IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - x
:
In re : Chapter 11
:
LEVITZ FURNITURE : Case No. 97-1842 (MFW)
INCORPORATED, et al., :
: Jointly Administered
Debtors. :
:
- - - - - - - - - - - - - - - - - - - - - - x
DISCLOSURE STATEMENT WITH RESPECT TO THIRD
AMENDED JOINT PLAN OF REORGANIZATION OF
LEVITZ FURNITURE INCORPORATED AND ITS SUBSIDIARIES
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
LLP Four Times Square New York, New
York 10036-6522
(212) 735-3000
Sally McDonald Henry
Steven B. Eichel
-and-
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
Gregg M. Galardi
Eric M. Davis
Attorneys for Levitz Furniture
Incorporated et al.,
Debtors and Debtors-in-Possession
Dated: Wilmington, Delaware
October 30, 2000
EXECUTIVE SUMMARY
On September 5, 1997 (the "Petition Date"), Levitz Furniture
Incorporated ("LFI"), Levitz Furniture Corporation ("LFC"), Levitz
Furniture Realty Corporation ("LFRC"), Levitz Shopping Service, Inc.
("LSS"), Levitz Furniture Company of the Midwest, Inc. ("Midwest"), Levitz
Furniture Company of the Pacific, Inc. ("Pacific"), Levitz Furniture
Company of Washington, Inc. ("Washington"), Levitz Furniture Company of the
Midwest Realty, Inc. ("Midwest Realty"), Levitz Furniture Company of the
Pacific Realty, Inc. ("Pacific Realty"), Levitz Furniture Company of
Washington Realty, Inc. ("Washington Realty"), John M. Smyth Company
("JMS") and John M. Smyth Realty Company ("JMS Realty") (collectively,
"Levitz" or the "Debtors") filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code. This Disclosure Statement
describes certain aspects of the Plan, the Debtors' former operations,
significant events occurring in the Debtors' Chapter 11 cases and related
matters. This Executive Summary is intended solely as a summary of the
distribution provisions of the Plan. FOR A COMPLETE UNDERSTANDING OF THE
PLAN, YOU SHOULD READ THE DISCLOSURE STATEMENT, THE PLAN, AND THE EXHIBITS
THERETO IN THEIR ENTIRETY. Capitalized terms used in this Executive Summary
and not otherwise defined herein have the meanings ascribed to them in the
Disclosure Statement and the Plan.
The structure of the Plan and the distribution to holders of Claims
and Interests thereunder reflect the result of extensive negotiations
between Resurgence Asset Management, L.L.C., on behalf of its and its
affiliate accounts ("RAM"), the Creditors' Committee and Cerberus Capital
Management, L.P. on behalf of funds and accounts that it manages directly
or indirectly ("Cerberus"). Each of these three groups has advised the
Debtors that they support the Plan. Under the Plan, a holder of an Allowed
Class 5 General Unsecured Claim (as defined below) shall receive a portion
of outstanding common stock of a new entity to be formed on the Effective
Date of the Plan - Levitz Home Furnishings, Inc. ("LHFI"). LHFI will own
Levitz and is expected to also own the outstanding stock of Seaman
Furniture Company, Inc. ("Seaman").
The holders of the Class 5 General Unsecured Claims shall receive
approximately 7.0% of the outstanding stock of LHFI for such Claims. RAM,
which also holds Class 5 Claims, will receive approximately 63.1% of the
outstanding stock of LHFI for contributing its Seaman stock to LHFI and
approximately 18.7% in exchange for its administrative claim. Approximately
6.6 % of the LHFI stock will be held by certain new investors ("New
Investors"). Estimates of Class 5 percentage ownership of LHFI equity
assume (1) a New Investor equity dilution of $26.8 million and (2)
approximate Class 5 claims to aggregate $306.0 million (Subclass 5.01,
$99.6 million; Subclass 5.02, $96.4 million; Subclass 5.03, $101.3 million,
Subclass 5.04, $8.7 million). These estimates are, subject to change, and,
accordingly, actual distributions may vary. In addition, Ableco LLC
("Ableco Parent"), the ultimate parent corporation of Ableco Finance LLC
("Ableco") or its designee, in connection with providing the Junior Secured
Debt Facility will receive approximately 4.7% of the outstanding stock of
LHFI. The above percentages showing equity ownership of LHFI exclude
warrants to be to issued to (i) Ableco Parent and RAM in connection with
providing the Junior Secured Debt Facility and (ii) senior management of
Seaman and Levitz, and is subject to a final determination of the amount of
Allowed Claims in these cases.
The Creditors' Committee supports the Plan and recommends that the
holders of Class 4 Small Unsecured Claims and Class 5 General Unsecured
Claims vote in favor of the Plan.
SUMMARY OF ANTICIPATED DISTRIBUTIONS UNDER THE PLAN
CLASS DESCRIPTION TREATMENT UNDER THE PLAN
----------------- ------------------------
Class 1 -- Other Priority Claims O UNIMPAIRED
O A holder of an Allowed Class 1 Other
Priority Claim shall receive (i) Cash
equal to the amount of such Allowed
Class 1 Other Priority Claim or (ii)
such other treatment as to which the
Debtors and such holder shall have
agreed upon in writing.
Estimate of Claims $0.00*
Class 2 -- Setoff Claims O UNIMPAIRED
O A holder of an Allowed Class 2 Setoff
Claim shall (a) be entitled to set off
such Allowed Class 2 Setoff Claim or
(b) receive such other treatment as to
which the Debtors and such holder
shall have agreed upon in writing.
Estimate of Claims $0.00
Class 3 -- Miscellaneous Secured O UNIMPAIRED
Claims
O The legal, equitable and contractual
rights of a holder of Allowed
Miscellaneous Secured Claims shall be
Reinstated. The Debtors' failure to
object to such Miscellaneous Secured
Claims in the Chapter 11 cases shall
be without prejudice to Reorganized
Levitz's right to contest or otherwise
defend against such Claim in the
appropriate forum when and if such
Claim is sought to be enforced by a
holder of a Class 3 Miscellaneous
Secured Claim. Notwithstanding section
1141(c) or any other provision of the
Bankruptcy Code, all prepetition liens
on property of the Debtors held by or
on behalf of a holder of a Class 3
Miscellaneous Secured Claim with
respect to such Claims shall survive
the Effective Date and continue in
accordance with the contractual terms
of the underlying agreements with each
such holder of a Claim until, as to
each such holder of a Claim, the
Allowed Claims of such holder of a
Class 3 Miscellaneous Secured Claim
are paid in full. Class 3 Claims are
not Impaired.
Estimate of Claims $420,230
Class 4 -- Small Unsecured
Claims O IMPAIRED
-----------
* The Debtors intend to object to claims in one or more classes. The
final amount of claims in each class will depend upon the result of
those claims objections.
O A holder of an Allowed Class 4 Small
Unsecured Claim - which includes an
Allowed General Unsecured Claim equal
to or less than $40,000 arising from
(i) the 13.375% Senior Notes due
October 15, 1998 (Class 4.02), (ii)
the 9.625% Senior Subordinated Notes
due July, 2003 (Class 4.03), (iii) the
Senior Deferred Coupon Debentures due
June 15, 2002 (Class 4.04), (iv) all
other General Unsecured Claims,
including trade claims, rejection
claims for prepetition contracts and
leases, and personal injury claims
(Class 4.01) - shall receive Cash in
full satisfaction, settlement,
release, and discharge of such Allowed
Class 4 Small Unsecured Claim,
including any right of contractual
subordination under the Senior Note
Indenture and the Senior Notes. The
approximate percentage recovery of
such Allowed Class 4 Small Unsecured
Claims shall be as follows:
Approximate
Subclass % Distribution
-------- --------------
4.01 9.4%
4.02 12.6%
4.03 6.3%
4.04 9.4%
The treatment of Subclasses 4.02 and
4.03 incorporates a settlement of
subordination issues in the form of a
2 to 1 step down between the 13.375%
Senior Notes due October 15, 1998 and
the 9.625% Senior Subordinated Notes
due July, 2003. This settlement was
reached after extensive negotiations
between the largest holders of these
securities.
