any other person. The Rights Agent shall
initially register ownership of Rights in the Rights Register in accordance with
the written instructions of Reorganized Edison. Subject to the terms of this
Section 10.1, and the receipt of such documentation as the Rights Agent may
reasonably require, the Rights Agent shall, on each Business Day during the
Rights Exercise Period, register the transfer of any outstanding Rights upon the
Rights Register upon tender of a written instrument or instruments of transfer
in form reasonably satisfactory to Reorganized Edison and the Rights Agent, duly
executed by the registered holder(s) thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney.
(c) On the date upon which the Rights Exercise Period commences, the
Rights Agent shall mail to each holder of an Allowed Edison Equity Interest a
Rights Exercise Notice together with the Rights Exercise Instructions. In order
for an exercise of Rights to be valid and effective, the holder of the Rights
seeking to effect such an exercise must deliver to the Rights Agent prior to the
Rights Expiration Date a properly completed and duly executed Rights Exercise
Notice which (i) indicates (A) the number of Rights sought to be exercised and
(B) the holder's election of either Class A Membership Units in EBS Litigation,
L.L.C. or the right to participate in the D&B Spinoff Settlement and (ii) is
accompanied by a certified check or bank draft drawn upon a United States bank
or a wire transfer, in an amount equal to the product of the Rights Exercise
Price and the number of Rights sought to be exercised. The foregoing items will
not be deemed to have been timely delivered to the Rights Agent (and thus the
attempted exercise of Rights will not be valid or effective) unless they are
completed and executed in conformity with the Rights Exercise Instructions and
are actually received by the Rights Agent, at the address specified therefor in
the Rights Exercise Instructions, on or prior to the Rights Expiration Date.
(d) All determinations as to proper completion, due execution,
timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted exercise of any Rights shall be made by
Reorganized Edison and the Rights Agent, whose determination shall be final and
binding. The Rights Agent in its sole discretion may waive or reject the
attempted exercise of any Right subject to any such defect or irregularity.
Deliveries required to be received by the Rights Agent in connection with an
attempted exercise of Rights will not be deemed to have been so received or
accepted until actual receipt thereof by the Rights Agent shall have occurred
and any defects or irregularities shall have been waived or cured within such
time as the Rights Agent may determine in its sole discretion. Neither the
Debtors, the Reorganized Debtors or the Rights Agent will have any obligation to
give notice to any holder of a Right of any defect or irregularity in connection
with any attempted exercise thereof or incur any liability as a result of any
failure to give any such notice.
(e) On or as promptly as practicable following the Initial Distribution
Date, the Rights Agent will mail (or cause to be mailed) to each holder of
Rights who has sought to exercise Rights, a written statement specifying the
number of Rights that were validly and effectively exercised by such holder and
the consideration purchased upon such exercise of such Rights, together with (i)
a stock certificate representing the shares of New Common Stock so purchased and
(ii) if elected by the holder, a Membership Certificate representing the Class A
Membership Units in the EBS Litigation, L.L.C. so purchased.
(f) Section 10.2 of the Plan shall govern the release (or retention, as
the case may be) of Unresolved Avoidance Claims against D&B Spinoff Stockholders
who attempt to participate in the D&B Spinoff Settlement through an exercise of
Rights pursuant to this Section 10.1.
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10.2. The D&B Spinoff Settlement Offer.
(a) Subject to the terms and conditions of this Section 10.2, each D&B
Spinoff Stockholder shall have the right, at any time during the D&B Spinoff
Settlement Period, to participate in the D&B Spinoff Settlement by qualifying as
a Released D&B Spinoff Stockholder.
(b) On the date upon which the D&B Spinoff Settlement Period commences,
the Disbursing Agent, on behalf of the EBS Litigation, L.L.C., shall mail to
each D&B Spinoff Stockholder a D&B Spinoff Settlement Notice. In order to
participate in the D&B Spinoff Settlement, a D&B Spinoff Stockholder seeking to
qualify as a Released D&B Spinoff Stockholder must deliver to the Disbursing
Agent, on behalf of the EBS Litigation, L.L.C., prior to the D&B Spinoff
Settlement Expiration Date a properly completed and duly executed D&B Spinoff
Settlement Notice, which (i) if the D&B Spinoff Stockholder has exercised Rights
in accordance with Section 10.1 of the Plan, indicates the number of Rights so
exercised in a manner effecting an election to participate in the D&B Spinoff
Settlement, and if such number is less than the D&B Spinoff Release Minimum
Rights, is accompanied by a certified check or bank draft drawn on a United
States bank or a wire transfer, in an amount equal to the D&B Spinoff Release
Shortfall Amount or (ii) if the D&B Spinoff Stockholder has not exercised any
Rights, is accompanied by a certified check or bank draft drawn upon a United
States bank or a wire transfer, in an amount equal to the D&B Spinoff Release
Minimum Purchase Price. The foregoing items will not be deemed to have been
timely delivered to the Disbursing Agent (and thus the attempted participation
in the D&B Spinoff Settlement will not be valid or effective) unless they are
completed and executed in conformity with the instructions contained in the D&B
Spinoff Settlement Notice and are actually received by the Disbursing Agent, at
the address specified therefor in the D&B Spinoff Settlement Notice, on or prior
to the D&B Spinoff Settlement Expiration Date.
(c) All determinations as to proper completion, due execution,
timeliness, eligibility and other matters affecting the validity or
effectiveness of any attempted participation in the D&B Spinoff Settlement shall
be made by the Disbursing Agent, on behalf of the EBS Litigation, L.L.C., whose
determination shall be final and binding. Deliveries required to be received by
the Disbursing Agent in connection with an attempted participation in the D&B
Spinoff Settlement will not be deemed to have been so received or accepted until
actual receipt thereof by the Disbursing Agent shall have occurred and any
defects or irregularities shall have been waived or cured within such time as
the Disbursing Agent may determine in its sole discretion. Neither the Debtors,
the Reorganized Debtors, the EBS Litigation, L.L.C. or the Disbursing Agent will
have any obligation to give notice to any D&B Spinoff Stockholder of any defect
or irregularity in connection with any attempted participation in the D&B
Spinoff Settlement or incur any liability as a result of any failure to give any
such notice.
(d) On or as promptly as practicable following the Initial Distribution
Date, the Disbursing Agent, on behalf of the EBS Litigation, L.L.C., will mail
(or cause to be mailed) to each D&B Spinoff Stockholder who sought to
participate in the D&B Spinoff Settlement a written statement specifying whether
such D&B Spinoff Stockholder qualifies as a Released D&B Spinoff Stockholder.
The Debtors, the Reorganized Debtors and the EBS Litigation, L.L.C. shall be
deemed, as of the Effective Date, for good and valuable consideration, to have
forever released, waived and discharged each Released D&B Spinoff Stockholder
from any and all Unresolved Avoidance Claims that the Debtors, the Reorganized
Debtors or the EBS Litigation, L.L.C. ever had, now has, hereafter can, shall or
may have against any Released D&B Spinoff Stockholder. Any and all Unresolved
Avoidance Claims against any and all D&B Spinoff Stockholders that do not
constitute Released D&B Spinoff Stockholders are hereby expressly reserved by
the Debtors and the EBS Litigation, L.L.C. Nothing contained herein shall
constitute a release, waiver or discharge of any Unresolved Avoidance Claims
against any person other than a Released D&B Spinoff Stockholder and Unresolved
Avoidance Claims against such other persons are expressly reserved and shall be
transferred to the EBS Litigation, L.L.C. in accordance with section
1123(b)(3)(B) of the Bankruptcy Code, the EBS Litigation LLC Members Agreement
and Section 5.1 of the Plan.
(e) Pursuant to Bankruptcy Rule 9019 and in consideration for the
releases and other benefits provided under this Section 10.2, the provisions of
this Section 10.2 shall constitute a good faith compromise and settlement of all
Unresolved Avoidance Claims against Released D&B Spinoff Stockholders. The entry
of the Confirmation Order shall constitute the Bankruptcy Court's approval of
the compromise or settlement of all Unresolved Avoidance Claims against the
Released D&B Spinoff Stockholders and the Bankruptcy Court's finding that such
compromise or settlement is in the best interests of the Debtors and the
Reorganized Debtors and their estates, the EBS Litigation, L.L.C. and holders of
Claims and Equity Interests, and is fair, equitable and reasonable.
(f) As promptly as is practicable after the D&B Spinoff Settlement
Expiration Date, the Disbursing Agent shall transfer the D&B Spinoff Settlement
Proceeds, if any, to the EBS Litigation, L.L.C.
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10.3. Term of Bankruptcy Injunction or Stays. All injunctions or stays
provided for in the Chapter 11 Cases under sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall remain in
full force and effect until the Effective Date.
10.4. Revesting of Assets.
(a) The property of the estates of the Debtors shall revest in the
Reorganized Debtors on the Effective Date, except as provided in Sections 5.1,
5.2 and 10.3 of the Plan.
(b) From and after the Effective Date, the Reorganized Debtors may
operate their businesses, and may use, acquire and dispose of property free of
any restrictions imposed under the Bankruptcy Code.
(c) As of the Effective Date, all property of the Debtors and
Reorganized Debtors shall be free and clear of all liens, claims and interests
of holders of Claims and Equity Interests, except as provided in the Plan.
10.5. Causes of Action. Except as provided in Section 5.1 of the Plan,
as of the Effective Date, pursuant to section 1123(b)(3)(B) of the Bankruptcy
Code, any and all Causes of Action accruing to the Debtors and Debtors in
Possession, including, without limitation, actions under sections 545, 549, 550
and 551 of the Bankruptcy Code, but excluding avoidance or recovery actions
under sections 544, 547, 548 and 553 of the Bankruptcy Code, shall become assets
of the Reorganized Debtors, and the Reorganized Debtors shall have the authority
to prosecute such Causes of Action for the benefit of the estates of the
Debtors. The Reorganized Debtors shall have the authority to compromise and
settle, otherwise resolve, discontinue, abandon or dismiss all such Causes of
Action without approval of the Bankruptcy Court.
10.6. Discharge of Debtors. The rights afforded herein and the treatment
of all Claims and Equity Interests herein shall be in exchange for and in
complete satisfaction, discharge and release of Claims and Equity Interests of
any nature whatsoever, including any interest accrued on such Claims from and
after the Commencement Date, against the Debtors and the Debtors in Possession,
or any of their assets or properties. Except as otherwise provided herein, (a)
on the Effective Date, all such Claims against and Equity Interests in the
Debtors shall be satisfied, discharged and released in full, and (b) all persons
shall be precluded from asserting against the Reorganized Debtors, their
successors, or their assets or properties any other or further 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.
10.7. Injunction. Except as otherwise expressly provided in the Plan,
the Confirmation Order or a separate order of the Bankruptcy Court, all entities
who have held, hold or may hold Claims against or Equity Interests in any or all
of the Debtors, are permanently enjoined, on and after the Effective Date, from
(a) commencing or continuing in any manner any action or other proceeding of any
kind with respect to any such Claim or Equity Interest, (b) the enforcement,
attachment, collection or recovery by any manner or means of any judgment,
award, decree or order against the Debtors on account of any such Claim or
Equity Interest, (c) creating, perfecting or enforcing any encumbrance of any
kind against the Debtors or against the property or interests in property of the
Debtors on account of any such Claim or Equity Interest and (d) asserting any
right of setoff, subrogation or recoupment of any kind against any obligation
due from the Debtors or against the property or interests in property of the
Debtors on account of any such Claim or Equity Interest. Such injunction shall
extend to successors of the Debtors (including, without limitation, the
Reorganized Debtors) and their respective properties and interests in property.
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ARTICLE XI.
EFFECTIVENESS OF THE PLAN
11.1. Conditions Precedent to Effectiveness. The Plan shall not become
effective unless and until the following conditions shall have been satisfied or
waived pursuant to Section 11.3 of the Plan:
(a) the Confirmation Order, in form and substance reasonably acceptable
to the Debtors and the Creditors' Committee, shall have been signed by the judge
presiding over the Chapter 11 Cases, and there shall not be a stay or injunction
in effect with respect thereto;
(b) the Debtors shall have at least $10,000,000 in Cash as of August 7,
1997, after giving effect to the distributions of Cash projected to be made
under the Plan;
(c) the Reorganized Debtors shall have credit availability under a
working capital credit facility, in form and substance acceptable to the Debtors
and reasonably acceptable to the Creditors' Committee, to provide the
Reorganized Debtors with working capital sufficient to meet their ordinary and
peak requirements;
(d) the New Notes Indentures shall have been qualified under the Trust
Indenture Act of 1939, as amended;
(e) (i) the Funding Escrow shall have been established and the Funding
Escrow Agent under the Funding Escrow Agreement shall have been appointed in
accordance with Section 5.2 of the Plan; and (ii) subject to Section 5.1 of the
Plan, the EBS Litigation, L.L.C., the EBS Pension, L.L.C. and the EBS Building,
L.L.C. shall have been established in accordance with the EBS Litigation LLC
Members Agreement, the EBS Pension LLC Members Agreement and the EBS Building
LLC Members Agreement.
(f) subject to Section 5.1(c) of the Plan, the EBS Building, L.L.C.
shall have entered into the Corporate Headquarters Building Lease with
Reorganized Edison;
(g) all actions, documents and agreements necessary to implement the
Plan shall have been effected or executed;
(h) the Debtors shall have received all authorizations, consents,
regulatory approvals, rulings, letters, no-action letters, opinions or documents
that are determined by the Debtors to be necessary to implement the Plan,
including, without limitation, no-action letters from the Securities and
Exchange Commission and letter or other rulings from the Internal Revenue
Service; and
(i) each of the Amended Edison Certificate of Incorporation, the Amended
Edison Bylaws, the amended certificates of incorporation of the Reorganized
Subsidiaries, the EBS Litigation LLC Members Agreement, the EBS Pension LLC
Members Agreement, the EBS Building LLC Members Agreement, the Funding Escrow
Agreement, the Funding Escrow Mortgages, the Rights documents, the D&B Spinoff
Settlement documents, the New Notes, the New Notes Indentures, the Corporate
Headquarters Building Lease, the Registration Rights Agreement, the Stock Option
Plan, the Director Stock Option Plan, the Employment Contracts and the
Restricted Stock Agreements, in form and substance reasonably acceptable to the
Debtors and the Creditors' Committee, shall have been effected or executed.
11.2. Effect of Failure of Conditions. In the event that one or more of
the conditions specified in Section 11.1 of the Plan have not occurred on or
before 60 days after the Confirmation Date, upon notification submitted by the
Debtors to the Bankruptcy Court and counsel for the Creditors' Committee and the
Equity Committee, (a) the Confirmation Order shall be vacated, (b) no
distributions under the Plan shall be made, (c) the Debtors and all holders of
Claims and Equity Interests shall be restored to the status quo ante as of the
day immediately preceding the Confirmation Date as though the Confirmation Date
never occurred and (d) the Debtors' obligations with respect to the Claims and
Equity Interests shall remain unchanged and nothing contained herein shall
constitute or be deemed a waiver or release of any Claims or Equity Interests by
or against the Debtors or any other person or to prejudice in any manner the
rights of the Debtors or any person in any further proceedings involving the
Debtors.
11.3. Waiver of Conditions. The Debtors may waive, by a writing signed
by an authorized representative of the Debtors and subsequently filed with the
Bankruptcy Court, one or more of the conditions precedent to effectiveness of
the Plan
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set forth in Sections 11.1 (b), (f) and (g) (exclusive of those documents and
agreements set forth in (i)) of the Plan. The Debtors, with the written consent
of the Creditors' Committee (which consent shall not be unreasonably withheld),
may waive, by a writing signed by an authorized representative of the Debtors
and subsequently filed with the Bankruptcy Court, the conditions precedent to
effectiveness of the Plan set forth in Sections 11.1(a), (c), (d), (e), (h) and
(i) of the Plan.
ARTICLE XII.
RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all
matters arising out of, and related to, the Chapter 11 Cases and the Plan
pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy
Code and for, among other things, the following purposes:
(a) To hear and determine pending applications for the
assumption or rejection of executory contracts or unexpired leases, if
any are pending, and the allowance of Claims resulting therefrom;
(b) To determine any and all adversary proceedings, applications
and contested matters, including, without limitation, adversary
proceedings and contested matters arising in connection with the
prosecution by the EBS Litigation, L.L.C. of the Unresolved Avoidance
Claims.
(c) To resolve all matters arising under or relating to the EBS
Litigation, L.L.C., the EBS Pension, L.L.C. and the EBS Building,
L.L.C., including, without limitation, all disputes between the
Reorganized Debtors and such entities and with respect to the
interpretation of the EBS Litigation LLC Members Agreement, the EBS
Pension LLC Members Agreement and the EBS Building LLC Members
Agreement;
(d) To resolve all matters and issues relating to the Rights and
the D&B Spinoff Settlement;
(e) To resolve all matters arising under or relating to the
Funding Escrow, including, without limitation, all disputes between the
Reorganized Debtors and the Funding Escrow Agent and with respect to the
interpretation of the Funding Escrow Agreement;
(f) To hear and determine any objection to Administrative
Expense Claims, Claims or Equity Interests;
(g) To enter and implement such orders as may be appropriate in
the event the Confirmation Order is for any reason stayed, revoked,
modified or vacated;
(h) To issue such orders in aid of execution and consummation of
the Plan, to the extent authorized by section 1142 of the Bankruptcy
Code;
(i) To consider any amendments to or modifications of the Plan,
to cure any defect or omission, or reconcile any inconsistency in any
order of the Bankruptcy Court, including, without limitation, the
Confirmation Order;
(j) To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331 and
503(b) of the Bankruptcy Code;
(k) To hear and determine disputes arising in connection with
the interpretation, implementation or enforcement of the Plan;
(l) To recover all assets of the Debtors and property of the
Debtors' estates, wherever located;
(m) To hear and determine matters concerning state, local and
federal taxes in accordance with sections 346, 505 and 1146 of the
Bankruptcy Code;
(n) To hear any other matter not inconsistent with the
Bankruptcy Code; and
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(o) To enter a final decree closing the Chapter 11 Cases.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
13.1. Effectuating Documents and Further Transactions. Each of the
Debtors or Reorganized Debtors is authorized to execute, deliver, file or record
such contracts, instruments, releases, indentures and other agreements or
documents and take such actions as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan and any notes or
securities issued pursuant to the Plan.
13.2. Corporate Action. On the Effective Date, all matters provided for
under the Plan that would otherwise require approval of the stockholders,
directors or members of one or more of the Debtors or Reorganized Debtors or
their successors in interest under the Plan, including, without limitation, the
authorization to issue or cause to be issued preferred stock, the issuance of
New Common Stock, Rights, Restricted Stock, New Notes, Series 1997 Bonds,
Warrants, Management Options, Director Options, Class A Membership Units and
Class B Membership Units, the effectiveness of the Amended Edison Certificate of
Incorporation, the Amended Edison Bylaws and the amended certificates of
incorporation of the Reorganized Subsidiaries, corporate mergers or dissolutions
effectuated pursuant to the Plan, the election or appointment, as the case may
be, of directors and officers of the Debtors pursuant to the Plan, the
authorization and approval of the D&B Spinoff Settlement Offer, the Employment
Contracts, the Stock Option Plan, the Director Stock Option Plan and the
Restricted Stock Agreements and the creation of the EBS Litigation, L.L.C., the
EBS Pension, L.L.C., the EBS Building, L.L.C., the Funding Escrow and the
Funding Escrow Mortgages shall be deemed to have occurred and shall be in effect
from and after the Effective Date pursuant to the applicable general corporation
law of the states in which the Debtors or Reorganized Debtors are incorporated,
without any requirement of further action by the stockholders or directors of
the Debtors or Reorganized Debtors. On the Effective Date or as soon thereafter
as is practicable, the Reorganized Debtors shall, if required, file their
amended certificates of incorporation with the Secretary of State of the state
in which each Reorganized Debtor is incorporated, in accordance with the
applicable general corporation law of such states.
13.3. Exemption from Transfer Taxes. Pursuant to section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording or other similar tax.
13.4. Injunction Regarding Worthless Stock Deduction. At the
Confirmation Hearing, Edison may request that the Bankruptcy Court include in
the Confirmation Order a provision enjoining any "50-percent shareholder" of
Edison within the meaning of section 382(g)(4)(D) of the Internal Revenue Code
of 1986, as amended, from claiming a worthless stock deduction with respect to
its Edison Equity Interest for any taxable year of such shareholder ending prior
to the Effective Date.
13.5. Exculpation. Neither the Debtors, the Reorganized Debtors, the
Creditors' Committee or the Equity Committee or any of their respective members,
officers, directors, employees, advisors or agents shall have or incur any
liability to any holder of a Claim or Equity Interest for any act or omission in
connection with, related to, or arising out of, the Chapter 11 Cases, the
pursuit of confirmation of the Plan, the consummation of the Plan or the
administration of the Plan or the property to be distributed under the Plan,
except for willful misconduct or gross negligence, and, in all respects, the
Debtors, the Reorganized Debtors, the Creditors' Committee, the Equity Committee
and each of their respective members, officers, directors, employees, advisors
and agents shall be entitled to rely upon the advice of counsel with respect to
their duties and responsibilities under the Plan; provided, however, that
nothing contained herein shall exculpate, satisfy, discharge or release any
Avoidance Claims against present or former officers, directors or employees of
the Debtors in their capacities other than as present or former officers,
directors or employees.
13.6. Termination of Committees. The appointments of the Creditors'
Committee and the Equity Committee shall terminate on the later of the Effective
Date and the date of the hearing to consider applications for final allowances
of compensation and reimbursement of expenses.
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13.7. Claims Resolution Committee.
(a) Function and Composition. Prior to the Effective Date, the
Creditors' Committee will have established the Claims Resolution Committee. The
functions of the Claims Resolution Committee will be (i) to monitor the
Reorganized Debtors' progress in (a) reconciling and resolving Disputed Claims
and (b) making distributions on account of such Claims once such Claims become
Allowed Claims, (ii) to compel the Debtors to compromise, settle or otherwise
resolve Disputed Claims and (iii) to review and assert objections to the
reasonableness of compromises, settlements or other resolutions of Disputed
Claims, as provided in Section 6.5(b) of the Plan. The Claims Resolution
Committee will consist of three holders of Claims each of whom previously has
served as a member of the Creditors' Committee.
(b) Procedures. The Claims Resolution Committee will adopt by-laws that
will control its functions. These by-laws, unless modified by the Claims
Resolution Committee, will provide the following: (i) a majority of the Claims
Resolution Committee will constitute a quorum; (ii) one member of the Claims
Resolution Committee will be designated by the majority of its members as its
chairperson; (iii) meetings of the Claims Resolution Committee will be called by
its chairperson on such notice and in such manner as its chairperson may deem
advisable; and (iv) the Claims Resolution Committee will function by decisions
made by a majority of its members in attendance at any meeting.
(c) Employment of Attorneys and Reimbursement of Expenses. The Claims
Resolution Committee will be authorized to retain one law firm. The role of the
Claims Resolution Committee's attorneys will be strictly limited to assisting
the Claims Resolution Committee in its functions as set forth herein. The
Reorganized Debtors will pay the actual, necessary, reasonable and documented
fees and expenses of the attorneys retained by the Claims Resolution Committee,
as well as the actual, necessary, reasonable and documented expenses incurred by
each member of the Claims Resolution Committee in the performance of its duties,
in accordance with the Reorganized Debtors' normal business practice for
compensating and reimbursing professionals. Other than as specified in the
preceding sentence, the members of the Claims Resolution Committee will serve
without compensation. If there is any unresolved dispute between the Reorganized
Debtors and the Claims Resolution Committee, its attorneys or its members as to
any fees or expenses, such dispute will be submitted to the Bankruptcy Court for
resolution.
(d) Dissolution. Subject to further order of the Bankruptcy Court, the
Claims Resolution Committee will dissolve upon the earlier to occur of (i) the
date that an officer of Reorganized Edison files with the Bankruptcy Court and
serves upon counsel to the Claims Resolution Committee by overnight delivery
service or facsimile transmission a certification that the aggregate Disputed
Claim Amount for all remaining Disputed Claims is equal to or less than
$5,000,000 (the "Certification") and (ii) the third anniversary of the Effective
Date. The Claims Resolution Committee may file with the Bankruptcy Court and
serve upon the Reorganized Debtors an objection to such Certification within 10
days of the receipt thereof, in which event the aggregate Disputed Claim Amount
for all remaining Disputed Claims will be determined by the Bankruptcy Court. If
the Bankruptcy Court determines that the aggregate Disputed Claim Amount for all
remaining Disputed Claims is greater than $5,000,000, the Claims Resolution
Committee will continue in existence, subject to the conditions set forth in the
first sentence of this subsection. If the Bankruptcy Court determines that the
aggregate Disputed Claim Amount for all remaining Disputed Claims is equal to or
less than $5,000,000, the Claims Resolution Committee will dissolve effective as
of the date that the Certification is served and filed. The attorneys retained
by, and members of, the Claims Resolution Committee, will not be entitled to
compensation or reimbursement of expenses for services rendered after the date
of dissolution of the Claims Resolution Committee.
13.8. Post-Confirmation Date Fees and Expenses. From and after the
Confirmation Date, the Debtors and Reorganized Debtors shall, in the ordinary
course of business and without the necessity for any approval by the Bankruptcy
Court, pay the reasonable fees and expenses of professional persons thereafter
incurred by the Debtors and Reorganized Debtors, including, without limitation,
those fees and expenses incurred in connection with the implementation and
consummation of the Plan.
13.9. Payment of Statutory Fees. All fees payable pursuant to section
1930 of the title 28 of the United States Code, as determined by the Bankruptcy
Court at the Confirmation Hearing, shall be paid on the Effective Date.
13.10. Amendment or Modification of the Plan. Alterations, amendments or
modifications of the Plan may be proposed in writing by the Debtors at any time
prior to the Confirmation Date, provided that the Plan, as altered, amended or
modified, satisfies the conditions of sections 1122 and 1123 of the Bankruptcy
Code, and the Debtors shall have complied with section 1125 of the Bankruptcy
Code; provided, however, that, prior to the date of the commencement of
solicitation of votes to accept
33
<PAGE>
or reject the Plan, no alteration, amendment or modification of the Plan that
would materially and adversely change the treatment of General Unsecured Claims
may be made without prior approval of the Creditors' Committee, which approval
shall not be unreasonably withheld. The Plan may be altered, amended or modified
at any time after the Confirmation Date and before substantial consummation,
provided that the Plan, as altered, amended or modified, satisfies the
requirements of sections 1122 and 1123 of the Bankruptcy Code and the Bankruptcy
Court, after notice and a hearing, confirms the Plan, as altered, amended or
modified, under section 1129 of the Bankruptcy Code and the circumstances
warrant such alterations, amendments or modifications. A holder of a Claim or
Equity Interest that has accepted the Plan shall be deemed to have accepted the
Plan, as altered, amended or modified, if the proposed alteration, amendment or
modification does not materially and adversely change the treatment of the Claim
or Equity Interest of such holder.
13.11. Severability. In the event that the Bankruptcy Court determines,
prior to the Confirmation Date, that any provision in the Plan is invalid, void
or unenforceable, such provision shall be invalid, void or unenforceable with
respect to the holder or holders of such Claims or Equity Interests as to which
the provision is determined to be invalid, void or unenforceable. The
invalidity, voidness or unenforceability of any such provision shall in no way
limit or affect the enforceability and operative effect of any other provision
of the Plan.
13.12. Revocation or Withdrawal 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 prior to the Confirmation Date, then the
Plan shall be deemed null and void. In such event, nothing contained herein
shall constitute or be deemed a waiver or release of any claims by or against
the Debtors or any other person or to prejudice in any manner the rights of the
Debtors or any person in any further proceedings involving the Debtors.
13.13. Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Debtors, the holders of Claims and Equity Interests, and their
respective successors and assigns, including, without limitation, the
Reorganized Debtors.
13.14. Notices. All notices, requests and demands to or upon the Debtors
or the Reorganized Debtors to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when actually delivered or, in the case of notice by facsimile
transmission, when received and telephonically confirmed, addressed as follows:
<TABLE>
<CAPTION>
If to the Debtors:
------------------
<S> <C>
Edison Brothers Stores, Inc.
501 North Broadway
St. Louis, Missouri 63102
Attn: Alan A. Sachs, Esq.
Telephone: (314) 331-6565
Facsimile: (314) 331-6554
with a copy to:
Weil, Gotshal & Manges LLP Young, Conaway, Stargatt & Taylor
767 Fifth Avenue 1110 N. Market Street
New York, New York 10153 P.O. Box 391
Attn: Richard P. Krasnow, Esq. Rodney Square North, 11th Floor
Telephone: (212) 310-8000 Wilmington, Delaware 19801
Facsimile: (212) 310-8007 Attn: Laura Davis Jones, Esq.
Telephone: (302) 571-6600
Facsimile: (302) 571-1253
34
<PAGE>
If to the Creditors' Committee:
-------------------------------
Jones, Day, Reavis & Pogue Richards, Layton & Finger, P.A.
77 West Wacker One Rodney Square
Chicago, Illinois 60601 Wilmington, Delaware 19899
Attn: David Kurtz, Esq. Attn: Thomas L. Ambro, Esq .
Telephone: (312) 782-3939 Telephone: (302) 651-7612
Facsimile: (312) 782-8585 Facsimile: (302) 658-6458
If to the Equity Committee:
---------------------------
Paul, Weiss, Rifkind, Wharton & Garrison Duane Morris & Heckscher
1285 Avenue of the Americas 1201 Market Street
New York, New York 10019 Wilmington, Delaware 19801
Attn: Alan W. Kornberg, Esq. Attn: Teresa K.D. Currier, Esq.
Telephone: (212) 373-3209 Telephone: (302) 657-4957
Facsimile: (212) 373-2053 Facsimile: (302) 571-5560
</TABLE>
13.15. Governing Law. Except to the extent the Bankruptcy Code,
Bankruptcy Rules or other federal law is applicable, or to the extent an Exhibit
to the Plan provides otherwise, the rights and obligations arising under this
Plan shall be governed by, and construed and enforced in accordance with, the
laws of the State of New York, without giving effect to the principles of
conflicts of law of such jurisdiction.
13.16. Withholding and Reporting Requirements. In connection with the
consummation of the Plan, the Debtors or the Reorganized Debtors, as the case
may be, shall comply with all withholding and reporting requirements imposed by
any federal, state, local or foreign taxing authority and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
13.17. Plan Supplement. Forms of the documents relating to the Amended
Edison Certificate of Incorporation, the Amended Edison Bylaws, the EBS
Litigation LLC Members Agreement, the EBS Pension LLC Members Agreement, the EBS
Building LLC Members Agreement, the Funding Escrow Agreement, the Funding Escrow
Mortgages, the New Notes, the New Notes Indentures, the Series 1977 Bonds, the
Rights, the D&B Spinoff Settlement, the investment guidelines referred to in
Sections 6.4(a) and 6.4(c)(ii) of the Plan, Schedules 7.1(a)(x) and 7.1(a)(y)
referred to in Section 7.1 of the Plan, the Warrants (including a Warrant
agreement), the Corporate Headquarters Building Lease and the Registration
Rights Agreement shall be contained in the Plan Supplement and filed with the
Clerk of the Bankruptcy Court at least 10 days prior to the last day upon which
holders of Claims and Equity Interests may vote to accept or reject the Plan.
Upon its filing with the Bankruptcy Court, the Plan Supplement may be inspected
in the office of the Clerk of the Bankruptcy Court during normal court hours.
Holders of Claims or Equity Interests may obtain a copy of the Plan Supplement
upon written request to Edison in accordance with Section 13.14 of the Plan.
13.18. Allocation of Plan Distributions Between Principal and Interest.
To the extent that any Allowed Claim entitled to a distribution under the Plan
is comprised of indebtedness and accrued but unpaid interest thereon, such
distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
13.19. Headings. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
13.20. Exhibits/Schedules. All Exhibits and Schedules to the Plan,
including the Plan Supplement, are incorporated into and are a part of the Plan
as if set forth in full herein.
35
<PAGE>
13.21. Filing of Additional Documents. On or before substantial
consummation of the Plan, the Debtors shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of the Plan.
Dated: Wilmington, Delaware
June 30, 1997
EDISON BROTHERS STORES, INC., a Delaware corporation
(for itself and on behalf of each of the Subsidiaries)
By: /s/ Alan D. Miller
--------------------------------------------------
Name: Alan D. Miller
Title: Chairman and Chief Executive Officer
36
<PAGE>
EXHIBIT A TO PLAN
-----------------
SUMMARY OF TERMS OF CORPORATE HEADQUARTERS LEASE
LESSOR: EBS Building, L.L.C.
LESSEE: Reorganized Edison
TERM: 10 years, commencing on the Effective Date
RENT: Years one through three: $9.00 per square foot
Years 4 through 10: on terms to be agreed upon the
Debtors and the Creditors' Committee
DISPOSITION: Any sale, mortgage or other disposition of the
Corporate Headquarters Building by the EBS Building,
L.L.C. shall be subject to the Corporate Headquarters
Building Lease and such other terms as are acceptable
to Reorganized Edison
OTHER TERMS: Such other terms as may be mutually agreeable to the
Debtors and the Creditors' Committee
37
<PAGE>
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<PAGE>
EXHIBIT B TO PLAN
-----------------
SUMMARY OF TERMS OF NEW NOTES
ISSUER: Reorganized Edison
AMOUNT: $100,000,000, subject to adjustment as provided in Section
1.15 of the Plan
TERM: The later of the tenth anniversary of the Effective Date and
July 31, 2007
INTEREST: 11.0% per annum, payable semi-annually on January 31 and
July 31. Interest shall begin accruing on the earlier of the
Effective Date and July 31, 1997. The first interest payment
shall be made on January 31, 1998
MATURITY: 100% of outstanding principal amount payable on the later of
the tenth anniversary of the Effective Date and July 31,
2007
SECURITY: Funding Escrow Mortgages (coverage of portion of interest)
PREFUNDING: Through the Funding Escrow, approximately the first three
years of interest payable shall be prefunded by the Debtors
with $16 million in Cash and the Funding Escrow Properties
COVENANTS: Mandatory Principal Prepayment -- 50% of the net proceeds of
extraordinary asset sales (excluding individual sales of
assets for which the consideration received is less that
$250,000) not otherwise required to be paid to working
capital facility lenders; provided, however, that such
amount shall not be distributed unless in excess of
$5,000,000
Optional Redemption -- In whole or in part at the option of
Reorganized Edison in increments of not less than $5 million
in accordance with the following schedule:
Effective Date - June 30, 1998: 100% of par
July 1, 1998 - June 30, 1999: 104% of par
July 1, 1999 - June 30, 2000: 103% of par
July 1, 2000 - June 30, 2001: 102% of par
July 1, 2001 - June 30, 2002: 101% of par
July 1, 2002 - Maturity: 100% of par
Mandatory Redemption Upon Change of Control -- Upon a
"Change in Control," at 101% of par. The definition of
"Change of Control" is described in the Disclosure Statement
Other Covenants -- Such other covenants as may be mutually
agreeable to the Debtors and the Creditors' Committee
OTHER TERMS: Such other terms as may be mutually agreeable to the Debtors
and the Creditors' Committee
38
<PAGE>
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<PAGE>
EXHIBIT C TO PLAN
-----------------
SUMMARY OF TERMS OF WARRANTS
WARRANTS: Warrants to purchase 9.0% of the issued New Common Stock, on
a fully diluted basis
EXERCISE PRICE: $16.40
TERM: The Warrants shall expire on the eighth anniversary of the
Effective Date
OTHER TERMS: Such other terms as described in the Disclosure Statement
39
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<PAGE>
SCHEDULE 1 TO PLAN
------------------
ISSUANCE OF SERIES 1997 BONDS
(1) The Series 1977 Bonds are currently outstanding in an
aggregate principal amount of $2,920,000. The Issuer will issue the
Series 1997 A Bonds in an aggregate principal amount of $2,482,000 in
exchange for a portion of the Series 1977 Bonds in an aggregate
principal amount equal to the Allowed Secured Series 1977 Bondholder
Claims. The Series 1985 Bonds are currently outstanding in an aggregate
principal amount of $5,500,000. The Issuer will issue the Series 1997 B
Bonds in an aggregate principal amount of $4,235,000 in exchange for a
portion of the Series 1985 Bonds in an aggregate principal amount equal
to the Allowed Secured Series 1985 Bondholder Claims.