Estimate of Claims $11,000,000
Class 5 -- General Unsecured O IMPAIRED
Claims
O Holders of Allowed Class 5 General
Unsecured Claims - which include
Claims in excess of $40,000 arising
from (i) the 13.375% Senior Notes due
October 15, 1998 (Class 5.02), (ii)
the 9.625% Senior Subordinated Notes
due July, 2003 (Class 5.03), (iii) the
Senior Deferred Coupon Debentures due
June 15, 2002 (Class 5.04), (iv) all
other General Unsecured Claims,
including trade claims, rejection
claims for prepetition contracts and
leases, and personal injury claims
(Class 5.01) - shall receive in total,
a distribution of 7.0% of the LHFI
Initially Issued and Outstanding
Common Stock, in full satisfaction,
settlement, release, and discharge of
such Allowed Class 5 General Unsecured
Claim, including any right of
contractual subordination under the
Senior Note Indenture and the Senior
Notes. The distribution of stock to
holders of Allowed Class 5 General
Unsecured Claims is subject to a final
determination of the amount of Allowed
Claims in these cases and depends on
the nature of the claim made. It is
anticipated that distributions will be
made in approximate accordance with
the following table:
<TABLE>
<CAPTION>
Approximate Approximate
Subclass Estimated Claims % Ownership % Distribution
-------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
5.01 $ 99.6 million 2.3% 9.4%
5.02 $ 96.4 million 3.0% 12.6%
5.03 $ 101.3 million 1.6% 6.3%
5.04 $ 8.7 million 0.2% 9.4%
---------------
Total $306.0 million**
</TABLE>
The treatment of Subclasses 5.02 and
5.03 incorporates a settlement of
subordination issues in the form of a
2 to 1 step down between the 13.375%
Senior Notes due October 15, 1998 and
the 9.625% Senior Subordinated Notes
due July, 2003. This settlement was
reached after extensive negotiations
between the largest holders of these
securities. The above estimates of
Class 5 percentage ownership of LHFI
equity assume (1) a New Investor
equity dilution of $26.8 million and
(2) the claims estimates set forth
above. These estimates are subject to
change and, accordingly, actual
distributions may vary from the
estimates set forth above.
Estimate of Claims $295,000,000
Class 6 -- Subordinated Claims O IMPAIRED
O A holder of a Class 6 Subordinated
Claim shall not be entitled to, and
shall not, receive or retain any
property or interest in property on
account of such Class 6 Subordinated
Claim.
Class 7 -- Intercompany Claims O IMPAIRED
O A holder of a Class 7 Intercompany
Claim shall not be entitled to, and
shall not, receive or retain any
property or interest in property on
account of such Class 7 Intercompany
Claim.
Class 8 -- Interests O IMPAIRED
O A holder of a Class 8 Interest shall
not be entitled to, and shall not,
receive or retain any property or
interest in property on account of
such Class 8 Interest.
------------
** The Debtors estimate that the total amount of unsecured claims is
approximately $306 million, and that approximately $11,000,000 are
Class 4 Small Unsecured Claims and $295,000,000 are Class 5 General
Unsecured Claims. The actual amount of claims in both classes will
depend, in part, upon the results of the Debtors' objections to
claims.
DISCLAIMER
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED
HEREIN FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE JOINT REORGANIZATION
PLAN OF LEVITZ FURNITURE INCORPORATED AND ITS SUBSIDIARIES (THE "PLAN") AND
MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE
ON THE PLAN. NO PERSON MAY GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED
IN THIS DISCLOSURE STATEMENT, REGARDING THE PLAN OR THE SOLICITATION OF
ACCEPTANCES OF THE PLAN.
ALL CREDITORS SHOULD READ THIS DISCLOSURE STATEMENT AND THE PLAN IN
THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES
AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT, INCLUDING THE PRECEDING
SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN AND THE
EXHIBITS ANNEXED TO THE PLAN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE
STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF. AFTER THE DATE HEREOF, THERE
CAN BE NO ASSURANCE THAT (A) THE INFORMATION AND REPRESENTATIONS CONTAINED
HEREIN WILL BE MATERIALLY ACCURATE, AND (B) THIS DISCLOSURE STATEMENT
CONTAINS ALL MATERIAL INFORMATION.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE FEDERAL RULES
OF BANKRUPTCY PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR
STATE SECURITIES LAWS OR OTHER NON-BANKRUPTCY LAW. THIS DISCLOSURE
STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE SEC PASSED UPON THE ACCURACY
OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THIS DISCLOSURE STATEMENT
WAS PREPARED TO PROVIDE HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE
DEBTORS WITH "ADEQUATE INFORMATION" (AS DEFINED IN THE BANKRUPTCY CODE) SO
THAT THEY CAN MAKE AN INFORMED JUDGMENT ABOUT THE PLAN. PERSONS OR ENTITIES
TRADING IN, OR OTHERWISE PURCHASING, SELLING, OR TRANSFERRING, SECURITIES
OF THE DEBTORS SHOULD NOT RELY UPON THIS DISCLOSURE STATEMENT FOR SUCH
PURPOSES AND SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN
LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED.
THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS
AN ADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT RATHER
AS A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS AS TO CONTESTED MATTERS,
ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENED ACTIONS.
THE DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY
NONBANKRUPTCY PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, NOR
SHALL IT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, OR
OTHER LEGAL EFFECTS OF THE REORGANIZATION OR PLAN AS TO HOLDERS OF CLAIMS
AGAINST, OR INTERESTS IN, THE DEBTORS.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
I. INTRODUCTION..................................................................1
II. THE BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES.......................1
A. Definitions...........................................................1
B. Notice To Holders Of Claims And Interests.............................1
C. Solicitation Package..................................................2
D. Voting Procedures, Ballots, And Voting Deadline.......................2
E. Confirmation Hearing And Deadline For Objections To Confirmation......3
III. POST EMERGENCE OPERATIONS....................................................4
A. OVERVIEW OF POST EMERGENCE OPERATIONS.................................4
B. STRUCTURE OF OPERATIONS...............................................5
C. POST EMERGENCE CAPITAL STRUCTURE......................................5
1. Post Confirmation Senior Secured Borrowing Facility...........5
2. Junior Secured Debt Facility..................................6
3. Equity........................................................6
D. RESURGENCE ASSET MANAGEMENT, LLC......................................6
E. OVERVIEW OF SEAMAN....................................................7
F. ABLECO................................................................7
IV. HISTORY OF THE DEBTORS AND COMMENCEMENT OF THE CASES..........................7
A. OVERVIEW OF PREPETITION OPERATIONS....................................7
1. History.......................................................7
2. Overview of Business Operations...............................7
3. Merchandising.................................................8
4. Competition...................................................8
5. Employees.....................................................8
B. PREPETITION ACQUISITION ACTIVITIES....................................9
C. LEGAL PROCEEDINGS.....................................................9
D. EVENTS LEADING TO CHAPTER 11 FILINGS..................................9
V. PREPETITION CAPITAL STRUCTURE OF THE DEBTORS.................................10
A. THE PREPETITION CREDIT FACILITIES....................................10
B. UNSECURED DEBT.......................................................10
VI. THE DEBTORS' CORPORATE STRUCTURE............................................11
A. CURRENT CORPORATE STRUCTURE..........................................11
B. SENIOR OFFICERS AND DIRECTORS........................................11
1. Management ..................................................11
2. Levitz Furniture Incorporated................................11
C. EXECUTIVE EMPLOYMENT AGREEMENTS......................................12
VII. THE CHAPTER 11 CASES.......................................................12
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION.........................12
B. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES.......................13
1. First Day Orders.............................................13
2. Parties In Interest and Advisors.............................13
3. The DIP Facility.............................................14
4. Results of Postpetition Operations...........................15
5. Postpetition Customer Credit Program.........................15
6. Customer Credit Insurance Program............................16
7. Closing Unprofitable Stores Through GOB Sales................16
8. Sale/Leaseback Transaction...................................16
9. Bulk Sale Transaction........................................17
10. Other Significant Court Actions..............................17
VIII. SUMMARY OF THE PLAN.......................................................22
A. OVERALL STRUCTURE OF THE PLAN........................................23
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.................23
1. Unclassified Claims..........................................23
2. Unimpaired Classes Of Claims.................................24
3. Impaired Classes of Claims...................................25
4. Impaired Class of Interests..................................27
C. MEANS OF PLAN IMPLEMENTATION.........................................27
1. Cancellation Of Existing Securities..........................27
2. Substantive Consolidation....................................27
3. Termination of DIP Facility..................................28
4. The Creditors' Committee.....................................28
D. MISCELLANEOUS........................................................28
1. Litigation Concerning Management Agreement and Shared
Services Agreement..........................................28
2. Officers and Directors.......................................28
3. Post Emergence Employment Contracts..........................28
4. Certificate Of Incorporation And By-Laws.....................29
E. DISTRIBUTIONS UNDER THE PLAN.........................................29
1. Disbursing Agent.............................................29
2. LHFI Stock...................................................29
3. Issuance of Warrants.........................................29
4. Date of Distributions........................................30
5. Surrender Of Debt Securities.................................30
6. Record Date For Distribution To Creditors Holding
Debt Securities..............................................30
7. Means Of Cash Payment........................................30
8. Interest on Claims...........................................30
9. No Fractional Securities Issued..............................31
F. RESOLUTION OF DISPUTED CLAIMS........................................31
1. Objection Deadline...........................................31
2. No Distributions Pending Allowance...........................31