(2) The Series 1997 Bonds will be issued pursuant to the terms
of a trust indenture between the Issuer and the Trustee in
substantially the form attached to the Plan Supplement with only such
changes, additions, or modifications as shall be approved by the
Issuer, the Trustee, on behalf of all Series 1997 Bondholders, and
Edbro Missouri (the "Series 1997 Bond Indenture"). In connection with
the issuance of the Series 1997 Bonds, all property currently leased to
Edbro Missouri pursuant to the terms of the Series 1977 Lease Agreement
and/or the Series 1985 Lease Agreement, shall be conveyed by the Issuer
to Reorganized Edbro Missouri by special warranty deed, bill of sale
and other such conveyance documents as provided under the Series 1977
Lease Agreement and Series 1985 Lease Agreement, subject only to the
"Permitted Encumbrances" (as such term is defined in the Series 1985
Lease Agreement) or as shall otherwise be approved by Edbro Missouri,
and pursuant to such other documents as may reasonably be required by
Edbro Missouri to vest title in all such property in Reorganized Edbro
Missouri. The Series 1977 Lease Agreement and the Series 1985 Lease
Agreement shall each be terminated of record. Upon issuance of the
Series 1997 Bonds, the Issuer shall be deemed to have made a loan (the
"Series 1997 Loan") to Reorganized Edbro Missouri in an amount equal to
the aggregate principal amount of the Series 1997 Bonds ($6,717,000).
In connection with the issuance of the Series 1997 Bonds, Reorganized
Edbro Missouri shall enter into a Loan Agreement with the Issuer
substantially in the form attached to the Plan Supplement with only
such changes, additions, or modifications as shall be approved by the
Issuer, the Trustee, on behalf of all Series 1997 Bondholders, and
Edbro Missouri (the "Series 1997 Loan Agreement") and shall execute and
deliver a promissory note in the aggregate principal amount of
$6,717,000 in favor of the Issuer evidencing the Series 1997 Loan, in
substantially the form attached to the Plan Supplement with only such
changes, additions, or modifications as shall be approved by the
Issuer, the Trustee, on behalf of all Series 1997 Bondholders, and
Edbro Missouri (the "Series 1997 Note"). Pursuant to the terms of the
Series 1997 Loan Agreement and the Series 1997 Note, Reorganized Edbro
Missouri shall be obligated to pay to the Issuer payments on the Series
1997 Loan in the amounts and at the times necessary to permit the
Issuer to make the payments when due of the principal of, premium, if
any, and interest on the Series 1997 Bonds and to timely pay the
purchase price of the Series 1997 B Bonds tendered for purchase in
accordance with the terms of the Series 1997 Bond Indenture. The Issuer
shall assign all of its rights under the Series 1997 Loan Agreement
(except for certain rights of indemnification of the Issuer and the
Issuer's rights to the payment of its reasonable costs, fees, and
expenses), the Series 1997 Note and each of the other Series 1997 Loan
Documents to the Trustee in accordance with the terms of the Series
1997 Bond Indenture. On or prior to the Effective Date, Reorganized
Edbro Missouri shall also execute and deliver or cause to be executed
and delivered each of the Series 1997 Collateral Documents, and shall
satisfy or cause to be satisfied each of the Series 1997 Refunding
Conditions.
(3) The Series 1997 Bonds will be limited obligations of the
Issuer and will be payable solely from and equally and ratably secured,
to the extent provided in the Series 1997 Bond Indenture, by a pledge
of (i) all income, accounts, revenues, proceeds, and other amounts to
which the Issuer is entitled, derived from or in connection with the
Series 1997 Loan Documents, including, without limitation, all payments
of the principal of and interest on the Series 1997 Note and all
amounts obtained through the exercise of the remedies provided in the
Series 1997 Loan Documents upon the occurrence of any event of default
thereunder and all receipts of the Trustee credited under the
provisions of the Series 1997 Bond Indenture against said amounts
payable, and (ii) moneys held in the funds and accounts under the
Series 1997 Bond Indenture, together with investment earnings thereon
(excluding any amounts held in any rebate fund established under and as
provided in the Series 1997 Bond Indenture).
(4) In connection with the issuance of the Series 1997 Bonds,
the Issuer, the Trustee and Reorganized Edbro Missouri shall cause each
of the Series 1997 Refunding Conditions to be satisfied.
40
<PAGE>
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<PAGE>
SCHEDULE 2 TO PLAN
------------------
SERIES 1997 REFUNDING CONDITIONS
On or prior to the date of issuance of the Series 1997 Bonds and
subject to the provisions of Sections 4.2 and 4.3 of the Plan, each of the
following conditions shall be fully satisfied and each of the following
documents, instruments and agreements shall be delivered in form and content
satisfactory to the Issuer, the Trustee, Edbro Missouri and Edison:
(a) The Issuer shall have adopted an ordinance authorizing the issuance
of the Series 1997 Bonds and a certified copy of such ordinance shall have been
delivered to the Trustee.
(b) The Issuer and the Trustee shall have executed and delivered the
Series 1997 Bond Indenture.
(c) Reorganized Edbro Missouri and the Issuer shall have executed and
delivered the Series 1997 Loan Agreement and an original of same shall have been
delivered to the Trustee.
(d) Reorganized Edbro Missouri shall have executed and delivered the
Series 1997 Notes and the originals shall have been delivered to the Trustee.
(e) Reorganized Edbro Missouri shall have executed, and or caused the
applicable party to have executed, as applicable, and delivered each of the
following collateral documents (collectively, the "Series 1997 Collateral
Documents"):
(1) a Deed of Trust and Security Agreement made by Reorganized
Edbro Missouri in favor of the Issuer, in substantially in the
form attached to the Plan Supplement, encumbering the Edbro
Missouri Facility and subject only to such encumbrances as
shall be approved by the Issuer and Trustee, (the "Series 1997
Mortgage"); the Series 1997 Mortgage shall have been assigned
by the Issuer to the Trustee pursuant to the Series 1997 Bond
Indenture and/or an assignment in form and substance
acceptable to the Trustee (the "Series 1997 Assignment
Agreement");
(2) one or more UCC-1 Financing Statements made by Reorganized
Edbro Missouri, as Debtor, in favor of the Issuer, as secured
party, as necessary to perfect the Issuer's security interest
in the collateral encumbered by the Series 1997 Mortgage
(collectively, the "Series 1997 Financing Statements"); the
Series 1997 Financing Statements shall have been assigned by
the Issuer to the Trustee pursuant to the Series 1997 Bond
Indenture and/or the Series 1997 Assignment Agreement;
(3) a guaranty agreement executed by Reorganized Edison in favor
of the Issuer, in substantially the form attached to the Plan
Supplement with only such changes, additions, or modifications
as shall be approved by the Issuer, the Trustee, on behalf of
all Series 1997 Bondholders, and Reorganized Edison (the
"Series 1997 Guaranty"); the Series 1997 Guaranty shall have
been assigned by the Issuer to the Trustee pursuant to the
Series 1997 Bond Indenture and/or the Series 1997 Assignment
Agreement; and
(4) any other pledge agreements, security agreements, documents,
instruments, or other agreements necessary to pledge,
mortgage, lien or encumber, or to perfect any security
interest in the Edbro Missouri Facility, all payments to be
made by Reorganized Edbro Missouri under the Series 1997 Loan
Agreement and Series 1997 Notes and all other revenues,
contract rights, tangible and intangible property and property
rights, all real and personal property, and all other assets
of Reorganized Edbro Missouri to be pledged as security for
the obligations of Reorganized Edbro Missouri as provided in
the Series 1997 Loan Agreements, the Series 1997 Bond
Indenture and the Series 1997 Loan Documents, subject only to
such encumbrances as shall be approved by the Issuer and
Trustee, for the benefit of the Series 1997 Bondholders, and
which shall have been assigned by the Issuer to the Trustee
pursuant to the Series 1997 Bond Indenture and/or the Series
1997 Assignment Agreement.
(f) There shall have been delivered to the Trustee, the Issuer and
Reorganized Edbro Missouri, an unqualified favorable opinion of Bond Counsel
with respect to the validity of the Series 1997 Bonds and to the effect that the
interest on the Series 1997 Bonds will not be included in the gross income of
the holders thereof for Federal income tax purposes, dated as of the date of
issuance of the Series 1997 Bonds and addressed to the Issuer, the Trustee and
Reorganized Edbro Missouri; such
41
<PAGE>
opinion may contain those qualifications and exceptions which are customarily
incorporated in approving opinions of Bond Counsel and which are acceptable to
the Issuer, the Trustee and Reorganized Edbro Missouri.
(g) There shall have been delivered to the Trustee and the Issuer, a
favorable opinion of counsel for Reorganized Edbro Missouri and Reorganized
Edison with respect to due authorization, execution and delivery and
enforceability of the Series 1997 Loan Agreement and each of the other Series
1997 Loan Documents executed and delivered by Reorganized Edbro Missouri or
Reorganized Edison and with respect to such other matters as the Trustee or
Issuer may reasonably request, dated as of the date of issuance of the Series
1997 Bonds and addressed to the Trustee and the Issuer.
(h) There shall have been delivered to the Trustee and the Issuer,
governmental certificates, dated the most recent practicable date prior to the
date of issuance of the Series 1997 Bonds, showing that each of Reorganized
Edbro Missouri and Reorganized Edison is organized and in good standing in the
jurisdiction of its organization and is qualified to do business and in good
standing in all other jurisdictions in which the failure to so qualify would
have a material adverse effect on the ability of such entity to perform its
obligations under the Series 1997 Loan Documents.
(i) There shall have been delivered to the Trustee and the Issuer, (i)
copies of the Articles of Incorporation of Reorganized Edbro Missouri and
Reorganized Edison, each certified as of a recent date by the Secretary of State
of the state of organization of Reorganized Edbro Missouri or Reorganized
Edison, as applicable, (ii) a copy of the Bylaws of each of Reorganized Edbro
Missouri and Reorganized Edison, certified as of a recent date by an officer of
each such entity, (iii) a corporate resolution of each of Reorganized Edbro
Missouri and Reorganized Edison authorizing the execution and delivery by such
entity of each of the Series 1997 Loan Documents executed and delivered by such
entity, (iv) certificates of the Secretary of each of Reorganized Edbro Missouri
and Reorganized Edison, dated as of the date of issuance of the Series 1997
Bonds, as to the incumbency and signatures of the officers of each such entity
executing the Series 1997 Loan Documents to be executed and delivered by such
entity, together with evidence of the incumbency of such Secretary.
(j) There shall have been delivered to the Trustee, as-built surveys of
the Edbro Missouri Facility, dated no earlier than 90 days prior to the date of
issuance of the Series 1997 Bonds, in a form and content acceptable to the
Trustee and the title company issuing a mortgagee policy in favor of the Issuer
and Trustee, as their interests may appear.
(k) There shall have been delivered to the Trustee, a title insurance
policy naming the Issuer and Trustee, as their interests may appear, as the
insureds thereunder, issued by a title company acceptable to the Trustee in an
aggregate amount equal to $6,717,000, insuring the validity and priority of the
lien of the Series 1997 Mortgage, subject only to such exceptions as are
approved by the Trustee and containing such endorsements and affirmative
insurance as the Trustee may reasonably require.
(l) There shall have been delivered to the Trustee, evidence that the
insurance policies provided in the Series 1997 Loan Agreement and the Series
1997 Mortgage are in full force and effect and that such policies include the
Trustee as an additional named insured party and loss payee thereunder.
(m) There shall have been delivered to the Trustee and the Issuer such
other documents, instruments and agreements consistent with the terms of the
Plan as shall be reasonably requested by the Trustee or the Issuer.
42
<PAGE>
SCHEDULE 3 TO PLAN
------------------
TERMS OF SERIES 1997 A BONDS
<TABLE>
<S> <C>
Authorized $4,000 or any integral multiple of $1.00 in excess thereof
Denominations:
Interest Rate: Six and twenty-five one-hundredths percent (6.25%) per annum
Maturity: June 1, 2002
Interest Payment
Dates: June 1 and December 1 of each year
Principal
Redemption: Principal redemption payments in the amount of $60,000 will be due and payable on each June 1
commencing on June 1, 1998 through maturity with a final principal payment of $2,242,000 due on
June 1, 2002
Collateral: Issuer shall assign to the Trustee, for the benefit of all Series 1997 Bondholders, all of its rights
(except for certain rights of indemnification of the Issuer and the Issuer's rights to the payment of its
reasonable costs, fees, and expenses) under the Series 1997 Loan Documents, including, without
limitation, its right to receipt of payments made by Reorganized Edbro Missouri on account of the
Series 1997 Loans and its interest as mortgagee under the Series 1997 Mortgage. As a result of such
assignment to the Trustee, Series 1997 A Bonds and Series 1997 B Bonds shall be equally and ratably
secured, pari passu, by the Series 1997 Loan Documents.
Other Terms: Such other terms as may be mutually agreeable to Edbro Missouri, the Issuer and the Trustee.
</TABLE>
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<PAGE>
SCHEDULE 4 TO PLAN
------------------
TERMS OF SERIES 1997 B BONDS
Authorized
Denominations: $4,000 or any integral multiple of $250 in excess thereof
Interest Rate: Variable rate equal to seventy-five and eighty-three
one hundredths percent (75.83%) of the interest rate
announced from time to time by Mercantile Bank National
Association as its "prime" rate on commercial loans (which
interest rate shall fluctuate as and when said prime rate
shall change); subject to conversion to a "Subsequent
Variable Rate" or "Fixed Rate", as provided below
Maximum Permitted
Rate: 14% per annum or such higher rate as shall be permitted by
law
Maturity: November 1, 2010
Interest Payment
Dates: Prior to conversion of the interest rate on the Series
1997 B Bonds to a "Subsequent Variable Rate" or "Fixed
Rate" (as such terms are defined in the Series 1997 Bond
Indenture), February 1, May 1, August 1 and November 1 of
each year; after such conversion, May 1 and November 1 of
each year
Principal
Redemption: Principal redemption payments in the amount of $847,000
will be due and payable on November 1, 2006 and on each
November 1 thereafter through maturity
Conversion: The interest rate mode on the Series 1997 B Bonds may be
converted, at the option of Reorganized Edbro Missouri, to
a "Subsequent Variable Rate" and/or to a "Fixed Rate" as
more particularly provided in the Series 1997 Bond
Indenture. All Series 1997 B Bonds shall be subject to
mandatory tender for purchase by or on behalf of
Reorganized Edbro Missouri on the date of any such
conversion. All Series 1997 B Bonds so tendered shall be
remarketed by a remarketing agent selected by Reorganized
Edbro Missouri and appointed by the Issuer, upon written
instructions from Reorganized Edbro Missouri (the
"Remarketing Agent"), as provided for and in accordance
with the terms of the Series 1997 Bond Indenture.
Tender Option
for Mandatory
Purchase of Series
1997 B Bonds: Prior to any conversion of the interest rate mode on the
Series 1997 B Bonds to a Subsequent Variable Rate or a
Fixed Rate as set forth above and so long as Mercantile is
the sole beneficial owner of the Series 1997 B Bonds,
Mercantile will have the option to tender all of the
outstanding Series 1997 B Bonds for mandatory purchase by
or on behalf of Reorganized Edbro Missouri on January 1,
2000 and, if such option has not been previously
exercised, on any succeeding January 1 until the principal
amount of the Series 1997 B Bonds has been repaid in full,
such option to be exercisable upon 90 days' prior written
notice to Reorganized Edbro Missouri as more particularly
provided in the Series 1997 Bond Indenture. All Series
1997 B Bonds so tendered by Mercantile shall be remarketed
by the Remarketing Agent as provided for and in accordance
with the terms of the Series 1997 Bond Indenture;
provided, however, that the right to exercise such tender
option shall not be subject to or conditioned upon the
successful remarketing of the Series 1997 B Bonds. The
tender option described above shall be for the exclusive
benefit of Mercantile, as the sole beneficial owner of all
of the outstanding Series 1997 B Bonds, for as long as
Mercantile is the sole beneficial owner of all of the
outstanding Series 1997 B Bonds and prior to any
conversion of the interest rate mode on the Series 1997 B
Bonds to a Subsequent Variable Rate or Fixed Rate, and
shall not be exercisable by Mercantile or any other Series
1997 B Bondholder (a) if any of the Series 1997 B Bonds
are held by any Person other than Mercantile, or (b)
following any conversion of the interest rate mode on the
Series 1997 B Bonds to a Subsequent Variable Rate or Fixed
Rate.
44
<PAGE>
Collateral: Issuer shall assign to the Trustee, for the benefit of all
Series 1997 Bondholders, all of its rights (except for
certain rights of indemnification of the Issuer and the
Issuer's rights to the payment of its reasonable costs,
fees, and expenses) under the Series 1997 Loan Documents,
including, without limitation, (i) its right to receipt of
payments made by Reorganized Edbro Missouri on account of
the Series 1997 Loan, (ii) its rights under the Series
1997 Guaranty and (iii) its interest as mortgagee under
the Series 1997 Mortgage. As a result of such assignment
to the Trustee, Series 1997 A Bonds and Series 1997 B
Bonds shall be equally and ratably secured, pari passu, by
the Series 1997 Loan Documents.
Other Terms: Such other terms as may be mutually agreeable to Edbro
Missouri, the Issuer and the Trustee.
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<PAGE>
EXHIBIT B
TO DISCLOSURE STATEMENT
-----------------------
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- -------------------------------------------X
: CHAPTER 11
IN RE: :
: CASE NO. 95-1354 (PJW)
EDISON BROTHERS STORES, INC., ET AL., :
: JOINTLY ADMINISTERED
DEBTORS. :
- -------------------------------------------X
ORDER (A) APPROVING THE DISCLOSURE STATEMENT, (B) APPROVING
THE PROPOSED VOTING PROCEDURES, AND (C) SCHEDULING
HEARING TO CONSIDER CONFIRMATION OF THE DEBTORS'
AMENDED PLAN OF REORGANIZATION
A hearing having been held on May 13, 1997 (the "Hearing") to
consider the Debtors' Motion (the "Motion"), dated March 31, 1997, seeking (a)
approval pursuant to ss. 1125 of title 11 of the United States Code (the
"Bankruptcy Code") of the proposed disclosure statement heretofore filed with
the Court, (b) approval of the proposed voting procedures, and (c) the
scheduling of a hearing to consider confirmation of the Debtors' Amended Joint
Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (said plan, as it
has been or may be amended, (the "Plan"), having been filed by Edison Brothers
Stores, Inc. ("Edison") and its sixty-five (65) affiliates (collectively, with
Edison, the "Debtors"), as debtors in possession; and it appearing from the
affidavits of service on file with this Court that proper and timely notice of
the Hearing has been given; and it appearing that such notice was adequate and
sufficient; and the appearances of all interested parties having been duly noted
on the record of the Hearing; and each of the objections, if any, filed to the
proposed disclosure statement or the Motion having been either (a) withdrawn or
rendered moot by modifications to the disclosure statement or (b) overruled by
the Court; and the Debtor having made the conforming additions, changes,
corrections and deletions to the disclosure statement necessary to comport with
the record of the Hearing and the agreements, if any, reached with the parties,
if any, that had filed objections, a copy of which revised disclosure statement
is attached hereto as Exhibit A (the "Disclosure Statement"); and, upon the
Motion, the Disclosure Statement and the record of the Hearing and upon all of
the proceedings heretofore had before the Court and after due deliberation and
sufficient cause appearing, therefore it is
ORDERED, FOUND AND DETERMINED THAT:
1. The Disclosure Statement contains adequate information
within the meaning of section 1125 of the Bankruptcy Code.
2. The Disclosure Statement is approved; provided, however,
that such approval shall have no issue or claim preclusive effect on any lawsuit
or proceedings relating to the "Avoidance Claims", as said term is defined in
the Plan.
3. No statements, positions, factual recitations, legal
conclusions or valuations taken or made by the Debtors in the Disclosure
Statement having any bearing regarding the "D&B Spinoff" and the "Avoidance
Claims", as those terms are defined in the Disclosure Statement, shall estop the
Creditors' Committee, EBS Claims L.L.C. or any other entity to which the
"Avoidance Claims" may be transferred from taking any differing positions
regarding such matters in any lawsuits or proceedings relating to the Avoidance
Claims.
4. For voting purposes, May 13, 1997, shall be the "Record
Holder Date" for the holders of claims and interests.
5. Each of the proofs of claim identified on Exhibit C,
Exhibit D and Exhibit F attached hereto are estimated and temporarily allowed,
for voting purposes only, as a Class 7 - General Unsecured Claim in the amount
of $1;
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<PAGE>
provided, however, that if such claim has been expunged and disallowed pursuant
to an order entered by this Court or if such claim is the subject of a pending
objection to duplicate, amended and superseded claims, then such claim shall not
be temporarily allowed for voting purposes.
6. Each of the proofs of claim identified on Exhibit E
attached hereto are estimated and temporarily allowed, for voting purposes only,
as a Class 7 - General Unsecured Claim in the amount of the greater of either $1
or the liquidated portion of the claim; provided, however, that if such claim
has been expunged and disallowed pursuant to an order entered by this Court or
if such claim is the subject of a pending objection to duplicate, amended and
superseded claims, then such claim shall not be temporarily allowed for voting
purposes.
7. Notwithstanding paragraph 6, to the extent that any of the
proofs of claim identified on Exhibit E include unliquidated and/or contingent
claims for rejection damages with regard to a lease that has not been assumed or
rejected and to the extent that, on or before May 30, 1997, such lease is either
(a) rejected or (b) the subject of a motion(s) requesting (i) approval of the
rejection of such lease or (ii) an extension of the time to assume or reject
leases pursuant to section 365(d)(4) of the Bankruptcy Code, then each such
proof of claim shall be estimated and temporarily allowed, for voting purposes
only, as a Class 7 - General Unsecured Claim in an amount equal to (a) the
liquidated portions of the proof of claim that are not related to rejection
damages (if any) plus (b) an amount that the Debtors will calculate as the
rejection damages for such lease based upon the rent reserved by such lease,
without acceleration, for the lesser of one year or the term of the lease.
Similarly, to the extent that there are any proofs of claim not identified on
Exhibit E, but which include claims for rejection damages with regard to a lease
that has not been assumed or rejected, and to the extent that, on or before May
30, 1997, such lease is either (a) rejected or (b) the subject of a motion(s)
requesting (i) approval of the rejection of such lease or (ii) an extension of
the time to assume or reject leases pursuant to section 365(d)(4) of the
Bankruptcy Code, then such proof of claim shall be estimated and temporarily
allowed, for voting purposes only, as a Class 7 - General Unsecured Claim in an
amount equal to (a) the liquidated portions of such proof of claim that are not
related to rejection damages (if any) plus (b) an amount that the Debtors will
calculate as the rejection damages for each such lease based upon the rent
reserved by such lease, without acceleration, for the lesser of one year or the
term of the lease. Further, to the extent that a proof of claim has not been
filed asserting rejection damages with regard to a lease that has not been
assumed or rejected, and to the extent that, on or before May 30, 1997, such
lease is either (a) rejected or (b) the subject of a motion(s) requesting (i)
approval of the rejection of such lease or (ii) an extension of the time to
assume or reject leases pursuant to section 365(d)(4) of the Bankruptcy Code,
then a claim shall be estimated and temporarily allowed for the lessor, for
voting purposes only, as a Class 7 - General Unsecured Claim in an amount equal
to an amount that the Debtors will calculate as the rejection damages for such
lease based upon the rent reserved by such lease, without acceleration, for the
lesser of one year or the term of the lease.
8. Each of the proofs of claim identified on Exhibit G and
Exhibit H attached hereto are estimated and temporarily allowed, for voting
purposes only, as a Class 7 - General Unsecured Claim in the amount of the
greater of either $1 or the scheduled amount of the claim if the claim was not
scheduled as contingent, unliquidated or disputed; provided, however, that if
such claim has been expunged and disallowed pursuant to an order entered by this
Court or if such claim is the subject of a pending objection to duplicate,
amended and superseded claims, then such claim shall not be temporarily allowed
for voting purposes.
9. To the extent that, as of the Record Holder Date, a claim
objection is pending with regard to an unsecured claim that, but for the pending
objection, would have been included in an impaired class under the Plan, each of
these unsecured claims are hereby estimated and temporarily allowed, for voting
purposes only, as a Class 7 - General Unsecured Claim in the amount of the
greater of either $1 or the scheduled amount of the claim if the claim was not
scheduled as contingent, unliquidated or disputed. To the extent that, as of the
Record Holder Date, a claim objection is pending with regard to a secured tax
claim that, but for the pending objection, would have been included in an
impaired class under the Plan, each of these secured tax claims are hereby
estimated and temporarily allowed, for voting purposes only, as a Class 4 -
Secured Tax Claim in the amount of the greater of either $1 or the scheduled
amount of the claim if the claim was not scheduled as contingent, unliquidated
or disputed. In that connection, with regard to the claims identified on Exhibit
H attached hereto, to the extent that objections are still pending to any of
these claims as of the Record Holder Date, each of
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<PAGE>
these claims are hereby estimated and temporary allowed, for voting purposes
only, as a Class 7 - General Unsecured Claim in the amount of the greater of
either $1 or the scheduled amount of the claim if the claim was not scheduled as
contingent, unliquidated or disputed. To the extent that any of the proofs of
claim identified on Exhibit C, Exhibit D, Exhibit E, Exhibit F or Exhibit G are
the subject of a pending objection as of the Record Holder Date, each of these
claims are hereby estimated and temporary allowed, for voting purposes only, as
a Class 7 - General Unsecured Claim in the amount of the greater of either $1 or
the scheduled amount of the claim if the claim was not scheduled as contingent,
unliquidated or disputed. Notwithstanding anything contained herein to the
contrary, if any of the proofs of claim referred to in this paragraph 9 have
been expunged and disallowed pursuant to an order entered by this Court or are
the subject of a pending objection to duplicate, amended and superseded claims,
then such proofs of claim shall not be temporarily allowed for voting purposes.
10. Only the following holders of claims in Class 2 (Series
1977 Bondholder Claims), Class 3 (Series 1985 Bondholders Claims), Class 4
(Secured Tax Claims), Class 6 (Convenience Claims) and Class 7 (General
Unsecured Claims) shall be entitled to vote with regard to such claims (a) the
holders of filed proofs of claim as reflected, as of the close of business on
the Record Holder Date, on the official claims register maintained by Claudia
King & Associates, Inc. (the "Balloting Agent"), (b) the holders of scheduled
claims that are listed in the Debtors' schedules of liabilities filed with the
Court (as amended, the "Schedules") as not contingent, unliquidated, or disputed
claims (excluding scheduled claims that have been superseded by a filed proof of
claim) and (c) the holders of Series 1977 Bondholder Claims as of the Record
Holders Date; provided, however, that the assignee of a transferred and assigned
claim (whether a filed or scheduled claim) shall only be permitted to vote such
claim either (i) if the transfer and assignment is reflected on the Court's
docket as of the close of business on the Record Holder Date, if the transfer
and assignment was filed with the Court at least twenty days before the Record
Holder Date and if no timely objections have been filed to the transfer and
assignment as of the Record Holder Date or (ii) if the transfer and assignment
is reflected on the Court's docket as of the close of business on the Record
Holder Date and if the transferor/assignor waived the twenty day notice
requirement regarding transfers and assignments of claims.
11. Beneficial owners as of the Record Date of any share of
common stock or other instrument evidencing a present ownership interest in
Edison, whether or not transferable, or any option, warrant or right,
contractual or otherwise, to acquire any such interest ("Edison Equity
Interests") whose ownership is reflected in the records maintained by the
Debtors' stock transfer agent, Boatmen's Trust Company, as of the close of
business on the Record Holder Date ("Record Beneficial Owners") shall be
entitled to vote and submit Individual Ballots with regard to such Edison Equity
Interests.
12. Brokers, dealers, commercial banks, trust companies or
other nominees (collectively, the "Nominee Holders") through which beneficial
owners which are not Record Beneficial Owners (collectively, the "Non-record
Beneficial Owners") that hold, as of the close of business on the Record Date,
(a) Edison Equity Interests as reflected in the records maintained by the
Debtors' stock transfer agent, Boatmen's Trust Company or (b) Series 1977
Bondholder Claims, shall be entitled to submit Master Ballots with regard to the
Edison Equity Interests or Series 1977 Bondholder Claims, respectively.
13. In connection with soliciting votes from the Nominee
Holders and Non-record Beneficial Owners, the Court hereby directs as follows:
a. the Nominee Holders shall forward the Solicitation Package
(as defined below) or copies thereof (including the notice
of the confirmation hearing, a copy of the Disclosure
Statement, an Individual Ballot and a return envelope
provided by and addressed to the Nominee Holder and
including the Individual Ballots described below) to the
Non-record Beneficial Owners within ten (10) days of the
receipt by such Nominee Holders of the Solicitation
Package;
b. the Non-record Beneficial Owners shall return the
Individual Ballots to the respective Nominee Holders;
c. the Nominee Holders shall summarize the votes of their
respective Non-record Beneficial Owners on the Master
Ballots, in accordance with the instructions for the
Master Ballots;
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<PAGE>
d. the Nominee Holders shall return the Master Ballots to the
"Balloting Agent; and
e. the Debtors shall either reimburse the Nominee Holders for
the costs of copying and forwarding the Solicitation
Package to the Non-record Beneficial Owners or, upon the
Nominee Holders request, provide the Nominee Holders with
sufficient copies of the Solicitation Package and
reimburse the Nominee Holders for the costs of forwarding
the Solicitation Package to the Non-record Beneficial
Owners.
14. The Debtors shall mail a ballot (with instructions),
substantially in the form of the ballots (with instructions) annexed hereto as
Exhibit I (the "Individual Ballots"), to each holder of a claim or interest in
the Voting Classes under the Plan.
15. The Debtors shall mail a ballot (with instructions),
substantially in the form of the ballot (with instructions) annexed hereto as
Exhibit J (the "Master Ballot"), to each of the Nominee Holders for the purpose
of summarizing the votes of their respective Non-record Beneficial Owners and
the Debtors shall mail Individual Ballots as appropriate to each of the Nominee
Holders for the purpose of soliciting the votes of the Non-record Beneficial
Owners.
16. On or before June 6, 1997, the Debtors shall deposit or
cause to be deposited in the United States mail, postage prepaid, a sealed
solicitation package (the "Solicitation Package") which shall include:
a. notice of the confirmation hearing and related matters,
substantially in the form of Exhibit K annexed hereto (the
"Confirmation Hearing Notice"), setting forth the time
fixed for filing acceptances and rejections to the Plan,
the time fixed for filing objections to confirmation of
the Plan, and the date and time of the hearing on
confirmation;
b. a copy of the Disclosure Statement, as approved by the
Court (with exhibits including the Plan); and
c. a ballot (with instructions), in substantially the form
approved by the Court.
d. copies of the respective letters regarding the Plan from
the Debtors, the Creditors' Committee and the Equity
Committee.
17. The Debtors shall mail the Solicitation Packages to the
following holders of claims or interests in the Voting Classes under the Plan:
a. holders of claims, as of the Record Holder Date, that are
listed in the Debtors' Schedules as not contingent,
unliquidated, or disputed (excluding scheduled claims that
have been superseded by filed claims); provided, however,
that the assignee of a transferred and assigned claim
(whether a filed or scheduled claim) shall only be
permitted to vote such claim either (i) if the transfer
and assignment is reflected on the Court's docket as of
the close of business on the Record Holder Date, if the
transfer and assignment was filed with the Court at least
twenty days before the Record Holder Date and if no timely
objections have been filed to the transfer and assignment
as of the Record Holder Date or (ii) if the transfer and
assignment is reflected on the Court's docket as of the
close of business on the Record Holder Date and if the
transferor/assignor waived the twenty day notice
requirement regarding transfers and assignments of claims.
b. holders of claims, as of the Record Holder Date, that are
the subject of a filed proof of claim which has not been
disallowed, disqualified or suspended prior to computation
of the vote on the Plan; provided, however, that the
assignee of a transferred and assigned claim (whether a
filed or scheduled claim) shall only be permitted to vote
such claim either (i) if the transfer and assignment is
reflected on the Court's docket as of the close of
business on the Record Holder Date, if the
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<PAGE>
transfer and assignment was filed with the Court at least
twenty days before the Record Holder Date and if no timely
objections have been filed to the transfer and assignment
as of the Record Holder Date or (ii) if the transfer and
assignment is reflected on the Court's docket as of the
close of business on the Record Holder Date and if the
transferor/assignor waived the twenty day notice
requirement regarding transfers and assignments of claims,
and
c. holders of Series 1977 Bonds as of the Record Date whose
identities are known to the Debtor or made known to them
by the issuer or the paying, agent of the Series 1997
Bonds; and
d. the Record Beneficial Owners and the Nominee Holders of
equity interests, as of the Record Holder Date.
18. In lieu of mailing the Solicitation Package, on or before
June 6, 1997, the Debtors shall deposit or cause to be deposited in the United
States mail, postage prepaid, the Notice of Non-Voting Status, substantially in
the form attached hereto as Exhibit L, to each holder of a Priority Tax Claim or
a claim in Classes 1 and 5, who are not entitled to vote on the Plan, and to all
known parties to executory contracts and unexpired non-residential real property
leases (other than those leases described in paragraph 22(c) of the order) who
do not hold filed or scheduled claims (excluding claims scheduled as contingent,
unliquidated or disputed).
19. The Debtors shall cause the Confirmation Hearing Notice to
be published once in The Wall Street Journal (National Edition) on a date not
less than twenty-five (25) or more than thirty-five (35) calendar days prior to
the hearing to consider confirmation of the Plan.
20. All persons and entities entitled to vote on the Plan
shall deliver their ballots by mail, hand delivery or overnight courier no later
than 4:00 o'clock p.m. Central Time on July 21, 1997 (the "Voting Deadline") to
the Balloting Agent at:
EDISON BROTHERS STORES, INC.
c/o Claudia King & Associates, Inc.
10502 Northwest Ambassador Drive, Suite 220
Kansas City, Missouri 64153
Attn: Glenda Presley
Any ballot received after such time shall not be counted other than as provided
for herein.
21. The Debtors shall have the ability to extend the voting
deadline at the Debtor's sole discretion. If the Debtors choose to extend the
voting deadline, the Debtors shall provide notice of such extension through the
Dow Jones News Service.
22. For purposes of voting, the amount of a claim used to
tabulate acceptance or rejection of the Plan shall be the amount set forth on
the ballots for that particular creditor which shall be one of the following:
a. the amount set forth as a claim in the Debtors' Schedules
as not contingent, unliquidated, or disputed (excluding
scheduled claims that have been superseded by filed
claims);
b. the amount set forth on a filed proof of claim which has
not been disallowed, disqualified, suspended, reduced or
estimated and temporarily allowed for voting purposes
prior to computation of the vote on the Plan;
c. for those non-residential real property leases that are
identified in motion to be filed by the Debtors on or
before May 30, 1997 as leases to be rejected or as to
which the Debtors may seek an
B-5
<PAGE>
extension of the time to assume or reject, the amount
calculated by the Debtors as the lease rejection claims,
for voting purposes only, equal to one years rent under
the leases plus any amounts that affected landlords may
have included in filed proofs of claim with respect to
unpaid pre-chapter 11 rent and charges; or
d. the amount estimated and temporarily allowed pursuant to
this order or such further order of this Court.
23. With respect to ballots submitted by a holder of a
claim or a Record Beneficial Owner:
a. any ballot which is properly completed, executed and
timely returned to the Balloting Agent that does not
indicate an acceptance or rejection of the Plan shall be
deemed to be a vote to accept the Plan;
b. any ballot which is returned to the Balloting Agent
indicating acceptance or rejection of the Plan but which
is unsigned shall not be counted;
c. whenever a creditor or Record Beneficial Owner casts more
than one ballot voting the same claim or Edison Equity
Interest prior to the Voting Deadline, only the last
timely ballot shall be counted,
d. if a creditor or Record Beneficial Owner casts duplicative
ballots voted inconsistently, which ballots are
simultaneously received by the Balloting Agent, then such
ballots shall count as one vote accepting the Plan;
e. each creditor shall be deemed to have voted the full
amount of its claim and each Record Beneficial Owner shall
be deemed to have voted all of its Edison Equity
Interests;
f. a creditor or Record Beneficial Owner shall not split its
vote within a claim or interest, thus each creditor or
Record Beneficial Owner shall vote all of its claim or
Edison Equity Interest within a particular class either to
accept or reject the Plan;
g. any Individual Ballots that partially reject and partially
accept the Plan shall not be counted;
h. any ballot received by the Balloting Agent by telecopier,
facsimile or other electronic communication shall not be
counted; and
i. any ballot which is returned to the Balloting Agent
indicating acceptance or rejection of the Plan, but which
is signed by an agent of the claim or equity interest
holder, shall be counted so long as the capacity of such
agent is reflected on the ballot.