3. Administrative Claims Distribution Reserve...................31
4. Unsecured Claims Distribution Reserve........................31
5. Miscellaneous................................................32
G. ADMINISTRATIVE CLAIMS BAR DATES......................................32
1. Professional Fees............................................32
2. Other Administrative Claims..................................33
H. MISCELLANEOUS PLAN PROVISIONS........................................33
1. Preservation of Litigation Claims............................33
2. Treatment of Executory Contracts and Unexpired Leases........33
3. Allocation of Plan Distributions Between Principal
and Interest.................................................34
4. Retention of Jurisdiction....................................34
5. Injunction Regarding Worthless Stock Deduction...............34
6. Revesting of Assets..........................................34
I. MODIFICATIONS AND AMENDMENTS TO THE PLAN.............................34
J. EXCULPATION AND LIMITATION OF LIABILITY..............................35
IX. CERTAIN FACTORS TO BE CONSIDERED............................................35
A. GENERAL CONSIDERATIONS...............................................35
B. CERTAIN BANKRUPTCY CONSIDERATIONS....................................35
1. Objection to Classifications.................................35
2. Risk of Nonconfirmation of the Plan..........................35
C. LITIGATION...........................................................36
D. ILLIQUID REORGANIZED EQUITY..........................................36
E. UNLIQUIDATED CLAIMS..................................................36
F. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS........................36
G. DIVIDENDS............................................................37
H. EXIT FINANCING.......................................................37
I. CERTAIN TAX CONSIDERATIONS...........................................37
X. RESALE OF SECURITIES RECEIVED UNDER THE PLAN.................................37
XI. MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN................................................38
A. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO LEVITZ..............39
1. Cancellation of Indebtedness Income..........................39
2. Amount and Use of Net Operating Loss Carryforwards
and Other Tax Attributes...................................40
3. Deductions of Accrued Interest by Reorganized Levitz.........43
4. Alternative Minimum Tax......................................43
B. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
OF CLAIMS AND INTERESTS............................................43
1. Class 1 (Other Priority Claims), Class 2 (Setoff
Claims) and Class 4 (Small Unsecured Claims)...............43
2. Class 3 (Miscellaneous Secured Claims).......................44
3. Class 5 (General Unsecured Claims)...........................44
4. Class 6 (Subordinated Claims) and Class 8 (Interests)........45
5. Market Discount..............................................46
6. Bad Debt or Loss Deduction...................................46
7. Information Reporting and Backup Withholding.................46
XII. PLAN CONFIRMATION..........................................................47
A. REQUIREMENTS FOR PLAN CONFIRMATION...................................47
B. PLAN FEASIBILITY.....................................................48
C. ACCEPTANCE OF THE PLAN...............................................48
D. BEST INTERESTS OF CLAIMHOLDERS.......................................48
E. LIQUIDATION ANALYSIS.................................................49
1. Assumptions..................................................49
2. Distributions; Absolute Priority.............................50
3. Conclusion...................................................50
F. PROJECTIONS AND VALUATION ANALYSIS OF LHFI...........................50
1. Projections..................................................50
2. Valuation....................................................51
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES:
THE "CRAMDOWN" ALTERNATIVE...........................................52
H. CONDITIONS TO THE CONFIRMATION DATE AND THE EFFECTIVE DATE...........53
I. WAIVER OF CONDITIONS.................................................55
J. EFFECT OF CONFIRMATION AND CONSUMMATION..............................55
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.................55
A. CONTINUATION OF THE CHAPTER 11 CASES.................................55
B. LIQUIDATION UNDER CHAPTER 7..........................................56
C. ALTERNATIVE PLAN OF REORGANIZATION...................................56
XIV. VOTING REQUIREMENTS........................................................56
A. VOTING REQUIREMENTS..................................................57
B. SPECIAL NOTE FOR HOLDER OF SECURITIES................................58
1. Beneficial Owners............................................58
2. Brokerage Firms, Banks, And Other Nominees...................58
C. FIDUCIARIES AND OTHER REPRESENTATIVES................................59
D. PARTIES IN INTEREST ENTITLED TO VOTE.................................59
E. CLASSES IMPAIRED UNDER THE PLAN......................................59
XV. CONCLUSION..................................................................60
A. HEARING ON AND OBJECTIONS TO CONFIRMATION............................60
1. Confirmation Hearing.........................................60
2. Date Set For Filing Objections To Confirmation...............61
B. DOCUMENTS REFERENCED SHOULD BE READ FOR COMPLETE INFORMATION.........61
C. SOURCES OF INFORMATION FOR DISCLOSURE STATEMENT......................61
D. RECOMMENDATION.......................................................61
TABLE OF EXHIBITS
EXHIBIT NAME
A Reorganization Plan of Levitz Furniture, Inc. and Its Subsidiaries
B List of Officers and Directors for LFI's Subsidiaries
C LFI Form 10-Q For Fiscal Quarter Ended June 30, 2000
D LFI Form 10-K For Fiscal Year Ended March 31, 2000
E Projections
F Liquidation Analysis
</TABLE>
DISCLOSURE STATEMENT WITH RESPECT TO THIRD AMENDED JOINT PLAN OF
REORGANIZATION OF LEVITZ FURNITURE INCORPORATED AND ITS SUBSIDIARIES
I. INTRODUCTION
The Debtors*** hereby transmit this disclosure statement (the
"Disclosure Statement") pursuant to section 1125 of the United States
Bankruptcy Code (the "Bankruptcy Code"), for use in the solicitation of
votes on their third amended joint reorganization plan, dated and filed
with the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") on October 30, 2000 (the "Plan"). A copy of the Plan is
attached to this Disclosure Statement as Exhibit A.
This Disclosure Statement sets forth certain information regarding
the Debtors' prepetition operating and financing history, the need to seek
Chapter 11 protection, significant events that have occurred during the
Debtors' Chapter 11 cases, and the anticipated organization, operation and
financings of Reorganized Levitz. This Disclosure Statement also describes
the Plan, certain effects of Plan confirmation, certain risk factors
associated with securities to be issued under the Plan, and the manner in
which distributions will be made under the Plan. In addition, this
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of Claims in impaired Classes must follow for their
votes to be counted.
For a description of the plan as it relates to holders of claims
against the debtors, please see "Summary of the Plan."
This disclosure statement contains summaries of certain provisions
of the Plan, certain statutory provisions, certain documents related to the
Plan, certain events in the Debtors' chapter 11 cases, and certain
financial information. Although the Debtors believe that the Plan and
related document summaries are fair and accurate, such summaries are
qualified to the extent that they do not set forth the entire text of such
documents or statutory provisions. Factual information contained in this
disclosure statement has been provided by the Debtors' management, except
where otherwise specifically noted. The Debtors are unable to warrant or
represent that the information contained herein, including the financial
information, is without any inaccuracy or omission.
II. THE BANKRUPTCY PLAN VOTING INSTRUCTIONS AND PROCEDURES
A. DEFINITIONS
Except as otherwise provided herein, capitalized terms not
otherwise defined in this Disclosure Statement have the meanings ascribed
to them in the Plan.
B. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
This Disclosure Statement is being transmitted to holders of
certain Claims against, or Interests in, the Debtors. The primary purpose
of this Disclosure Statement is to provide those Creditors voting on the
Plan with adequate information so that they can make a reasonably informed
decision with respect to the Plan before voting to accept or to reject the
Plan.
On November 1, 2000, the Bankruptcy Court approved this Disclosure
Statement as containing information of a kind and in sufficient detail
adequate to enable the holders of Claims against the Debtors to make an
informed judgment about the Plan. THE BANKRUPTCY COURT'S APPROVAL OF THIS
DISCLOSURE STATEMENT CONSTITUTES NEITHER A GUARANTY OF THE ACCURACY OR
COMPLETENESS OF THE INFORMATION CONTAINED HEREIN, NOR AN ENDORSEMENT OF THE
PLAN BY THE BANKRUPTCY COURT.
-----------
*** The terms "Levitz" and "Debtors" are used interchangeably to refer
to all of the debtors that filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code.
IF CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, WHETHER OR NOT THEY
ARE ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY
RECEIVE OR RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, YOU
ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT CAREFULLY. IN PARTICULAR,
HOLDERS OF IMPAIRED CLAIMS WHO ARE ENTITLED TO VOTE ON THE PLAN ARE
ENCOURAGED TO READ THIS DISCLOSURE STATEMENT, THE PLAN, AND THE EXHIBITS TO
THE PLAN CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
TO REJECT THE PLAN. This Disclosure Statement contains important
information about the Plan, the liquidation and distribution of the
Debtors' assets, considerations pertinent to acceptance or rejection of the
Plan, and developments concerning the Chapter 11 cases.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT
IS BY ITS NATURE FORWARD LOOKING AND CONTAINS OR MAY CONTAIN ESTIMATES,
ASSUMPTIONS AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL
FUTURE RESULTS. Except as otherwise specifically and expressly stated
herein, this Disclosure Statement does not reflect any events that may
occur after the date hereof and that may have a material impact on the
information contained in this Disclosure Statement. Further, the Debtors do
not anticipate that any amendments or supplements to this Disclosure
Statement will be distributed to reflect such occurrences. Accordingly, the
delivery of this Disclosure Statement shall not under any circumstance
imply that the information herein is correct or complete as of any time
after the date hereof.
THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY THE
BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ON
THE PLAN. No solicitation of votes may be made until distribution of this
Disclosure Statement, and no person has been authorized to distribute any
information concerning the Debtors other than the information contained
herein.
C. SOLICITATION PACKAGE
Accompanying this Disclosure Statement are copies of (i) the Plan
(Exhibit A); (ii) the notice of, among other things, the time for
submitting ballots ("Ballots") to accept or reject the plan, the date, time
and place of the hearing to consider confirmation of the Plan and related
matters, and the time for filing objections to confirmation of the Plan
(the "Confirmation Hearing Notice"); and (iii) for creditors whose Claims
are impaired and who are entitled to vote on the Plan, one or more Ballots
(and return envelopes) to be used in voting to accept or to reject the
Plan. If you did not receive a Ballot in your package and believe that you
should have, please contact the voting agent named below in the next
subsection.
D. VOTING PROCEDURES, BALLOTS, AND VOTING DEADLINE
After carefully reviewing the Plan, this Disclosure Statement, and
the detailed instructions accompanying your Ballot, please (i) indicate
your acceptance or rejection of the Plan by checking the appropriate box on
the enclosed Ballot and (ii) complete and sign your ORIGINAL Ballot (copies
will not be accepted) and return it in the envelope provided so that it is
RECEIVED by the Voting Deadline (as defined below). Please note that if you
are in Class 4 or 5 and hold the Debt Securities evidencing your Claim
through a broker or other financial intermediary, you must return your
ballot to such broker or financial intermediary sufficiently in advance of
the Voting Deadline to permit such broker or financial intermediary to fill
out and return a master ballot by the Voting Deadline.
Each Ballot has been coded to reflect the Class of Claims it
represents. Accordingly, in voting to accept or reject the Plan, you must
use only the coded Ballot or Ballots sent to you with this Disclosure
Statement. If you believe you received the wrong Ballot, please contact the
voting agent named below in the next subsection.
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY
COMPLETED AS SET FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS
ACCOMPANYING THE BALLOT AND RECEIVED NO LATER THAN DECEMBER 4, 2000 AT 4:00
P.M. EASTERN TIME (THE "VOTING DEADLINE") BY DONLIN, RECANO & CO., INC.
(THE "VOTING AGENT"). DO NOT RETURN ANY DEBT INSTRUMENTS WITH YOUR BALLOT.
If you have any questions about the procedure for voting your Claim
or with respect to the packet of materials that you have received, please
contact the Voting Agent at the following address and phone number:
Donlin, Recano & Co., Inc.
419 Park Avenue South
Suite 1206
New York, New York 10016
(212) 481-1411
If you wish to obtain, at your own expense (unless otherwise
specifically required by Fed. R. Bank. P. 3017(d)), an additional copy of
the Plan, this Disclosure Statement, or any exhibits to such documents,
please contact the Voting Agent.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR
REJECT THE PLAN, SEE "VOTING REQUIREMENTS."
E. CONFIRMATION HEARING AND DEADLINE FOR OBJECTIONS TO CONFIRMATION
The Bankruptcy Court has scheduled a hearing on confirmation of the
Plan (the "Confirmation Hearing") to begin on December 8, 2000 at 2:00 p.m.
Eastern Time, or as soon thereafter as counsel may be heard, before the
Honorable Mary F. Walrath, United States Bankruptcy Judge, in the United
States Bankruptcy Court, 824 Market Street, 6th Floor, Wilmington, Delaware
19801. The Bankruptcy Court has directed that objections, if any, to
confirmation of the Plan must be filed with the clerk of the Bankruptcy
Court and served so that they are RECEIVED on or before December 4, 2000,
at 4:00 p.m. Eastern Time by:
<TABLE>
<CAPTION>
Counsel for the Debtors United States Trustee
<S> <C>
Skadden, Arps, Slate, Meagher & Flom LLP The Office of the United States Trustee
Four Times Square 601 Walnut Street
New York, New York 10036-6522 Curtis Center, Suite 950
Attn: Sally McDonald Henry Philadelphia, Pennsylvania 19106
- and - Attn: Maria Giannirakis, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19899-0636
(302) 651-3000
Attn: Gregg M. Galardi
Counsel for the Creditors' Committee
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue, 19th Floor
New York, New York 10038
Attn: Lisa G. Beckerman, Esq.
-and-
Rosenthal, Monhait, Gross & Goddess, P.A.
Mellon Bank Center, Suite 1401
Wilmington, Delaware 19899-1070
Attn: Kevin Gross, Esq.
Ableco Finance LLC
Cerberus Capital Management
450 Park Avenue, 28th Floor
New York, New York 10022
Attn: Mark A. Neporent
Counsel to RAM
O'Melveny & Myers LLP
Citicorp Center
153 East 53rd Street
New York, New York 10022-4611
Attn: Peter Pantaleo, Esq.
</TABLE>
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.
III. POST EMERGENCE OPERATIONS
A. OVERVIEW OF POST EMERGENCE OPERATIONS
As an integral part of Levitz' emergence from Chapter 11, a new
holding company--LHFI-will be created to own 100% of the stock of both
Levitz and Seaman and to allow the operations of the two companies to be
combined in certain respects. The combination of Levitz and Seaman will
occur upon the effectiveness of the Plan. Under the Plan, Class 5 General
Unsecured Creditors will receive stock in LHFI.
In general, LHFI's strategy will be to continue to operate the
"front-end" Levitz and Seaman retail stores as separate chains, with
distinct merchandising, store appearance and operating management teams,
while combining the "back-end" distribution warehousing and corporate
administrative support functions. LHFI's organization will allow it to
operate its stores with strong senior management with regional focus.
Edward Grund, Levitz's Chief Executive Officer, will manage LHFI's West
Coast operations, which will consist of the current 43 Levitz retail stores
and affiliated distribution centers. Alan Rosenberg, Seaman's Chief
Executive Officer, will manage LHFI's East Coast operations, which will
consist of the current 58 Seaman's retail stores and the current 15 Levitz
East Coast stores, along with the affiliated distribution centers. Levitz's
corporate headquarters, located in Boca Raton, Florida and accounting
office, located in Pottstown, Pennsylvania, will be consolidated with
Seaman's corporate functions into offices located in Long Island, New York.
LHFI's strategy will focus on three core initiatives:
o CONSOLIDATION OF LEVITZ'S DISTRIBUTION SYSTEM. Levitz currently
operates 20 distribution centers, with 7 on the East Coast and 13
on the West Coast. Although this represents a significant reduction
from the 36 distribution centers Levitz operated in its continuing
markets as of the Petition Date, the continued large number of
distribution centers would provide many disadvantages to Levitz,
including logistical complexity, slow inventory turnover, high
in-bound freight costs, inability to economically source product
offshore and high operating costs due to inefficient warehouse
design. In contrast, Seaman operates in a centralized distribution
environment, with two distribution centers and a cross-docking
facility serving its entire company. As part of combining the
operations of the two companies, all of the current Levitz East
Coast distribution centers will be closed and their distribution
will be fulfilled out of a new facility currently under
construction that will serve both Levitz and Seaman. Separately,
centralized distribution facilities will be opened to support the
Levitz West Coast operations in the Los Angeles, San Francisco and
Seattle/Portland markets. The total number of distribution centers
servicing the Levitz stores is projected to decline to 7 by fiscal
2004.
o INCREASED STORE DENSITY WITHIN EXISTING CORE MARKETS. Levitz and
Seaman will continue the strategy that they have both pursued to
increase their store density within core markets on the East and
West Coasts by opening new retail locations. Total LHFI store count
is projected to increase from 116 in fiscal 2001 to 165 in fiscal
2005. By filling-in existing markets, it is anticipated that LFHI
will achieve additional economies in costs such as advertising and
general and administrative expenses and to leverage existing
distribution capacity.
o STRONGER VENDOR RELATIONSHIPS. Both Levitz and Seaman will
undertake efforts to consolidate their vendor structure and build
stronger partnering relationships with key vendors who can support
the complex demands of regionally dominant, mass-market furniture
retailers. By creating closer vendor relationships, it is
anticipated that LHFI can remove costs from the vendor/merchant
channel and can improve the product offering to the customer.
B. STRUCTURE OF OPERATIONS
[GRAPHIC OMITTED]
C. POST EMERGENCE CAPITAL STRUCTURE
1. Post Confirmation Senior Secured Borrowing Facility
It is anticipated that LHFI will enter into a senior secured
borrowing facility (the "Senior Facility") that would provide for a maximum
commitment of approximately $100 million and would be secured by a lien on
substantially all the assets of LHFI and its subsidiaries. The Senior
Facility would provide for revolving borrowings and the issuance of letters
of credit with maximum outstanding borrowings at any time being subject to
a borrowing base with customary advance rates against eligible inventory
and accounts receivable. It is expected that the interest rate on the
Senior Facility would be defined with reference to customary LIBOR and
prime rate indices. The Senior Facility, in connection with the Junior
Secured Debt Facility discussed below, will provide for LHFI's operating
and working capital financing needs.
It is anticipated that an inter-creditor agreement would provide,
among other things, for the Junior Secured Debt Facility to have liens and
security interests in all assets of LHFI and its subsidiaries, junior to
the liens and security interest in favor of the Senior Facility. The Senior
Facility or the inter-creditor agreement would also provide for the
periodic borrowing and repayment of the Junior Secured Debt Facility,
subject to minimum availability amounts determined pursuant to the Senior
Facility borrowing base.