24. With respect to the tabulation of ballots cast by
Non-record Beneficial Owners:
a. all Nominee Holders to which Non-record Beneficial Owners
return their Individual Ballots shall summarize on the
Master Ballot all Individual Ballots cast by the
Non-record Beneficial Owners and return the Master Ballot
to the Balloting Agent, provided, however, that each
Nominee Holder shall be required to retain the Individual
Ballots cast by the respective Non-record Beneficial
Owners for inspection for one year following the Voting
Deadline;
b. votes cast by the Non-record Beneficial Owners through a
Nominee Holder by means of a Master Ballot shall be
applied against the positions held by such Nominee Holder
as evidenced by the list of record holders compiled as of
the Record Holder Date, provided, however, that votes
submitted by
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<PAGE>
a Nominee Holder on a Master Ballot shall not be counted
in excess of the position maintained by such Nominee
Holder with respect to Edison Equity Interests as of the
Record Holder Date;
c. to the extent that there are over-votes submitted by a
Nominee Holder on a Master Ballot, votes to accept and to
reject the Plan shall be applied by the Balloting Agent in
the same proportion as the votes to accept or reject the
Plan submitted on the Master Ballot that contains the
over-vote, but only to the extent of the position
maintained by such Nominee Holder with respect to Edison
Equity Interests as of the Record Holder Date;
d. multiple Master Ballots may be completed by a single
Nominee Holder and delivered to the Balloting Agent and
such votes will be counted, except to the extent that such
votes are inconsistent with or are duplicative of other
Master Ballots, in which case the latest dated Master
Ballot received before the Voting Deadline will supersede
and revoke any prior Master Ballot;
e. each Non-record Beneficial Owner will be deemed to have
voted the full amount of its interest relating to the
Edison Equity Interests; and
f. any ballot received by the Balloting Agent by telecopier,
facsimile or other electronic communication shall not be
counted.
25. Any holder of Series 1977 Bondholder Claims as of the
Record Holder Date which does not receive a Solicitation Package may obtain one
at the Debtors' expense by [contacting] the Balloting Agent and providing proof
of ownership and the Record Holder Date of a Series 1977 Bondholder Claim.
26. The hearing on confirmation of the Plan is scheduled for
August 14, 1997, at 10:00 o'clock a.m., Eastern Time, at the Bankruptcy Court,
Marine Midland Plaza, 824 North Market Street, Sixth Floor, Wilmington,
Delaware. This hearing may be adjourned from time to time without further notice
other than an announcement of the adjourned date(s) at said hearing and at any
adjourned hearing(s).
27. Any objection to confirmation of the Plan must be filed
with the Clerk of the Bankruptcy Court, together with proof of service, and
served on each of the persons listed on Exhibit M attached hereto so as to be
received by them, by no later than 4:00 o'clock p.m., Eastern Time, on July 28,
1997. Any confirmation objection must be in writing and (a) must state the name,
address and telecopy number of the objecting party (or its attorneys) and the
amount of its claims or the nature of its interest and (b) must state, with
particularity, the nature of its objection. Any confirmation objection not filed
and served as set forth herein shall be deemed waived and shall not be
considered by the Bankruptcy Court. Responses to confirmation objections that
are timely served and filed must be filed with the Clerk of the Bankruptcy
Court, together with proof of service, and served on the objectants (or their
attorneys), by no later than 4:00 o'clock p.m., Eastern Time, on August 5, 1997.
Dated: Wilmington, Delaware
May 27, 1997
/s/ Peter J. Walsh
----------------------------------
UNITED STATES BANKRUPTCY JUDGE
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<PAGE>
EXHIBITS TO ORDER (A) APPROVING THE DISCLOSURE STATEMENT,
(B) APPROVING THE PROPOSED VOTING PROCEDURES, AND
(C) SCHEDULING HEARING TO CONSIDER CONFIRMATION OF
THE DEBTORS' AMENDED PLAN OF REORGANIZATION
<TABLE>
<S> <C>
Exhibit A -- Disclosure Statement [Intentionally Omitted]
Exhibits C, D,
E, F, G and H -- Lists of Claims Allowed for Voting Purposes [Intentionally Omitted]
Exhibit I -- Ballots [Intentionally Omitted]
Exhibit J -- Master Ballot [Intentionally Omitted]
Exhibit K -- Notice of Confirmation Hearing [Intentionally Omitted]
Exhibit L -- Notice of Non-Voting Status [Intentionally Omitted]
Exhibit M -- Service List for Objections [Intentionally Omitted]
</TABLE>
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<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- -----------------------------------------------------X
:
IN RE: : CHAPTER 11
:
EDISON BROTHERS STORES, INC., ET AL., : CASE NO. 95-1354 (PJW)
:
DEBTORS. : JOINTLY ADMINISTERED
- -----------------------------------------------------X
ORDER (A) APPROVING THE DISCLOSURE STATEMENT,
AS MODIFIED, AND (B) REVISING VOTING DEADLINE
A hearing having been held on May 13, 1997 (the "Hearing"), to
consider the motion of Edison Brothers Stores, Inc. ("Edison") and its
sixty-five (65) affiliates (collectively, the "Debtors"), dated March 31, 1997,
seeking (a) approval of a proposed disclosure statement pursuant to section 1125
of title 11 of the United States Code (the "Bankruptcy Code") and of proposed
voting procedures and (b) the scheduling of a hearing to consider confirmation
of the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code (said plan, as it has been or may be amended, the "Plan"); and
the Court, by order dated May 27, 1997 (the "Approval Order"), having (a)
approved a revised disclosure statement and certain voting procedures and (b)
scheduled August 14, 1997 as the date of the hearing to consider confirmation of
the Plan; and thereafter, the Court having been advised by Edison, the
Creditors' Committee and the Equity Committee that they had reached an
agreement, in principle, regarding certain modifications to the Plan, and that,
based on such modifications, the Plan was supported by Edison, the Creditors'
Committee and the Equity Committee; and in light of the same, the Court, by
bench order dated June 5, 1997, having deferred the commencement of the
solicitation of votes in respect of the Plan from June 6, 1997 so as to permit
Edison to file an amended Plan and allow sufficient time for the parties to
agree upon a revised disclosure statement; and Edison, having filed an amended
Plan dated June 30, 1997, incorporating, inter alia, said modifications and a
revised disclosure statement consistent with the same, a copy of which
disclosure statement is annexed hereto as Exhibit A (the "Disclosure
Statement"); and upon the below subjoined consent to the entry of this Order of
Edison, the Creditors' Committee and the Equity Committee; and, upon the
Approval Order, the Disclosure Statement, the record of the Hearing, the
aforesaid consents and upon all of the proceedings heretofore had before the
Court, and after due deliberation and sufficient cause appearing therefor, it is
ORDERED, FOUND AND DETERMINED THAT:
1. The Disclosure Statement contains adequate information
within the meaning of section 1125 of the Bankruptcy Code.
2. The Disclosure Statement is approved; provided, however,
that such approval shall have no issue or claim preclusive effect on any lawsuit
or proceedings relating to the "Avoidance Claims", as said term is defined in
the Plan.
3. No statements, positions, factual recitations, legal
conclusions or valuations taken or made by the Debtors in the Disclosure
Statement having any bearing with respect to the "D&B Spinoff" and the
"Avoidance Claims", as those terms are defined in the Disclosure Statement,
shall estop the Creditors' Committee, the EBS Litigation L.L.C. or any other
entity to which the "Avoidance Claims" may be transferred from taking any
differing positions regarding such matters in any lawsuits or proceedings
relating to the Avoidance Claims.
4. On or before June 30, 1997, the Debtors shall deposit or
cause to be deposited in the United States mail, postage prepaid, a sealed
solicitation package (the "Solicitation Package") which shall include:
a. a notice of the confirmation hearing and related matters,
substantially in the form of the notice heretofore
approved by the Court pursuant to the Approval Order
except for those changes required to be made to be
consistent with the terms of this order;
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<PAGE>
b. a copy of the Disclosure Statement (with exhibits,
including the Plan);
c. a ballot (with instructions), which ballot shall be
substantially in the form heretofore approved by the Court
pursuant to the Approval Order except for those changes
required to be made to be consistent with the terms of
this order; and
d. copies of any letters regarding the Plan that the Debtors,
the Creditors' Committee or the Equity Committee desire to
include within the Solicitation Package.
5. In lieu of mailing the Solicitation Package, on or before
June 30, 1997, the Debtors shall deposit or cause to be deposited in the United
States mail, postage prepaid, the "Notice of Non-Voting Status," which notice
shall be substantially in the form heretofore approved by the Court pursuant to
the Approval Order except for those changes required to be made to be consistent
with the terms of this order, to each holder of a Priority Tax Claim or a Claim
in Classes 1 and 5 in the Plan which holders are not entitled to vote on the
Plan, and to all known parties to executory contracts and unexpired
non-residential real property leases (other than parties to those leases
described in paragraph 22(c) of the Approval Order) that do not hold filed or
scheduled claims (excluding claims scheduled as contingent, unliquidated or
disputed).
6. All persons and entities entitled to vote on the Plan shall
deliver their ballots by mail, hand delivery or overnight courier to the
Balloting Agent heretofore appointed by the Court pursuant to the Approval Order
so that the same are received by the Balloting Agent no later than 4:00 p.m.,
Central Time on July 28, 1997 (the "Voting Deadline") at the following address:
EDISON BROTHERS STORES, INC.
c/o Claudia King & Associates, Inc.
10502 Northwest Ambassador Drive, Suite 220
Kansas City, Missouri 64153
Attn: Glenda Presley
Any ballot received after such time shall not be counted other than as provided
for herein.
7. Any objection to confirmation of the Plan must be filed
with the Clerk of the Bankruptcy Court, together with proof of service, and
served on each of the persons listed on Exhibit B annexed hereto so as to be
received by them, by no later than 4:00 p.m., Eastern Time, on July 28, 1997.
B-10
<PAGE>
8. Except as modified herein, the provisions of the Approval
Order shall remain in full force and effect.
Dated: Wilmington, Delaware
June 30, 1997
/s/ Peter J. Walsh
-----------------------------------
UNITED STATES BANKRUPTCY JUDGE
THE FOLLOWING PARTIES CONSENT TO
THE ENTRY OF THE FOREGOING ORDER:
/s/ Laura Davis Jones /s/ Teresa K.D. Currier
- ----------------------------------- -----------------------------------------
Laura Davis Jones, Esq. Teresa K.D. Currier
Young, Conaway, Stargatt & Taylor Duane, Morris & Hecksher
11th Floor 1201 Market Street, Suite 1500
Rodney Square North Wilmington, DE 19801
P.O. Box 391
Wilmington, DE 19899-0391 - AND -
- AND - Alan W. Kornberg, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
Harvey R. Miller, Esq. 1285 Avenue of the Americas
Richard P. Krasnow, Esq. New York, NY 10019-6064
Weil, Gotshal & Manges LLP
767 Fifth Avenue ATTORNEYS FOR THE EQUITY
New York, New York 10153 COMMITTEE
ATTORNEYS FOR THE DEBTORS
/s/ Thomas L. Ambro
- -----------------------------------
Thomas L. Ambro, Esq.
Richard, Layton & Finger, P.A.
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
- AND -
David Kurtz, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, IL 60601-1692
Attn: David Kurtz, Esq.
ATTORNEYS FOR THE CREDITORS'
COMMITTEE
B-11
<PAGE>
EXHIBITS TO ORDER (A) APPROVING THE DISCLOSURE
STATEMENT, AS MODIFIED, AND (B) REVISING VOTING DEADLINE
Exhibit A -- Disclosure Statement [Intentionally Omitted]
Exhibit B -- Service List for Objections [Intentionally Omitted]
B-12
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT C
TO DISCLOSURE STATEMENT
-----------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-1394
Edison Brothers Stores, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0254900
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 N. Broadway, St. Louis, Missouri 63102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-331-6000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common stock par value $1 per share New York Stock Exchange
Common stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of class)
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 subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained here in, and will not be contained, to the
best of registrant's's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 18, 1997:
Common Stock, $1 par value - $10,407,083
----------------------------------------
It is assumed for purposes of this calculation that the registrant has no
"affiliates". Information as to the share holdings of directors of the
registrant is provided in Item 12 Security Ownership of Certain Beneficial
Owners and Management.
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 18, 1997:
Common Stock, $1 par value - 22,201,778 shares
----------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders for the fiscal year ended
February 1, 1997 ("1996 Annual Report"), are incorporated by reference into
Parts I and II.
<PAGE>
PART I
Item 1. BUSINESS
General
Edison Brothers Stores, Inc. (The "Company") owns and operates chains of
specialty stores in forty-nine of the United States, Puerto Rico, the Virgin
Islands, and Canada. The Company conducts its principal operations through
subsidiaries and divisions in two business segments: apparel and footwear. Both
the apparel and the footwear segments feature private label merchandise in the
moderate price range. The stores operated by the Company are located primarily
in shopping malls. During 1996 the Company opened 85 stores and closed 419
stores.
Proceedings under Chapter 11
On November 3, 1995 (the "Petition Date"), the Company and 65 of its
subsidiaries and affiliates (the "Debtors") filed petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court in Wilmington, Delaware. The Debtors are presently operating
their respective businesses as debtors in possession. A statutory creditors
committee has been appointed in the Chapter 11 cases. The U.S. Trustee appointed
an equity committee in the fourth quarter of 1996. The Chapter 11 cases of the
Debtors are being jointly administered for procedural purposes only.
The Company and Edison Brothers Apparel Stores, Inc., as debtors-in-possession,
entered into a Loan Agreement dated effective November 9, 1995
(the "DIP Facility"), with BankAmerica Business Credit, Inc., as Agent and
Lender ("BankAmerica"), under which the Company may borrow up to $200 million to
fund ongoing working capital needs. The DIP Facility, subject to collateral
restrictions, has a sublimit of $150 million for the issuance of letters of
credit. The Company expects that the DIP Facility will provide it with
sufficient cash and liquidity to conduct its operations and pay for merchandise
shipments at normal levels through the emergence date.
At the Company's option, the Company may borrow under the DIP Facility at the
Reference Rate (as defined) plus .25% or at the Eurodollar Rate (as defined)
plus 1.5%. The maximum borrowing, up to $200 million, is limited to 50% of the
value of eligible inventory (as defined) plus 95% of the amount of cash
deposited with the Agent. The Company is required to pay a commitment fee of
.375% per annum of the unused portion of the DIP Facility. The DIP Facility
contains restrictive covenants including, limitations on store closings of 1,100
(as amended), limitations on the incurrance of additional liens and
indebtedness, limitations on capital expenditures and the sale of assets, the
maintenance of minimum operating earnings ("EBITDA") and inventory levels, and a
prohibition on paying dividends.
The lenders under the DIP Facility have a "super-priority" administrative
expense claim against the estate of the Company. The DIP Facility expires on the
earlier of November 9, 1997, or the effective date of a reorganization plan that
is confirmed by the Bankruptcy Court.
On February 27, 1997, the Debtors filed a proposed Joint Plan of Reorganization
under Chapter 11 of the Bankruptcy Code, which was amended by a subsequent
filing on March 31, 1997 (the plan as amended, the "Plan"). On March 31, 1997,
the Debtors also filed a Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code. The court has set a hearing date of May 13, 1997, for
consideration of the adequacy of the Debtors' Disclosure Statement. If the
Disclosure Statement is approved by the Court, the Company will then solicit
<PAGE>
acceptances of the Plan from those holders of claims and equity interests
entitled to vote thereon under the terms of the Plan. A confirmation hearing
will thereafter be held by the Bankruptcy Court to determine whether the Plan
satisfies all of the requirements for confirmation specified in Section 1129 of
the Bankruptcy Code, among which are that the Plan be: (i) accepted by all
impaired classes of claims and equity interests or, if rejected by an impaired
class, that the Plan "does not discriminate unfairly" and is "fair and
equitable" as to such class; (ii) feasible; and (iii) in the "best interests of
creditors and stockholders that are impaired under the Plan."
The Plan and Disclosure Statement may be subject to further amendment and
revisions. As currently drafted, the Plan provides for a distribution to
creditors of a combination of cash, new corporate debt, new Company common stock
and other assets. General unsecured creditors would receive: (i) a cash payment
of $119 million (subject to certain adjustments); (ii) ten year, 11% unsecured
notes in the principal amount of $100 million (with the first three years of
interest prefunded and no scheduled principal payments until maturity in 2007);
(iii) new common stock of the Company, which would be issued at the time of
emergence and replace all existing shares; (iv) title to the Company's
headquarters building in downtown St. Louis, which the Company would continue to
occupy under the terms of a ten year lease; and (v) excess cash of approximately
$43 million from the Company's overfunded pension plan. Holders of existing
equity interests in the Company would receive a combination of three and six
year warrants to purchase a total of approximately nine percent of the new
common stock.
<PAGE>
The Plan will not become effective unless and until certain conditions specified
therein have been satisfied or waived. Among these conditions are that: (i) an
order confirming the Plan, in form and substance reasonably acceptable to the
debtors and the statutory Creditors Committee, shall have been signed by the
Bankruptcy Court and there shall not be a stay or injunction in effect with
respect thereto; (ii) the Debtors shall have at least $25 million in cash as of
July 5, 1997, after giving effect to the distributions of cash projected to be
made under the Plan; (iii) the Debtors shall have credit availability under a
working capital credit facility providing the Debtors with working capital
sufficient to meet their requirements; and (iv) various other actions, documents
and agreements necessary to implement the Plan shall have been effected or
executed.
The Company anticipates using fresh start accounting once the Plan is
consummated.
Description of Business
Apparel Segment
Edison Brothers' menswear chains and other operations include J. Riggings,
JW/Jeans West, Oaktree, CODA, REPP Ltd. Big & Tall, and Phoenix catalog
operations. The womenswear chain is 5-7-9 Shops. Shifty's and Terrasystems are
experimental concepts that provide apparel for both men and women.
J. Riggings offers modern, traditional work and sport clothing to fashion
oriented customers seeking current quality apparel at moderate prices. In
1996, J. Riggings had an average store square footage of 2,660. J.
Riggings operated 333 and 419 stores at the end of fiscal 1996 and 1995,
respectively.
JW/Jeans West (JW) markets casual fashions, predominantly denim clothing and
accessories, to value conscious young men between the ages of 13 and 20. In
1996, JW had an average store square footage of 1,690. JW operated 341 and 359
stores at the end of fiscal 1996 and 1995, respectively.
Oaktree offers a mix of dress and casual clothing for men ages 19 to 28 who
appreciate and are looking for European influenced fashions, sophisticated
fabrics and styles. In 1996, Oaktree had an average store square footage of
2,386. Oaktree operated 76 and 84 stores at the end of fiscal 1996 and 1995,
respectively.
CODA markets the latest in men's casual fashion, including jeans, knit casual
wear and athletic wear. The chain targets the urban youth market - 17 to 25 year
old men who are brand conscious and fashion forward. In 1996, CODA had an
average store square footage of 2,968. CODA operated 33 and 35 stores at the end
of fiscal 1996 and 1995, respectively.
REPP Ltd Big & Tall (REPP) is a chain offering high quality, fashionable casual
and dress men's clothing in both branded and private label. REPP focuses on the
tall man of at least 6'3" and the big man having a 40" or larger waist. In 1996,
REPP had an average store square footage of 3,930. REPP operated 189 and 214
stores at the end of fiscal 1996 and 1995, respectively.
Phoenix Big & Tall is a catalog operation that markets fashionable casual and
dress men's clothing and a large assortment of accessories (including footwear)
in primarily branded labels. The catalog operation focuses on the tall man of at
least 6'3" and the big man of a 40" waist or larger
<PAGE>
providing a wide variety of sizes, styles, and accessories offered by a
catalog operation.
5-7-9 shops primarily markets sportswear, dresses and accessories to junior high
and high school girls who want to purchase trendy fashions at moderate prices in
sizes 0 through 9. The core customer is conscious of looking current without
being too extreme or mature. In 1996, 5-7-9 had an average store square footage
of 1,801. 5-7-9 operated 274 and 283 stores at the end of fiscal 1996 and 1995,
respectively.
Terrasystems is a concept positioned as a modern, fashionable outfitter
targeting active outdoor men and women with functional apparel and gear for
sport, work, outdoors and home. In 1996, Terrasystems had an average store
square footage of 5,924. Terrasystems operated three stores at the end of fiscal
1996. The Company announced in April 1997 that the Terrasystems concept will be
phased out during 1997.
Shifty's caters to both male and female teenagers who want to set trends with
fashionable and branded clothing. In 1996, Shifty's had an average store square
footage of 2,506. Shifty's operated four stores at the end of fiscal 1996 and
one store at the end of fiscal 1995.
The Zeidler & Zeidler group discontinued operations in fiscal year 1996. This
chain operated 102 stores at the end of 1995.
Footwear Segment
The Company's footwear chains include Bakers/Leeds, Precis, and The Wild Pair.
Bakers/Leeds targets young women, predominantly ages 12 to 24, who want
fashionable footwear and accessories at affordable prices -- prices between the
discounters and the department stores. In 1996, Bakers/Leeds had an average
store square footage of 2,714. Bakers/Leeds operated 309 and 347 stores at the
end of fiscal 1996 and 1995, respectively.
Precis targets contemporary women looking for stylish, quality, upscale footwear
and accessories. In 1996, Precis had an average store square footage of 1,904.
Precis operated 17 and 39 stores at the end of fiscal 1996 and 1995,
respectively.
Wild Pair targets young men and women who are looking for alternative fashion in
footwear. Brand awareness is important to Wild Pair's core customer, especially
among the male customer group. In 1996, Wild Pair had an average store square
footage of 1,743. Wild Pair operated 164 and 194 stores at the end of fiscal
1996 and 1995, respectively.
Entertainment
The Company's mall entertainment division included family entertainment centers
and operations involved with the marketing of new interactive entertainment
technologies. In January 1996 the Company sold substantially all of the assets
of its mall entertainment division to NAMCO Cybertainment.
The Company operated 21 entertainment centers at the end of 1995. At the end of
1996, the Company operated two entertainment centers, which it intends to close
by September, 1997.
Additional information regarding the Company's principal business segments
<PAGE>
is set forth under "Note 13: Business Segments" to the Consolidated
Financial Statements in the 1996 Annual Report. Such information is
incorporated herein by reference.
Operations, Inventory and Distribution
The specialty retailing business is subject to fluctuations resulting from
changes in customer preferences dictated by fashion and season. This is
especially true for stores emphasizing fashion over classic basics. In addition,
merchandise usually must be ordered significantly in advance of the season and
sometimes before fashion trends are evidenced by customer purchases. It has been
the general practice of the Company and other apparel retailers to build up
inventory levels prior to peak selling seasons, which further increases the
vulnerability of the Company to changes in demand, pricing shifts and to errors
in selection and timing of merchandise purchases.
Substantially all of the Company's merchandise information, accounting, and
financial control systems are operated centrally from the Company's headquarters
in St. Louis, Missouri. Daily polling of activity from the point-of-sale
registers in each store provides current data for updated sales, merchandise,
and bank activity reporting. Integration of this data with the Company's
merchandise system enables each chain's team of merchandise controllers and
distributors to monitor performance and replenish and control inventory.
The Company must carry large amounts of inventory to meet the needs of its
stores. The Company operates three main distribution centers located in
Washington, Missouri; Rialto, California; and Princeton, Indiana. The centers
are receiving points for merchandise from foreign and domestic suppliers and
coordinate distribution of individual shipments via contract and common
carriers.
Purchasing
The Company purchases approximately 70% of its merchandise from foreign
suppliers and the balance from domestic sources. The Company has no long term
purchase commitments with any of its suppliers, and is not dependent on any one
supplier. The Company's importing operations are subject to the contingencies
generally associated with foreign operations, including fluctuations in currency
values, customs duty increases, quota limitations and any other foreign
development that could cause a supply disruption. The Company has international
buying offices in Taiwan, Hong Kong, China, Indonesia, Korea, Honduras, and the
Philippines.
The Company does not manufacture any merchandise, but it markets most of its
merchandise under private labels. Each chain of stores maintains a staff of
buyers, who make buying decisions for each chain.
Competition
The apparel and footwear retailing industries are highly competitive. The
Company's stores are in competition with numerous other independent retailers,
department stores, mail order companies and discount and manufacturer's outlets,
many of which have greater sales, assets and financial resources than the
Company. Because the Company's stores are primarily in regional shopping malls,
each faces several nearby competitors. In competing for customers, the Company
emphasizes the fashion orientation of its merchandise, customer service, store
appearance and price.
<PAGE>
Employees
During fiscal 1996, the Company employed an average of 17,700 persons with
approximately 16,000 of them engaged in retail operations at the store level
(approximately 31% full-time and 69% part-time). A substantial number of the
part-time employees are hired temporarily during peak selling seasons. The
Company believes its employee benefits package is competitive with those offered
in the industry. The Company's employees are non-union and the Company believes
that its employee relations are good.
Seasonal Business
The Company experiences a significant increase in sales during the Christmas
selling season (Thanksgiving through Christmas). Sales during that season
accounted for 13.8% of total sales during 1996 compared with 16.5% in 1995. The
decrease between years occurred reflected the fact that the 1996 Christmas
selling season had five fewer shopping days than the 1995 season. The Company's
inventory is generally increased significantly prior to this peak selling
period.
Trademarks
The Company holds a number of trademarks covering its products. The Company
believes that the loss of any of these trademarks would not have a material
effect on the Company's business.
Item 2. PROPERTIES
Stores are located nationwide, and most are leased with initial terms of
generally from five to ten years. The rentals under most leases are based upon a
percentage of sales to the extent sales exceed a threshold amount. Many of the
leases provide for additional payments for real estate taxes and other items.
The stores generally range in size from 1,300 to 4,000 square feet.
The Company-owned headquarters building in St. Louis, Missouri, was completed in
1985 and is the home office for all divisions. The building contains
approximately 500,000 square feet, a portion of which the Company leases to
others. The Rialto, California and Princeton, Indiana distribution centers are
owned by the Company. The distribution center in Washington, Missouri is
operated under a long term capital lease arrangement. The Rialto and Washington
centers service primarily the apparel segment while Princeton services primarily
the footwear segment.
Item 3. LEGAL PROCEEDINGS
The Company and 65 of its subsidiaries and affiliates filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code on November
3, 1995. Additional information related to the filing is set forth under Part 1,
Item 1 of this Form 10-K and under the captions "To Our Shareholders", "Note 1:
Proceedings under Chapter 11" to the Consolidated Financial Statements, and
"Management's Discussion and Analysis" in the 1996 Annual Report. Such
information is incorporated herein by reference.
The Company is not a party to any other material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
<PAGE>
fourth quarter.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information required by Item 5 is contained in "Note 11: Common Stock" and "Note
7: Financing Arrangements" to the Consolidated Financial Statements and under
the caption "Quarterly Information" in the 1996 Annual Report. Such information
is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Information required by Item 6 is contained under the caption "Five Year
Financial Summary" in the 1996 Annual Report. Such information is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by Item 7 is presented under the captions "To Our
Shareholders" and "Management's Discussion and Analysis" in the 1996 Annual
Report. Such information is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by Item 8, as listed below, is included in the 1996 Annual
Report. Such information is incorporated herein by reference.
Consolidated Statements of Operations - fiscal years 1996, 1995, and 1994
Consolidated Balance Sheets - 1996 and 1995 fiscal year-ends
Consolidated Statements of Cash Flows - fiscal years 1996, 1995, and 1994
Consolidated Statements of Common Stockholders' Equity (Deficit) - fiscal years
1996, 1995, and 1994
Notes to Consolidated Financial Statements
Five Year Financial Summary
Quarterly Information
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the directors and
executive officers of the Company:
<PAGE>
Position in the Company
-----------------------
Name Age Title Term
- ---- --- ----- ----
Bart A. Brown, Jr. 65 Director Since 1996
David B. Cooper, Jr. 41 Director Since 1995
Executive Vice President
and Chief Financial
Officer Since 1994
Julian I. Edison 67 Director Since 1965
Paul D. Eisen 42 President of JW/Jeans
West Since 1995
President of Oaktree Since 1994
President and General
Merchandise Manager of
Jeans West 1989-1994
Jane Evans 52 Director Since 1990
Michael J. Fine 45 President of Edison
Footwear and Womenswear
Group Since 1996
President of 5-7-9 Shops Since 1994
Eric A. Freesmeier 44 Executive Vice President-
Human Resources Since 1992
Vice President-Human
Resources 1986-1992
Richard C. Marcus 58 Director Since 1996
Karl W. Michner 49 Senior Executive Vice
President Since 1995
Director Since 1989
President of Edison
Menswear Group Since 1987
Alan D. Miller 44 Chairman of the Board,
President and Chief
Executive Officer Since 1995
Director Since 1992
President of Edison
Footwear Group 1993-1995
President of Bakers/Leeds/
Precis 1991-1993
President of 5-7-9 Shops 1987-1991
Alan A. Sachs 50 Executive Vice President
and General Counsel Since 1992
Director Since 1990
Secretary Since 1987
Vice President and General
Counsel 1990-1992
Vice President - Law 1985-1990
<PAGE>
Craig D. Schnuck 49 Director Since 1990
Steven R. Thomas 42 President, Edison Big &
Tall Since 1997
President, REPP Ltd. 1996-1997
General Manager, Zeidler
& Zeidler 1995-1996
Other business experience of the named individuals during the past five years is
as follows:
Bart A. Brown, Jr. is President and Chief Executive Officer of Main Street and
Main, Incorporated, a franchisee and operator of 46 T.G.I. Fridays Restaurants.
From May 1996 to December 1996, he was a consultant to Investcorp International,
Inc., an international investment banking firm. From August 1995 to April 1996,
he was Chairman of the Board and Chief Executive Officer of Color Tile, Inc., a
retailer of specialty flooring and wall covering. From June 1994 to September
1996, he was Chairman of the Board of Spreckels Industries, Inc., a
manufacturing and processing company, serving as its Chief Executive Officer
from June 1994 to May 1995. From June 1990 to August 1995, Mr. Brown was
Chairman of the Board of The Circle K Corporation, an operator and licensor of
convenience stores, serving also as its Chief Executive Officer from June 1991
through July 1993. He was senior partner of the law firm of Keating, Muething
and Kiekamp, Cincinnati, Ohio, from 1987 to 1990. Mr. Brown is a director of
FirstCity Financial Corp and Factory Card Outlet, Inc.
David B. Cooper, Jr. was Executive Vice President and Chief Financial
Officer of Del Monte Fresh Produce Company from 1993 to April 1994. He was
Vice President and Treasurer of Dole Food Company, Inc. from 1987 to 1993.
Jane Evans is President and Chief Operating Officer of Smart TV. From
March 1991 to March 1995, she was Vice President and General Manager, Home
and Personal Services, of U.S. West Communications, Inc. From 1989 through
March, 1991, she served as President and Chief Executive Officer of
InterPacific Retail Group. From 1987 to 1989, she was a General Partner of
Montgomery Securities. Ms. Evans is a director of Philip Morris
Companies, Inc., Georgia-Pacific Corporation, Kaufman and Broad Home
Corporation, and Banc One-Arizona, N.A.
Michael J. Fine was a Buyer for the Payless Shoe division of The May Department
Stores Company from 1992 to 1994 and President of John Douglas from 1989 to
1992.
Richard C. Marcus is a principal of InterSolve Group, a management services firm
he co-founded in 1991. He has been a director since September 1994 of the Plaid
Clothing Group, a manufacturer of men's tailored clothing, and from December
1994 through December 1995 served as Plaid Clothing Group's Chief Executive
Officer. From 1979 to 1988, he was Chairman and Chief Executive Officer of
Nieman Marcus. In addition to Plaid Clothing Group, he is a director of Zale
Corporation and XcelleNet, Inc.
Craig D. Schnuck is Chairman of the Board and Chief Executive Officer of
Schnuck Markets, which operates 94 supermarkets in the Midwest. He is a
director of Mercantile Bancorporation Inc. and General American Life
Insurance Company.
Steven R. Thomas was a Merchandise Manager for Bachrach Menswear from 1992
<PAGE>
to 1994.
Additional required information concerning the named individuals is as follows:
Messrs. Cooper, Michner, Miller and Sachs were serving as executive
officers of the Company in November 1995 when the Company filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Brown was Chief Executive Officer of Color Tile, Inc. in January 1996
when Color Tile filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Mr. Marcus was Chief Executive Officer of Plaid Clothing
Group in July 1995 when Plaid Clothing Group filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the officers and
directors of the Company and any persons owning more than ten percent of the
Company's common stock to report their ownership of the Company's common stock
to the Securities and Exchange Commission and the New York Stock Exchange. Based
on its review of the reports filed by such persons, and on written
representations by certain of such persons that no reports on Form 5 were
required to be filed by them, the Company believes that all Section 16(a)
reporting requirements for its 1996 fiscal year were complied with by its
officers, directors and greater than ten percent shareholders, except that one
report on Form 4, covering one transaction, was filed late by Peter A. Edison,
who during the 1996 fiscal year was an officer and director of the Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to each of the five most
highly compensated executive officers of the Company (the "named executive
officers") for services rendered to the Company and its subsidiaries for the
last three fiscal years.
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
- -------------------
Other
Name and Annual Restricted
Principal Fiscal Compen- Stock
Position Year Salary(1) Bonus(2) sation Award(s)
- -------- ---- --------- -------- ------ --------
Alan D. Miller 1996 $ 450,000 $300,000 - $ -
Chairman, 1995 433,333 - - 637,500(5)
President and 1994 339,167 - - -
Chief Executive
Officer
Karl W. Michner 1996 350,000 282,333 - -
Senior Executive 1995 347,167 - - -
Vice President 1994 333,000 - - -
and President of
the Corporation's
Menswear Group
David B. Cooper,Jr. 1996 320,000 213,333 - -
Executive Vice 1995 316,666 - - -
President and 1994 81,818(6) - - -
Chief Financial
Officer
Alan A. Sachs 1996 285,000 190,000 - -
Executive Vice 1995 282,333 - - -
President, 1994 269,000 - - -
General Counsel
and Secretary
Michael J. Fine 1996 260,606 192,993 - -
President of 1995 200,000 -
Edison Footwear 1994 45,455(7) -
and Womenswear
Group
<PAGE>
Long Term Compensation
- ----------------------
Stock Long
Options Term
Granted Incentive
Fiscal (Number of Plan All Other
Year Shares)(3) Payouts Compensation(4)
---- ---------- ------- ---------------
Alan Miller 1996 - - $ 600
1995 45,000 - 529
1994 11,000 - 829
Karl Michner 1996 - - 600
1995 23,500 - 517
1994 11,000 - 899
David Cooper 1996 - - -
1995 20,000 - -
1994 10,000 - 50,000
Alan A. Sachs 1996 - - 600
1995 16,500 - 533
1994 7,000 - 795
Michael J. Fine 1996 - - -
1995 13,000 - -
1994 6,000 - 57,108
(1) Includes all amounts contributed by the named individuals to the
Edison Brothers Stores Savings Plan. The Savings Plan is available to
<PAGE>
all employees of the Company who have attained the age of 21 and completed
one year of service. An employee may elect to contribute, through payroll
deduction, up to 15% of his or her annual cash compensation (subject to
certain limitations imposed by the Internal Revenue Code). Income tax is
deferred on all amounts contributed by the employee pursuant to Section
401(k) of the Internal Revenue Code. The Company contributes, on a matching
basis, between 10% and 50% of the first 6% of compensation contributed by
the employee. The amount of the Company's matching contribution is
determined each year based upon the return on stockholders' equity achieved
by the Company in the prior year.
(2) The amounts shown for 1996 were comprised of two elements: (a) "retention"
bonuses paid in September 1996 in accordance with the terms of the
respective Amended and Restated Employment Agreements between the Company
and each of its executive officers, and(b) bonuses paid in April 1997 in
respect of fiscal 1996 performance pursuant to the Company's 1996 Executive
Performance Incentive Compensation Plan. (The Company's executive
performance bonus program provides for annual bonuses contingent on the
attainment of certain financial goals approved by the Special Compensation
Subcommittee of the Company's Board of Directors.)
(3) The number of shares, along with the exercise price, of each option was
subsequently adjusted, pursuant to the terms of the Company's 1992 Stock
Option Plan, to reflect the June 1995 spin off by the Company of its stock
in Dave & Buster's, Inc. As a result of such adjustment which was
calculated so that each option would have the same intrinsic value, based
on its relationship to the market price of the Company's common stock,
immediately after the spin-off as it had immediately before--the number of
shares subject to each option was increased by 33.1% and the exercise price
was reduced by 24.9%.
(4) Except as indicated in the next sentence, the amounts shown were the
amounts contributed by the Company to the Edison Brothers Stores Savings
Plan for the accounts of these named individuals during such fiscal year.
(See Note 1 above.) The amounts shown for Messrs. Cooper and Fine for 1994
were lump sum hiring bonuses paid upon their commencement of employment
with the Company.
(5) Reflects the grant on May 11, 1995, of 50,000 shares of common stock of the
Corporation, with the aggregate value based on the closing price of the
Corporation's common stock on the date of grant. As of the end of the 1996
fiscal year, Mr. Miller held a total of 40,000 restricted shares of common
stock of the Company, having an aggregate value of $75,000 based on the
closing price of the Company's common stock as of the end of such fiscal
year. These shares are to vest in 10,000 share increments on May 20, 1997,
May 27, 1998, June 3, 1999 and June 12, 2000, subject to certain forfeiture
and acceleration provisions. (If the Company's proposed Amended Joint Plan
of Reorganization is confirmed and implemented, however, all of these
shares will be canceled. See Item 1, "Proceedings under Chapter 11" at
pages 3-4 above.) Dividends (if any) are paid on these restricted shares at
the same time and at the same rate as dividends are paid to stockholders
generally.