It is anticipated that LHFI will borrow approximately $6.8 million
secured by a mortgage on a distribution center owned by Seaman. The
proceeds would be used to repay the approximately $2.7 million existing
mortgage on that property and to provide additional working capital. If
this mortgage financing were originated with the Senior Facility lender,
the total borrowings under the Senior Facility would increase by the amount
of the new mortgage.
2. Junior Secured Debt Facility.
The Junior Secured Debt Facility will be a $47 million, or such
larger amount to be agreed to by Ableco or RAM, multi-draw term loan to be
provided by Ableco and RAM, of which approximately $7.0 million shall
represent the refinancing of $7.0 million of Secondary Notes issued
pursuant to Overadvance Term Loan owed to RAM. The Junior Secured Debt
Facility shall be secured by the same assets as secure the Senior Facility
and shall have a three year term. LHFI shall pay 12% cash interest on the
outstanding balance of the Junior Secured Debt Facility, payable semi-
annually in arrears, with an additional 4% PIK interest, 2% of which shall
be forgiven if the Junior Secured Debt Facility is refinanced within two
years. No principal shall be due until the end of the three year term.
Ableco Parent shall receive 4.7% of the LHFI Initially Issued and
Outstanding Common Stock. In addition, Ableco Parent and RAM shall receive
warrants representing 4.7% of the LHFI Stock, on a pro rata basis, in
respect of their $40 million and $7 million commitments in the Junior
Secured Debt Facility, respectively, on a fully diluted basis, without
taking into consideration the grants of equity interests of management of
Levitz and Seaman to purchase up to 15% of the common stock of LHFI. The
warrants will entitle Ableco Parent and RAM to purchase the stock pursuant
to the warrants at a price of $8.00 per share.
3. Equity
The ownership of LHFI, before giving effect to the issuance of
warrants to RAM and Ableco Parent and management incentive stock dilution,
shall be as follows:*
(i) 63.1% to RAM for its holdings of 100% of Seaman stock;
(ii) 18.7% to RAM for its Overadvance Term Loan to Levitz;
(iii) 7.0% to holders of Class 5 General Unsecured Claims
(Including the Class 5 Claims of RAM and Cerberus);
(iv) 4.7% to Ableco Parent (or its designee) for providing
the Junior Secured Debt Facility; and
(v) 6.6% to certain New Investors for their $26.8 million
investment in LHFI
* The ownership percentage may not equal 100% due to
rounding.
The issuance of the above LHFI Stock will be diluted by the
issuance of warrants to Ableco Parent and RAM, representing 4.7% of the
LHFI Stock, on a fully diluted basis, without taking into consideration the
grants of equity interests of management of Levitz and Seaman to purchase
up to 15% of the common stock of LHFI. In addition, the management of
Levitz and Seaman will, subject to LHFI's board of directors'
determination, receive grants of equity interests to purchase up to 15% of
the common stock of LHFI on a fully diluted basis, taking into
consideration the warrants issued to Ableco Parent and RAM.
D. RESURGENCE ASSET MANAGEMENT, LLC
Levitz anticipates that the largest shareholder of LHFI will be RAM
on behalf of its affiliate client accounts. RAM is a leading global private
investment firm with approximately $1.2 billion under management.
In the Levitz case, RAM has purchased more than one-third of
Levitz's senior notes, nearly one-half of Levitz's general unsecured
claims, close to one hundred percent of Levitz's subordinated bonds and
close to one hundred percent of LFI's Senior Deferred Coupon Debentures. In
addition, RAM has supplied over 30% of Levitz's post-petition financing on
a secured basis and has provided additional credit support for certain of
Levitz's trade obligations.
RAM currently owns a majority of Seaman's stock.
E. OVERVIEW OF SEAMAN
Seaman is a mid-price point furniture retailer headquartered in
Woodbury, New York with a presence in the following major markets: the New
York, New Jersey, Connecticut corridor (37 stores); the Philadelphia
metropolitan area (8 stores); and northeastern Ohio (7 stores). Seaman's
philosophy targets middle-income, value-oriented consumers through value
pricing, quality products, consumer service, quick delivery and private
label credit. Key to this philosophy is Seaman's merchandising strategy of
stocking and displaying a similar variety of furniture styles, with a
carefully limited selection of fabrics, finishes and colors. This strategy
allows Seaman to purchase inventory in large quantities at substantial
savings to Seaman, which are ultimately passed on to the consumer.
Consumers realize further savings when they take advantage of Seaman's
"Package" program, which entails the purchase of complimentary furniture
items at a reduced per item cost. Furniture styles carried include
contemporary, European, high-fashion, traditional, country and casual.
Seaman advertises through newspaper, radio and television ads which focus
on the company's reputation as a quality, value-oriented retailer. Seaman
believes that it is the largest specialty furniture retailer in the
Northeastern U.S. in terms of sales, and is the market leader in the
greater New York metropolitan area.
F. ABLECO
Ableco is a private asset-based lending company affiliated with
certain senior members of the management of Cerberus. Ableco's ultimate
parent is Ableco Parent, a private holding company, that is managed by
certain members of senior management of Cerberus's general partner.
IV. HISTORY OF THE DEBTORS AND COMMENCEMENT OF THE CASES
A. OVERVIEW OF PREPETITION OPERATIONS
1. History
In 1910, R.B. Levitz opened a retail store in Lebanon,
Pennsylvania. R.B. Levitz had two sons, Ralph and Leon, who grew up in that
business, and who opened a retail furniture store in Pottstown,
Pennsylvania, in 1936, bearing the family name. In 1963, Levitz opened
large stores in Allentown, Pennsylvania and Phoenix, Arizona. In 1967 and
1968, one new store was opened each year and five stores were opened in
1969. The real thrust of Levitz's expansion program began in 1971, when
thirteen stores were opened, almost doubling the size of Levitz in that one
year. Levitz continued to expand thereafter. As of the Petition Date,
Levitz was the second largest specialty retailer of furniture in the United
States and operated 129 stores in 22 of the largest 25 metropolitan
statistical areas. Levitz currently operates 58 stores, which are serviced
by 20 warehouses.
2. Overview of Business Operations
Levitz's retailing concept targets value-conscious consumers by
offering:
o broad selections of furniture and accessories;
o nationally advertised brands;
o competitive prices; and
o immediate availability of merchandise.
Levitz offers one of America's largest selection of quality brand name
furniture at guaranteed low prices. The company's large stores facilitate
the display of a broad selection of furniture and accessories. Levitz's
sales volume creates a key channel of distribution for its principal
vendors. Management has developed strong partnerships with these principal
vendors from whom it purchases large quantities of quality merchandise,
often at substantial savings. This buying power enables Levitz to price its
merchandise very competitively.
3. Merchandising
Levitz targets value-conscious consumers between 18 and 44 years of
age with a family income between $45,000 and $65,000 per year. Its
customers seek moderately priced merchandise to upper moderately priced
merchandise, appreciate style and recognize value.
Levitz offers a wide array of choices to the value-conscious
consumer. The large product selection, including bedding, bedroom and
dining room furniture, and upholstery, is an inducement for consumers to
purchase at Levitz and differentiates Levitz from its competitors.
To attract consumers who prefer more customized merchandise, Levitz
can special order fabrics on upholstered products from a wide variety of
preselected patterns. Moreover, Levitz has enhanced its special order
leather program, which allows customers to receive their merchandise
generally within four weeks of purchase.
4. Competition
The home furnishings industry is a highly competitive and
fragmented market with sales for furniture, bedding and decorative
accessories by furniture stores in the United States estimated at $37.2
billion in 1999. According to a leading industry publication, the nation's
100 largest furniture retailers accounted for approximately 53.0% of all
furniture sales by furniture stores in the United States in 1999. According
to the same publication, in 1999 Levitz represented 1.4% of total domestic
furniture sales, and was the eleventh largest specialty retailer of
furniture in the United States. Because of its presence in multiple
markets, the Levitz name is widely recognized by furniture customers.
Levitz's competition varies significantly according to geographic
areas. Levitz's principal competitors consist of local independent
specialty furniture retailers. Levitz also competes with national and
regional specialty furniture retailers, general merchandisers and, in
certain limited categories, wholesale clubs, Internet based and "800"
number based retailers. In the future, Levitz may have increasing
competition from other major retail operations, some of which may have
greater financial and other resources than Levitz. Levitz may seek to
increase market concentration by opening additional stores in its remaining
markets.
5. Employees
As of March 31, 1997, Levitz had roughly 3,757 full-time employees
and 1,261 part-time employees for a total of 5,018 employees. As a result
of management's operating initiatives, including its warehouse
rationalization program, closing stores and streamlining the Debtors'
corporate structure, the Debtors have significantly reduced the number of
employees. As of September 26, 2000, the Debtors had 2,153 full-time
employees and 617 part-time employees for a total of 2,770 employees, of
whom 932 were engaged in sales, 291 in merchandising and display, 862 in
warehouse and maintenance functions and 685 in office and administrative
work.
Sales personnel are paid primarily on a commission basis. Levitz's
store manager and key marketing, distribution and operations personnel may
receive, in addition to their base salaries, bonus compensation based upon
achieving planned sales and operating performance for the location or
locations for which the employee has responsibility.
Levitz maintains a facility at Tukwila, Washington in which its
sales employees are covered by a collective bargaining agreement with a
local of the United Food and Commercial Workers Union ("UFCW"). This
collective bargaining agreement expires in December 2000.
Levitz has established and maintained a pension plan for certain of
its employees known as the Levitz Furniture Corporation Employees
Retirement Plan (the "Pension Plan"). The Pension Plan is covered by Title
IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (29 U.S.C. section 1301 et seq.). In 1996, the Pension Plan was
amended to provide that no further benefits would accrue after March 31,
1996. Levitz intends to continue to maintain the Pension Plan after its
reorganization and to meet timely its obligations with respect thereto.
Levitz and all members of its "controlled group" (as defined by
ERISA) are obligated to contribute to the Pension Plan at least the amounts
necessary to satisfy ERISA's minimum funding standards, found in ERISA
section 302, 29 U.S.C. ss.1082, and Internal Revenue Code section 412. In
the event of a termination of the Pension Plan, Levitz and all members of
its controlled group may be jointly and severally liable for, among other
things, the unfunded benefit liabilities of the Pension Plan. See ERISA
section 4062, 29 U.S.C. ss.1362. The Pension Plan may be terminated only if
the statutory requirements of either ERISA section 4041 or 4042, 29 U.S.C.
ss.1341, 1342, are met. The Pension Benefit Guaranty Corporation (the
"PBGC"), a United States Government corporation that guarantees the payment
of certain pension benefits upon termination of a pension plan, estimates
that the Pension Plan was underfunded on a termination basis in the amount
of approximately $22.1 million.
The PBGC maintains that, unless the Pension Plan is terminated
before the effective date of the reorganization plan, the liability of
Levitz and its controlled group to the Pension Plan, or to the PBGC with
respect to the Pension Plan, under ERISA shall not be affected by these
bankruptcy cases, including by discharge. Levitz does not intend to
terminate the Pension Plan.
B. PREPETITION ACQUISITION ACTIVITIES
LFC Holding Corporation, a Delaware corporation, was incorporated
in 1984 for the purpose of acquiring LFC. In 1985, LFC Holding Corporation
acquired LFC, a Florida corporation organized in 1965 and the successor to
the business originally commenced in 1910. In 1993, LFC Holding Corporation
changed its name to LFI.
C. LEGAL PROCEEDINGS
There are approximately 63 pending lawsuits against Levitz, sixteen
of which were commenced post-petition. Levitz believes that none of the
post-petition lawsuits will have a material effect on its prospects.
D. EVENTS LEADING TO CHAPTER 11 FILINGS
The household furnishings market is highly cyclical and directly
affected by, among other things, housing starts, existing home sales,
consumer confidence, the level of personal discretionary spending, consumer
credit availability, and general economic conditions. Because furniture
purchases are significant and typically discretionary, such purchases are
often deferred during times of economic uncertainty.
Over the several years before the Petition Date, the Debtors
experienced declining sales, profitability and cash flow due to increased
competition and other adverse economic conditions. Decreased comparable
store sales and gross profit over the two years before the Petition Date
significantly reduced operating income and cash flow, resulting in debt
compliance and liquidity concerns. As a result, the Debtors were unable to
finance store remodelings or to implement new marketing or advertising
programs.
The Debtors also experienced certain events that contributed to
their situation. First, the Debtors had retained an advertising agency,
David Cravit & Associates Advertising ("Cravit"), of Chicago, Illinois, to
purchase advertising time for the Debtors in the electronic media. Under
the agency arrangement, the Debtors would send Cravit the money necessary
to pay the local radio and television stations ("Electronic Media") for
advertising time. In February 1997, the Debtors discovered that Cravit had
not been paying the Electronic Media for the used air time. The Debtors
immediately began to work with Cravit to ensure that Cravit pay down the
$3.4 million outstanding to the Electronic Media for which the Debtors had
already paid Cravit. In May 1997, however, Cravit discontinued operations.
At that time, Cravit still owed the Electronic Media approximately $1.5
million and certain planned advertising spots did not run. As a result of,
among other things, these advertising difficulties, June 1997 same-store
sales declined by over 17%.
In addition, the Debtors' independent auditors issued a
qualification to LFI and LFC's respective 10K filings for the fiscal year
ended March 31, 1997. The auditors expressed "substantial doubt" as to the
Debtors' ability to continue as a going concern for a reasonable period of
time.
Finally, following the Montgomery Ward Holding Corp. Chapter 11
filing in July, 1997, key Levitz vendors (many of whom do business with
Montgomery Ward) indicated concerns about continuing to do business with
the Debtors on customary trade terms and stopped shipping merchandise and
filling orders. As a result, the Debtors were unable to stay in stock in
key merchandise categories.
As a result of the above, the Debtors were unable to obtain the
necessary inventory for the fall season, and thus were compelled to seek
Bankruptcy Court protection on September 5, 1997.
V. PREPETITION CAPITAL STRUCTURE OF THE DEBTORS
A. THE PREPETITION CREDIT FACILITIES
On July 1, 1996, LFC and certain of its wholly owned subsidiaries
entered into new senior secured credit facilities providing for up to
$190.0 million of availability (collectively, the "Senior Secured
Facilities") with BT Commercial Corporation. The outstanding balance of
that loan was repaid by the Debtors' debtor in possession financing.
B. UNSECURED DEBT
In March 1996, LFI and LFC consummated an exchange offer pursuant
to which LFC issued $91.6 million principal amount of 13.375% Senior Notes
due October 15, 1998 and LFI issued warrants to purchase 283,972 shares of
LFI Common Stock at an exercise price equal to $3.89 per share in exchange
for $91.6 million principal amount of 12.375% Senior Notes due April 15,
1997. The untendered 12.375% Senior Notes, in the aggregate principal
amount of $6.0 million, were paid in full in April 1997. The outstanding
principal amount of 13.375% Senior Notes as of September 5, 1997 was
$91,594,000. Firstar Bank of Minnesota, N.A. is the indenture trustee with
respect to the 13.375% Senior Notes.
On July 12, 1993, 9.625% senior subordinated notes due July 2003
(the "Senior Subordinated Notes") in the aggregate amount of $100 million
were issued under an indenture between LFC and Norwest Bank Minnesota, N.A.
(n/k/a Wells Fargo Bank Minnesota, N.A.), as trustee. The outstanding
principal amount of the Senior Subordinated Notes as of September 5, 1997
was $100,000,000.
On December 1, 1992, LFI issued $115.0 million of senior deferred
coupon debentures ("Senior Deferred Coupon Debentures") with warrants to
acquire $30.7 million Senior Deferred Coupon Debentures, due June 15, 2002.
On July 13, 1993, LFI purchased 94.2% of the Senior Deferred Coupon
Debentures with an accreted book value of $63.4 million for $93.0 million.
The outstanding principal amount as of September 5, 1997 was $8,439,000.
U.S. Bank National Association is the indenture trustee with respect to the
Senior Deferred Coupon Debentures.
VI. THE DEBTORS' CORPORATE STRUCTURE
A. CURRENT CORPORATE STRUCTURE
LFI is a publicly owned Delaware corporation with no operating
business of its own. Rather, it owns the common stock of LFC. LFC owns 100%
of the common stock of Midwest, Pacific, Washington, LSS and JMS. The
remaining Debtors are affiliated as follows: LFC owns 100% of the common
stock of LFRC; Midwest owns 100% of the common stock of Midwest Realty;
Pacific owns 100% of the common stock of Pacific Realty; Washington owns
100% of the common stock of Washington Realty and JMS owns 100% of the
common stock of JMS Realty. By order dated December 15, 1997, the Debtors
sold substantially all of the assets of JMS and JMS Realty to Heilig-Meyers
Company ("Heilig-Meyers"). LFC also owns 100% of the common stock of
non-debtor Levitz Furniture Reinsurance Ltd. ("LFR"), a Turks and Caicos
company, and Levitz Furniture Company of Massachusetts, a Massachusetts
corporation.
B. SENIOR OFFICERS AND DIRECTORS
1. Management
The Debtors' senior management has changed significantly during the
case. In May 1998, Edward L. Grund joined senior management as the
President of Store Operations. In November 1998, Mr. Grund replaced Michael
Bozic as the Debtors' Chief Executive Officer. In February 1998, Michael
McCreery joined the Debtors as Senior Vice President and Chief Financial
Officer. Upon the departure in late 1998 of Robert Homler, who was serving
as President of Marketing/Merchandising, Messrs. McCreery and Grund
together assumed Mr. Homler's responsibilities.