(6) Commenced employment with the Company on October 24, 1994.
(7) Commenced employment with the Company on November 9, 1994.
<PAGE>
Stock Options
The following table provides information with respect to stock option exercises
during the 1996 fiscal year by the named executive officers and the value of
such officers' unexercised options as of the end of the fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Shares Acquired
Name on Exercise (#) Value Realized($)
- ---- --------------- -----------------
Alan D. Miller - -
Karl W. Michner - -
David B. Cooper, Jr. - -
Alan A. Sachs - -
Michael J. Fine - -
Number of Securities Value of Unexercised
Underlying Unexercised In the Money
Options/SARs at Fiscal Options/SARs at Fiscal
Year end (#) (1) Year End ($) (2)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Alan D. Miller 22,295 52,247 $0 $0
Karl W. Michner 15,140 30,783 0 0
David B. Cooper, Jr. 16,638 23,295 0 0
Alan A. Sachs 10,148 21,133 0 0
Micheal J. Fine 10,316 14,975 0 0
(1) The number of shares is as adjusted to reflect the June 1995 spin-off by
the Company of its stock in Dave & Buster's, Inc. (See Note 3 on page 13.)
(2) Aggregate value based on the average of the high and low selling prices of
the Company's common stock on the last trading day of the fiscal year less
the exercise price.
<PAGE>
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
In June 1996, in order to assure the Company of the continued availability of
the services of its key executives, the Company entered into employment
agreements with certain of its officers, including each of the named executive
officers (superseding employment agreements previously entered into with the
named executive officers in September 1995). The agreements between the Company
and the named executive officers provide for terms of employment ending either
on September 17, 1997 or September 17, 1998. In addition to salary and benefits,
the agreements each provide for two lump sum cash bonuses, each equal to two
times the executive's monthly base salary, the first payable on September 17,
1996 and the second on September 17, 1997 (subject, in each case, to
acceleration in the event of a change in control as defined in the agreements).
These "retention" bonuses, intended as incentives for the executive to remain
with the Company, are payable only if the executive is still in the Company's
employ on the payment date (subject to the executive's right to receive a
prorata portion of the second bonus if terminated without cause less than six
months before the payment date). If there occurs a "change in control" of the
Company, as defined in the agreements, the employment term is extended for a
period ending either two years, in the case of Alan Miller, or eighteen months,
in the case of the other named executive officers, after the date of occurrence
of the change in control. If, within the term of the agreement, the executive's
employment is terminated by the Company other than for cause or is terminated by
the executive for "good reason" (which, prior to a change in control, would be
limited to a reduction in salary, and following a change in control would
include a reduction in salary, material change in benefits, diminution in duties
or mandatory geographic transfer), the executive will be entitled to a lump sum
payment equal to (i) the executive's monthly salary at the highest rate in
effect at any time between September 18, 1995 and the date of termination of
employment, multiplied by (ii) the greater of (a) twelve or (b) the number of
months remaining under the agreement. Further, in the event of termination
without cause or for "good reason," the Company is to maintain for the
executive's continued benefit for the longer of the unexpired term of the
agreement or twelve months from the date of termination (or until the
executive's similar coverage by a new employer, if earlier) all life insurance,
health and disability plans in which the executive was entitled to participate
immediately prior to the termination of the executive's employment (or,
alternatively, provide benefits substantially similar to those which the
executive would otherwise have been entitled to receive under such plans). In
addition, the Company is to pay to the executive (or the executive's beneficiary
upon his death) an amount equal to the benefits the executive would have been
entitled to receive under the Edison Brothers Stores Pension Plan and any
supplemental or successor plans then in effect had the executive remained
employed by the Company through the term of the agreement less the benefits
actually payable to the executive under such plans, such amount to be
determined, and payment thereof to commence, in accordance with the provisions
of such plans. If a change in control occurs after the term of the agreement but
at a time when the executive is still employed by the Company, and the
executive's employment is then terminated by the Company without cause or by the
executive for "good reason" within two years, in the case of Alan Miller, or
eighteen months, in the case of the other named executive officers, after the
occurrence of such change in control, the executive will also be entitled to the
payments and benefits described above. The agreement further provides that if
any
<PAGE>
payments or benefits payable by the Company to the executive pursuant to the
agreement or any other agreement or arrangement of the Company are determined to
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code or any successor or comparable tax, the Company will pay the executive an
additional amount so that the net amount actually retained by the executive
after payment of the excise tax is the same amount which would have been
retained if no such excise tax had been imposed. Legal fees or other expenses
incurred by the executive to enforce his or her rights under the agreement are
to be reimbursed by the Company if the executive prevails on such claim.
Retirement Plans
The Company maintains a Pension Plan for itself and certain of its subsidiaries
under which participation begins when a regular employee has attained the age of
21 and completed one year of service. Vesting of rights to a pension occurs upon
the completion of five years of service.
Retirement benefits are based on a participant's average annual compensation
during the highest five consecutive calendar years of compensation within the
last fifteen years of credited service prior to retirement. Compensation
includes all salary, bonuses and commissions, but does not include distributions
under any stock option plan. For years after 1993, compensation and average
compensation for determining retirement benefits is limited to $150,000, subject
to annual adjustments for changes in the cost of living.
Retirement benefits at age 65 are equal to 0.9% of such average annual
compensation, plus 0.6% of such average annual compensation in excess of a
breakpoint, all multiplied by years of credited service (not exceeding 30). The
breakpoint, which is specified by law, is an amount equal to the average of the
maximum wages subject to Social Security taxes during the 35-year period ending
in the year prior to a participant's Social Security retirement date. If
retirement occurs prior to age 65, benefits may be reduced to reflect the
earlier payment date. Benefits may also be reduced if survivor benefits are to
be paid to an eligible spouse, based on age differentials.
For some individuals, the amounts payable under the Pension Plan are limited by
certain provisions of the Internal Revenue Code. The Company has adopted an
unfunded excess benefits plan ("Pension Restoration Plan") to pay out of its
general assets to designated employees that portion of the benefits that would
otherwise be payable to them under the Pension Plan were it not for such
limitations.
For eligible employees reaching the age of 65 during 1996 and retiring during
that year, the following are the approximate total annual retirement benefits
payable under the Pension Plan and the Pension Restoration Plan based on their
average annual compensation as outlined above and their years of service:
<PAGE>
PENSION PLAN TABLE
Years of Service
-------------------------------------------
Remuneration 15 20 25 30 35
- ----------------------------------------------------------
$ 50,000 $ 8,768 $ 11,691 $ 14,614 $17,536 $ 17,536
$100,000 20,018 26,691 33,364 40,036 40,036
$300,000 65,018 86,691 108,364 130,036 130,036
$500,000 110,018 146,691 183,364 220,036 220,036
$700,000 155,018 206,691 258,364 310,036 310,036
$900,000 200,018 266,691 333,364 400,036 400,036
The preceding table is based on the assumption that the employee was subject to
the maximum aggregate social security tax during each year of his employment.
The benefits shown are in the form of a single life annuity to the participant.
As of February 1, 1997, the years of credited service under the Pension Plan for
each of the named executive officers were as follows: Alan D. Miller, 18; Karl
W. Michner, 23; David B. Cooper, Jr., 1; Alan A. Sachs, 10; and Michael J. Fine,
1.
On February 24, 1997, the Company's Board of Directors voted to terminate the
Pension Plan, effective May 31, 1997. It is anticipated that the Company will
establish a replacement plan, the details of which have not yet been determined.
Compensation of Directors
Directors who are employees of the Company receive no additional compensation
for their attendance at meetings of the Board or any of its committees of which
they are members. Directors who are not employees of the Corporation receive an
annual retainer of $17,500, and $1,200 for participation in each Board meeting
and $1,000 for participation in each committee meeting. When participation in a
Board or committee meeting is by telephone, the fee paid is one-half of the
amount reported above.
The Company has a non-qualified retirement plan for outside directors. Under
this plan, outside directors (other than those who were employees of the Company
and are eligible for benefits under the Company's pension plan) who attain age
70 and have at least five years of continuous Board service are entitled upon
retirement from the Board to an annual benefit equal to the annual retainer
being paid at that time to the Company's directors.
Compensation Committee Interlocks and Insider Participation
Julian I. Edison, who, during the last fiscal year, was a member of the
Compensation Committee, is a former officer of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth the number and percentage of outstanding shares
of the Company's common stock beneficially owned as of March 1, 1997 by each
person known by management to be the beneficial owner of more than 5% of the
outstanding common stock (except for one individual who is a director of the
Company, as to whom such information is set forth below).
<PAGE>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class (1)
- ------------------- ----------------------- ------------
Bernard Edison 1,160,359 5.2%
501 North Broadway
St. Louis, MO 63102
(1) Such percentage is calculated based on the number of shares deemed
outstanding under applicable Securities and Exchange Commission rules as of
March 1, 1997.
Security Ownership of Management
The following table sets forth the number and percentage of outstanding shares
of the Company's common stock beneficially owned as of March 1, 1997 by (i) each
director, (ii) each person named in the Summary Compensation Table on page 14,
and (iii) all directors and executive officers of the Company as a group.
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership (1)(2) of Class (3)
- ---------------- ---------------- ------------
Bart A. Brown, Jr. -- --
David B. Cooper, Jr. 23,293 --
Julian I. Edison 817,238 3.6%
Jane Evans 100 --
Michael J. Fine 14,642 --
Richard C. Marcus -- --
Karl W. Michner 48,249 --
Alan D. Miller 102,829 (4) --
Alan A. Sachs 32,684 --
Craig D. Schnuck 1,000 --
All directors and
executive officers
as a group 1,076,935 4.8%
<PAGE>
(1) Includes shares which were not owned by the named individual or group
member as of March 1, 1997, but which such individual or group member could
acquire on or before April 30, 1997 under options granted pursuant to the
Company's 1992 Stock Option Plan, as follows: David B. Cooper, Jr., 23,293
shares; Michael J. Fine, 14,642 shares; Karl W. Michner, 26,621 shares;
Alan D. Miller, 40,931 shares; Alan A. Sachs, 17,969 shares; and all
directors and executive officers as a group, 154,170 shares.
(2) Includes shares allocated to the account of the named individual or group
member under the Edison Brothers Stores Savings Plan, as follows: Karl W.
Michner, 786 shares; Alan D. Miller, 782 shares; Alan A. Sachs, 755 shares;
and all directors and executive officers as a group, 3,667 shares.
(3) Percentages are calculated based on the number of shares deemed outstanding
under applicable Securities and Exchange Commission rules as of March 1,
1997. Only percentages of beneficial ownership of 1% or more are shown.
(4) Includes 50,000 shares of restricted stock granted in 1995.
Changes in Control
On March 31, 1997, the Company filed with the U.S. Bankruptcy Court a proposed
Amended Joint Plan of Reorganization (the "Plan"). If confirmed by the Court,
upon consummation of the Plan, all existing common stock of the Company will be
canceled and all of the new common stock of the reorganized company (except for
approximately 200,000 restricted shares to be issued to certain of the Company's
senior executives) will be issued to the holders of allowed general unsecured
claims.
The Plan also provides that, upon consummation, the Board of Directors of the
Company will be reconstituted to consist of nine individuals, two of whom will
be representatives of the Company's senior management, one of whom will be a
current outside director of the Company, and six of whom will be selected by the
statutory Creditors' Committee.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions or other matters to be reported under this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(a) (3) Listing of exhibits:
<PAGE>
Exhibit No. Page No.
- ----------- --------
2 Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code, dated March 31, 1997.
3(a) Bylaws of the Company, as amended April 23, 1996, were filed as an
Exhibit to the Company's annual report on Form 10-K for the year ended
February 3,1996, and are incorporated herein by reference.
(b) The Company's Certificate of Incorporation, as amended September 8,
1995. was filed as an Exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended July 29, 1995, and is incorporated
herein by reference.
4(a) Rights Agreement, dated as of January 26, 1988, and amendments thereto
dated November 30, 1989 and September 29, 1992, between Edison
Brothers Stores, Inc. and Mellon Securities Trust Company, as Rights
Agent, were filed as Exhibits to the Company's current reports on Form
8-K dated February 17, 1988, December 11, 1989, and October 28, 1992,
respectively, and are incorporated herein by reference.
4(b) Note Agreements and Senior Notes, dated March 1, 1993, between Edison
Brothers Stores, Inc. and a number of institutional lenders relating to
$150 million of unsecured debt were filed as an Exhibit to the Company's
annual report on Form 10-K for the year ended January 30, 1993, and are
incorporated herein by reference.
4(c) Amendment Agreements, dated as of January 15, 1994, and February 1, 1994,
amending the Note Agreements dated March 1, 1993 between Edison Brothers
Stores, Inc. and a number of institutional lenders relating to $150
million of unsecured debt were filed as Exhibits to the Company's annual
report on Form 10-K for the year ended January 29, 1994, and are
incorporated herein by reference.
4(d) Amendment Agreement, dated as of April 1, 1995, amending the Note
Agreements dated March 1, 1993, as amended January 15, 1994 and February
1, 1994,between Edison Brothers Stores, Inc. and a number of
institutional lendersrelating to $150 million of unsecured debt was filed
as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended February 3, 1996, and is incorporated herein by reference.
4(e) Noteholder Forbearance Agreement, dated as of September 22, 1995, between
Edison Brothers Stores, Inc. and a number of institutional lenders
relating to $150 million of unsecured debt was filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended February 3, 1996,
and is incorporated herein by reference.
4(f) Credit Agreement, dated as of June 4, 1993, between Edison Brothers
Stores, Inc. and a number of financial institutions relating to a $150
million revolving credit facility was filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended February 3, 1996,
and is incorporated herein by reference.
<PAGE>
4(g) Amendment Agreements, dated as of January 24, 1994, February 17, 1994,
and March 29, 1995, amending the Credit Agreement dated June 4, 1993,
between Edison Brothers Stores, Inc. and a number of financial
institutions relating to a $150 million revolving credit facility were
filed as Exhibits to the Company's Annual Report on Form 10-K for the
year ended February 3, 1996, and are incorporated herein by reference.
4(h) Override Agreement, dated as of September 22, 1995, between Edison
Brothers Stores, Inc. and a number of financial institutions relating to
a $150 million revolving credit facility were filed as Exhibits to the
Company's Annual Report on Form 10-K for the year ended February 3, 1996,
and are incorporated herein by reference.
4(i) Loan Agreement, dated as of November 9, 1995, between Edison
Brothers Stores, Inc. and Edison Brothers Apparel Stores, Inc.,
Debtors-in-Possession, and BankAmerica Business Credit, Inc., as
Agent, and the financial institutions named therein as Lenders,
for a revolving line of credit for loans and letters of credit of
up to $200 million in the aggregate, was filed as an Exhibit to
the Company's quarterly report on Form 10-Q for the quarter ended
October 28, 1995,and is incorporated herein by reference.
4(j) Amendment Agreements, dated as of December 1, 1995, January 71
12, 1996, March 25, 1996, April 12, 1996, September 13, 1996,
and January 31, 1997, amending the Loan Agreement, dated November
9, 1995, between Edison Brothers Stores, Inc. and Edison Brothers
Apparel Stores, Inc., Debtors-in-Possession, and BankAmerica
Business Credit, Inc., as Agent, and the financial institutions
named therein as Lenders relating to revolving line of credit for
loans and letters of credit up to $200 million in the aggregate.
10(a) Form of Indemnification Agreement between the Company and each of its
directors was filed as an Exhibit to the Company's annual report on Form
10-K for the year ended January 3, 1987, and is incorporated herein by
reference.
10(b) The Edison Brothers Stores, Inc. 1992 Stock Option Plan, as
amended March 3,1994, was filed as an Exhibit to the Company's
annual report on Form 10-K for the year ended January 29, 1994,
and is incorporated herein by reference.
10(c) The Edison Brothers Stores, Inc. 1986 Stock Option Plan, as amended April
27, 1987 and March 3, 1994, was filed as an Exhibit to the Company's
annual report on Form 10-K for the year ended January 29, 1994, and is
incorporated herein by reference.
10(d) Non-Qualified Retirement Plan for Outside Directors is described under
the caption "Compensation of Directors" in Item 11 of this Form 10-K
which description is incorporated herein by reference.
10(e) Restricted stock grant by Edison Brothers Stores, Inc. to Alan D. Miller,
Chairman, President and Chief Executive Officer of the Company, was filed
as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended February 3,1996, and is incorporated herein by reference.
10(f) Form of Employment Agreement entered into by the Company with
Alan D. Miller, Chairman of the Board, President and Chief
<PAGE>
Executive Officer of the Company, was filed as an Exhibit to the
Company's quarterly report on Form 10-Q for the quarter ended August 3,
1996, and is incorporated herein by reference.
10(g) Forms of Employment Agreements entered into by the Company with other
executive officers of the Company were filed as Exhibits to the Company's
quarterly report on Form 10-Q for the quarter ended August 3, 1996, and
are incorporated herein by reference.
11 Computation of per share earnings
13 1996 Annual Report to Stockholders
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Exhibits
Exhibits begin on page 30 of this Form 10-K.
(c) Financial statement schedules:
The response to this portion of Item 14 is submitted as a separate
section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EDISON BROTHERS STORES, INC.
(Registrant)
By By
/s/Alan D. Miller 5/1/97 /s/David B. Cooper, Jr. 5/1/97
--------------------------------- -------------------------------------
Chairman of the Board, President Executive Vice President and
and Chief Executive Officer Chief Financial Officer
By
/s/Thomas K. McCain 5/1/97
-----------------------------------------------
Vice President, Taxes and Financial Reporting
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors on behalf of the registrant on
the dates indicated.
/s/Alan D. Miller 5/1/97 /s/David B. Cooper, Jr. 5/1/97
- --------------------------------- ------------------------------------
/s/Julian I. Edison 5/1/97 /s/Jane Evans 5/1/97
- --------------------------------- ------------------------------------
/s/Alan A. Sachs 5/1/97 /s/Karl W. Michner 5/1/97
- --------------------------------- ------------------------------------
/s/Craig D. Schnuck 5/1/97 /s/Richard C. Marcus 5/1/97
- --------------------------------- ------------------------------------
/s/Bart A. Brown, Jr. 5/1/97
- ---------------------------------
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2) and ITEM 14(d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED FEBRUARY 1, 1997
EDISON BROTHERS STORES, INC.
ST. LOUIS, MISSOURI
FORM 10-K - ITEM 14 (a) (1) and (2) and Item 14 (d)
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Edison Brothers Stores,Inc.
and subsidiaries, included in the 1996 annual report of the registrant to its
stockholders, are incorporated by reference in Item 8:
Consolidated Statements of Operations - fiscal years 1996, 1995, and 1994
Consolidated Balance Sheets - 1996 and 1995 fiscal year-ends
Consolidated Statements of Cash Flows - fiscal years 1996, 1995, and 1994
Consolidated Statements of Common Stockholders' Equity (Deficit) - fiscal years
1996, 1995, and 1994
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Edison Brothers
Stores, Inc. and subsidiaries is included in item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, or are inapplicable, and therefore have been omitted.
Individual financial statements of the registrant have been omitted as the
registrant is primarily an operating company and all subsidiaries included in
the consolidated financial statements filed, in the aggregate, do not have
minority equity interests and/or indebtedness to any person other than the
registrant or its consolidated subsidiaries in amounts which together (excepting
indebtedness incurred in the ordinary course of business which is not overdue
and matures within one year from the date of its creation, whether or not
evidenced by securities, and indebtedness of subsidiaries which is
collateralized by the registrant by guarantee, pledge, assignment, or otherwise)
exceed five percent of the total assets as shown by the most recent year end
consolidated balance sheet.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
EDISON BROTHERS STORES, INC.
AND SUBSIDIARIES
Additions
Balance at Charged to Balance at
February Costs and Deductions February
Description 3, 1996 Expenses Describe 1, 1997
- ----------- ------- -------- -------- -------
(In Millions)
Deferred tax
valuation
allowance $43.5 $18.2 $61.7
See "Note 10: Income Taxes" of the Notes to Consolidated Financial
Statements in the 1996 Annual Report.
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS
EDISON
BROTHERS
STORES
INCORPORATED
1996
<PAGE>
ANNUAL REPORT
1996: The Year in Brief
Edison Brothers Stores Inc. operates apparel and footware stores focused on
serving the youth and special-size markets with a selection of quality name
brand and private-label merchandise. With more than 1,700 locations and 17,000
employees in the United States, Canada and Puerto Rico, Edison is one of the
largest mall-based specialty retailers in North America.
- --------------------------------------------------------------------------------
Apparel Footwear
1,253 Stores 490 Stores
- --------------------------------------------------------------------------------
J. Riggings Bakers/Leeds
Coda Wild Pair
JW/Jeans West
REPP Ltd
Oaktree
Phoenix Big & Tall catalog
Shifty's
5-7-9 Shops
1996 1995
(52 weeks) (53 weeks)
- --------------------------------------------------------------
Net sales $1,090,400,000 $1,389,400,000
- --------------------------------------------------------------
Net loss (143,200,000) (222,000,000)
- --------------------------------------------------------------
Net loss per share (6.46) (10.06)
- --------------------------------------------------------------
Cash flow from operations 85,500,000 85,400,000
- --------------------------------------------------------------
A discussion of results is included in Management's Discussion and Analysis on
page 18.
<PAGE>
To Our Shareholders,
Edison Brothers' financial performance in 1996 reflected a company in the midst
of a dramatic restructuring and repositioning. While sales trends improved
during the fourth quarter and our losses narrowed, we have much more to do
before our transformation is complete. If all goes as planned, Edison will
emerge from Chapter 11 in 1997 having made measurable progress toward becoming a
stronger, more focused specialty retailer.
Restructuring Initiatives
Edison took aggressive actions necessary for the survival of the company and
began a comprehensive restructuring process immediately after filing for Chapter
11 in November 1995. Our efforts included consolidating our store base and
selling our entertainment division to generate an immediate infusion of needed
cash.
During the next phase of our turnaround process, we clearly identified the
company's strengths and weaknesses, and initiated programs to help us adopt best
practices and implement improvements. These initiatives have included:
Conducting market research for most of our chains.
Improving merchandise quality and assortments.
Reducing our emphasis on discount pricing to improve sales and margins.
Investing $13 million to upgrade our stores' physical appearance in 1996
and earmarking $16 million for 1997.
Giving store staffs more time to serve customers by eliminating and
streamlining "backroom" operations.
Implementing company-wide standards for compensation, scheduling, sales,
service, merchandise returns, and more.
Developing stronger relationships with our vendors to improve merchandise
quality and further streamline our allocation and distribution processes.
Reducing overhead and other costs.
These initiatives provide a solid base from which Edison can now execute its
strategic business plan - the first the company has produced in a number of
years. The plan outlines a focus on two key markets - youth and special size -
which fit the company's current profile and offer strong opportunities for
growth. This new strategic focus will allow us to continue to build our existing
businesses and provide opportunities for carefully targeted expansion.
1996 Performance
Edison Brothers reported a net loss excluding special charges of $32.9 million
for the 52 weeks ended February 1, l997, compared to $63.9 million for the 53
weeks of 1995. Including $110.3 million in special charges in 1996 and $167.1
million ($158.1 million after-tax) of special charges in 1995, the full-year net
losses were $143.2 million, or $6.46 per share, and $222.0 million, or $10.06
per share, respectively.
Special charges in 1996 included $74.0 million in noncash charges resulting from
the recognition of an impairment loss on long-lived assets, principally real
estate and intangibles, pursuant to Statement of Financial
Accounting Standards 121. The remaining $36.3 million in special chargers were
restructuring and reorganization expenses, primarily reserves for store
closings, and legal and consulting fees.
Same-store sales for 1996 declined by 1.9 percent to $1.02 billion from $1.04
billion in 1995. Total sales for 1996 were $1.09 billion compared with $1.39
billion the year before, a decrease of 20.4 percent, reflecting a 23.4 percent
decrease in the average number of stores operated by Edison during the period.
Plan of Reorganization
On February 27, 1997, Edison Brothers filed its proposed plan of
reorganization with the U.S. Bankruptcy Court. This was followed by the
<PAGE>
filing of an amended plan and a proposed disclosure statement on March 31, 1997.
The plan is designed to provide Edison with a capital structure to support its
business strategy and reduce the company's long-term debt level, allowing us to
focus our financial resources on improving our operations.
Edison's proposed plan of reorganization would provide unsecured creditors,
including suppliers, lenders and factors, with a combination of cash, new
corporate debt, equity and other assets representing an estimated payment of 92
cents on the dollar for the approximately $444 million in total unsecured
claims. All of Edison's current common stock would be canceled and 10 million
shares of new common stock would be distributed to the unsecured creditors.
Current shareholders would receive two sets of warrants that would entitle them
to purchase a total of approximately 9 percent of the new stock, on a fully
diluted basis, at predetermined prices. Edison's proposed plan of reorganization
and disclosure statement are subject to further amendment and revisions before
approval of the disclosure statement.
Once the disclosure statement is approved, all creditors and shareholders will
have an opportunity to review the plan of reorganization and disclosure
statement, and vote on the plan. The court will then hold a hearing to determine
whether to confirm the plan of reorganization. If it is confirmed, Edison will
then emerge from Chapter 11.
Edison has used the Chapter 11 process to rehabilitate its business and lay a
strategic foundation for the future. We are encouraged by our results to date,
but clearly need to maintain our momentum and make the most of our opportunities
if this initial progress is to translate into sustainable success for Edison
over the long term.
Sincerely,
/s/Alan Miller
Chairman and President
April 25, 1997
<PAGE>
Consolidated Statements of Operations
(Dollars in millions, except per share data)
1996 1995 1994
(52 weeks) (53 weeks) (52 weeks)
- --------------------------------------------------------------------------------
Net Sales $1,090.4 $1,389.4 $1,476.4
Cost of goods sold, occupancy,
and buying expenses 794.9 1,033.3 1,017.4
Store operating and administrative
expenses 281.4 352.1 360.3
Depreciation and amortization 41.2 62.8 69.6
Interest expense, net (excludes contractual
interest of $35.0 in 1996 and $9.1 in 1995) 2.4 25.2 19.0
Restructuring and reorganization
expenses 36.3 167.1 -
Impairment of long-lived assets 74.0 - -
Other operating - - (22.3)
- --------------------------------------------------------------------------------
1,230.2 1,640.5 1,444.0
- --------------------------------------------------------------------------------
Income (Loss) before Income Taxes (139.8) (251.1 32.4
Income tax provision (benefit) 3.4 (29.1) 11.9
Net Income (Loss) $ (143.2) $ (222.0) $ 20.5
================================================================================
Net Income (Loss) per Common Share $ (6.46) $ (10.06) $ .93
================================================================================
See accompanying notes
<PAGE>
Consolidated Balance Sheets
(Dollars in millions)
1996 1995
year-end year-end
Assets
- --------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $125.6 $139.6
Investments 78.5 -
Merchandise inventories 210.7 250.5
Income tax receivable 0.8 42.8
Prepaid expenses 5.0 10.2
Other current assets 4.8 9.4
Total Current Assets 425.4 452.5
Assets Held for Sale 10.9 -
Property and Equipment, net 146.0 209.0
Intangible Assets, net - 50.3
Prepaid Pension Expense 41.3 38.4
Other Assets 10.2 11.3
- --------------------------------------------------------------------------------
Total Assets $633.8 $761.5
================================================================================
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 69.2 $ 64.8
Payroll and vacations 10.7 13.4
Other taxes 5.7 6.9
Other current liabilities 23.1 26.0
- --------------------------------------------------------------------------------
Total Current Liabilities 108.7 111.1
Liabilities Subject to Settlement under
Reorganization Proceedings 508.3 489.8
Other Liabilities 18.9 20.2
Common Stockholders' Equity (Deficit):
Common stock, par value $1 22.2 22.1
Capital in excess of par value 76.9 76.7
Retained earnings (deficit) (101.6) 41.6
Foreign currency translation adjustment
and other .4 -
- --------------------------------------------------------------------------------
Total Common Stockholders' Equity
(Deficit) (2.1) 140.4
- --------------------------------------------------------------------------------
Total Liabilities and Equity
(Deficit) $633.8 $761.5
================================================================================
See accompanying notes
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in Millions)
1996 1995 1994
(52 weeks) (53 weeks) (52 weeks)
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income (loss) $(143.2) $(222.0) $20.5
Adjustments to reconcile net income
(loss) to net cash provided by
Operating activities:
Depreciation and amortization 41.2 62.8 69.6
Provision for deferred income taxes,
net of valuation allowance and
acquisitions - 4.5 8.8
Restructuring and reorganization
expenses 11.7 111.3 -
Impairment of long-lived assets 74.0 - -
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Merchandise inventories 39.9 71.0 (26.7)
Income tax receivable, prepaid
expenses,and other assets 49.9 (16.8) (24.9)
Accounts payable, accrued expenses,
and other liabilities 5.4 67.7 (5.0)
Other 6.6 6.9 7.6
- --------------------------------------------------------------------------------
Total Operating Activities 85.5 85.4 49.9
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Payment for companies and assets purchased,
net of cash acquired - (14.1) (11.8)
Capital expenditures (21.9) (37.2) (61.7)
Increase in investments (78.5) - -
Net proceeds from disposal of
subsidiaries - 17.1 -
Other 0.8 2.7 (0.9)
- --------------------------------------------------------------------------------
Total Investing Activities (99.6) (31.5) (74.4)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from prepetition debt
issuance - 60.0 15.0
Prepetition long-term debt
payments - (0.1) (35.7)
Net prepetition short-term debt
borrowings - 11.4 71.1
Net postpetition borrowings
(payments) under short-term credit
facility (0.2) 0.2 -
Dividends on common stock - (9.3) (27.3)
Other 0.3 6.1 1.0
- --------------------------------------------------------------------------------
Total Financing Activities 0.1 68.3 24.1
- --------------------------------------------------------------------------------
Effect of exchange rate changes
on cash - (9.6) (5.2)
- --------------------------------------------------------------------------------
Cash Provided (Used) (14.0) 112.6 (5.6)
Beginning cash and cash
equivalents 139.6 27.0 32.6
- --------------------------------------------------------------------------------
Ending Cash and Cash Equivalents $125.6 $ 139.6 $27.0
================================================================================
Cash Payments (Receipts) for:
Interest expense $ 0.4 $ 23.9 $20.4
Income taxes $(37.9) $ (0.7) $ 4.5
See accompanying notes
<PAGE>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in
millions, except per share data)
Foreign
Currency
Capital in Retained translation
Common excess of earnings adjustment
stock par value (deficit) and other
- --------------------------------------------------------------------------------
Balance at Beginning of 1994 $22.0 $75.6 $310.6 ($0.3)
Net income - - 20.5 -
Stock options exercised and
employee benefit plans - 1.0 - 0.1
Common stock purchased - 9,000
shares - (0.1) - -
Foreign currency translation
adjustment - - - (14.9)
Dividends on common stock
$1.24 per share - - (27.3) -
- --------------------------------------------------------------------------------
Balance at End of 1994 22.0 76.5 303.8 (15.1)
Net loss - - (222.0) -
Stock options exercised and
employee benefit plans 0.1 0.2 - -
Spin-off of subsidiary - - - (30.9)
Foreign currency translation
adjustment - - - 15.1
Dividends on common stock
$.42 per share - - (9.3) -
- --------------------------------------------------------------------------------
Balance at End of 1995 22.1 76.7 41.6 -
Net loss - - (143.2) -
Employee benefit plans 0.1 0.2 - -
Foreign currency translation
adjustment - - - 0.4
- --------------------------------------------------------------------------------
Balance at End of 1996 $22.2 $76.9 ($101.6) $0.4
================================================================================
See accompanying notes
<PAGE>
Notes to Consoldiated Financial Statements
(Dollars im Millions, except per share data)
Note 1: Proceedings under Chapter 11
On November 3, 1995 (the Petition Date), Edison Brothers Stores, Inc. (the
Company) and 65 of its subsidiaries and affiliates (the Debtors) filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in
the United States Bankruptcy Court in Wilmington, Delaware. The Debtors are
presently operating their respective businesses as debtors-in-possession. A
statutory Creditors' Committee has been appointed in the Chapter 11 cases. In
addition, the U.S. Trustee appointed an Equity Committee during the fourth
quarter of 1996. The Chapter 11 cases of the Debtors are being jointly
administered for procedural purposes only.
Certain foreign subsidiaries were not included in the Chapter 11 filing. The
results of their operations and financial position are not material to the
consolidated financial statements.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. As a result
of the Chapter 11 cases and circumstances relating to this event, including the
Company's debt structure, its recurring losses, and current economic conditions,
such realization of assets and liquidation of liabilities are subject to
significant uncertainty. Additionally, the amounts reported on the consolidated
balance sheet could materially change because of the plan of reorganization,
since such reported amounts do not give effect to adjustments to the carrying
value of the underlying assets or amounts of liabilities that may ultimately
result.
In the Chapter 11 cases, substantially all liabilities as of the Petition Date
are subject to compromise or other treatment under a plan of reorganization. For
financial reporting purposes, those liabilities and obligations whose
disposition is dependent on the outcome of the Chapter 11 cases have been
segregated and classified as liabilities subject to settlement under
reorganization proceedings in the consolidated balance sheets. Generally,
actions to enforce or otherwise effect repayment of all pre-Chapter 11
liabilities as well as all pending litigation against the Debtors are stayed
while the Debtors continue their business operations as debtors-in-possession.
Schedules have been filed by the Debtors with the Bankruptcy Court setting forth
the assets and liabilities of the Debtors as of the Petition Date as reflected
in the Debtors' accounting records. Differences between amounts reflected in
such schedules and claims filed by creditors will be investigated and either
amicably resolved or adjudicated. The ultimate amount of and settlement terms
for such liabilities are subject to a plan of reorganization and accordingly are
not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts, and
other prepetition executory contracts, subject to Bankruptcy Court approval. The
liabilities subject to settlement under reorganization
<PAGE>
proceedings include a provision for the estimated amount that may be claimed by
lessors and allowed in connection with the real estate leases. The Company will
continue to analyze its executory contracts and may assume or reject additional
contracts.
On February 27, 1997, the Debtors filed a proposed Joint Plan of Reorganization
under Chapter 11 of the Bankruptcy Code, which was amended by a subsequent
filing on March 31, 1997 (the plan as amended, the "Plan"). On March 31, 1997,
the Debtors also filed a Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code. The Court has set a hearing date of May 13, 1997, for
consideration of the adequacy of the Debtors' Disclosure Statement. If the
Disclosure Statement is approved by the Court, the Company will then solicit
acceptances of the Plan for those holders of claims and equity interests
entitled to vote thereon under the terms of the Plan. A confirmation hearing
will thereafter be held by the Bankruptcy Court to determine whether the Plan
satisfies all of the requirements for confirmation specified in Section 1129 of
the Bankruptcy Code, among which are that the Plan be: (i) accepted by all
impaired classes of claims and equity interests or, if rejected by an impaired
class, that the Plan "does not discriminate unfairly" and is "fair and
equitable" as to such class; (ii) feasible; and (iii) in the "best interests of
creditors and stockholders that are impaired under the Plan."
The Plan and Disclosure Statement may be subject to further amendment and
revisions before the process is completed. As currently drafted, the Plan
provides for a distribution to creditors of a combination of cash, new corporate
debt, new Company common stock and other assets. General unsecured creditors
would receive: (i) a cash payment of $119 (subject to certain adjustments); (ii)
ten year, 11% unsecured notes in the principal amount of $100 (with the first
three years of interest prefunded and no scheduled principal payments until
maturity in 2007); (iii) new common stock of the Company, which would be issued
at the time of emergence and replace all existing shares; (iv) title to the
Company's headquarters building in downtown St. Louis, which the Company would
continue to occupy under the terms of a ten year lease; and (v) excess cash of
approximately $43 from the Company's overfunded pension plan. Holders of
existing equity interests in the Company would receive a combination of three-
and six-year warrants to purchase a total of approximately nine percent of the
new common stock.
The Plan will not become effective unless and until certain conditions specified
therein have been satisfied or waived. Among these conditions are that: (i) an
order confirming the Plan, in form and substance reasonably acceptable to the
Debtors and the statutory Creditors' Committee, shall have been signed by the
Bankruptcy Court and there shall not be a stay or injunction in effect with
respect thereto; (ii) the Debtors shall have at least $25 in cash as of July 5,
1997, after giving effect to the distributions of cash projected to be made
under the Plan; (iii) the Debtors shall have credit availability under a working
capital credit facility providing the Debtors with working capital sufficient to
meet their requirements; and (iv) various other actions, documents and
agreements necessary to implement the Plan shall have been effected or executed.
The Company anticipates using fresh start accounting once the Plan is
consummated.
Note 2: Description of Business and Summary of Significant Accounting
Policies
<PAGE>
Business: The Company owns and operates chains of specialty retailing stores
located in 49 states, Puerto Rico, the Virgin Islands, and Canada. The Company
conducts its principal operations through subsidiaries in two segments, apparel
and footwear.
Consolidation: The financial statements include the accounts of all
subsidiaries; intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents: Short-term investments with maturities of three
months or less at the time of purchase are reported as cash equivalents.
Investments: Investments consist of U.S. government debt securities which
mature in less than one year, and are classified as available-for-sale. The
amortized cost, which approximates fair value, of these securities is
adjusted for amortization of premiums and accretions of discounts to
maturity. Amortization, interest and dividends are included in interest
income.
Inventories: A portion of the inventories (76%) is determined using the retail
method and is based on the lower of cost or market. The other portion (24%) is
stated at the lower of cost, mainly average costs, or market, based principally
on anticipated realizable values.
Long-Lived Assets: Depreciation and amortization of property and equipment and
intangible assets are computed principally on a straight-line basis. The Company
follows Statement of Financial Accounting Standards 121, "Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), in
evaluating the recoverability of long-lived assets.
Income Taxes: The liability method is used to compute deferred income taxes
resulting from temporary differences in the recognition of income and expense
items for tax and financial reporting purposes.
Interest Expense: Interest expense for 1995 and 1994 has been reduced by
interest income of $1.8 (earned prior to the Petition Date), and $1.6,
respectively. Interest earned subsequent to the Petition Date of $8.2 in 1996
and $0.9 in 1995 is included in restructuring and reorganization expenses.
Store Opening and Closing Costs: Store preopening costs are charged
against income as incurred. Closing costs are accrued when the decision is
made to close a store.
Earnings Per Share: Earnings per common share are based on the weighted average
number of shares outstanding (22,185,000 in 1996; 22,070,000 in 1995; and
22,007,000 in 1994). Shares issuable under stock option plans did not have a
significant dilutive effect on earnings per common share.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses during the reporting period. Actual
amounts could differ from these estimates.
Reclassifications: Certain prior-year items have been reclassified to
conform to the current-year presentation.
Fiscal Year: The Company's fiscal year ends on the Saturday closest to
January 31. References to 1996, 1995, and 1994 are to the 52 weeks ended
February 1, 1997, the 53 weeks ended February 3, 1996, and the 52 weeks
<PAGE>
ended January 28, 1995.
Note 3: Restructuring and Reorganization Expenses
The Company records restructuring and reorganization expenses in accordance with
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." Restructuring and reorganization
expenses for the fiscal years ended February 1, 1997, and February 3, 1996,
respectively, were as follows:
1996 1995
- --------------------------------------------------------------------------------
Estimated costs for store closings $13.7 $101.6
Loss on sale of subsidiaries 0.9 33.0
Accelerated goodwill amortization - 15.1
Consulting fees 15.4 2.2
Legal fees 4.4 1.5
Interest income (8.2) (0.9)
Other 10.1 14.6
- --------------------------------------------------------------------------------
Restructuring and reorganization
expenses $36.3 $167.1
================================================================================
During 1996 and 1995, the Company recognized store closing provisions relating
to a restructuring plan designed to close unprofitable stores. In 1996, sales
and store contribution for stores closed during 1996 were $128.7 and $(2.8).
Sales and store contribution recorded in 1995 for the stores closed during 1995
were $177.2 and $(26.1). The Company is continuing to evaluate store operating
performance to determine the need for additional store closings.
Store closing costs of $13.7 and $101.6 in 1996 and 1995, respectively,
represent a provision to cover early lease termination claims and the write-off
of fixtures and equipment, leasehold improvements, and related intangible
assets. Charges of $19.2 in 1996 and $59.2 in 1995, representing the net book
value of fixed and intangible assets that have been disposed of, have been made
to the reserve. Lease termination claims totaling $42.8 and $38.6 at the end of
1996 and 1995, respectively, have been reclassified to liabilities subject to
settlement under reorganization proceedings.
In 1995 the Company recorded a $24.7 loss related to the sale of substantially
all the assets of its mall entertainment division. In addition, the Company
recorded provisions of $0.9 and $8.3 in 1996 and 1995, respectively, to cover
the costs associated with the disposal of the remaining operations. The two
remaining entertainment locations are expected to close in the fall of 1997.
The Company recorded a $15.1 charge in 1995 for the accelerated amortization of
Zeidler & Zeidler goodwill. An evaluation of the carrying value of the goodwill
in relation to the operating performance of the underlying business, coupled
with store closings in 1995 and provisions for 1996 closings, indicated that
such goodwill had declined in value.
The Company incurred consulting and legal fees for bankruptcy activity,
restructuring efforts and the plan of reorganization. These professional fees
were for services provided to the Company, the Creditors' Committee
<PAGE>
and the Equity Committee.
Other reorganization expense of $10.1 for 1996 and $14.6 for 1995 represent
expenses related to an early retirement program, payroll and severance costs,
retention bonuses, liquidator fees and other expenses incurred as a result of
the Chapter 11 filing. 1995 expenses also include costs related to the closing
of the Company's distribution center in Rome, Georgia.
Of the $203.4 restructuring and reorganization expenses incurred since the
petition date, $123.0 were noncash charges. Total cash payments were $20.7 in
1996 and $3.7 in 1995, primarily for professional fees. Charges of $56.0
represent payments to be made in the future, mostly for lease termination
claims.
Note 4: Property and Equipment
Property and equipment are recorded at cost as follows:
1996 1995
year-end year-end
- --------------------------------------------------------------------------------
Land $ 4.9 $ 5.8
Buildings 24.0 69.7
Leasehold improvements 170.3 189.7
Fixtures and equipment 137.3 147.5
Property held under capital
leases, principally
buildings 9.6 9.6
- --------------------------------------------------------------------------------
Total cost 346.1 422.3
- --------------------------------------------------------------------------------
Accumulated depreciation
and amortization (200.1) (213.3)
- --------------------------------------------------------------------------------
Property and equipment,
net $146.0 $209.0
================================================================================
Depreciation and amortization expense for 1996, 1995, and 1994 was $35.3, $52.1,
and $56.9, respectively. In 1996, the Company decided to dispose of specific
corporate properties no longer used in the business. The value of the land and
buildings of $10.9 has been reclassified to assets held for sale in the
consolidated balance sheet.
Effective for fiscal 1996 and in accordance with SFAS 121, the Company reviews
long-lived assets, identifiable intangibles and goodwill for impairment whenever
events or changes in business circumstances indicate the carrying amount of the
assets may not be fully recoverable. The Company generally performs
non-discounted cash flow analyses to determine if an impairment exists. If
impairment is determined to exist, the related impairment loss is calculated
based on the present value of cash flows using discount rates which reflect the
inherent risk of the underlying business. Impairment losses on assets to be
disposed of (if any) are based on the estimated proceeds to be received less
costs of disposal.
In 1996, Apparel and Footwear long-lived assets were compared to current
estimates of the associated future cash flows over the average remaining lease
terms for the stores within those segments. For those assets
<PAGE>
determined to be impaired, future cash flows were then discounted at a 14% rate,
which the Company believes to be consistent with current business risk.
Corporate properties were evaluated based on a review of independent appraisals.
As a result, the $74.0 charge in 1996 represents write-downs of $39.4 for the
apparel segment and $34.6 for corporate properties. The write-downs consist of
the following:
- --------------------------------------------------------------------------------
Assets held for sale (corporate
land and buildings) $ 4.8
Buildings 21.5
Leasehold improvements and other 2.0
Fixtures and equipment 3.3
Intangibles 42.4
Impairment of long-lived assets $ 74.0
- --------------------------------------------------------------------------------
Note 5: Intangible Assets
- --------------------------------------------------------------------------------
1995
year-end
Leasehold rights $ 10.1
Goodwill 34.0
Covenant not to compete 12.0
Other 15.3
Total 71.4
Accumulated amortization (21.1)
Intangible assets, net $ 50.3
- --------------------------------------------------------------------------------
During 1996 the remaining net book value of intangibles of $42.4 was written off
and was included in impairment of long-lived assets in the consolidated
statements of operations. See Note 4 for discussion of asset impairment
adjustments determined in accordance with SFAS 121.
Intangibles are amortized over useful lives ranging from 2 to 30 years.
Amortization expense for 1996, 1995, and 1994 was $5.9, $10.7, and $12.7,
respectively. In 1995 an additional charge of $15.1 was recorded for the
accelerated amortization of Zeidler & Zeidler goodwill and was included in
restructuring and reorganization expenses in the consolidated statements of
operations.
Note 6: Employee Benefit Plans
The qualified pension plan covers employees who have met age and service
eligibility requirements. Benefits are based on each employee's highest average
compensation for any 5 consecutive full calendar years out of the
<PAGE>
last 15 years of credited service preceding separation. The Company funds at
least the minimum amount required by funding standards. Currently, the pension
plan on an actuarial basis is overfunded and there is no current funding by the
Company.
The current qualified plan will be terminated effective May 31, 1997 and a new
plan implemented concurrent with the termination. The Company will seek approval
from the Pension Benefit Guarantee Corporation in order to terminate the plan.
The Company filed a determination letter with the Internal Revenue Service on
March 24, 1997 to assess the tax status of the termination. Plan participants
have been notified of the termination. Participants currently receiving benefits
under the qualified plan will have annuity contracts purchased on their behalf.
All participants who are not currently receiving benefits will become fully
vested upon plan termination. The participants will have the option to have the
net present value of their vested benefits transferred into the new qualified
plan, or converted into an annuity contract. The specific terms of the new
qualified plan have not yet been finally determined.
In determining the actuarial present value of projected future benefits for 1996
and 1995, the weighted-average discount rate was 7.5% and 7.0%, respectively,
and the rate of increase in future compensation levels was 5.65% for both years.
For 1996, 1995, and 1994, the assumed rate of return on assets was 9.5%. Plan
assets consist primarily of fixed income and equity securities.
The plan's funded status is as follows:
- --------------------------------------------------------------------------------
1996 1995
year-end year-end
Actuarial present value:
Vested benefit obligation $ 45.8 $ 45.8
Nonvested benefit obligation 3.4 4.2
Accumulated benefit obligation $ 49.2 $ 50.0
================================================================================
Projected benefit obligation $(60.0) $(62.2)
Plan assets at market value 137.9 118.1
Plan assets in excess of
projected benefit obligation 77.9 55.9
Unrecognized net asset (36.6) (17.4)
Unrecognized prior service cost - (0.1)
- --------------------------------------------------------------------------------
Prepaid pension expense $ 41.3 $38.4
================================================================================
Net pension income includes the following components:
- --------------------------------------------------------------------------------
1996 1995 1994
Service cost $(1.9) $(1.5) $(2.0)
Interest cost (4.2) (3.5) (3.5)
Actual return on assets 24.3 30.7 2.5
Partial recognition of
prior period net gain 0.7 0.7 0.1
Net (gains) losses deferred
to future periods (14.3) (22.2) 5.4
Net pension income $ 4.6 $4.2 $ 2.5
- --------------------------------------------------------------------------------
The Company provides supplemental pension benefits under other non-qualified
plans which are not funded. The total liability for these plans was $5.5 in 1996
and $4.6 in 1995. Net pension expense for these plans for the years 1996, 1995,
and 1994 was $1.1, $1.0, and $1.4, respectively. The non-qualified pension
liability is classified as liabilities subject to settlement under
reorganization proceedings for 1996 and 1995.
The Company provides an employee savings plan that permits employees to make
contributions in accordance with Internal Revenue Code Section 401(k). Employees
who meet age and service requirements are eligible to participate by
contributing up to 15% of their pretax compensation. The Company matches a
portion of the employee's contribution under a predetermined formula based on
the Company's return on equity. Company contributions to the plan may be
remitted in the form of cash or Company common stock. The Company's expense
related to the plan was $.4 for 1996, $.2 for 1995, and $.3 for 1994.
Note 7: Financing Arrangements
The Company and its subsidiary, Edison Brothers Apparel Stores, Inc., as
debtors-in-possession, are parties to a Loan Agreement dated effective November
9, 1995, (the DIP Facility) with BankAmerica Business Credit, Inc., as Agent and
Lender, under which the Company may borrow up to $200.0, subject to collateral
restrictions, to fund ongoing working capital needs. The DIP Facility, which has
been approved by the Bankruptcy Court, has a sublimit of $150.0 for the issuance
of letters of credit. The DIP Facility is intended to provide the Company with
the cash and liquidity to conduct its operations and pay for merchandise
shipments at normal levels through the emergence date.
At the Company's option, the Company may borrow under the DIP Facility at the
Reference Rate (as defined) plus .25% or at the Eurodollar Rate (as defined)
plus 1.5%. The current borrowing rate is 8.5%. The maximum borrowing, up to
$200.0, is limited to 50% of the value of eligible inventory (as defined) plus
95% of the amount of cash deposited with the Agent. The Company is required to
pay a commitment fee of .375% per annum on the unused portion of the DIP
Facility. The DIP Facility contains restrictive covenants including, among other
things, a limitation on store closings of 1,100 (as amended), limitations on the
incurrence of additional liens and indebtedness, limitations on capital
expenditures and the sale of assets, the maintenance of minimum operating
earnings (EBITDA) and inventory levels, and a prohibition on paying dividends.
At February 1, 1997, the Company was in compliance with the DIP Facility
covenants.
The lenders under the DIP Facility have a "super-priority" administrative
expense claim against the estate of the Company. The DIP Facility expires on the
earlier of November 9, 1997, or the effective date of a reorganization plan that
is confirmed by the Bankruptcy Court.
There were no outstanding borrowings at February 1, 1997. As of February 3,
<PAGE>
1996, the Company had $.2 outstanding under the DIP Facility. As of February 1,
1997 and February 3, 1996, outstanding letters of credit were $84.5 and $112.6
and available borrowings under the DIP were $41.1 and $56.9, respectively.
Note 8: Liabilities Subject to Settlement Under Reorganization Proceedings
The principal categories of claims classified as liabilities subject to
settlement under reorganization proceedings are identified below. All amounts
below may be subject to future adjustment depending on Bankruptcy Court action,
further developments with respect to disputed claims, determination as to the
value of any collateral securing claims, or other events. Additional claims may
arise resulting from rejection of additional executory contracts by the Company.
1996 1995
year-end year-end
- --------------------------------------------------------------------------------
Long-term senior notes payable $150.0 $150.0
Notes payable-banks 205.9 205.9
Cash set-off applied to debt (3.6) (3.6)
Capital lease obligations 12.4 8.4
Accrued interest payable 4.3 3.5
Deferred debt costs (4.3) (6.7)
Postretirement benefit/Pension
accrual 47.7 45.6
Accounts payable 36.1 35.9
Lease termination claims 42.8 38.6
Taxes 6.0 4.3
Other 11.0 7.9
Liabilities subject to
settlement under
reorganization proceedings $508.3 $489.8
- --------------------------------------------------------------------------------
As a result of the bankruptcy filing, no principal or interest payments will be
made on any prepetition debt without Bankruptcy Court approval or until a
reorganization plan defining the repayment terms has been approved. Interest on
prepetition obligations has generally not been accrued after the Petition Date.
Prior to the bankruptcy filing and certain agreements discussed below, the
Company's debt consisted of senior notes held by various institutional lenders
amounting to $150.0. The unsecured senior notes, having maturities from 7 to 15
years, were to bear interest at rates of 7.09% to 8.04%. The Company also has
outstanding borrowings under a $125.0 revolving credit facility as well as
short-term and demand notes under uncommitted bank lines with varying interest
rates and maturity dates. In addition, the Company had $8.4 in obligations
relating to its Washington, Missouri, distribution center which are
characterized as capital leases for financial reporting purposes.
As a result of its operating loss for second quarter 1995, the Company was in
violation of certain financial covenants under its bank and senior note
agreements. During the third quarter 1995, the Company and its subsidiary,
<PAGE>
Edison Brothers Apparel Stores, Inc., entered into an agreement for a $75.0
secured revolving line of credit facility with BankAmerica Business Credit, Inc.
extending through February 29, 1996. In addition, the Company entered into
override agreements with its existing lenders through February 29, 1996. The
override agreements covered existing 1995 financial covenants and deferred
principal repayments otherwise due December 1, 1995. Furthermore, the Company's
primary existing letter of credit bank agreed to continue to provide
international letters of credit through the override period. In exchange for
these concessions, the Company paid a one-time forbearance fee of $3.6 and
agreed to increase the interest rate on the outstanding debt to 9.75%.
As of the bankruptcy filing, the Company had outstanding $150.0 of senior notes,
$125.0 under its $125.0 revolving credit facility, $80.9 of short-term and
demand notes under its uncommitted bank lines, $8.4 of capital lease
obligations, and $21.6 under its $75.0 secured revolving line of credit
facility. The Company received authorization from the Bankruptcy Court to make a
$21.6 payment on the secured revolving line of credit facility. In addition,
$3.6 of cash was set-off by the banks against outstanding principal and accrued
interest balances.
As part of the Chapter 11 reorganization process, the Company has attempted to
notify all known or potential creditors of the Chapter 11 filing for the purpose
of identifying all prepetition claims against the Company. Generally, creditors
whose claims arose prior to the Petition Date had until August 1, 1996 ("Bar
Date") to file claims or be barred from asserting claims in the future. Claims
arising from rejection of executory contracts by the Company on or after July 1,
1996, and claims related to certain other items were permitted to be filed by
other dates set by the Bankruptcy Court. Differences between amounts shown by
the Debtors and claims filed by creditors are being investigated and will either
be amicably resolved or adjudicated. The ultimate amount of and settlement terms
for such liabilities are subject to the plan of the reorganization when
confirmed, and accordingly are not presently determinable.
Note 9: Postretirement Benefits
The Company at its discretion provides a defined dollar benefit health and life
plan to its retirees and their eligible spouses and dependents. To qualify, an
employee must retire at age 55 or later with at least 15 years of credited
service under the pension plan. The health care portion of the plan is
contributory, with retiree contributions subject to adjustment annually. The
life insurance portion of the plan is noncontributory. The Company funds, as
needed, plan costs in excess of retiree contributions. The Company reserves the
right to modify or terminate these benefits.
The plan's funded status is as follows:
1996 1995
year end year end
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $35.7 $37.1
Fully eligible active plan
participants 1.9 3.7
Other active plan participants 3.3 4.1
Unrecognized net gain (loss) 1.4 (3.7)
Prior service cost (0.1) (0.1)
Accrued postretirement benefit
cost $42.2 $41.1
- --------------------------------------------------------------------------------
The accrued benefit cost was classified as liabilities subject to settlement
under reorganization proceedings for year end 1996 and 1995.
Net periodic postretirement benefit cost consists of:
1996 1995
- --------------------------------------------------------------------------------
Service cost $0.2 $0.2
Interest cost 3.1 3.2
Net periodic postretirement
benefit cost $3.3 $3.4
- --------------------------------------------------------------------------------
An increase in the cost of covered health care benefits of 9% for pre age 65
participants and 9% for post age 65 participants was assumed for fiscal year
1997. This rate is assumed to decrease gradually to 6% by the year 2003 and
remain at that level thereafter. A 1% increase in the health care cost trend
rate would increase the accumulated postretirement benefit obligation by $2.9 at
year end 1996 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for 1996 by $.3. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% at year-end 1996 and 1995, respectively.
Note 10: Income Taxes
The provision (benefit) for income taxes consists of:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Current expense (benefit):
Federal $ 0.5 $(35.6) $ 0.4
Foreign 0.7 0.3 2.6
State and local 2.5 1.7 0.1
Deferred expense (benefit) (13.5) (39.0) 8.8
Deferred tax valuation
allowance 13.2 43.5 -
Income tax provision(benefit) $ 3.4 $(29.1) $11.9
- --------------------------------------------------------------------------------
Significant components of the deferred tax liabilities and assets in the
consolidated balance sheets are as follows:
<PAGE>
1996 1995 1994
year end year end year end
- --------------------------------------------------------------------------------
Accelerated depreciation $ 4.9 $ 9.3 $11.1
Pension income 15.6 14.9 12.2
Other 2.6 9.8 21.2
Total deferred tax
liabilities 23.1 34.0 44.5
Inventory capitalization 5.2 4.8 4.6
Rent expense accruals 6.3 7.7 8.0
Postretirement benefits 16.6 16.1 13.0
Acquisition-related reserves - 1.3 2.6
Restructuring reserves 17.9 20.6 -
Net operating loss carry
forward 18.8 13.9 -
Other 20.0 13.1 22.2
Total deferred tax assets 84.8 77.5 50.4
Less: Deferred tax valuation
allowance 61.7 43.5 -
Net deferred tax assets $ - $ - $ 5.9
- --------------------------------------------------------------------------------
During 1996 and 1995 the Company concluded that it is likely it will not be able
to realize its deferred tax assets. Accordingly, an allowance against the net
deferred tax asset balance of $61.7 and $43.5, respectively, and charges to
income tax expense of $13.2 and $43.5, are reflected in the consolidated
financial statements.
Reconciliation of federal statutory rates to effective income tax rates:
1996 1995 1994
- --------------------------------------------------------------------------------
Federal corporate statutory rate (35.0%) (35.0%) 35.0%
State & local income taxes, net of
federal benefit 0.5% (0.4%) 3.5%
Goodwill amortization and
write-off 4.5% 3.3% -
Deferred tax valuation allowance 32.4% 17.3% -
Other - 3.2% (1.6%)
Income tax provision (benefit) 2.4% (11.6%) 36.9%
- --------------------------------------------------------------------------------
Pretax earnings from foreign subsidiaries were $1.9 in 1996, $0 in 1995, and
$8.4 in 1994.
As of year-end 1996 the Company has a net operating loss carryforward for
federal income tax purposes of approximately $48.2, which is available to offset
future taxable income through 2011. The Company also has a capital
<PAGE>
loss carryforward for federal income tax purposes of $11.9 which is available to
offset future capital gains through 2001. In addition, the Company has an
alternative minimum tax credit carryforward of approximately $2.7, which is
available to reduce future regular income taxes over an indefinite period.
Implementation of the Company's plan of reorganization may significantly reduce
the various carryforward items; additionally, a significant change in ownership
as a result of the Company's plan of reorganization could limit the use of any
remaining carryforwards.
Note 11: Common Stock
- --------------------------------------------------------------------------------
1996 1995
Year end Year end
- --------------------------------------------------------------------------------
Shares:
Issued (100,000,000 authorized) 27,554,232 27,554,232
Less held in treasury 5,352,454 5,466,742
Outstanding 22,201,778 22,087,490
Stockholders of record 4,000 4,000
- --------------------------------------------------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options generally equals the market price
of the underlying stock at the date of grant, no compensation expense is
generally recognized.
Because the effect of applying the fair value method under Statement of
Financial Accounting Standards 123, "Accounting For Stock Based Compensation"
(SFAS 123) to the Company's stock based awards results in net income and
earnings per share that are not materially different from amounts reported under
APB 25, pro forma disclosures have been omitted.
The 1986 and 1992 stock option plans authorize the sale of 1.5 and 1.0 million
common shares, respectively, to executives and store managers. No options were
granted under the 1986 plan subsequent to adoption of the 1992 plan. Options are
exercisable over various options terms not exceeding 10 years following the date
of grant.
Activity under these plans was as follows:
1996
Number of Option
Options price pershare
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 1,108.096 $4.31-27.98
Granted - -
Exercised - -
Canceled (478,495) 11.13-27.98
Outstanding at end of year 629,601 4.31-27.98
Shares exercisable at end of
year 195,391
Shares issues for options
exercised 0
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
Outstanding at beginning of
year 1,068,231 $ 16.13-37.35
Granted 902,080 4.31-27.98
Exercised - -
Canceled (862,215) 11.13-37.25
Outstanding at end of year 1,108,096 4.31-27.98
Shares exercisable at end of
year 321,153
Shares issues for options
exercised 0
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
Outstanding at beginning of
year 570,521 $11.38-37.25
Granted 711,700 23.75-29.81
Exercised (44,078) 11.38-27.15
Canceled (169,912) 11.38-37.25
Outstanding at end of year 1,068,231 16.13-37.25
Shares exercisable at end of
year 260,091
Shares issues for options
exercised 44,078
- --------------------------------------------------------------------------------
Outstanding stock options under all plans were adjusted on June 29, 1995, as a
result of the Dave & Buster's, Inc. spin-off. The number of shares subject to
each option was increased by 33.1% and the exercise price was reduced by 24.9%.
During 1995, 175,050 options with exercise prices ranging from $25.38 to $37.25
were canceled and reissued at an exercise price of $14.81.
At February 1, 1997, 1,449,044 shares of common stock were reserved for issuance
under the stock option plans.
Each share of outstanding common stock includes a right that entitles the holder
to purchase one share of common stock for $93. Rights attach to all new shares
of common stock issued and become exercisable only under certain conditions
involving actual or potential acquisitions of the Company's common stock.
Depending on the circumstances, all holders except the acquiring person may be
entitled to purchase at the exercise price additional shares of common stock of
the Company and/or of the acquiring person having a market value equal to two
times the exercise price. The rights remain in existence until January 26, 1998,
unless they are redeemed (at five cents per right) or terminated.
<PAGE>
Note 12: Leases
Most operations are conducted in leased premises. Some of the leases
include options for renewal or extension on various terms. For 1996, 1995, and
1994, respectively, minimum rentals for operating leases were $101.2, $136.3,
and $140.6; additional percentage rentals based on sales were $2.0, $3.5, and
$4.8. Most leases also require the payment of common area expenses and real
estate taxes.
At year-end 1996 future minimum lease payments required under operating leases
are $83.8, 1997; $75.7, 1998; $68.0, 1999; $57.3, 2000; $43.6, 2001; and $406.1,
total.
Note 13: Business Segments:
- --------------------------------------------------------------------------------
Net sales Operating profit (loss)
1996 1995 1994 1995 1995 1994
- --------------------------------------------------------------------------------
Apparel $765.9 $952.3 $975.8 ($44.4) ($129.5) $7.7
Footwear 320.7 367.9 400.2 (15.5) (8.9) 28.7
1,086.6 1,320.2 1,376.0 (59.9) (138.4) 36.4
Corporate
& other 3.8 69.2 100.4 (85.8) (87.5) 16.6
Interest
expense - - - 5.9 (25.2) (20.6)
$1,090.4 $1,389.4 $1,476.4 ($139.8) ($251.1) $32.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Identifiable assets Depreciation and amortization
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
Apparel $259.1 $362.2 $492.1 $28.6 $36.9 $39.9
Footwear 97.8 131.2 155.5 9.4 10.1 9.6
356.9 493.4 647.6 38.0 47.0 49.5
Corporate
& other 276.9 268.1 246.2 3.2 15.8 20.1
$633.8 $761.5 $893.8 $41.2 $62.8 $69.6
<PAGE>
Capital expenditures
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Apparel $15.7 $11,2 $28.1
Footwear 5.0 10.4 14.8
20.7 21.6 42.9
Corporate
& other 1.2 15.6 18.8
$21.9 $37.2 $61.7
- --------------------------------------------------------------------------------
Note 14: Acquisitions and Dispositions
During 1995 the Company made acquisitions for an aggregate cash consideration of
$14.1. Assets of $19.9 and liabilities of $5.8 were recorded in connection with
the acquisitions. The acquisitions were accounted for by the purchase method,
and operating results of the acquired entities have been included in the
consolidated financial statements since their respective acquisition dates.
Effective June 29, 1995, the Company distributed all of the outstanding shares
of common stock of Dave & Buster's, Inc. owned by the Company to Edison
Brothers' stockholders of record as of June 19, 1995. Prior to the distribution,
Dave & Buster's had been a majority-owned subsidiary engaged in the ownership
and operation of restaurant/entertainment complexes. No gain or loss was
recorded as a result of the distribution. The distribution was recorded as a
dividend and, accordingly, the Company reduced retained earnings by the net book
value distributed. Through the distribution date, Dave & Buster's reported 1995
net income of $1.0. As of June 29, 1995, it had total assets of $49.2 and a net
book value of $30.9. For fiscal year 1994, Dave & Buster's reported a net income
of $2.4. As part of the transaction, the Company guaranteed certain Dave &
Buster's lease obligations. As a February 1, 1997, the Company's only remaining
obligation was with respect to one lease containing a $2.8 construction
allowance repayment provision. Dave & Buster's has agreed, among other things,
to indemnify the Company from loss under the lease guarantees and has granted
the Company a subordinated security interest in Dave & Buster's leasehold
interests in the guaranteed leases and all real and personal property owned by
Dave & Buster's on the date of the agreement. The Company believes it has
adequate security against loss under the guarantee.
In January 1996 the Company entered into an agreement to sell substantially all
of the assets of its mall entertainment division to Namco Cybertainment. The
Company received approval for the sale from the Bankruptcy Court and completed
the sale in January 1996. As of the sale date, the entertainment division had
total assets of $51.8 and a net book value of $44.9. The Company recorded a loss
of $24.7 in 1995 in connection with the sale. The Company intends to dispose of
its remaining entertainment operations by September, 1997 and recorded
provisions of $.9 in 1996 and $8.3 in 1995 related to the remaining assets to be
disposed of. For fiscal years 1996, 1995, and 1994, the mall entertainment
division reported a net loss of $.5, $1.8 and $1.8, respectively.
Note 15: Other Operating
The $22.3 reported as other operating in the 1994 Consolidated Statements of
Operations represents the benefit resulting from recovery of countervailing
duties.
<PAGE>
Stockholders and Board of Directors
Edison Brothers Stores, Inc.
We have audited the consolidated balance sheets of Edison Brothers Stores, Inc.
(the Company and its principal operating subsidiaries in reorganization under
Chapter 11 of the United States Bankruptcy Code since November 3, 1995, see Note
1 to the consolidated financial statements) as of February 1, 1997, and February
3, 1996, and the related consolidated statements of operations, common
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended February 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Edison Brothers
Stores, Inc. at February 1, 1997, and February 3, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended February 1, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates continuity of the Company's operations and
realization of its assets and payment of its liabilities in the ordinary course
of business. As described more fully in Note 1, on November 3, 1995, Edison
Brothers Stores, Inc. filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code and is currently operating its business as a
debtor-in-possession under the supervision of the Bankruptcy Court. The Chapter
11 filing was the result of violation of certain debt covenants, recurring
operating losses, deterioration of vendor support, and cash flow problems. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans to finance operating activities and further
reorganize operations are also described in Notes 7 and 3. The appropriateness
of using the going concern basis is dependent upon, among other things, approval
of a plan of reorganization by the Bankruptcy Court, attainment by the Company
of profitable future operations, and its ability to generate sufficient cash
from operations and other financing sources to support its business activities.
As a result of the reorganization proceedings, the Company may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the financial statements referred to above. Further, a plan
of reorganization, as finally approved by the Bankruptcy Court, could materially
change the amounts currently recorded. The accompanying consolidated financial
statements do not reflect further adjustments that might be necessary to the
carrying value of assets and the amounts and classification of liabilities or
stockholders' equity (deficit) as a consequence of these bankruptcy proceedings.
As discussed in Note 4, in fiscal 1996, the Company changed its method of
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of.
St. Louis, MO
March 14, 1997
Management's Responsibility for Financial Information
<PAGE>
Management is responsible for the integrity and objectivity of the financial
statements and other information included in this annual report. The financial
statements have been prepared in conformity with generally accepted accounting
principles. Information that is not subject to objective determination has been
developed based upon management's best judgment.
The Company maintains accounting systems that management believes are sufficient
to provide reasonable assurance of reliable financial statements and to maintain
accountability for assets. These systems are supported by careful selection and
training of qualified personnel. The extent of internal accounting controls
implemented must be related to the benefits derived, and the balancing of the
cost of controls to the benefits derived requires management's estimates and
judgments. In addition, as part of its audit of the Company's financial
statements, Ernst & Young LLP completed a study and evaluation of selected
internal accounting controls to establish a basis for reliance thereon in
determining the nature, timing, and extent of audit tests to be applied.
The Board of Directors has an Audit Committee, which is comprised totally of
members of the board who are not employees of the Company. The committee meets
with the independent auditors and representatives of management to discuss
auditing and financial reporting matters. The independent auditors meet with the
Audit Committee, with and without management representatives present, to discuss
the scope and results of their examinations, the quality of financial reporting,
and the propriety of management's conduct of the business.
Management is committed to conducting its business affairs in accordance with
the highest ethical standards and in conformity with the law.
Management's Discussion and Analysis
On November 3, 1995, Edison Brothers Stores, Inc. (the Company) and 65 of its
subsidiaries and affiliates filed petitions for reorganization under Chapter 11
of the U.S. Bankruptcy Code. The Company has continued to conduct business in
the ordinary course as a debtor-in-possession under the protection of the
Bankruptcy Court. A plan of reorganization has been filed with the Bankruptcy
Court, but the plan has not yet been confirmed. For further discussion of the
Chapter 11 proceedings, see Note 1 to the consolidated financial statements.
Business: The Company owns and operates chains of specialty retailing stores
located in 49 states, Puerto Rico, the Virgin Islands and Canada. Operations in
Mexico were closed during 1996, as the Mexican peso devaluation significantly
reduced the Company's ability to generate operating income in this market. The
Company conducts its principal operations through subsidiaries in two segments:
apparel and footwear. Stores within the apparel and footwear segments, with the
exception of the REPP Ltd chain of big-and-tall menswear stores, are almost
exclusively mall-based and generally range in average size from 1,700 to 3,000
square feet. Merchandise for all segments is acquired from many vendors and the
Company is not dependent on any one supplier. Three main distribution centers
serve as receiving points for merchandise and coordinate the distribution of
shipments to the stores via common or contract carriers. The Company sold
substantially all of its remaining entertainment operations in January 1996 but
continues to operate two mall-based entertainment centers. The Company intends
to dispose of the remaining entertainment operations by September 1997.
<PAGE>
During 1996, the Company closed 419 apparel and footwear stores. The Company has
identified another group of approximately 75 stores that will be closed during
1997, and has recorded a charge associated with these closings in the 1996
consolidated financial statements. Store performances will continue to be
monitored during the remainder of the Chapter 11 process to evaluate the need
for further store closings. The Company consolidated its Precis operations with
Bakers/Leeds during 1996, eliminating duplicate responsibilities in
merchandising and buying operations. In addition, the Zeidler & Zeidler concept
was discontinued in 1996, with some desirable mall locations being converted for
use by other Company chains.
At year-end 1996, the apparel segment operated 1,253 stores in nine chains. Six
chains focus on menswear: JW/Jeans West; J. Riggings; Oaktree; CODA; REPP Ltd;
and Phoenix, the Company's catalog operation. Each menswear chain targets a
specific age group of men, with a different product mix. The womenswear chain,
5-7-9 Shops, primarily markets casual wear and accessories to teens and
preteens. The Company also has two experimental concepts that market to both men
and women. Shifty's targets teenagers who want to set trends with fashionable
and branded merchandise. Terrasystems provides casual wear and high performance
outdoor gear and clothing to young adults. The Company announced in April 1997
that the Terrasystems concept will be phased out during 1997. The footwear
segment operated 490 stores in three chains at the end of fiscal 1996. The
footwear chains are Bakers/Leeds and Precis, which offers popular- priced
women's fashion shoes, and Wild Pair, which focuses on advanced shoe fashion for
young men and women.
The Company's fiscal year ends on the Saturday closest to January 31. References
to 1996, 1995, and 1994 are to the 52 weeks ended February 1, 1997, the 53 weeks
ended February 3, 1996, and the 52 weeks ended January 28, 1995, respectively.
Financial Condition: Cash, cash equivalents and investments at year-end 1996
increased $64.5 over the prior year and included an income tax refund of $37.6
received in February 1996. In addition, continued deferral of principle and
interest payments on prepetition debt increased these balances. Consistent with
the prior year presentation, prepetition liabilities of $508.3 have been
classified as liabilities subject to settlement under reorganization proceedings
in the consolidated balance sheet as of February 1, 1997 (see Notes 1 and 8 to
the consolidated financial statements).
Merchandise inventories decreased by 15.9% between 1995 and 1996 due to the
numerous store closings and tighter inventory control. The decrease in income
tax receivable is due to the receipt of the refund discussed above. In 1996, the
Company identified $10.9 of corporate properties that it will attempt to sell.
These assets have been classified as assets held for sale on the consolidated
balance sheets.
The decreases in property and equipment, net and intangible assets, net are
primarily due to the recognition of an asset impairment loss of $74.0 for 1996
recorded in accordance with Statements of Financial Accounting Standards 121,
"Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121). Specifically, an analysis of the projected cash flows of the apparel
segment indicated that certain long-lived assets, principally REPP Ltd goodwill,
were impaired. Additionally, independent appraisals of corporate properties
identified cases where the carrying value exceeded fair value. Furthermore,
property and equipment, net was
<PAGE>
reduced by store closings. Also, capital expenditures decreased by 41.1%
from 1995 to 1996.