2. Levitz Furniture Incorporated
(a) Directors
Name Title
---- -----
Edward L. Grund Director
Prof. Henry B. Reiling Director
Robert M. Harrell Director
Bruce C. Leadbetter Director
Kenneth D. Moelis Director
(b) Officers
Name Title
Edward L. Grund Chairman of the Board and Chief Executive
Officer
Michael E. McCreery Senior Vice President & Chief Financial
Officer
Edward P. Zimmer Vice President, Secretary & Chief Legal
Counsel
Lawrence R. McDevitt Vice President & Controller
Chris Bartzokis Assistant Secretary
Gary R. Miller Assistant Treasurer
A complete list of the directors and officers for the other Debtors
is annexed hereto at Exhibit B.
C. EXECUTIVE EMPLOYMENT AGREEMENTS
During these cases, the Debtors entered into employment contracts
with their senior officers as follows:
o Edward L. Grund
By order dated June 30, 1998, Judge Farnan authorized the Debtors
to enter into an employment agreement with Mr. Grund as President
of Store Operations. After Mr. Bozic's resignation in November
1998, the Debtors promoted Mr. Grund to Chief Executive Officer and
Chairman of the Board. Modifications relating to Mr. Grund's
promotion and employment agreement were approved by an order dated
July 6, 1999.
o Michael E. McCreery
In February 1998, the Debtors obtained court authorization to enter
into an employment agreement with Michael McCreery as the Debtors'
new Senior Vice President and Chief Financial Officer. With the
departure of Messrs. Bozic and Homler, Mr. McCreery assumed
additional responsibilities, including supervising (i) inventory
control (in lieu of Mr. Homler) and (ii) the Debtors' management
information systems. By order dated July 6, 1999, the Court
approved certain modifications to Mr. McCreery's employment
agreement.
o Edward P. Zimmer, Richard J. Mazzoni, Jr., Nicholas S. Masullo,
and Lawrence R. McDevitt
In December 1997, the Debtors obtained court authorization to
implement an employee retention program for their key management
personnel and employees. As part of that program, the Debtors
assumed the prepetition employment contracts of Messrs. Zimmer,
Mazzoni, Masullo and McDevitt, which included, among other things,
severance benefits. By order dated July 6, 1999, the Court approved
certain modifications to the employment contracts of Messrs.
Zimmer, Mazzoni, Masullo and McDevitt.
VII. THE CHAPTER 11 CASES
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION
The Debtors filed their petitions for relief under Chapter 11 of
the Bankruptcy Code on September 5, 1997. Under an order dated September 5,
1997, the Debtors' Chapter 11 cases were consolidated for procedural
purposes only and are being jointly administered. Since the Petition Date,
the Debtors have continued to operate as debtors-in-possession subject to
the supervision of the Bankruptcy Court. Although the Debtors are
authorized to operate in the ordinary course of business, transactions out
of the ordinary course of business have required Bankruptcy Court approval.
An immediate effect of the filing of the Debtors' bankruptcy was
the imposition of the automatic stay under the Bankruptcy Code which, with
limited exceptions, enjoined the commencement or continuation of all
collection efforts by Creditors, the enforcement of liens against property
of the Debtors and the continuation of litigation against the Debtors. This
relief provided the Debtors with the "breathing room" necessary to assess
and reorganize their business. The automatic stay remains in effect, unless
modified by the Bankruptcy Court, until the case is either closed,
terminated, or discharge is granted or denied.
B. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASES
1. First Day Orders
On the first day of the Chapter 11 cases, the District Court
entered a number of orders granting the Debtors various forms of relief. In
particular, the Debtors obtained orders:
(a) authorizing (i) the joint administration of the Debtors'
Chapter 11 cases; (ii) the maintenance of business forms, bank accounts,
cash management system, and waiving the investment and deposit requirements
of Bankruptcy Code section 345(b); (iii) the payment of prepetition wages,
salaries and employee benefits (and directing all banks to honor
prepetition checks for payment of prepetition employee obligations); (iv)
the retention of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps")
as bankruptcy counsel; (v) the retention of Arthur Anderson LLP as
accountants, auditors and special bankruptcy consultants; (vi) the payment
of contractors in satisfaction of liens; (vii) payment of certain
prepetition obligations necessary to obtain imported merchandise; (viii)
the Debtors honoring certain prepetition customer practices; (ix) the
Debtors mailing initial notices and filing a list of creditors (without
claim amounts); and (x) the retention of professionals used by the Debtors
in the ordinary course of business;
(b) prohibiting utilities from altering, refusing or discontinuing
services on account of prepetition invoices and establishing procedures for
determining requests for additional adequate assurance;
(c) approving the Debtors' agreement with Donlin, Recano & Company,
Inc. as agent of the Bankruptcy Court;
(d) confirming the grant of administrative expense status to
obligations arising from post-petition delivery of goods; establishing
authority to pay certain expenses in the ordinary course of business;
authorizing the Debtors to return goods pursuant to Bankruptcy Code ss.
546(g)* and providing for administrative expense treatment for certain
holders of valid reclamation claims; and prohibiting third parties from
interfering with the Debtors' delivery of goods;
(e) confirming authority to pay prepetition state sales, use and
other taxes, and directing all banks to honor prepetition checks for
payment of prepetition tax obligations; and
(f) granting additional time to file schedules and statements.
2. Parties In Interest and Advisors
The parties described below have been major parties in interest or
advisors to them in the Chapter 11 cases to date.
(a) The Court
The Honorable Joseph J. Farnan, Jr., Chief United States District
Judge, initially presided over the Debtors' Chapter 11 cases. By order
dated September 10, 1998, these cases were referred to United States
Bankruptcy Judge Mary F. Walrath.
(b) Advisors to the Debtors
The Debtors retained Skadden Arps to act as general counsel
in these Chapter 11 cases. In addition, the Debtors retained Denis Cronin
as special counsel, and Bouchard Friedlander & MaloneyHuss (n/k/a Bouchard
Margules & Friedlander) as Mr. Cronin's local counsel, in the Chapter 11
cases in connection with, among other things, certain matters in which
Skadden Arps has or may have a conflict. The Debtors have also retained
Arthur Andersen LLP as their accountants, auditors and special bankruptcy
consultants. The Debtors have consulted with these advisors on various
aspects of their business, financial restructuring, and operations as
debtors-in-possession in the Chapter 11 cases. The Debtors also retained
(i) The Blackstone Group L.P. ("Blackstone") as financial advisors, (ii)
Grubb & Ellis Co. as real estate consultants, (iii) various law firms to
act as ordinary course professionals on the Debtors' behalf in discrete
legal matters and (iv) various other consultants to handle certain of the
Debtors' business related matters including (a) Retail Consulting Services,
Inc. as real estate advisors, (b) Re/Max International to provide
relocation services and (c) DJM Asset Management, LLC to market to certain
leasehold properties. The Debtors had also retained Policano & Manzo as
special financial advisors and bankruptcy consultants; however, they are no
longer retained by the Debtors.
(c) The Creditors' Committee And Its Advisors
On September 19, 1997, the United States Trustee appointed a
seven member creditors' committee consisting of First Trust National
Association, the Indenture Trustee for $8.4 million of 20.77% senior
deferred coupon debentures issued by LFI, Firstar Bank of Minnesota, N.A.,
the Indenture Trustee for $91.6 million of 13.375% Senior Notes, and
Norwest Bank Minnesota, N.A. (n/k/a Wells Fargo Bank Minnesota, N.A.), the
Indenture Trustee for $100 million of 9.625% Subordinated Notes issued by
LFC, Credit Suisse/First Boston (a holder of Subordinated Notes), Rowe
Furniture Corp. and Lifestyle Furnishing International Ltd., both trade
creditors, and Louise Partners, one of the Debtors' largest landlords. At
its initial meeting on September 19, 1997, the Creditors' Committee
appointed Rowe Furniture Corp. and Credit Suisse/First Boston as Co-Chairs
of the Creditors' Committee, and initially selected Stroock & Stroock &
Lavan LLP ("Stroock") as its counsel to represent the Creditors' Committee
in the Debtors' Chapter 11 cases. The Committee later selected Akin, Gump,
Strauss, Hauer & Feld ("Akin") as its counsel, when certain of the
Committees' lawyers moved from Stroock to Akin. The Creditors' Committee
has, with the approval of the Bankruptcy Court, retained Rosenthal,
Monhait, Gross & Goddess, P.A. as local counsel, PricewaterhouseCoopers LLP
as accountants and consultants, and Houlihan Lokey Howard & Zukin as
financial advisors.
During the cases, the United States Trustee has amended the
composition of the Creditors' Committee several times in order to replace
members who have resigned from the Creditors' Committee. The Creditors'
Committee now consists of Wells Fargo Bank Minnesota, N.A., Firstar Bank of
Minnesota, N.A., Louise Partners, and U.S. Bank National Association, f/k/a
First Trust National Association.
3. The DIP Facility
LFI and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a DIP Credit Agreement dated as of
September 5, 1997, as amended (the "DIP Facility"), with Bankers Trust
Commercial Corp. ("BTCC") as agent. The DIP Facility contained revolving
loans of $85.0 million and overadvance term loans of $55.0 million. The DIP
Facility for payment of interest and fees related to the Overadvance Term
Loan are paid by issuance of Secondary Notes. Letter of Credit obligations
under the revolving DIP Facility were limited to $25.0 million. The DIP
Facility provides Levitz with the cash and liquidity necessary to conduct
its operations and pay for merchandise shipments at normal levels during
the course of the Chapter 11 Cases. Levitz does not currently have any
other source of financing to support its cash flows beyond the December 31,
2000 maturity of this facility.