Capital Resources and Liquidity: Subsequent to the Chapter 11 filing, the
Company entered into a loan agreement (the DIP Facility) with BankAmerica
Business Credit, Inc. under which the Company may borrow up to $200.0 subject to
collateral restrictions, to fund ongoing working capital needs. The DIP Facility
has a sublimit of $150.0 for the issuance of letters of credit. The DIP Facility
contains restrictive covenants including limitations on store closings, capital
expenditures and restrictions on dividend payments. As of February 1, 1997, the
Company had $41.1 available for borrowing under the DIP Facility and $204.1 of
cash, cash equivalents and investments. The Company expects that its cash and
investments and the DIP Facility will continue to provide it with sufficient
liquidity to conduct its operations and pay for merchandise shipments through
the course of the Chapter 11 process. At February 1, 1997, the Company had
utilized $84.5 of the DIP Facility to issue letters of credit, but had no
borrowings outstanding under the DIP Facility.
Total cash and cash equivalents decreased by $14.0 from 1995 to 1996, as a
result of excess cash being moved into investments which are not considered cash
equivalents. Including the $78.5 increase in investments, cash, cash equivalents
and short-term investments increased by $64.5 or 46.2% from 1995 to 1996. This
increase compares to a $112.6 increase from 1994 to 1995, which included $60.0
of proceeds from prepetition debt issuance.
Overall cash provided from operating activities remained constant between 1995
and 1996, although the components varied from 1995 to 1996. Merchandise
inventories decreased during 1996, but not to the same extent as in 1995, when
the Company experienced inventory flow disruptions after the Chapter 11 filing.
Cash flow from operations increased in 1996 because of the receipt of the income
tax refund. Cash flow from operations in 1995 increased $35.5 or 71.1% over
1994. The increase was primarily attributable to a $71.0 decrease in inventory
in 1995 and a $26.7 increase in inventory in 1994, offset by the deterioration
in 1995 net income.
Cash flow from operations is expected to decline in 1997 from the 1996 levels,
primarily because 1996 operating cash flow included the $37.6 nonrecurring
income tax refund. In addition, capital expenditures are expected to increase by
80% from 1996 levels. Over the last two years the Company has focused on
eliminating unprofitable stores and conserving cash whenever possible. With
updated concepts in chains, such as 5-7-9 Shops "super" stores and REPP Ltd's
"showcase" stores, the Company intends to undertake significant remodeling of
existing stores. Current business plans anticipate approximately 100 new stores
for 1997 that will require new fixtures. In addition, the Company will begin
implementation in 1997 of a new "enterprise-wide" information system
encompassing merchandising, inventory, financial systems and other areas. Normal
seasonal inventory requirements will create additional demands on Company funds.
Overall, cash, cash equivalents and investments are expected to be reduced
significantly when the Company emerges from Chapter 11 given that a substantial
amount of cash is expected to be distributed to the creditors under the plan of
reorganization (see Note 8 to the consolidated financial statements).
Operating Results: Net sales for the 52 weeks of fiscal 1996 decreased $299.0 or
21.5% from the 53 weeks of fiscal 1995 attributable in part to the numerous
store closings that occurred at the end of 1995 and throughout 1996. The Company
averaged approximately 600 or 23.4% fewer stores in operation during 1996 as
compared to 1995. Net sales for 1995 decreased by
<PAGE>
$87.0 or 5.9% from the 52 weeks of fiscal 1994. Same-store sales (sales reported
by stores operating for the same periods during both years) were down 1.9% in
1996 from 1995. This compares to a 4.9% decline in same-store sales between 1995
and 1994. The footwear segment experienced a larger decrease in same-store sales
during 1996 than the apparel segment.
Cost of goods sold, including occupancy and buying expenses, was 72.9% of sales
in 1996, compared with 74.4% and 68.9% in 1995 and 1994, respectively. The
improvement from 1995 to 1996 primarily came from reductions in occupancy and
buying costs throughout the year. The Company successfully renegotiated
approximately 300 leases during 1996, which contributed to the reduction of
occupancy and buying costs as a percentage of sales by 1.6%. Reductions of 7% in
markdowns were offset by a 7% increase in actual merchandise costs. The increase
in cost of goods sold from 1994 to 1995 was due primarily to higher promotional
markdowns needed to stimulate sales during 1995. Markdowns as a percentage of
sales were 23.6% in 1995 compared to 19.0% in 1994.
Store operating and administrative expenses were 25.8% of sales in 1996,
compared to 25.3% in 1995 and 24.4% in 1994. The majority of the 1996 change was
due to an 0.8% increase in administrative costs as a percentage of sales, even
though total administrative expenses declined 10.4% from 1995 to 1996. Store
expenses as a percentage of sales were 0.2% lower than in 1995, as
underperforming stores were closed at the end of 1995 and throughout 1996. The
increase between 1995 and 1994 was due to the benefit in 1994 of nonrecurring
items. Store expenses for the total Company remained constant between 1994 and
1995. Both the apparel and footwear segments had slight increases but store
expenses within the entertainment operations decreased as a result of there
being only a partial year of results for Dave & Buster's in 1995 (due to the
spin-off. See Note 14 to the consolidated financial statements), which had
significantly higher store expenses as a percentage of sales compared to the
Company's other operations.
Depreciation and amortization has continued to decline since 1994. Reductions
have resulted from store closings in both 1995 and 1996. Depreciation and
amortization for 1997 should continue to decrease due to the 1996 impairment
loss. This decrease is expected to be partially offset by depreciation on
capital expenditures planned for 1997.
Interest expense decreased by $22.8 in 1996 from 1995, as no expense was
recognized on prepetition liabilities. Higher interest expense in 1995 as
compared to 1994 was attributable to higher interest rates on a larger borrowing
base. Interest would have been $9.1 higher in 1995 had interest on prepetition
obligations after the petition date been accrued. Interest income earned on the
Company's cash, cash equivalents and investment balances subsequent to the
Chapter 11 filing of $8.2 in 1996 and $0.9 in 1995 was recorded as a credit
against restructuring and reorganization expenses in the consolidated statements
of operations. Interest expense is expected to increase significantly when the
Company emerges from Chapter 11.
Restructuring and reorganization expenses totaling $36.3 for 1996 include $13.7
for early lease termination costs and write-offs of fixtures and equipment,
leasehold improvements and related intangible assets: $19.8 for legal and
consulting fees; and $11.0 for various other bankruptcy and reorganization
related expenses, reduced by $8.2 of interest income. Restructuring and
reorganization expenses for 1995 totaled $167.1 and consisted of $101.6 relating
to store closings, a $24.7 loss on the sale of the remaining mall entertainment
division and an $8.3 reserve to cover the
<PAGE>
costs associated with the disposal of the remaining units, $15.1 for the
accelerated amortization of Zeidler & Zeidler goodwill, and $17.4 for expenses
related to an early retirement program, costs related to the closing of the
Rome, Georgia distribution center, liquidator fees and other fees and expenses
related to bankruptcy and reorganization. Of the $203.4 restructuring and
reorganization expense incurred since the petition date, $123.0 were noncash
charges. Total cash payments of $20.7 and $3.7 were made in 1996 and 1995,
respectively.
In 1996 the Company recorded a charge of $74.0 to recognize the impairment of
certain long-lived assets in accordance with SFAS 121. Furniture and fixtures,
goodwill and several corporate properties were written down to their fair value.
See Note 4 to the consolidated financial statements.
During the fourth quarter of 1994, a dispute involving certain countervailing
duties on imported footwear, and accrued interest thereon, was resolved in the
Company's favor. All previous accruals of duties and interest expense were
reversed, resulting in a credit to income of $22.3.
Pretax income for 1996, excluding restructuring and reorganization expense and
charges for impairment of long-lived assets, improved by $54.5 from 1995,
primarily due to reductions in depreciation, amortization and interest expense.
Pretax income for 1995, excluding the restructuring and reorganization expenses,
decreased from 1994 pretax income excluding the benefit resulting from the
recovery of countervailing duties. The decrease resulted from lower sales, lower
gross margins due to higher markdowns, and higher interest expense.
Reorganization expenses will be incurred by the Company throughout the remainder
of the Chapter 11 process. In addition, as the Company continues to monitor
store performance in 1997 and identifies further store closings, additional
charges to income may occur. As discussed above and in Note 1 to the
consolidated financial statements, the financial condition of the Company raises
substantial doubt about its ability to continue as a going concern. However,
with the closing of underperforming stores and focused attention on improving
merchandising and sales strategies, the Company believes it should experience
improved results going forward.
Forward-looking statements in this report, in particular statements regarding
cash and debt projections, capital expenditures, depreciation, amortization,
interest and reorganization expenses, and general expectations, are made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that such forward-looking statements involve
various risks and uncertainties. Factors that could cause actual results to
differ materially from the Company's projections include the following:
1. Interest and restructuring and reorganization expenses are dependent upon the
timing of emergence from Chapter 11. The plan of reorganization, as and when
approved, may result in a different cash and capital structure than currently
anticipated.
2. Exit financing secured may carry different terms than those currently
anticipated in projections.
3. The number of store closings are subject to change based upon the Company's
actual performance and negotiations with landlords.
4. New store assumptions may change depending upon the Company's ability to
identify and secure new mall locations. Projected rent expense relating to
<PAGE>
new stores will be affected by actual leasing arrangements negotiated with
landlords.
5. Costs incurred for remodeling and new store fixtures, actual number of stores
remodeled, potential acquisitions and success of store remodeling can alter
future capital expenditures.
6. The Company's ability to secure the right merchandise, in the proper season,
at competitive prices will affect operating results. Market demand fluctuations,
in style and product mix, raise the risk of inventory obsolescence.
7. With 70% of its merchandise purchased from foreign vendors, merchandise
purchases are subject to fluctuations in currency values, customs duty
increases, quota limitations and other foreign developments that could cause a
supply disruption.
The Company is also subject to other risks and uncertainties indicated from time
to time in the Company's filings with the Securities and Exchange Commission.
Results actually achieved thus may differ materially from expected results in
these statements.
On a seasonal average basis the Company employed approximately 17,700 people
during 1996. Salaries and wages in 1996, 1995 and 1994 were $196.4, $241.9 and
$252.6, respectively.
FIVE YEAR FINANCIAL SUMMARY
(Dollars in millions, except per-share data)
1996 1995 1994
- --------------------------------------------------------------------------------
Stores at the end of the year 1,745 2,077 2,761
Net sales $1,090.4 $1,389.4 $1,476.4
Income (loss) from continuing
operations (143.2) (222.0) 20.5
Net income (loss) (143.2) (222.0) 20.5
Total assets 633.8 761.5 893.8
Long-term debt - - 173.5
Common stockholders' equity
(deficit) (2.1) 140.4 387.2
Per common share:
Income (loss) from continuing
operations ($6.46) ($10.06) $0.93
Net income (loss) (6.46) (10.06) 0.93
Dividends on common stock - 0.42 1.24
Common stockholders' equity
(deficit) (0.09) 6.36 17.58
- --------------------------------------------------------------------------------
Long-term debt has been reclassed to liabilities subject to settlement under
reorganization proceedings in 1996 and 1995 (see Note 8 to the consolidated
financial statements).
<PAGE>
1993 1992
- --------------------------------------------------------------------------------
Stores at the end of the year 2,866 2,787
Net Sales $1,462.9 $1,508.8
Income (loss) from continuing
operations 20.9 70.4
Net income (loss) 20.9 47.3
Total assets 873.1 850.2
Long term debt 159.2 194.4
Common stockholders'
equity(deficit) 407.9 415.6
Per common share:
Income (loss) from continuing
operations $0.95 $3.24
Net income (loss) 0.95 2.18
Dividends on common stock 1.24 1.15
Common stockholders' equity
(deficit) 18.56 18.91
- --------------------------------------------------------------------------------
Long term debt has been reclassified to liabilities subject to settlement under
reorganization proceedings in 1996 and 1995 (see Note 8 to the consolidated
financial statements).
<PAGE>
QUARTERLY INFORMATION
(Dollars in millions, except per-share unaudited data)
Quarter
1st 2nd
13 weeks 13 weeks
1996 1995 1996 1995
- --------------------------------------------------------------------------------
Net Sales $258.1 $318.1 $268.8 $334.7
Cost of goods sold,
occupancy and buying
expenses 183.7 218.9 207.3 244.2
Net (loss) (17.7) (6.4) (25.2) (25.7)
Per common share:
Net loss (0.80) (0.29) (1.14) (1.17)
Dividends - 0.31 - 0.11
Common stock market price:
High 2.94 15.75 3.88 16.75
Low 1.31 12.38 1.63 10.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Quarter
3rd 4th
13 weeks 13 wks 14 wks
1996 1995 1996 1995
Net Sales $255.2 $319.8 $308.3 $416.8
Cost of goods sold,
occupancy and buying
expenses 182.9 246.4 221.0 323.8
Net loss (11.5) (83.3) (88.8) (106.6)
Per common share:
Net loss (0.52) (3.77) (4.00) (4.83)
Dividends - - - -
Common stock market price:
High 1.81 10.25 2.19 4.00
Low 1.06 2.88 1.06 1.38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fiscal Year
1996 1995
Net Sales $1,090.4 $1,389.4
Cost of goods sold, occupancy
and buying expenses 794.9 1,033.3
Net loss (143.2) (222.0)
Per common share:
Net loss (6.46) (10.06)
Dividends - 0.42
Common stock market price:
High 3.88 16.75
Low 1.06 1.38
- --------------------------------------------------------------------------------
The company recorded charges of $74.0 relating to the impairment of long lived
assets during the fourth quarter of 1996. Fourth quarter 1995 results include
charges of $97.8, primarily related to store closing reserves and reorganization
expenses.
Board of Directors
Alan Miller - Chairman, President and CEO
Bart A. Brown, Jr.- President and CEO, Main Street and Main
David B. Cooper, Jr. - Executive Vice President and Chief Financial Officer
Julian I. Edison
Jane Evans - President and Chief Operating Officer, Smart TV
Richard C. Marcus - InterSolve Group, Director
Karl W. Michner - Senior Executive Vice President
Alan A. Sachs - Executive Vice President, General Counsel and Secretary
Craig D. Schnuck - Chairman and CEO, Schnuck Markets, Inc.
<PAGE>
Corporate Headquarters
Edison Brothers Stores Inc.
501 N. Broadway
St.Louis, Missouri 63102
(314) 331-6000
Transfer Agent and Registrar
Boatmen's Trust Company
510 Locust St.
St.Louis, Missouri 63101
Independent Auditors
Ernst & Young LLP
St.Louis, Missouri
Common Stock
The common stock of Edison Brothers Stores Inc. is listed and traded on the
New York Stock Exchange under the trading symbol "EBS".
Information Requests
To obtain copies of Edison Brothers' news releases, sales releases and financial
reports (including form 10-K), please call (314) 331-5555. Additional queries
may be directed to Shareholder Relations at the Company's corporate headquarters
address listed above.
<PAGE>
EXHIBIT D
TO DISCLOSURE STATEMENT
-----------------------
EDISON BROTHERS STORES, INC. , ET. AL.
PROJECTED FINANCIAL INFORMATION
A. INTRODUCTION
This projected financial information was prepared to show the estimated
consolidated financial positions, results of operations, cash flows, and
capitalization of Reorganized Edison Brothers following July 5, 1997, which is
assumed to be the Effective Date of these projections. The Projections are based
on the assumptions discussed below and should be read in conjunction with the
Disclosure Statement, including "Article X CERTAIN RISK FACTORS TO BE
CONSIDERED."
All capitalized terms not defined in this exhibit have the same meanings
ascribed to them in the Disclosure Statement to which this exhibit is attached.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
("AICPA"), THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") OR THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). FURTHERMORE, THE
PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTORS' INDEPENDENT
ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE
BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND
CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED AND ARE SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND THE CONTROL OF REORGANIZED EDISON BROTHERS AND ITS
MANAGEMENT. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, AS TO THE
ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THESE PROJECTIONS.
The Projections included herein are:
1. Pro Forma Consolidated Balance Sheet of Reorganized Edison Brothers as of
July 5, 1997 based on the historical consolidated balance sheet as of
February 1, 1997, updated to reflect the effect of projected activity up to
the Effective Date (assumed to be July 6, 1997), and reflecting the
projected accounting effects of the Plan's consummation and of "fresh
start" accounting as promulgated by the AICPA Statement of Position 90-7
entitled "Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7").
2. Projected Consolidated Balance Sheets of Reorganized Edison Brothers as of
January 31, 1998, January 30, 1999 and January 29, 2000.
3. Projected Consolidated Statements of Operations of Reorganized Edison
Brothers for the preconfirmation 22 week period ending July 5, 1997,
including confirmation adjustments, the 30 week period ending January 31,
1998 and for each of the two fiscal years in the period ending January 29,
2000.
D1
<PAGE>
4. Projected Consolidated Statements of Cash Flows of Reorganized Edison
Brothers for the preconfirmation 22 week period ending July 5, 1997,
including confirmation adjustments, the 30 week period ending January 31,
1998 and for each of the two fiscal years in the period ending January 29,
2000.
5. Projected Capitalization Table of Reorganized Edison Brothers as of July 5,
1997, January 31, 1998, January 30, 1999 and January 29, 2000.
The Projections have been prepared on the basis of generally accepted accounting
principles consistent with those currently utilized by The Debtors in the
preparation of its historical consolidated financial statements except as noted
in the accompanying assumptions. The Projections should be read in conjunction
with the significant assumptions, qualifications and notes set forth below and
with the consolidated financial statements for the fiscal year ended February 1,
1997 included in the Annual Form 10-K as filed with the Securities and Exchange
Commission.
The Projections present management's estimate of the expected consolidated
financial position, results of operations, cash flows, and capitalization of
Reorganized Edison Brothers. Accordingly, the Projections reflect management's
judgment, as of the date of this Disclosure Statement, of expected future
operating and business conditions which are subject to change. All estimates and
assumptions shown within the Projections were developed by management. The
assumptions disclosed herein are those management believes are significant to
the Projections. There will be differences between projected and actual results
because events and circumstances frequently do not occur as expected.
The Projections reflect the effect of the consummation of the Plan and
adjustments of "fresh start" accounting. The Projections are based on a number
of estimates and assumptions that, although developed and considered reasonable
by management, are inherently subject to significant business, economic and
competitive uncertainties and contingencies, some of which are beyond the
control of Reorganized Edison Brothers and its management. The Projections are
based upon assumptions of future business decisions which are subject to change.
Accordingly, there can be no assurance the projected results will be realized
and actual results may vary materially from those projected. If actual results
are lower than those shown or if the assumptions used in formulating the
Projections are not realized, Reorganized Edison Brothers' operating results and
cash flows, and hence its ability to perform under the Plan, may be materially
and adversely affected.
The Debtors do not, as a matter of course, publish their business plans and
strategies or projections of their anticipated financial position, results of
operations or cash flows. Accordingly, Reorganized Edison Brothers does not
intend, and disclaims any obligation to, (a) furnish updated business plans or
projections to holders of Claims or Equity Interests, or (b) include such
updated information in any documents which may be required to be filed with the
Securities and Exchange Commission.
Management does not intend to revise the Projections solely to reflect
circumstances arising after the date of this Disclosure Statement or to reflect
the occurrence of unanticipated events. Management assumes no responsibility to
advise recipients of the Projections about any subsequent changes.
D2
<PAGE>
REORGANIZED EDISON BUSINESS
Reorganized Edison will continue to operate approximately 1,745 retail stores
focusing on the growing, economically powerful youth market and secondarily
emphasizing the less competitive men's special size market. Reorganized Edison
will have over 18,000 employees and will be headquartered in St. Louis,
Missouri. Strong competition from numerous competitors is assumed and the
business will continue to be seasonal in nature, with a significant portion of
sales occurring during the Christmas selling season.
SPECIFIC IMPROVEMENTS AND NEW STRATEGIES
1. The Debtors have developed and will continue to evolve new concepts which
will allow the Company to capitalize on the opportunities presented by the
large, diverse youth market and to take full advantage of its strong
position in the men's special size market.
2. The Debtors are significantly increasing their emphasis on identifying its
customer base through market research that will be utilized to monitor and
position its operations.
3. The Debtors are instilling a more motivated sales oriented culture through
improved employee training, and the reengineering of their store
operations. These efforts have resulted in refocusing the Debtors
Employee's attention towards its customers.
4. The Debtors are implementing several new merchandising systems which will
enhance the Company's ability to meet the needs of their target customers.
The planning and allocation systems, which represent industry best
practices, were the first to be implemented. These systems will help the
Debtors to better manage inventories and reduce markdowns.
5. The Debtors have augmented their management team by recruiting outside
personnel with knowledge of industry best practices and by more effectively
utilizing internal management resources.
6. The Debtors will take advantage of the strength of their store locations by
constantly monitoring store performance and, where appropriate, converting
existing stores to other more profitable the Debtors formats.
SIGNIFICANT ASSUMPTIONS
Consolidation
These Projections include Reorganized Edison and its subsidiaries, all of which
are wholly-owned, on a consolidated basis.
Store Count Assumptions
These Projections assume 300 new store openings over the next three years. The
store base will grow from approximately 1,745 in the beginning of the projected
period to approximately 1,816 at the end of 1999.
D3
<PAGE>
Economic Assumptions
During the projected period, the Company included a 3.0% inflation rate on
certain fixed expenses.
Sales
Sales growth during the projected period is based upon the current level of
sales productivity. Sales for new stores and incremental sales from major
renovations were added to the base level of sales. In addition, the store base
has been adjusted to reflect the impact of stores which are projected to be
closed during the period. Same store sales growth rate is expected to be between
3.6% and 4.4% throughout the projected period.
Gross Margin
Gross margin rates during the projected period reflect the expected competitive
environment within each category and anticipated improvements from enhanced
planning capabilities, revised pricing methodologies and improved sourcing
capabilities.
The retail method of accounting is utilized in forecasting gross margin, which
includes occupancy and buying costs.
Operating Expenses
Expense estimates during the projected period are forecasted on a detailed basis
at divisional levels. Certain expenses are forecast based upon store-specific
relationships and existing expense structures. Store level expenses, such as
payroll, occupancy, utilities and certain other costs are projected based upon
relationships to projected store weeks of operation and percentage of sales
relationships.
An inflation rate of 3.0%, which is used on many of the expenses, is offset by
increasing productivity opportunities from sales increases and other cost
cutting initiatives.
Income Taxes
The projected provisions for income taxes have been calculated in accordance
with Statement of Financial Accounting Standards 109, "Accounting for Income
Taxes" ("SFAS No. 109"). A combined federal and state income tax rate of 40% has
been assumed in calculating the income taxes to be paid for each of the
projected years. See "Article XI, CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN - Consequences to The Debtors.
Subsequent utilization of NOL carryforwards and realization of other deferred
tax assets recorded upon "fresh -start", if any, will have been recorded as an
adjustment to additional paid-in capital in accordance with SOP 90-7.
Dividends
These Projections assume no dividends will be paid during the projected period.
Capital Expenditures
The Company will invest $125 million during the projected period to refurbish
and maintain its existing store base, to develop and expand new concepts, and
support the specific initiatives set forth in the Company's strategic plan.
D4
<PAGE>
partially offset by improved inventory management and enhanced inventory
management systems.
Exit Financing
Reorganized Edison will utilize a working capital facility to provide for letter
of credit requirements and potential working capital needs. See "Article VI.E,
CONFIRMATION AND CONSUMMATION PROCEDURE - Exit Financing."
SIGNIFICANT ASSUMPTIONS FOR THE PRO FORMA CONSOLIDATED BALANCE SHEET OF
REORGANIZED EDISON AS OF JULY 5, 1997
1. The confirmation and consummation will be accomplished according to the
terms of the Plan as described in the Disclosure Statement to which this
exhibit is attached.
2. "Fresh start" accounting adjustments have been made to reflect the
estimated adjustments necessary to adopt "fresh start" reporting in
accordance with SOP 90-7. "Fresh start" reporting requires that the
reorganization value of Reorganized Edison be allocated to its assets in
conformity with Accounting Principles Bulletin ("APB") Opinion No. 16,
"Business Combinations," for transactions reported on the basis of the
purchase method. Any reorganization value less than the fair value of
specific tangible or identified intangible assets is to be allocated back
to its non-current tangible assets on a pro rata basis after offsetting the
intangible assets. The reorganization value used in preparing the Pro Forma
Consolidated Balance Sheet of Reorganized Edison as of July 5, 1997 was
assumed to be in a range of $245 million to $265 million after cash
distributions in the Plan, with a midpoint value of approximately $255
million. Based upon the assumed midpoint reorganization value and an
assumed total debt (including capital lease obligations) of $117.4 million,
the equity value of Reorganized Edison is calculated to be approximately
$137.6 million.
The reorganization value is subject to adjustment to reflect any
fluctuation in these Projections on which the valuation is based. The
allocation of the reorganization value to individual assets and liabilities
is subject to change after the Effective Date and could result in material
differences to the allocated values estimated in these Projections.
3. The significant "fresh start" accounting adjustments are summarized as
follows:
o Land, property and equipment, including property under capital
leases, are adjusted based upon the estimated fair value of
property. The estimated fair value for the property is preliminary
and may be revised after consummation. Changes in estimated fair
value will not affect Reorganized Edison's cash flow projections.
o The fair value of the identifiable assets in excess of the
reorganization value ("negative goodwill") is allocated to reduce
the fair values of certain non-current assets in accordance with
generally accepted accounting principles.
o Deferred income taxes are adjusted for changes in cumulative
temporary differences resulting from the plan and the application
of "fresh start" accounting. Valuation allowances for deferred
taxes are simultaneously adjusted.
D5
<PAGE>
WHILE MANAGEMENT BELIEVES THE ASSUMPTIONS UNDERLYING THE PROJECTED FINANCIAL
INFORMATION FOR THE PROJECTION PERIOD, WHEN CONSIDERED ON AN OVERALL BASIS, ARE
REASONABLE IN LIGHT OF CURRENT CIRCUMSTANCES AND EXPECTATIONS, NO ASSURANCE CAN
BE GIVEN THAT THE PROJECTIONS WILL BE REALIZED. THE DEBTORS URGE THE UNDERLYING
ASSUMPTIONS BE CONSIDERED CAREFULLY BY HOLDERS OF CLAIMS AND EQUITY INTERESTS IN
REACHING THEIR DETERMINATION OF WHETHER TO ACCEPT OR REJECT THE PLAN.
D6
<PAGE>
================================================================================
EDISON BROTHERS STORES, INC., ET. AL.
PROJECTED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
(Dollars in millions)
AT JULY 5, 1997
-----------------------------------------------------------
Adjustments to Record Confirmation of
Plan of Reorganization AS REORGANIZED
----------------------------------------------------------- --------------------------------
Preconfir- January January January
mation Debt Discharge Fresh Start As Adjusted 31, 1998 30, 1999 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current Assets
Cash $183.4 ($149.5) (A) $33.9 $43.9 $43.7 $56.3
Inventory 187.6 187.6 173.8 175.4 178.5
Pension assets held pending
distribution to creditors 63.4 (D) 63.4
Other current assets 17.9 0.0 0.0 17.9 9.7 11.7 11.8
----- ---- ---- ----- ---- ----- ----
388.9 (86.1) 0.0 302.8 227.4 230.8 246.6
Assets Held for Sale 10.2 (10.2) (B) 0.0
Property and Equipment, net 147.9 (20.0) (C) ($4.6) (G) 123.3 133.0 142.9 148.3
Escrowed Assets 26.2 (B) 3.3(B) (G) 29.5 23.1 12.1 1.1
Intangibles, net 1.5 (C) 1.5 1.3 0.7 0.2
Prepaid Pension Expense 67.4 (63.4) (D) 4.0 3.8 3.2 2.1
Other Assets 10.6 1.5 (A) (2.0) (G) 10.1 9.5 8.9 8.4
----- ---- --- ----- ----- ---- ---- ---
$625.0 ($150.5) ($3.3) $471.2 $398.1 $398.6 $406.7
======= ======== ====== ======= ======= ======= ======
Liabilities and Stockholders'
Equity (Deficit)
Current Liabilities
Distribution to creditors pending
pension termination $43.3 (D) $43.3
Current maturities of long-term debt 0.8 (E) 0.8 $1.6 $5.9 $1.6
Accounts payable $46.8 46.8 42.8 42.3 43.0
Accrued liabilities 28.9 (2.5(A) (D) 26.4 29.1 31.8 34.4
Other current liabilities 7.4 19.7 (D) 0.0 27.1 8.5 7.8 7.4
---- ----- --- ---- ----- ---- ---- ---
83.1 61.3 0.0 144.4 82.0 87.8 86.4
Senior Notes 100.0 (E) 100.0 100.0 100.0 100.0
Industrial Development Bonds 6.7 (E) 6.7 6.7 2.4 2.4
Obligations to Tax Jurisdictions 6.2 (E) 6.2 5.4 3.8 2.2
Obligations under Capital Lease 1.5 2.2 (E) 3.7 2.5 0.9 0.5
Postretirement Benefits 47.7 (E) 47.7 48.3 49.4 50.6
Liabilities Subject to Settlement under
Reorganization Proceedings 508.3 (508.3(A) (E) 0.0
Other Liabilities 24.9 0.0 24.9 18.5 16.2 12.0
----- ---- ------ ----- ----- ----- ----
617.8 (284.2) 0.0 333.6 263.4 260.5 254.1
Stockholders' Equity (Deficit)
Common stock 22.2 115.4 (F) 137.6 137.6 137.6 137.6
Additional paid-in capital 76.9 (76.9) (F) 0.0 0.0 0.0 0.0
Retained earnings (deficit) (91.9) 95.2 (F) ($3.3) (G) 0.0 (2.9) 0.5 15.0
------ ----- ------ ---- ----- ---- ----
7.2 133.7 (3.3) 137.6 134.7 138.1 152.6
---- ------ ----- ------ ------ ------ -----
$625.0 ($150.5) ($3.3) $471.2 $398.1 $398.6 $406.7
======= ======== ====== ======= ======= ======= ======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial projections should be read only in conjunction with the
accompanying assumptions, qualifications, and Notes to Projected Financial
Statements.
D - 7
<PAGE>
================================================================================
EDISON BROTHERS STORES, INC., ET. AL.
PROJECTED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
(Dollars in millions, except per share data)
FIVE MONTHS ENDED JULY 5, 1997 AS REORGANIZED
------------------------------------------ ----------------------------------
Seven Months
Ended
Preconfir- Confirmation As January Fiscal Year
mation Adjustments Adjusted 31, 1998 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $407.6 $407.6 $615.6 $1,100.8 $1,175.0
Cost of goods sold, occupancy and buying costs 285.6 0.0 285.6 433.8 766.7 812.3
------ ---- ------ ------ ------ -----
122.0 122.0 181.8 334.1 362.7
Selling, general and administrative expenses 123.3 123.3 174.8 315.8 334.2
Interest expense, net 1.7 0.0 1.7 8.2 14.9 14.0
---- ---- ---- ---- ----- ----
Income (loss) from operations before
restructuring and reorganization cost, income
taxes, extraordinary items, and effect of fresh
start adjustments (3.0) 0.0 (3.0) (1.2) 3.4 14.5
Restructuring and reorganization costs (12.3) $13.2 0.9 1.7 0.0 0.0
------ ------ ---- ---- ---- ---
Income (loss) from operations before income taxes,
extraordinary items, and effect of fresh start
adjustments 9.3 (13.2) (3.9) (2.9) 3.4 14.5
Income taxes 0.0 7.0 7.0 0.0 0.0 0.0
---- ---- ---- ---- ---- ---
Income (loss) before extraordinary items and
effect of fresh start adjustments 9.3 (20.2) (10.9) (2.9) 3.4 14.5
Extraordinary item: Gain on debt discharge 16.4 16.4
Fresh start adjustments 0.0 (3.3) (3.3) 0.0 0.0 0.0
---- ----- ----- ---- ---- ---
Net income (loss) $9.3 ($7.1) $2.2 ($2.9) $3.4 $14.5
===== ====== ===== ====== ===== =====
Earnings per share ($0.28) $0.33 $1.42
======= ====== =====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial projections should be read only in conjunction with the
accompanying assumptions, qualifications, and Notes to
Projected Financial Statements.
D - 8
<PAGE>
================================================================================
EDISON BROTHERS STORES, INC., ET. AL.
PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
(Dollars in millions)
FIVE MONTHS ENDED JULY 5, 1997 AS REORGANIZED
----------------------------------- -----------------------------
Seven Months
Ended
Preconfir- Confirmation As January Fiscal Year
mation Adjustments Adjusted 31, 1998 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $9.3 ($7.1) $2.2 ($2.9) $3.4 $14.5
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 12.5 12.5 17.7 34.3 32.2
Fresh start adjustments 3.3 3.3
Gain on debt discharge (16.4) (16.4)
Income from pension settlement (23.8) (23.8)
Tax and other costs of pension plan termination 20.2 20.2
Changes in assets and liabilities:
Merchandise inventories (0.3) (0.3) 13.8 (1.6) (3.1)
Other assets (5.8) (5.8) 8.1 (2.3) (0.5)
Accounts payable, accrued
expenses, and other liabilities 4.6 (3.0) 1.6 0.0 1.6 2.9
Other (0.2) 0 (0.2) (6.3) 1.0 0.5
----- - ----- ----- ---- ---
Total Operating Activities (3.7) (3.0) (6.7) 30.4 36.4 46.5
Cash Flows from Investing Activities:
Capital expenditures (17.0) (17.0) (26.8) (46.0) (39.0)
Liquidation of short-term investments 78.5 78.5
Escrowed assets 0.0 (16.0) (16.0) 6.4 11.0 11.0
---- ------ ------ ---- ----- ----
Total Investing Activities 61.5 (16.0) 45.5 (20.4) (35.0) (28.0)
Cash Flows from Financing Activities:
Retirements of long-term debt (1.6) (5.9)
Proceeds from pension termination 63.4
Tax and other costs of pension plan termination (20.1)
Distributions to creditors (129.0) (129.0) (43.3)
Other 0.0 (1.5) (1.5) 0.0 0.0 0.0
---- ----- ----- ---- ---- ---
Total Financing Activities 0.0 (130.5) (130.5) 0.0 (1.6) (5.9)
---- ------- ------- ---- ----- -----
Increase (decrease) in cash 57.8 (149.5) (91.7) 10.0 (0.2) 12.6
Cash at beginning of period 125.6 183.4 125.6 33.9 43.9 43.7
------ ------ ------ ----- ----- ----
Cash at end of period $183.4 $33.9 $33.9 $43.9 $43.7 $56.3
======= ====== ====== ====== ====== =====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial projections should be read only in conjunction with the
accompanying assumptions, qualifications, and Notes to
Projected Financial Statements.
D - 9
<PAGE>
================================================================================
EDISON BROTHERS STORES, INC., ET. AL.
PROJECTED CAPITALIZATION
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
(Dollars in millions)
AS REORGANIZED
-----------------------------------------------------------------------------
At July 5, 1997 January 31, 1998 January 30, 1999 January 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.0% Senior Notes, due 2007 $100.0 $100.0 $100.0 $100.0
Industrial Development Bonds 6.7 6.7 2.4 2.4
Obligations to Tax Jurisdictions 7.0 5.4 3.8 2.2
Obligations under Capital Lease 3.7 2.5 0.9 0.5
---- ---- ---- ----
117.4 114.6 107.1 105.1
------ ------ ------ -----
Stockholders' Equity
Common stock outstanding, $.01 par,
100,000,000 shares authorized, 10,200,000
shares issued 137.6 137.6 137.6 137.6
Additional paid-in capital
Retained earnings 0.0 (2.9) 0.5 15.0
---- ----- ---- ----
137.6 134.7 138.1 152.6
------ ------ ------ -----
Total Capitalization $255.0 $249.3 $245.2 $257.7
======= ======= ======= ======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial projections should be read only in conjunction with the
accompanying assumptions, qualifications, and Notes to
Projected Financial Statements.
D - 10
<PAGE>
EDISON BROTHERS STORES, INC., ET. AL.
NOTES TO PROJECTIONS
(Dollars in millions)
(A) To record the payment and settlement of certain liabilities at
consummation of the Plan. The components are as follows:
Administrative claims $ 10.0
Reorganization fees 3.0
Distribution to creditors 119.0
Funding of escrow account
for interest payments of Senior Notes 16.0
Fees for exit financing 1.5
------
$149.5
======
(B) To record the deposit of $16.0 and certain properties with an
estimated fair market value of $13.5 to an escrow account to prefund
the interest payable under the Senior Notes.
(C) To record the transfer of the corporate headquarters building to a
Limited Liability Corporation and the execution of a ten-year lease on
the following terms: (i) rent for the first three years of $9.00 per
foot (the present value of this bargain leasehold interest has been
recorded as an intangible asset), (ii) rent for the next seven years
at fair market value as determined by an independent appraisal, and
(iii) any sale of the corporate headquarters building is subject to
the lease and to record the transfer of properties to an escrow
account to prefund the interest payable under the Senior Notes.
(D) To record the cash proceeds recovered as a consequence of the
termination of the Company's pension plan, net of the Pension Plan
assets transferred to the replacement plan and all appropriate
expenses, taxes and costs incurred in connection with such termination
and the establishment of the replacement plan are assumed to be
distributed to creditors in accordance with the Plan.
(E) To record the conversion of liabilities subject to compromise into
$100.0 of Senior Notes, $8.8 of assumed capital lease obligations and
industrial development bonds, $7.0 of notes to various tax
jurisdictions, $47.7 of assumed post-employment benefits, and $132.6
of common stock and paid-in capital. The conversion is expected to
result in a pre-tax gain on debt discharge of $27.2.
(F) To record the elimination of common stock, additional paid-in capital
and pre-consummation accumulated deficit, and the issuance of 10.2
million shares of common stock.
(G) To record the write-down of other assets and fixed assets to fair
value less an adjustment, if any, for the fair value in excess of the
Reorganization Value in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", dated November 19, 1990 ("SOP 90-7").
<PAGE>
================================================================================
EDISON BROTHERS STORES, INC., ET. AL.
NOTES TO PROJECTIONS
(UNAUDITED)
================================================================================
(Dollars in millions)
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. It is calculated by adding back to net income depreciation and
amortization, interest expense, income taxes and other non-operating expenses
which include the following: restructure and reorganization expenses, fresh
start accounting adjustments, asset impairment losses, and other income and
expenses which are considered non-operating. The reconciliation from net income
to EBITDA for the enclosed projections is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Five months ended Seven months ended Fiscal year ended Fiscal year ended
July 5, 1997 January 31, 1998 January 30, 1999 January 29, 2000
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income per disclosure statement $2.2 ($2.9) $3.4 $14.5
Reconciliation to EBITDA:
Other income/expense 1.2 2.0 1.1 3.1
Depreciation and amortization 12.5 17.7 34.3 32.2
Interest expense, net 1.7 8.2 14.9 14.0
Income taxes 7.0
Restructure/reorganization expenses 0.9 1.7
Fresh start adjustments 3.3
Gain on debt discharge (16.4)
---------- ---------- --------- -----------
PROJECTED EBITDA $12.4 $26.7 $53.7 $63.8
========== ========== ========= ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
D - 12
<PAGE>
EXHIBIT E
TO DISCLOSURE STATEMENT
-----------------------
EDISON BROTHERS STORES, INC., ET AL.
LIQUIDATION ANALYSIS
The Debtors have prepared this liquidation analysis (the "Liquidation
Analysis") to help holders of Claims decide whether to accept or reject the
Plan. The Liquidation Analysis indicates the values which may be obtained by
Classes of Claims if all of the assets of the Debtors are sold, pursuant to a
Chapter 7 liquidation, as an alternative to continued operation of the business
and payments under a plan of reorganization. The Liquidation Analysis is based
on the assumptions discussed below. All capitalized terms not defined in this
exhibit have the same meanings ascribed to them in the Disclosure Statement to
which this exhibit is attached.
I. STATEMENT OF ASSETS
($ in thousands)
<TABLE>
<CAPTION>
PROJECTED ESTIMATED
BOOK VALUE AS OF LIQUIDATION
NOTE JULY 5, 1997 % VALUE
REFERENCE (UNAUDITED) RECOVERY (UNAUDITED)
---------------- ------------------------- ------------- --------------------
<S> <C> <C> <C> <C>
Cash 1 $ 183,400 100% $ 183,400
Inventory, at cost 2 187,600 118% 221,368
Other Current Assets 3 17,800 50% 8,900
Net Property & Equipment 4 158,100 33% 51,944
Other Non-Current Assets 5 70,000 89% 62,055
========================= ====================
Total Assets $616,900 $527,667
========================= ====================
Interest Income 6 12,679
Costs Associated with Liquidation: 7
GOB Operating Costs (76,768)
Payroll Costs Associated with
Termination of Employees (15,903)
Payroll Costs During Liquidation (48,474)
Chapter 7 Professional Fees (7,200)
Trustee Fee (3,920)
====================
Net Estimated Liquidation Proceeds Available for Distribution $ 388,081
====================
</TABLE>
E-1
<PAGE>
II. ALLOCATION OF NET ESTIMATED LIQUIDATION PROCEEDS TO
SECURED, ADMINISTRATIVE, PRIORITY AND UNSECURED CLAIMANTS (Note 8)
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED LIQUIDATION
ALLOWABLE % VALUE
CLAIMS RECOVERY (UNAUDITED)
------------------- -------------- ----------------
<S> <C> <C> <C>
Net Estimated Liquidation Proceeds Available For Allocation $ 388,081
Less: Total Secured Claims 100% 6,717
----------------
Net Estimated Liquidation Proceeds After Secured Claims 381,364
Less: Chapter 11 Administrative Claims:
Post-petition Trade Payables $ 46,800 100%
Accrued Expenses 29,400 100%
Purchase Order Cancellation Costs 15,568 100%
Professional Fees 11,405 100%
Other 25,700 100%
-------------------
Total Other Chapter 11 Administrative Claims 128,873
----------------
Net Estimated Liquidation Proceeds After Secured and
Chapter 11 Administrative Claims 252,491
Less: Priority Claims:
Reclamation Claims $ 1,483 100%
Tax Claims 16,800 100%
-------------------
Total Priority Claims 18,283
----------------
Net Estimated Liquidation Proceeds After Secured,
Administrative and Priority Claims $ 234,208
================
Total Net Estimated Liquidation Proceeds Allocated to Unsecured Claims 42%(a) $ 234,208
================
</TABLE>
(a) Recovery based upon $450 million of existing claims, plus $101.2 million
of additional lease rejection claims.
E-2
<PAGE>
EDISON BROTHERS STORES, INC. ET AL.
NOTES TO LIQUIDATION ANALYSIS
The Liquidation Analysis reflects the Debtors estimates of the proceeds
that would be realized if the Debtors were to be liquidated in accordance with
Chapter 7 of the Bankruptcy Code. The Liquidation Analysis is based on the
Debtors projected assets as of July 5, 1997 and has been prepared on a
substantive consolidated basis. Underlying the Liquidation Analysis are a number
of estimates and assumptions that, although developed and considered reasonable
by management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Debtors and its
management, and upon assumptions with respect to liquidation decisions which
could be subject to change. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
VALUES REFLECTED IN THE LIQUIDATION ANALYSIS WOULD BE REALIZED IF THE DEBTORS
WERE, IN FACT, TO UNDERGO SUCH A LIQUIDATION, AND ACTUAL RESULTS COULD VARY
MATERIALLY FROM THOSE SHOWN HERE.
Recoveries from avoidance actions have not been accounted for in the
Liquidation Analysis.
The Liquidation Analysis assumes a liquidation period of one year
during which a two-phase approach to the liquidation would occur.
Phase I would entail a 3-month period in which proceeds from the sale
of inventory would be realized in a going out of business sale conducted by a
liquidator (the "GOB Program") for all stores. The proceeds to be realized from
the GOB Program are consistent with the Debtors historical experience with the
approximately 440 store closings that commenced in November 1995, the
approximately 123 store closings that commenced in June 1996 and the
approximately 138 store closings that commenced in November 1996 (the "Store
Closings"). Upon completion of the GOB Program, stores and warehouses would be
broom swept and vacated, their operations would be virtually shut down and most
of the positions of employees in these areas would be terminated.
Phase II would entail the next 9-month period in which leases,
property, plant and equipment at the stores, warehouses and headquarters would
be sold. The proceeds assumed to be realized from the sale of these assets, and
an orderly liquidation of all other assets, are based on the Debtors
management's review of appraisals and evaluations by real estate consultants,
management's estimates of economic and market conditions and historical
experience with the Store Closings. The St. Louis, Missouri headquarters
operations would begin to wind down and terminations of positions of employees
would begin. Certain headquarters' personnel, such as those in Financial,
Treasury and Management Information System areas, would be retained as necessary
to support the completion of an orderly liquidation. Phase II would include the
completion of claims reconciliation and payment.
Proceeds from the sale of assets have been reflected in the Liquidation
Analysis before netting any costs associated with disposing of those assets. All
costs associated with the liquidation are reflected in the "Costs Associated
with Liquidation".
E-3
<PAGE>
The following notes describe the significant assumptions that are
reflected in the Liquidation Analysis.
Note 1 - Cash
The Liquidation Analysis assumes that operations during the liquidation
period would not generate additional cash available for distribution except for
net proceeds generated by liquidating non-cash assets.
Note 2 - Inventories
The inventory on hand is assumed to be disposed of under the GOB
Program in a manner consistent with the Debtors experience with the Store
Closings. The Liquidation Analysis assumes that the Debtors would sell all of
their inventory to a liquidator and realize 100% of the recorded cost value
after adjustments for defective merchandise, shrink and purchase price
adjustments. The estimate shown represents gross proceeds. Operating expenses
not picked up by the liquidator incurred during the GOB Program are reflected in
"Costs Associated with Liquidation" (see Note 7).
Note 3 - Other Current Assets
Other current assets consists primarily of prepaid expenses related to
rent and insurance and net receivables including credit card receivables.
The estimate shown represents gross proceeds. Personnel and other
operating costs incurred during the disposition period are reflected in the
"Costs Associated with Liquidation" (see Note 7).
Note 4 - Net Property and Equipment
Property and equipment include owned store, warehouse and headquarters
buildings, owned land and owned furniture, fixtures and equipment at the stores,
warehouses and headquarters. Values for property structures, owned stores and
land are based on the Debtors management's review of appraisals and evaluations
by real estate consultants, (received during fiscal 1996), its own estimates
based on market conditions and the estimated effect of liquidating these
properties in a relatively short period of time.
The proceeds form the sale of furniture, fixtures and equipment are
estimated based on The Debtors experience with its Store Closings. The
liquidations proceeds assumed to be received are based on The Debtors
management's estimate of what a third party would be willing to pay.
The estimate represents gross proceeds. The costs associated with the
sale of property and equipment are reflected in the "Costs Associated with
Liquidation" (see Note 7).
E-4
<PAGE>
Note 5 - Other Non-Current Assets
Other non-current assets include lease rights and pension assets and
other miscellaneous items. Proceeds assumed to be received from the termination
of the Company's Pension Plan represent the net benefits to the estate after
applying the applicable excise tax and wind down costs. Proceeds assumed to be
received in the liquidation of lease rights are based on the Debtors
management's estimate of the value of those leases which could be sold in a
liquidation environment. This value consists of those leases estimated to have
the greatest present value differential of lease terms below market rates. The
determination of this value is based upon reviews of the current real estate
market conditions, anticipated real estate market conditions and the effect of
the magnitude of store closing.
The estimate shown represents gross proceeds. Personnel and other
operating costs incurred during the disposition period are reflected in the
"Costs Associated with Liquidation" (see Note 7).
Note 6 - Interest Income
The Liquidation Analysis assumes that the distribution of the
liquidation proceeds to The Debtors creditors would occur as quickly as
possible. Cash available for investment during the liquidation period would be
based on the assumed timing of these distributions, the receipt of proceeds and
the payment of costs. The Liquidation Analysis assumes that as assets are
liquidated, the proceeds received during the liquidation period would be
invested at an average yield of 3%.
Note 7 - Costs Associated With Liquidation
These expenses represent the costs associated with operating the stores
and warehouses during the GOB Program, payroll and operating costs associated
with various corporate functions, payroll costs associated with the termination
of the positions of all employees including severance, vacation, bonus payments
and payroll taxes and Chapter 7 professional fees incurred, including those
associated with the fees of a Chapter 7 trustee in accordance with section 326
of the Bankruptcy Code.
Store and warehouse operating costs assumed to be incurred during the
GOB Program include rent, insurance, utilities, cleanup costs, real estate and
property taxes, transportation costs, employee benefits and other miscellaneous
costs. The Liquidation Analysis assumes that the liquidator would incur the
payroll costs associated with store personnel during the GOB Program.
The Liquidation Analysis assumes that essentially all the Debtors
employees would be terminated between July 6, 1997 and July 6, 1998 and that
these employees would be entitled to severance, bonus and accrued vacation in
accordance with programs currently in place.
Corporate payroll and operating costs during liquidation are based on
the assumption that certain corporate functions would operate at near full
strength during the GOB Program and would phase out as their duties are
completed. Other functions would be eliminated or substantially downsized
immediately upon liquidation.
E-5
<PAGE>
Professional fees and trustee fees are estimated based on historical
experience in similar cases and applicable provisions of the Bankruptcy Code.
Note 8 - Allocation of Net Liquidation Proceeds To Secured,
Administrative, Priority and Unsecured Claimants
The allocation of the net liquidation proceeds to all claimants has
been made in accordance with the priorities set forth in the Bankruptcy Code.
The Liquidation Analysis assumes that the creditors whose collateral is
at least equal in value to the amount of their claims would receive 100% of
their outstanding obligations. The Liquidation Analysis assumes that the
creditors whose collateral is less in value than the amount of their claims
would receive 100% of the value of their collateral. The recovery on the
remaining portion of these "undersecured" creditors' claims, net of adequate
protection payments and the return of collateral proceeds/credits, has been
included in the unsecured claimants portion of this analysis. Collateral values
are based on management's estimates, which are based on market conditions,
previous offers and sales.
Included in the category of general unsecured claims under the
Liquidation Analysis are amounts related to notes payable-banks and long-term
senior notes payable as well as the estimated damage claims from the rejection
of leases and executory contracts. Lease rejection damages are those arising out
of leases held by landlords and are assumed to result in claims for damages that
would not exceed the statutory limitation contained in Section 502 (b) (6) of
the Bankruptcy Code.
As the timing of the stream of cash flows is not certain, it should
also be noted that liquidation recoveries to unsecured claimants have not been
discounted back to the Effective Date to reflect the time value of money lost
over the liquidation period.
E-6
<PAGE>
EXHIBIT F
TO DISCLOSURE STATEMENT
-----------------------
EDISON BROTHERS STORES, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Edison Brothers Stores, Inc. 1997 Stock Option Plan
is to secure for EBS and its stockholders the benefits of the incentive inherent
in the ownership of EBS common stock by the officers and key employees of the
Company who will be largely responsible for the Company's future growth and
financial success.
2. Definitions
A. "Board" means the Board of Directors of EBS.
B. "Cause," when used in connection with the termination of an
optionee's employment by the Company, means (i) the optionee's willful
or repeated failure substantially to perform the duties of his or her
position with the Company (other than any such failure resulting from
his or her Disability), which failure is not or cannot be cured within
five business days after the Company has given written notice thereof
to the optionee specifying in detail the particulars of the acts or
omissions deemed to constitute such failure; (ii) the engaging by the
optionee in willful misconduct which is materially injurious to the
Company; (iii) the engaging by the optionee in any act of moral
turpitude that is reasonably likely to materially and adversely affect
the Company or its business; or (iv) the optionee's conviction of, or
entry of a plea of nolo contendere with respect to, any felony. For
purposes of this definition, no act, or failure to act, on the
optionee's part shall be considered "willful" unless done, or omitted
to be done, by the optionee in bad faith and without reasonable belief
that the optionee's action or omission was in the best interests of the
Company. The optionee shall not be deemed to have been terminated for
Cause unless and until the Board finds that the optionee's termination
for Cause is justified and has given the optionee written notice of
termination, specifying in detail the particulars of the optionee's
conduct found by the Board to justify such termination for Cause.
C. "Change in Control" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are used
in Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) becomes the "beneficial owner" (as determined
pursuant to Rules 13d-3 and 13d-5 promulgated under the Exchange Act),
directly or indirectly, of securities of EBS having more than 33% of
the total voting power of all classes of capital stock of EBS entitled
to vote generally in the election of directors of EBS; (ii) at any time
during any 24-month period, individuals who at the beginning of such
period constituted the Board of Directors of EBS (together with any new
directors whose election, or nomination for election by the
stockholders of EBS, to the Board was approved by a majority of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of EBS then in office; (iii) the
Board approves an agreement providing for the sale, lease, transfer or
other disposition of all or substantially all of the assets of EBS, in
one transaction or a series of related transactions, to any "person" or
"group" (as such terms are used in Section 13(d) of the Exchange Act)
other than a wholly-owned subsidiary of EBS; (iv) the Board approves an
agreement providing for the merger or consolidation of EBS with another
corporation, other than a merger in which EBS would be the surviving
corporation and which would result in (a) securities having more than
50% of the total voting power of all classes of capital stock entitled
to vote generally in the election of directors of the surviving
corporation being "beneficially owned" (as determined pursuant to Rules
13d-3 and 13d-5 under the Exchange Act) by the holders of the capital
stock of EBS immediately prior to such merger and (b) no "person" or
"group" (as such terms are used in Section 13(d) of the Exchange Act)
"beneficially owning" (as determined pursuant to Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, securities having more
than 33% of the total voting power of all classes of capital stock
entitled to vote generally in the election of directors of the
surviving corporation; or (v) the Board approves a plan for the
liquidation or dissolution of EBS; provided, however, that no such
event shall be deemed a Change in Control if it occurs as part of the
implementation of, and pursuant to the express terms of, a plan of
reorganization of EBS under Chapter 11 of Title 11 of the United States
Code that has been confirmed by the Bankruptcy Court in the Chapter 11
Case, and provided further that two or more entities shall not be
deemed to constitute a "person" or "group" for purposes hereof in
respect of any securities of EBS received by them pursuant to
F-1
<PAGE>
such plan of reorganization merely by virtue of the fact that such
entities were each members of the statutory Creditors' Committee
appointed in the Chapter 11 Case.
D. "Chapter 11 Case" means the case commenced by EBS on
November 3, 1995 under Chapter 11 of Title 11 of the United States Code
in the United States Bankruptcy Court in Delaware (Case No. 95-1354
(PJW)).
E. "Committee" has the meaning set forth in paragraph 4
hereof.
F. "Common Stock" means shares of the common stock of EBS, par
value $.01 per share, authorized and issued pursuant to the terms of a
plan of reorganization of EBS under Chapter 11 of Title 11 of the
United States Code as confirmed by the Bankruptcy Court in the Chapter
11 Case.
G. "Company" means EBS and its Subsidiaries.
H. "Disability" means the inability of an optionee to perform
the duties of his or her position with the Company by reason of a
medically determined physical or mental impairment which has existed
for a continuous period of at least 26 weeks and which, in the judgment
of a physician who certifies to such judgment, is expected to be of
indefinite duration or to result in imminent death.
I. "EBS" means Edison Brothers Stores, Inc., a Delaware
corporation.
J. "Effective Date" shall have the meaning ascribed to that
term in the Debtors' Amended Joint Plan of Reorganization, dated May
21, 1997, as such plan may be amended or modified, or such alternative
plan of reorganization as is ultimately confirmed by the Bankruptcy
Court.
K. "Initial Options" means the options to be granted for such
numbers of shares of Common Stock (not to exceed in the aggregate
500,000 shares), on such terms and to such individuals as have been
designated by the Special Compensation Subcommittee prior to the
Effective Date.
L. "Key Employee" means an executive or other person who is
employed in a position of administrative or managerial responsibility
by EBS or a Subsidiary, including store managers.
M. "Plan" means the Edison Brothers Stores, Inc. 1997 Stock
Option Plan.
N. "Special Compensation Subcommittee" means the Special
Compensation Subcommittee of the Compensation Committee of the Board of
Directors of EBS, as constituted and existing prior to the Effective
Date.
O. "Subsidiary" means any corporation (other than EBS) in an
unbroken chain of corporations beginning with EBS if, at the time of
the granting of an option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
3. Stock Subject to the Plan
The total number of shares of Common Stock available for grants of
options under the Plan shall be 800,000. No individual may be granted options in
respect of more than 200,000 shares of Common Stock in any twelve-month period.
If any option shall expire or terminate or be canceled for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for the purposes of the Plan. The shares of Common Stock
subject to issuance upon exercise of options under the Plan may be either
authorized but unissued shares or shares held in the treasury of EBS.
4. Administration
The Plan shall be administered by the Compensation Committee of the
Board or such other committee as the Board may designate (the "Committee"). The
Committee shall be appointed by the Board and shall consist of two or more
members of the Board each of whom (i) meets the definition of "outside director"
as such term is used in Section 162(m) of the Internal Revenue
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<PAGE>
Code of 1986, as amended, and (ii) meets the definition of "non-employee
director" as such term is used in Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934, as amended. Except as otherwise provided in the Plan, the Committee
shall have complete authority to:
(a) interpret the Plan;
(b) prescribe, amend and rescind rules and regulations relating to
the Plan;
(c) determine the individuals to whom, and the time or times at
which, options shall be granted;
(d) determine the number of shares to be subject to each option,
the price at which such shares may be purchased, and all other
terms and provisions of each option agreement;
(e) make all determinations not specifically set forth in (a)
through (d) above which it considers necessary or desirable
for the administration of the Plan.
Except as otherwise provided in the Plan, the decisions of the Committee with
respect to the matters set forth in (a) through (e) above shall be final.
5. Grants of Options
All Initial Options shall, for all purposes of this Plan, be deemed to
have been granted hereunder on and as of the Effective Date, except that no
Initial Options shall be deemed to have been granted to any person who, as of
the Effective Date, was not in the employ of EBS or one of its Subsidiaries.
Within six months after the Effective Date, the Committee shall grant options
with respect to all remaining shares of Common Stock available for grants of
options under the Plan. Options may be granted under the Plan only to Key
Employees.
6. Option Price
The purchase price of the Common Stock under each option issued
hereunder shall be the fair market value of the Common Stock at the time of the
grant of the option. The Committee may adopt any criterion for the determination
of such fair market value as it may in good faith determine to be appropriate.
7. Manner of Exercise and Payment
An option shall be exercised by delivery of a written notice of
exercise to EBS and payment of the full price of the shares being purchased
pursuant to the option. An optionee may exercise an option with respect to less
than the total number of shares for which the option may then be exercised. The
price of the shares purchased pursuant to an option may be paid either (i) in
cash, (ii) by the tender to EBS of shares of Common Stock owned by the optionee
and registered in the name of the optionee having an aggregate fair market value
on the date of exercise equal to the price of the shares being purchased, such
fair market value to be determined in such manner as may be provided for by the
Committee or as may be required in order to comply with any applicable law or
regulation, (iii) by delivery of irrevocable instructions to a financial
institution to deliver promptly to EBS sale or loan proceeds with respect to the
shares sufficient to pay the purchase price, (iv) through the written election
of the optionee to have shares of Common Stock withheld by EBS from the shares
otherwise to be received, with such withheld shares having an aggregate fair
market value on the date of exercise equal to the price of the shares being
purchased, or (v) by any combination of the payment methods specified in clauses
(i) through (iv) hereof. The proceeds received by EBS from the sale of Common
Stock subject to an option are to be added to the general funds of EBS or to the
Common Stock held in its treasury, and used for its corporate purposes as the
Board shall determine.
8. Term and Exercise of Options
The term of each option shall be not more than ten years from the date
of granting thereof. Within such limit, options will be exercisable at such time
or times, and subject to such restrictions and conditions, as the Committee
shall approve, which need not be uniform for all optionees; provided, however,
that except as provided in paragraph 9, no option may be exercised
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<PAGE>
at any time unless the optionee is then an employee of EBS or a Subsidiary and
has been employed continuously by EBS or a Subsidiary since the granting of the
option.
9. Termination of Employment
A. If an optionee ceases to be employed by the Company, any
option held by such optionee, to the extent the optionee was entitled
to exercise it at the date of termination of employment, may be
exercised at any time within three months after such termination but
not after the date of expiration of the option. Notwithstanding the
foregoing, if the employment of any optionee is terminated by the
Company for Cause, all unexercised options of such optionee shall
thereupon terminate and thereafter be unexercisable.
B. If an optionee's employment is terminated by reason of
death or Disability, any or all of the optionee's unexercised options,
whether otherwise eligible for immediate exercise by the terms of the
option agreement or not, may be exercised at any time within one year
after such termination but not after the date of expiration of the
option.
C. If an optionee retires after reaching age 65, any or all of
the optionee's unexercised options, whether otherwise eligible for
immediate exercise by the terms of the option agreement or not, may be
exercised at any time within three months after the optionee's
retirement but not after the date of expiration of the option.
D. If an optionee retires after attaining age 55 but not age
65, the Committee, in its sole discretion, may permit any or all of the
optionee's unexercised unexpired options, whether otherwise eligible
for immediate exercise by the terms of the option agreement or not, to
be exercised within three months after the optionee's retirement but
not after the date of expiration of the option.
10. Nontransferability of Options
Each option granted under the Plan shall, by its terms, be
nontransferable otherwise than by will or the laws of descent and distribution
and an option may be exercised, during the lifetime of an optionee, only by the
optionee.
11. Successive Option Grants
Successive option grants may be made to any holder of options under the
Plan.
12. Amendment and Termination of the Plan
Subject to the provisions of paragraph 14G hereof, the Board may at any
time terminate the Plan or make such modifications of the Plan as it shall deem
advisable; provided, however, that the Board may not, without approval by the
holders of Common Stock of EBS, increase the number of shares as to which
options may be granted under the Plan (except pursuant to the provisions of
paragraph 14F), change the class of persons to whom options may be granted, or
materially increase the benefits accruing to participants under the Plan.
13. Term of the Plan
This Plan shall take effect as of the Effective Date and shall
terminate ten years after such date. No option shall be granted hereunder after
the expiration of such ten-year period. Options outstanding at the termination
of the Plan shall continue in full force and effect and shall not be affected
thereby.
14. Miscellaneous
A. Rights as Stockholder. An optionee shall have none of the
rights of a stockholder with respect to Common Stock subject to an
option, until such shares are issued to such optionee upon exercise of
the option.
B. Rights to Continued Employment. Nothing in the Plan or in
any option granted pursuant to the Plan shall confer on any individual
any right to continue in the employ of the Company or interfere with
the right of the Company to terminate such individual's employment at
any time.
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<PAGE>
C. Leaves of Absence. The option agreements issued pursuant to
the Plan may contain such provisions as the Committee shall determine
with respect to the effect of approved leaves of absence.
D. Pension Rights. Benefits received under the Plan by an
optionee shall not affect or be used in the calculation of pension or
other retirement benefits under any other plan of EBS.
E. Investment Purpose. Each option under the Plan shall be
granted only on the condition that all purchases of stock thereunder
shall be for investment purposes, and not with a view to resale or
distribution, except that the Committee may make such provision in
options granted under the Plan as it deems necessary or advisable for
the release of such condition upon the registration with the Securities
and Exchange Commission of stock subject to the options, or upon the
happening of any other contingency warranting the release of such
condition.
F. Adjustments Upon Changes in Capitalization. In the event of
changes in the outstanding Common Stock by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, spin-offs,
combinations or exchanges of shares and the like, the aggregate number
and class of shares as to which options may be granted under the Plan
or granted to any individual participant as set forth in paragraph 3,
and the number, class and price of shares subject to outstanding
options, shall be appropriately adjusted by the Committee.
G. Adverse Effect on Optionee of Amendment or Termination of
Plan. No amendment or termination of the Plan may, without the written
consent of an employee to whom any option shall have been granted,
adversely affect the rights of such employee under such option, which
rights shall include all rights of the optionee under the Plan as it
existed as of the date of grant of the option.
H. Time of Granting of Options. Except as otherwise provided
in paragraph 5 hereof, an option grant under the Plan shall be deemed
to be made on the date on which the Committee, by formal action of its
members, duly recorded in the records thereof, makes an award of an
option to an eligible employee of EBS or a Subsidiary.
I. Effect of a Change in Control. In the event of a Change in
Control, all options then outstanding under the Plan shall become
immediately and fully exercisable.
15. Tax Withholding
An optionee shall be required to pay to EBS at the time of exercise of
an option the amount that EBS deems necessary to satisfy its withholding
obligation with respect to Federal, state or local income or other taxes (which
for purposes of this paragraph 15 includes an optionee's FICA obligation)
incurred by reason of the exercise. Upon the exercise of an option requiring tax
withholding, an optionee may make a written election to have shares of Common
Stock withheld by EBS from the shares otherwise to be received. The number of
shares so withheld shall have an aggregate fair market value on the date of
exercise sufficient to satisfy the applicable withholding taxes.
16. Tax-Offset Bonus Rights
The Committee, in its sole discretion, may grant tax-offset bonus
rights ("TOBR's") with respect to options. Such TOBR's may be granted to an
optionee at the time of the grant of the related option or subsequent thereto. A
TOBR shall entitle the optionee to receive from EBS upon exercise of the related
option an amount in cash equal to (1) the excess, if any, of the aggregate
market price of the shares acquired by the exercise of the option on the date of
exercise over the aggregate purchase price of the shares acquired by such
exercise multiplied by (2) a percentage (either fixed or by formula) determined
solely by the Committee. The Committee shall determine all other terms and
provisions of any TOBR. No TOBR shall be assignable or transferable except to
the extent the Committee permits such TOBR to be assigned by will or through the
laws of descent and distribution.
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated June 4, 1997 between
______________________, currently residing at _________________________________
("Employee"), and Edison Brothers Stores, Inc., a Delaware corporation (the
"Company"), replacing and superseding the Amended and Restated Employment
Agreement dated June 21, 1996 between Employee and the Company.
WHEREAS, in November 1995, the Company, along with 65 of its
subsidiaries, filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court in Delaware (Case
No. 95-1354 (PJW)) and has since been operating its business as a
debtor-in-possession; and
WHEREAS, the Company has filed a plan of reorganization and expects to
emerge from Chapter 11 in mid-1997; and
WHEREAS, in order to assure the continued availability of the services
of Employee after the Company's emergence from Chapter 11, the Company wishes to
extend the term of and otherwise modify the Amended and Restated Employment
Agreement dated June 21, 1996 between Employee and the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Effective Date. This Agreement shall take effect as of the
"effective date" as that term is defined in the Debtors' Amended Joint Plan of
Reorganization, dated May 21, 1997, as such plan may be amended or modified, or
such alternative plan of reorganization as is ultimately confirmed by the
Bankruptcy Court (the "Commencement Date").
2. Employment. Subject to the terms and conditions hereinafter set
forth, the Company hereby agrees to employ Employee, and Employee hereby agrees
to be employed by the Company, during the two-year period (the "Employment
Term") beginning on the Commencement Date. The Employment Term may be extended
by mutual written agreement of the parties or terminated pursuant to the
provisions of Section 5 or Section 6 hereof. In the event a Change in Control
(as hereinafter defined) occurs less than eighteen months before the end of the
Employment Term and at a time when Employee is still employed hereunder, the
Employment Term shall be extended for a period ending eighteen months after the
date of occurrence of the Change in Control.
3. Duties. Employee shall be employed in the capacity of
______________________________. Employee shall have such duties as may
reasonably be assigned to him by or at the direction of the Board of Directors
of the Company. Employee shall perform such duties diligently and to the best of
his ability, and shall comply with the Company's Business Conduct Policy and
other policies as in effect from time to time. Employee's duties shall be
performed primarily at the Company's home office in St. Louis, Missouri, with
such foreign and domestic travel as the performance of his duties may require.
During the Employment Term, Employee shall devote his entire working time,
attention and energy to the business of the Company, and shall not be engaged in
any other business activity that conflicts with or interferes with Employee's
performance of his duties hereunder except as authorized by the Board of
Directors of the Company.
4. Compensation and Benefits.
A. Salary. During the Employment Term, the Company shall pay Employee
for his services hereunder a base salary at the rate of $___________, subject to
upward adjustment in accordance with the Company's salary review practices and
procedures in effect from time to time. Such salary shall be payable
semi-monthly on the 15th and last day of each month.
B. Benefits and Perquisites. During the Employment Term, Employee shall
be entitled to participate in, to the extent Employee is eligible under the
terms thereof, the Company's Medical, Dental, Life Insurance, Disability,
Pension and 401(k) Savings Plans and all such other benefit programs as are
generally provided from time to time by the Company to its executive personnel.
Subject to the rights of Employee set forth in Sections 6 and 7 hereof, nothing
herein shall preclude the Company from terminating or amending any employee
benefit plan or program.
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<PAGE>
C. Vacation. During the Employment Term, Employee shall be entitled to
a vacation of ______ weeks per calendar year to be taken in accordance with the
Company's normal policies.
D. Bonuses, Stock Options and Restricted Stock. In recognition of
Employee's contributions to the Company's restructuring efforts and to satisfy
certain pre-existing contractual bonus obligations, Employee shall be entitled
to receive a lump sum cash bonus of $__________, payable on or after the
Commencement Date as determined by the Board of Directors, or such earlier date
following the Commencement Date as there occurs a Change in Control (the "Bonus
Date"), provided that Employee is still in the employ of the Company as of that
date. Notwithstanding the foregoing, if prior to the Bonus Date, Employee's
employment is terminated by the Company Without Cause (as hereinafter defined)
or is terminated by Employee for Good Reason (as hereinafter defined), then such
bonus shall be paid to Employee on the Termination Date (as hereinafter
defined). [For the four chain presidents, in addition to the foregoing, there
will be a retention bonus payable in 1998, provided that the executive remains
employed through the payment date.] Employee shall also be eligible for such
other bonus payments and shall be granted such shares of common stock of the
Company and/or options to purchase common stock of the Company on such terms and
in such amounts as the Board of Directors of the Company, or a duly constituted
committee thereof, shall determine in its discretion.
E. Travel and Business Expenses. Upon submission of itemized expense
statements in the manner specified by the Company, Employee shall be entitled to
reimbursement for reasonable travel and other business expenses incurred by
Employee in the performance of his duties hereunder.
F. Payment. Payment of all compensation and benefits to Employee
hereunder shall be made in accordance with the relevant policies of the Company
in effect from time to time and shall be subject to all applicable employment
and withholding taxes.
G. Cessation of Employment. If Employee shall cease to be employed by
the Company for any reason, then Employee's compensation and benefits shall
cease as of the Termination Date, except as otherwise provided herein or in any
applicable employee benefit plan or program.
5. Termination of Employment of Employee by the Company.
(a) Employee's employment may be terminated by the Company for
Cause (as hereinafter defined) upon following the procedures
hereinafter specified. Employee may not be terminated for Cause unless
and until the Board of Directors of the Company finds that termination
of Employee for Cause is justified. Termination of Employee's
employment for Cause shall become effective after such finding has been
made by the Board and upon the giving to Employee of a written notice
of termination, specifying in detail the particulars of the conduct of
Employee found by the Board to justify such termination for Cause.
(b) Employee's employment may be terminated by the Company
Without Cause at any time, effective upon the giving to Employee of a
written notice of termination specifying that such termination is
Without Cause.
(c) Upon a termination by the Company of Employee's employment
for Cause, Employee shall be entitled to the payments specified in
subparagraph (a) of Section 7 of this Agreement. Upon a termination by
the Company of Employee's employment Without Cause, Employee shall be
entitled to the payments and benefits specified in subparagraphs (a),
(b), (c) and (d) of Section 7 of this Agreement.
(d) Employee's employment may be terminated by the Company for
Disability (as hereinafter defined), effective upon the giving to
Employee of a written notice of termination specifying that such
termination is for Disability. Upon a termination of Employee's
employment for Disability, Employee shall be entitled to the payments
specified in subparagraph (a) of Section 7 of this Agreement. During
any period that Employee fails to perform Employee's duties hereunder
as a result of incapacity due to physical or mental impairment (a
"Disability Period"), Employee shall continue to receive the
compensation and benefits provided for in Section 4 hereof unless and
until Employee's employment hereunder is terminated; provided, however,
that the amount of compensation and benefits received by Employee
during the Disability Period shall be reduced by the aggregate amounts,
if any, payable to Employee under disability benefit plans and programs
of the Company or under the Social Security disability insurance
program.
6. Termination of Employment by Employee. Employee shall be entitled to
terminate his employment with the Company at any time. If such termination is
for other than Good Reason, Employee shall be entitled to the payments specified
in
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<PAGE>
subparagraph (a) of Section 7. If such termination is for Good Reason, Employee
shall be entitled to the payments and benefits specified in subparagraphs (a),
(b), (c) and (d) of Section 7. Employee shall give the Company written notice of
any such voluntary termination of employment, which notice need specify only
Employee's desire to terminate his employment and, if such termination is for
Good Reason, set forth in reasonable detail the facts and circumstances claimed
by Employee to constitute Good Reason.
7. Payments and Benefits Upon Termination. To the extent provided in
Sections 5 and 6 hereof, upon termination of his employment, Employee shall be
entitled to receive the following payments and benefits:
(a) The Company shall pay to Employee on the Termination Date
(i) the full base salary earned by Employee through the Termination
Date and unpaid at the Termination Date, plus (ii) credit for any
vacation earned by Employee but not taken at the Termination Date, plus
(iii) all other amounts earned by Employee and unpaid as of the
Termination Date.
(b) The Company shall pay to Employee on the Termination Date
a lump sum cash amount equal to Employee's monthly salary at the
highest rate in effect at any time between the Commencement Date and
the Termination Date multiplied by the greater of (i) twelve or (ii)
the number of months remaining until the Completion Date (as
hereinafter defined), including partial months.
(c) The Company shall pay to Employee on the Termination Date
a lump sum cash amount equal to 1/12 of Employee's "target bonus" for
the then-current fiscal year under the Company's Executive Performance
Based Bonus Plan (or any replacement or successor plan then in effect),
multiplied by the greater of (i) twelve or (ii) the number of months
(including partial months) remaining until the Completion Date.
(d) The Company shall maintain in full force and effect for
Employee's continued benefit until the earlier of (i) the Completion
Date or twelve months from the Termination Date, whichever is later, or
(ii) Employee's similar coverage by a new employer, all life insurance,
medical, dental, and disability plans, programs or arrangements in
which Employee was entitled to participate immediately prior to the
Termination Date, provided that Employee's continued participation is
possible under the terms and provisions of such plans, programs or
arrangements. In the event that Employee's participation in any such
plan, program or arrangement is barred by the terms thereof, the
Company shall arrange to provide Employee with benefits substantially
similar to those which Employee would otherwise be entitled to receive
under such plans, programs or arrangements. Any continuation of
benefits under this Section 7(d) shall not be counted towards the
benefits extension period mandated by the Consolidated Omnibus Budget
Reconciliation Act of 1985.
Employee shall not be required to mitigate the amount of any payment provided
for in this Section 7 by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Section 7 be reduced by any
compensation or other amounts paid to or earned by Employee as the result of
employment by another employer after the Termination Date or otherwise.
8. Tax Indemnity. If any amounts, reimbursements or benefits payable by
the Company to Employee pursuant to this Agreement or any other plan, agreement
or arrangement of the Company (including, without limitation, any stock options
issued to Employee under the Company's 1997 Stock Option Plan and any restricted
stock agreement between the Company and Employee) are determined to be subject
to an excise or similar tax pursuant to Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended, or any successor or other comparable federal,
state or local tax laws, the Company shall pay to Employee such additional sum
as is necessary (after taking into account all federal, state and local income
taxes payable by the Employee as a result of the receipt of such additional sum)
to place Employee in the same after-tax position he would have been in had no
such excise or similar purpose tax been paid or incurred.
9. Employee's Expenses. All costs and expenses (including reasonable
legal and accounting fees) incurred by Employee (a) to defend the validity of
this Agreement, (b) if Employee's employment has been terminated by the Company
for Cause, to contest such termination, (c) to contest any determinations by the
Company concerning the amounts payable by the Company under this Agreement or
(d) to otherwise obtain or enforce any right or benefit provided to Employee by
this Agreement (including, without limitation, any right or benefit under this
Section 9), shall be paid by the Company unless it is expressly found by a court
of competent jurisdiction that the actions of Employee pursuant to subparts (a),
(b), (c) and/or (d) of this Section 9 (whichever is applicable) were taken in
bad faith or without a reasonable basis.
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<PAGE>
10. Confidential Information. Employee, during the period of his
employment by the Company and thereafter, irrespective of whether the
termination of his employment is voluntary or involuntary, will not, directly or
indirectly (without the Company's prior written consent), use for himself, or
use for or disclose to any other party, any confidential information regarding
the Company. For purposes of this Agreement, such confidential information shall
include any data or information regarding the business of the Company or any
subsidiary or affiliate of the Company that is not generally known to the
public, including without limitation any confidential information or data
regarding the cost of products sold by, or the plans of, the Company or its
affiliates or the business methods of the Company or its affiliates not in
general use by others or the identity of any customers or suppliers of the
Company or its affiliates or information respecting transactions or prospective
transactions therewith.
11. Notice. All notices hereunder shall be in writing and shall be
deemed to have been duly given (a) when delivered personally or by courier, or
(b) on the third business day following the mailing thereof by registered or
certified mail, postage prepaid, in each case addressed as set forth below:
(a) If to the Company
Edison Brothers Stores, Inc.
501 North Broadway
St. Louis, Missouri 63102
Attention: _________________
(b) If to Employee:
--------------------
--------------------
--------------------
Any party may change the address to which notices are to be addressed by giving
the other party written notice in the manner herein set forth.
12. Definitions.
(a) "Cause," when used in connection with the termination of
Employee's employment by the Company, shall mean (i) the willful or
repeated failure by Employee substantially to perform his duties or
otherwise comply with any of his obligations hereunder (other than any
such failure resulting from his Disability), which failure is not or
cannot be cured within five business days after the Company has given
written notice thereof to Employee specifying in detail the particulars
of the acts or omissions deemed to constitute such failure; (ii) the
engaging by Employee in willful misconduct which is materially
injurious to the Company; (iii) the engaging by Employee in any act of
moral turpitude that is reasonably likely to materially and adversely
affect the Company or its business; or (iv) Employee's conviction of,
or entry of a plea of nolo contendere with respect to, any felony. For
purposes of this definition, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done,
by Employee in bad faith and without reasonable belief that his action
or omission was in the best interests of the Company.
(b) "Change in Control" shall mean the occurrence of any of
the following events:
(i) any "person" or "group" (as such terms are used in Section
13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes the "beneficial owner" (as determined
pursuant to Rules 13d-3 and 13d-5 promulgated under the
Exchange Act), directly or indirectly, of securities of the
Company having more than 33% of the total voting power of all
classes of capital stock of the Company entitled to vote
generally in the election of directors of the Company; or
(ii) at any time during any 24-month period, individuals who
at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors
whose election, or nomination for election by the stockholders
of the Company, to the Board of Directors was approved by a
majority of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for
F-9
<PAGE>
election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company
then in office; or
(iii) the sale, lease, transfer or other disposition of all or
substantially all of the assets of the Company, in one
transaction or a series of related transactions, to any
"person" or "group" (as such terms are used in Section 13(d)
of the Exchange Act) other than a wholly-owned subsidiary of
the Company; or
(iv) the merger or consolidation of the Company with or into
another corporation, unless immediately after such merger or
consolidation (a) securities having more than 50% of the total
voting power of all classes of capital stock entitled to vote
generally in the election of directors of the surviving or
resulting corporation are then "beneficially owned" (as
determined pursuant to Rules 13d-3 and 13d-5 under the
Exchange Act) by the holders of the capital stock of the
Company immediately prior to such merger or consolidation, and
(b) no "person" or "group" (as such terms are used in Section
13(d) of the Exchange Act) "beneficially owns" (as determined
pursuant to Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, securities having more than 33% of the
total voting power of all classes of capital stock entitled to
vote generally in the election of directors of the surviving
or resulting corporation; or
(v) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution;
provided, however, that no such event shall be deemed a Change in
Control if it occurs as part of the implementation of, and pursuant to
the express terms of, a plan of reorganization of the Company that has
been confirmed by the Bankruptcy Court in the Company's Chapter 11
case, and provided further that two or more entities shall not be
deemed to constitute a "person" or "group" for purposes of this Section
12 in respect of any securities of the Company received by them
pursuant to such plan of reorganization merely by virtue of the fact
that such entities were each members of the statutory Creditors'
Committee appointed in the Company's Chapter 11 case.
(c) "Company" shall have the definition set forth in Section
13 hereof.
(d) "Completion Date" shall mean the date the Employment Term
would have ended under the provisions of Section 2 hereof had it not
been terminated pursuant to Section 5 or Section 6.
(e) "Disability" shall mean Employee's inability to perform
the duties of Employee's position with the Company by reason of a
medically determined physical or mental impairment which has existed
for a continuous period of at least 26 weeks and which, in the judgment
of a physician who certifies to such judgment, is expected to be of
indefinite duration or to result in imminent death.
(f) "Good Reason," when used with reference to a voluntary
termination by Employee of his employment with the Company prior to the
occurrence of a Change in Control, shall mean:
(i) a reduction in Employee's base salary as in effect on the
Commencement Date or as the same may be increased from time to
time;
(ii) the assignment to Employee of any duties materially
inconsistent with his status as an executive of the Company;
or
(iii) the mandatory transfer of Employee to another geographic
location, except for required travel on Company business to an
extent substantially consistent with Employee's business
travel obligations as of the Commencement Date;
"Good Reason," when used with reference to a voluntary termination by
Employee of his employment with the Company after the occurrence of a
Change in Control, shall mean:
(i) a reduction in Employee's base salary as in effect on the
Commencement Date or as the same may be increased from time to
time;
F-10
<PAGE>
(ii) the assignment to Employee of any duties materially
inconsistent with, or the reduction of powers or functions
associated with, his positions, responsibilities or status
with the Company immediately prior to the Change in Control,
or any removal of Employee from or any failure to re-elect
Employee to any positions or offices held by Employee
immediately prior to the Change in Control, except in
connection with the termination of Employee's employment by
the Company for Cause or for Disability;
(iii) the mandatory transfer of Employee to another geographic
location, except for required travel on Company business to an
extent substantially consistent with Employee's business
travel obligations immediately prior to the Change in Control;
(iv) the failure by the Company to continue in effect any
employee benefit plan, program or arrangement in which
Employee was participating immediately prior to the Change in
Control (or plans, programs or arrangements providing Employee
with substantially similar benefits), or the taking of any
action by the Company which would adversely affect Employee's
participation in, or materially reduce Employee's benefits
under, any of such plans, programs or arrangements, or the
failure by the Company to provide Employee with the number of
paid vacation days per annum to which Employee was entitled
immediately prior to the Change in Control; or
(v) any purported termination of Employee's employment by the
Company which is not effected pursuant to the requirements of
this Agreement.
(g) "Termination Date" shall mean the effective date as
provided hereunder of the termination of Employee's employment.
(h) "Without Cause," when used in connection with the
termination of Employee's employment by the Company, shall mean any
termination of the employment of Employee by the Company which is not a
termination of employment for Cause or for Disability.
13. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, upon or
prior to such succession, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would have been required to perform it if no such succession had taken
place. A copy of such assumption and agreement shall be delivered to
Employee promptly after its execution by the successor. Failure of the
Company to obtain such agreement upon or prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall
entitle Employee to benefits from the Company in the same amounts and
on the same terms as Employee would be entitled hereunder if Employee
terminated his employment for Good Reason after a Change in Control.
For purposes of the preceding sentence, the date on which any such
succession becomes effective shall be deemed the Termination Date. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in
this Section 13(a) or which otherwise becomes bound by the terms and
provisions of this Agreement by operation of law.
(b) This Agreement is personal to Employee and Employee may
not assign or delegate any part of his rights or duties hereunder to
any other person, except that this Agreement shall inure to the benefit
of and be enforceable by Employee's legal representatives, executors,
administrators, heirs and beneficiaries.
14. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be held to be invalid
or unenforceable, the remainder of this Agreement and the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and each provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
15. Headings. The headings in this Agreement are inserted for
convenience of reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
F-11
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
identical counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
17. Waiver. Neither any course of dealing nor any failure or neglect of
either party hereto in any instance to exercise any right, power or privilege
hereunder or under law shall constitute a waiver of such right, power or
privilege or of any other right, power or privilege or of the same right, power
or privilege in any other instance. Without limiting the generality of the
foregoing, Employee's continued employment without objection shall not
constitute Employee's consent to, or a waiver of Employee's rights with respect
to, any circumstances constituting Good Reason. All waivers by either party
hereto must be contained in a written instrument signed by the party to be
charged therewith, and, in the case of the Company, by its duly authorized
officer.
18. Entire Agreement. This instrument constitutes the entire agreement
of the parties in this matter and as of the Commencement Date shall supersede
any other agreement between the parties, oral or written, concerning the same
subject matter, including the Amended and Restated Employment Agreement dated
June 21, 1996 between the Company and Employee; provided that, this Agreement
shall not affect or supersede any rights Employee may have under any incentive
bonus, stock option, restricted stock, pension, medical, dental, life insurance
or any other employee benefit plan, program or arrangement sponsored or
maintained by the Company.
19. Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Employee and by a duly authorized officer of the Company.
20. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Missouri, without
reference to the conflict of laws rules of such State.
21. Post Employment Term Change in Control. In the event a Change in
Control occurs after the end of the Employment Term but at a time when Employee
is still employed by the Company, and if, within eighteen months after the
occurrence of such Change in Control, Employee's employment is terminated by the
Company Without Cause or is terminated by Employee for Good Reason, then
Employee shall be entitled to the payments and benefits specified in
subparagraphs (a), (b), (c) and (d) of Section 7 of this Agreement. For purposes
hereof, the term "Completion Date" as used in Section 7 shall be deemed to be
the last day of such eighteen-month period.
22. Survival. This Agreement, and the respective rights and obligations
of the Company and Employee hereunder, shall survive and remain in full force
and effect following the expiration of the Employment Term and the termination
of Employee's employment hereunder.
IN WITNESS WHEREOF, Employee and the Company have executed this
Agreement as of the day and year first above written.
EDISON BROTHERS STORES, INC.
By: _______________________________
Name:
Title:
-------------------------------
[name of employee]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
June 4, 1997
[Name of Executive]
Dear ____________:
Edison Brothers Stores, Inc. ("EBS") hereby grants to you, as of the Effective
Date (as hereinafter defined) and subject to the conditions hereinafter set
forth, ___________________ shares of the Common Stock (as hereinafter defined)
of EBS (the "Restricted Stock"). This letter agreement (the "Restricted Stock
Agreement") shall evidence such grant. Notwithstanding anything to the contrary
contained herein, this Restricted Stock Agreement and the grant evidenced hereby
shall be of no force or effect unless (a) this Restricted Stock Agreement is
provided for or contemplated by a plan of reorganization that is confirmed by
the Bankruptcy Court in the Chapter 11 Case (as hereinafter defined) and (b) you
are in the employ of EBS or one of its Subsidiaries (as hereinafter defined) on
the Effective Date.
1. Date of Grant: This grant shall take effect on the Effective Date,
which for all purposes hereunder shall be deemed the Date of Grant.
2. Cost of Shares of Restricted Stock: This grant of Restricted Stock
is considered additional compensation, for the periods specified in paragraph 6,
and shall be at no cost to you.
3. Delivery of Restricted Stock: The Restricted Stock shall be issued
to you as a matter of record as of the Date of Grant but shall not be delivered
to you until certain specified conditions, hereinafter set forth, are met.
4. Dividend Rights: You shall have full dividend rights with respect to
each share of Restricted Stock, beginning with the Date of Grant, and shall
retain such rights so long as such share of Restricted Stock is not forfeited by
you prior to vesting or disposed of by you after vesting.
5. Voting Rights: You shall have full voting rights with respect to
each share of Restricted Stock, beginning with the Date of Grant, and shall
retain such rights so long as such share of Restricted Stock is not forfeited by
you prior to vesting or disposed of by you after vesting.
6. Vesting: One half of the shares of Restricted Stock shall be deemed
earned during the one-year period ending on the first anniversary of the Date of
Grant and shall vest and be delivered to you free of any restriction imposed
hereunder on the last day of such period, and one half of the shares of
Restricted Stock shall be deemed earned during the one-year period ending on the
second anniversary of the Date of Grant and shall vest and be delivered to you
free of any restriction imposed hereunder on the last day of such period,
provided, however, that except as provided in paragraph 8 below, such shares
shall vest and be delivered only if at the time set forth above for vesting and
delivery you are then in the employ of EBS or one of its subsidiaries, as such
term is defined in ss.425(f) of the Internal Revenue Code of 1986, as amended
("Subsidiaries"), and shall have been continuously so employed since the Date of
Grant. If there should come a time when you are no longer employed by either EBS
or a Subsidiary of EBS (collectively, the "Company"), then at such time all
shares of Restricted Stock not yet vested shall be forfeited (except as provided
in paragraph 8 below). Notwithstanding the foregoing, the Board of Directors of
EBS, in its sole discretion, may accelerate the vesting schedule as set out
above in whole or in part at any time and from time to time.
7. Non-Transferability: No share of Restricted Stock shall be
transferable by you prior to vesting.
8. Accelerated Vesting:
(a) Death or Disability: In the event of your death or Disability while
in the employ of the Company, all shares of Restricted Stock not yet vested due
to the restrictions set forth above shall become immediately vested and, if not
already delivered, shall be delivered to you or your estate. As used herein,
"Disability" shall mean your inability to perform the duties of your position
with the Company by reason of a medically determined physical or mental
impairment which has existed for a continuous period of at least 26 weeks and
which, in the judgment of a physician who certifies to such judgment, is
expected to be of indefinite duration or to result in imminent death.
F-13
<PAGE>
(b) Termination of Employment: In the event (i) your employment by the
Company is terminated Without Cause (as hereinafter defined) or (ii) you
voluntarily terminate your employment with the Company for Good Reason (as
hereinafter defined), then all shares of Restricted Stock not yet vested due to
the restrictions set forth above shall become immediately vested and, if not
already delivered, shall be delivered to you.
(c) Change in Control: In the event of a Change in Control (as
hereinafter defined), all shares of Restricted Stock not yet vested due to the
restrictions set forth above shall become immediately vested and, if not already
delivered, shall be delivered to you.
9. Definitions:
(a) "Without Cause" means any termination of your employment by the
Company which is not a termination of employment for Cause or for Disability.
"Cause" means (i) your willful or repeated failure substantially to perform the
duties of your position with the Company (other than any such failure resulting
from your Disability), which failure is not or cannot be cured within five
business days after the Company has given you written notice specifying in
detail the particulars of the acts or omissions deemed to constitute such
failure; (ii) your engaging in willful misconduct which is materially injurious
to the Company; (iii) your engaging in any act of moral turpitude that is
reasonably likely to materially and adversely affect the Company or its
business; or (iv) your conviction of, or entry of a plea of nolo contendere with
respect to, any felony. For purposes of this definition, no act, or failure to
act, on your part shall be considered "willful" unless done, or omitted to be
done, by you in bad faith and without reasonable belief that your action or
omission was in the best interests of the Company. You shall not be deemed to
have been terminated for Cause unless and until the Board of Directors of EBS
finds that your termination for Cause is justified and has given you written
notice of termination, specifying in detail the particulars of your conduct
found by the Board to justify such termination for Cause.
(b) "Good Reason," when used with reference to your voluntary
termination of your employment with the Company, means (i) a reduction in your
base salary as in effect on the date hereof or as the same may be increased from
time to time; (ii) the assignment to you of any duties materially inconsistent
with your status as an executive of the Company; or (iii) your mandatory
transfer by the Company to another geographic location, except for required
travel on Company business to an extent substantially consistent with your
business travel obligations as of the date hereof.
(c) "Change in Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes
the "beneficial owner" (as determined pursuant to Rules 13d-3 and 13d-5
promulgated under the Exchange Act), directly or indirectly, of securities of
EBS having more than 33% of the total voting power of all classes of capital
stock of EBS entitled to vote generally in the election of directors of EBS;
(ii) at any time during any 24-month period, individuals who at the beginning of
such period constituted the Board of Directors of EBS (together with any new
directors whose election, or nomination for election by the stockholders of EBS,
to the Board of Directors was approved by a majority of the directors then still
in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of EBS then in office;
(iii) the Board of Directors of EBS approves an agreement providing for the
sale, lease, transfer or other disposition of all or substantially all of the
assets of EBS, in one transaction or a series of related transactions, to any
"person" or "group" (as such terms are used in Section 13(d) of the Exchange
Act) other than a wholly-owned subsidiary of EBS; (iv) the Board of Directors of
EBS approves an agreement providing for the merger or consolidation of EBS with
another corporation, other than a merger in which EBS would be the surviving
corporation and which would result in (a) securities having more than 50% of the
total voting power of all classes of capital stock entitled to vote generally in
the election of directors of the surviving corporation being "beneficially
owned" (as determined pursuant to Rules 13d-3 and 13d-5 under the Exchange Act)
by the holders of the capital stock of EBS immediately prior to such merger and
(b) no "person" or "group" (as such terms are used in Section 13(d) of the
Exchange Act) "beneficially owning" (as determined pursuant to Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, securities having more
than 33% of the total voting power of all classes of capital stock entitled to
vote generally in the election of directors of the surviving corporation; or (v)
the Board of Directors of EBS approves a plan for the liquidation or dissolution
of EBS; provided, however, that no such event shall be deemed a Change in
Control if it occurs as part of the implementation of, and pursuant to the
express terms of, a plan of reorganization of EBS under Chapter 11 of Title 11
of the United States Code that has been confirmed by the Bankruptcy Court in the
Chapter 11 Case, and provided further that two or more entities shall not be
deemed to constitute a "person" or "group" for purposes hereof in respect of any
securities of EBS received by them pursuant to such plan of reorganization
merely by virtue of the fact that such entities were each members of the
statutory Creditors' Committee appointed in the Chapter 11 Case.
F-14
<PAGE>
(d) "Chapter 11 Case" means the case commenced by EBS on November 3,
1995 under Chapter 11 of Title 11 of the United States Code in the United States
Bankruptcy Court in Delaware (Case No. 95-1354 (PJW)).
(e) "Common Stock" means shares of the common stock of EBS, par value
$.01 per share, authorized and issued pursuant to the terms of a plan of
reorganization of EBS under Chapter 11 of the United States Code as confirmed by
the Bankruptcy Court in the Chapter 11 Case.
(f) "Effective Date" shall have the meaning ascribed to that term in
the Debtors' Amended Joint Plan of Reorganization, dated May 21, 1997, as such
plan may be amended or modified, or such alternative plan of reorganization as
is ultimately confirmed by the Bankruptcy Court.
10. Adjustment Upon Changes in Capitalization: In the event that each
of the outstanding shares of Common Stock of EBS shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of EBS or of another corporation, whether by reason of stock dividend,
recapitalization, merger, consolidation, split-up, spinoff, combination,
exchange of shares or the like, then there shall be substituted for each share
of Restricted Stock the number and kind of shares of stock or other securities
into which each outstanding share of Common Stock of EBS shall be so changed or
for which each such share shall be exchanged.
11. Taxes: When shares of Restricted Stock are vested or upon your
earlier election pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), to be taxed at the time of the transfer to you of the
shares of Restricted Stock, you shall simultaneously deliver to EBS sufficient
cash to satisfy federal and state income tax withholding requirements. If you do
not deliver such cash at such time, EBS may withhold from any delivery of shares
that number of shares necessary to satisfy federal and state income tax
withholding requirements and/or EBS may withhold cash compensation to satisfy
such requirements. If you do not elect pursuant to Section 83(b) of the Code to
be taxed at the time of the transfer to you of the shares of the Restricted
Stock, then at such time or times as the shares of Restricted Stock are vested
(unless such vesting occurs pursuant to paragraph 8(a) or 8(b) hereof), EBS
shall pay to you in cash such sum as is necessary (after taking into account all
federal, state and local income taxes payable by you as a result of the receipt
of such sum) to place you in the same after-tax position as you would have been
in if no federal, state or local income taxes were payable by you in respect of
the vesting of such shares of Restricted Stock. EBS may withhold from such sum
such amounts as may be necessary to satisfy federal and state income tax
withholding requirements.
12. Right to Continued Employment: Nothing in this agreement shall
confer upon you any right to continue in the employ of EBS or any of its
Subsidiaries or interfere with the right of EBS or any of its Subsidiaries to
terminate your employment at any time.
13. Investment Representation: In the event the Restricted Stock to be
delivered to you is not registered under the Securities Act of 1933, as amended
(the "1933 Act"), you represent to EBS that the shares of Restricted Stock to be
received by you will be acquired for investment for your own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that at the time of receipt of such shares of Restricted Stock you
will have no present intention of selling, granting participation in or
otherwise distributing the same. You will reconfirm such investment
representation at the time of the future delivery of shares of Restricted Stock.
You further represent that you do not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to such
person or to any third person with respect to any of the shares of Restricted
Stock.
You understand that if the Restricted Stock to be delivered to you is
not registered under the 1933 Act, on the grounds that the issuance of such
Restricted Stock is exempt from registration under the 1933 Act pursuant to
Section 4(2) thereof, EBS' reliance on such exemption will be predicated on your
representations set forth herein.
F-15
<PAGE>
You understand that the shares of Restricted Stock to be delivered to
you under this agreement may not thereafter be sold, transferred or otherwise
disposed of without registration under the 1933 Act or an exemption therefrom.
Very truly yours,
EDISON BROTHERS STORES, INC.
By: ____________________________
Name:
Title:
Agreed to and accepted
- --------------------------------
[Name of Executive]
F-16
<PAGE>
EDISON BROTHERS STORES, INC.
1997 DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Edison Brothers Stores, Inc. 1997 Directors Stock
Option Plan is to encourage qualified individuals to serve as directors of EBS
and, by acquiring a financial stake in the success of the Company, to have a
greater concern for the welfare of EBS and its stockholders.
2. Definitions
A. "Board" means the Board of Directors of EBS.
B. "Cause" means the willful commission by an optionee of a
criminal or other act that causes or will probably cause substantial
economic damage to EBS or substantial injury to the business reputation
of EBS. For purposes of this definition, no act on the optionee's part
shall be considered "willful" unless done, or omitted to be done, by
the optionee in bad faith and without reasonable belief that the
optionee's action was in the best interests of EBS.
C. "Chapter 11 Case" means the case commenced by EBS on
November 3, 1995 under Chapter 11 of Title 11 of the United States Code
in the United States Bankruptcy Court in Delaware (Case No. 95-1354
(PJW)).
D. "Committee" has the meaning set forth in Section 4 hereof.
E. "Common Stock" means shares of the common stock of EBS, par
value $.01 per share, authorized and issued pursuant to the terms of a
plan of reorganization of EBS under Chapter 11 of Title 11 of the
United States Code as confirmed by the Bankruptcy Court in the Chapter
11 Case.
F. "Director" means a member of the Board who is not an
employee of EBS or any of its Subsidiaries.
G. "Disability" means the inability of an optionee to perform
the duties of a Director by reason of a medically determined physical
or mental impairment which has existed for a continuous period of at
least 26 weeks.
H. "EBS" means Edison Brothers Stores, Inc., a Delaware
corporation.
I. "Effective Date" shall have the meaning ascribed to that
term in the Debtors' Amended Joint Plan of Reorganization, dated May
21, 1997, as such plan may be amended or modified, or in such
alternative plan of reorganization as is ultimately confirmed by the
Bankruptcy Court.
J. "Fair Market Value," when used with reference to a share of
Common Stock as of a particular date, means the average of the highest
and lowest selling prices of a share of Common Stock as reported for
that date (or, if no prices are quoted for that date, for the last
preceding date for which such prices are quoted) on the New York Stock
Exchange, or, if the Common Stock is not then listed on the New York
Stock Exchange, on such other national securities exchange on which the
Common Stock is listed or, if not so listed, then on the Nasdaq
National Market. If, as of a particular date, the Common Stock is not
listed or quoted on any national securities exchange or on the Nasdaq
National Market, then the Fair Market Value of a share of Common Stock
as of such date shall be determined according to such criteria as the
Committee in good faith shall deem appropriate.
K. "Plan" means the Edison Brothers Stores, Inc. 1997
Directors Stock Option Plan.
L. "Subsidiary" means any corporation (other than EBS) in an
unbroken chain of corporations beginning with EBS if, at the time of
the granting of an option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
F-17
<PAGE>
3. Stock Subject to the Plan
The total number of shares of Common Stock available for grants of
options under the Plan shall be 200,000. If any option shall expire or terminate
or be canceled for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the purposes of
the Plan. The shares of Common Stock subject to issuance upon exercise of
options under the Plan may be either authorized but unissued shares or shares
held in the treasury of EBS.
4. Administration
The Plan shall be administered by a committee appointed by the Board
(the "Committee") consisting of two or more members of the Board each of whom is
a "non-employee director" as such term is defined in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended. Except as otherwise provided in the
Plan, the Committee shall have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, and to
make all other determinations necessary or desirable for the administration of
the Plan. The decisions of the Committee with respect to the matters set forth
in this Section 4 shall be final and binding on all interested parties.
5. Grants of Options
A. Options may be granted under this Plan only to Directors.
B. Each person who is a Director at the close of business on
the Effective Date shall be automatically granted, effective on such
day, and without further action by the Board or the Committee, an
option to purchase 3,500 shares of Common Stock at a price per share
determined as of such date pursuant to Section 6.
C. Each person who is first elected or appointed a Director
after the Effective Date, shall be automatically granted, effective on
the date of such election or appointment, and without further action by
the Board or the Committee, an option to purchase 3,500 shares of
Common Stock at a price per share determined as of such date pursuant
to Section 6.
D. Each Director who receives an option under Section 5B or 5C
hereof and who remains a Director effective at the completion of an
Annual Meeting of Stockholders commencing with the Annual Meeting of
Stockholders held in the calendar year following the calendar year in
which such Director received an option under Section 5B or Section 5C
shall be automatically granted, effective on the day of completion of
each such Annual Meeting, and without further action by the Board or
the Committee, an option to purchase that number of shares of Common
Stock (rounded to the nearest whole number) equal to $20,000 divided by
the Fair Market Value of a share of Common Stock as of such date, such
option to be exercisable at a price per share equal to such Fair Market
Value.
E. In the event that the number of shares available for grant
under the Plan is insufficient to make all grants hereby specified on
the applicable date, then all Directors who are entitled to a grant on
such date shall share ratably in the number of shares then available
for grant under the Plan.
6. Option Price
The purchase price per share of Common Stock under each option issued
hereunder shall be the Fair Market Value of a share of Common Stock at the time
of the grant of the option.
7. Manner of Exercise and Payment
An option shall be exercised by delivery of a written notice of
exercise to EBS and payment of the full price of the shares being purchased
pursuant to the option. An optionee may exercise an option with respect to less
than the total number of shares for which the option may then be exercised. The
price of the shares purchased pursuant to an option may be paid either (i) in
cash, (ii) by the tender to EBS of shares of Common Stock owned by the optionee
and registered in the name of the optionee having an aggregate Fair Market Value
on the date of exercise equal to the price of the shares being purchased, (iii)
by delivery of irrevocable instructions to a financial institution to deliver
promptly to EBS sale or loan proceeds with respect to the shares sufficient to
pay the purchase price, (iv) through the written election of the optionee to
have shares of Common Stock withheld
F-18
<PAGE>
by EBS from the shares otherwise to be received, with such withheld shares
having an aggregate Fair Market Value on the date of exercise equal to the price
of the shares being purchased, or (v) by any combination of the payment methods
specified in clauses (i) through (iv) hereof. The proceeds received by EBS from
the sale of Common Stock subject to an option are to be added to the general
funds of EBS or to the Common Stock held in its treasury, and used for its
corporate purposes as the Board shall determine.
8. Term and Exercise of Options
Each option granted hereunder shall expire ten years from the date of
granting thereof, subject to earlier termination as provided in Section 9.
Within such limit, each option shall become exercisable for one-third of the
shares covered thereby after one year from the date of grant, shall become
exercisable for an additional one-third of the shares covered thereby after two
years from the date of grant, and shall become exercisable for the remaining
one-third of the shares covered thereby after three years from the date of
grant; provided, however, that no option shall be exercisable within the first
six months after the date of grant (except in the event of the death of the
optionee), and provided further that, except as permitted by paragraph 9, no
option may be exercised at any time unless the optionee is then a Director and
has been a Director continuously since the granting of the option.
9. Termination of Service
If a Director's service as a Director is terminated by reason of (i)
Disability, (ii) death, (iii) failure of the Board to nominate such Director for
re-election other than for Cause, or (iv) his ineligibility for re-election
pursuant to the By-laws of EBS, if applicable, such termination shall be
considered a "Qualifying Termination." In the event of a Qualifying Termination,
the Director, his legal representative, or legatee, as the case may be, may
exercise any option held by such Director, to the extent such option was
exercisable as of the date such Director ceased to be a Director, within one
year after his termination of service on the Board (but not after the date of
expiration of the option). If a Director's service is terminated as a result of
his determination not to stand for re-election, such Director may exercise any
option held by such Director, to the extent such option was exercisable as of
the date such Director ceased to be a Director, within three months after the
termination of his service on the Board (but not after the date of expiration of
the option). If a Director's service as a Director is terminated for any other
reason, including for Cause, such termination shall be considered a
"Non-Qualifying Termination." In the event of a Non- Qualifying Termination, all
outstanding unexercised options held by such Director shall terminate as of the
date of the Non- Qualifying Termination.
10. Nontransferability of Options
Each option granted under the Plan shall, by its terms, be
nontransferable otherwise than by will or the laws of descent and distribution
and an option may be exercised, during the lifetime of an optionee, only by the
optionee.
11. Amendment and Termination of the Plan
Subject to the provisions of Section 13E hereof, the Board may at any
time terminate the Plan or make such modifications of the Plan as it shall deem
advisable.
12. Term of the Plan
This Plan shall take effect as of the Effective Date and shall
terminate ten years after such date. No option shall be granted hereunder after
the expiration of such ten-year period. Options outstanding at the termination
of the Plan shall continue in full force and effect and shall not be affected
thereby.
13. Miscellaneous
A. Service as Director. Nothing in this Plan shall be
construed as conferring any right upon any Director to continue as a
member of the Board.
B. Rights as Stockholder. An optionee shall have none of the
rights of a stockholder with respect to Common Stock subject to an
option, until such shares are issued to such optionee upon exercise of
the option.
F-19
<PAGE>
C. Investment Purpose. Each option under the Plan shall be
granted only on the condition that all purchases of stock thereunder
shall be for investment purposes, and not with a view to resale or
distribution, except that the Committee may make such provision in
options granted under the Plan as it deems necessary or advisable for
the release of such condition upon the registration with the Securities
and Exchange Commission of stock subject to the options, or upon the
happening of any other contingency warranting the release of such
condition.
D. Adjustments Upon Changes in Capitalization. In the event of
changes in the outstanding Common Stock by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, spin-offs,
combinations or exchanges of shares and the like, the aggregate number
and class of shares as to which options may be granted under the Plan,
and the number, class and price of shares subject to outstanding
options, shall be appropriately adjusted by the Committee.
E. Adverse Effect on Optionee of Amendment or Termination of
Plan. No amendment or termination of the Plan may, without the written
consent of an optionee to whom any option shall have been granted,
adversely affect the rights of such optionee under such option, which
rights shall include all rights of the optionee under the Plan as it
existed as of the date of grant of the option.
14. Tax Withholding
An optionee shall be required to pay to EBS at the time of exercise of
an option the amount that EBS deems necessary to satisfy its withholding
obligation with respect to federal, state or local income or other taxes (which
for purposes of this paragraph 14 includes an optionee's FICA obligation)
incurred by reason of the exercise. Upon the exercise of an option requiring tax
withholding, an optionee may make a written election to have shares of Common
Stock withheld by EBS from the shares otherwise to be received. The number of
shares so withheld shall have an aggregate Fair Market Value on the date of
exercise sufficient to satisfy the applicable withholding taxes.
F-20
Exhibit T3F
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Debt Securities (Cross Reference Sheet*)
This Cross Reference Sheet shows the location in the Indenture of the provisions
inserted pursuant to Sections 310 - 318(a), inclusive, of the Trust Indenture
Act of 1939, as amended.
Trust Indenture Act Sections of Indenture
- ------------------- ---------------------
ss. 310(a)(1) ......................................... 9.08
(a)(2) ........................................... 9.08
(a)(3) ........................................... Inapplicable
(a)(4) ........................................... Inapplicable
(a)(5) ........................................... 9.08
(b) ........................................... 9.07 and 9.09
(c) ........................................... Inapplicable
ss. 311(a) ........................................... 9.12
(b) ........................................... 9.12
(c) ........................................... Inapplicable
ss. 312(a) ........................................... 7.01 and 7.02
(b) ........................................... 7.02
(c) ........................................... 7.02
ss. 313(a) ........................................... 7.03
(b) ........................................... 7.03
(c) ........................................... 7.03
(d) ........................................... 7.03
ss. 314(a) ........................................... 7.04
(a)(4) ........................................... 1.01 and 6.07
(b) ........................................... Inapplicable
(c)(1) ........................................... 13.05
(c)(2) ........................................... 13.05
(c)(3) ........................................... Inapplicable
(d) ........................................... Inapplicable
(e) ........................................... 13.05
(f) ........................................... Inapplicable
ss. 315(a) ........................................... 9.01
(b) ........................................... 8.08
(c) ........................................... 9.01
(d) ........................................... 9.01
(e) ........................................... 8.07
ss. 316(a) ........................................... 1.01
(a)(1)(A) ........................................... 8.01 and 8.06
(a)(1)(B) ........................................... 8.01
(a)(2) ........................................... Inapplicable
(b) ........................................... 8.09
(c) ........................................... 13.11
ss.317(a)(1) ........................................... 8.02
(a)(2) ........................................... 8.02
(b) ........................................... 6.03
ss. 318(a) ........................................... 13.08
- --------------------------
* The Cross Reference Sheet is not part of the Indenture.
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