Loans made under the DIP Facility revolving notes bear interest, at
Levitz's option, at a rate equal to either BTCC's prime lending rate plus
1.50% or BTCC's LIBOR rate plus 3.75%. Levitz is required to pay an unused
line fee of 0.50%, and a letter of credit fee of 2.0%. The maximum
borrowings, excluding the overadvance term commitments, under the DIP
Facility are limited to 85% of eligible Accounts Receivable, 75% of
Eligible Inventory (as both are defined in the DIP Facility) less any fixed
asset sublimit.
Overadvance Term Loan bears interest at 16%, payable monthly, and
also requires a monthly collateral management fee equal to .75% of the
funded balance of the Overadvance Term Loan. The collateral management fee
is paid by issuing secondary notes equal to the amount of the fee due each
month. The secondary notes also bear interest at 16%, payable monthly, and
are subject to the monthly collateral management fee which is payable
through issuance of additional secondary notes. At September 30, 2000, the
outstanding balances under the DIP Facility were $40.1 million under the
revolver, $55 million under the Overadvance Term Loan and $3.2 million of
secondary notes.
The DIP Facility is secured by substantially all of the assets of
Levitz and a perfected pledge of stock of LFI and all LFI's subsidiaries.
4. Results of Postpetition Operations
The Debtors have continually filed quarterly and annual reports
with the Securities and Exchange Commission (the "SEC") and monthly reports
with the Bankruptcy Court during their Chapter 11 cases. The most recent
copies of the Debtors' quarterly and annual reports are attached as
exhibits C and D, respectively.
5. Postpetition Customer Credit Program
The availability of a "private label" credit-financing program is
critical to the Debtors' business. Private label credit supports marketing
programs and offers a convenient way for the Debtors' customers to spread
over time the cost of furniture purchases. Sales under Levitz's private
label credit program typically comprise fifty percent of total sales.
At the beginning of the cases, the District Court entered an order
approving Levitz's assumption of the GECC Agreement, as amended, which
assumption was required by Levitz's DIP Facility. After the Petition Date,
the Debtors' earnings under the GECC Agreement decreased as a result of an
increase in servicing fees and a decrease in approval rates for credit
applications submitted to GE Capital for approval. In light of the
foregoing, the Debtors anticipated that any renewal of the GE Capital
customer credit program would likely be under new terms less favorable to
the Debtors. Accordingly, the Debtors sought to terminate the GECC
Agreement and enter into a merchant agreement (the "Merchant Agreement")
with Household Bank (SB), N.A. ("Household").
On August 31, 1998, the District Court authorized Levitz to (i)
terminate the customer credit program with GECC and (ii) enter into the
Merchant Agreement with Household, which replaced the GECC Agreement. On
September 4, 1988 Levitz and GECC terminated the GECC agreement and Levitz
entered into the Merchant Agreement with Household whereby Household would
provide financing to individual Levitz customers. In connection therewith,
Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement, and GECC sold the majority of the
portfolio under the GECC Agreement, approximately $561.0 million, to
Household. In approving the Merchant Agreement, the Court granted a first
priority lien and security interest to Household on certain reserves
retained or accumulated by Household, totaling $22.5 million as of
September 30, 2000, and gave administrative expense status to substantially
all obligations of Levitz arising under the Merchant Agreement.
As a result of the transfer of the GECC portfolio to Household, the
Debtors determined that the transaction qualified for sale treatment under
Financial Accounting Standards Board, Statement of Accounting Standards No.
125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities." As a result, the Receivable Under Account
Purchase Agreement and the offsetting Obligation Under Account Purchase
Agreement were removed from the consolidated condensed balance sheet for
September 30, 1998.
Under the Merchant Agreement, Household pays the Debtors a monthly
origination fee in an amount equal to 100% of the finance charges, late
fees, over-limit fees, and returned check charges (net of reversals)
accrued on the Debtors' customers' accounts, less certain deductions. The
deductions include a cost of funds charge, a servicing fee, a promotional
finance charge reversal factor, a gross profit factor and a credit loss
factor. In the event the deductions exceed the origination fee during any
month, Levitz is obligated to pay the shortfall. Levitz is generally
obligated for all credit losses under the portfolio, including the GECC
portfolio transferred to Household, up to a maximum of 15% of average
annual outstanding accounts receivable balances and for 50% of all credit
losses above 15%. Levitz is also required under the Merchant Agreement to
fund a portfolio risk reserve of 2.5% for the first year and 3.5%
thereafter of all amounts financed up to a stipulated amount.
The Merchant Agreement has a term of five years with automatic
renewals for successive two year terms unless otherwise terminated pursuant
to the terms of the Merchant Agreement. It expires on September 4, 2003.
Upon termination of the Merchant Agreement, the Debtors have a
90-day option to purchase the accounts from Household without recourse at a
purchase price equal to the account balances, less certain reserves, except
that if the Merchant Agreement is terminated by the Debtors because of a
material change in the Debtors' ownership or business, the purchase price
will be equal to the account balances, plus a termination fee equal to a
specified percentage of the account balances, less certain reserves.
The Debtors anticipate negotiating a new agreement for servicing
and financing the private label credit program in coordination with
Seaman's private label credit program.
6. Customer Credit Insurance Program
On November 16, 1998, the Debtors filed a motion (the "Credit
Insurance Motion") seeking court approval of a customer credit insurance
program (the "Credit Insurance Program") with American Bankers Insurance
Group ("American Bankers"), including LFC's acquisition of LFR - a newly
formed reinsurance company formed under the laws of the Turks & Caicos
Islands. By order dated December 7, 1998, the Court approved the Credit
Insurance Motion.
The Debtors believe that the Credit Insurance Program will reduce
customer credit losses through payment of customers' account balances under
the credit insurance and increase revenues through the receipt of net
credit insurance premiums under the reinsurance agreements.
7. Closing Unprofitable Stores Through GOB Sales
As of the Petition Date, the Debtors operated stores at 129
locations. As part of the Debtors' restructuring initiatives, the Debtors
continually analyzed their business operations and closed those stores in
less profitable markets. In the fall of 1997, the Debtors obtained Court
approval to (i) close 11 satellite stores and 7 warehouse-showroom stores
and (ii) retain Hilco/Great American Group ("Hilco") to conduct going out
of business sales ("GOB Sales") at 16 of these 18 locations. Subsequently,
in June 1998, the Debtors obtained court approval to (i) close an
additional 15 stores and (ii) retain Gordon Brothers Retail Partners LLC
and Schottenstein Bernstein Capital Group LLC to conduct GOB Sales at these
locations.
As part of the strategy devised to focus Levitz's operations
primarily in the east and west coasts, in January 1999, the Debtors
obtained court approval to (i) close 27 stores in eight states in the South
and Midwest, (ii) conduct GOB sales or liquidation sales of furniture,
trade fixtures, equipment or inventory at the closing stores and (iii)
retain Hilco Trading Co., Inc., Garcel, Inc. d/b/a Great American Asset
Management, the Nassi Group LLC and Gene Rosenberg Associates, Inc. to act
as the Debtors' agent to conduct the store closing and liquidation sales.
In order to implement the store closings, the Debtors obtained Court
approval of employee stay bonus programs to ensure that necessary personnel
stayed with the Debtors during the orderly winding down of certain stores.
In September 2000, the Debtors closed 6 stores and obtained Court
approval to retain Hilco Trading Co., Inc. to conduct GOB Sales at 4 of
those locations.
The Debtors now operate 58 stores.
8. Sale/Leaseback Transaction
As part of the Debtors' continuing long-term business plan, the
Debtors entered into a sale-leaseback transaction (the "Sale-Leaseback
Transaction") with certain properties to realize value in those properties,
including those former warehouse spaces that have been or will be vacated
as a result of the Debtors' warehouse rationalization plan.
Pursuant to the Sale-Leaseback Transaction, the Debtors first (a)
sold their fee interests in eight parcels of real property (the "Fee
Property") and (b) assumed and assigned their leasehold interests in
fourteen parcels of real property (the "Leases" and together with the Fee
Property, the "Property") to various entities owned by Klaff Realty, LP and
the Lubert-Adler Real Estate Opportunity Fund II, LP (collectively,
"Klaff-Adler") for approximately $67,306,000 (the "Purchase Price"), less
certain typical closing adjustments. Contemporaneously therewith, certain
of the Debtors entered into a unitary lease (the "Levitz Lease") with
Klaff-Adler to lease the Property back from Klaff-Adler for a 20-year
initial term (the "Initial Term"). The Levitz Lease requires the Debtors to
pay Klaff-Adler annual basic rent equal to 10 3/4% of the Purchase Price
for the first five years of the Initial Term and such annual basic rent is
then increased by an additional 5% for each 5 year period thereafter. In
addition, the Debtors are required, under the Levitz Lease, to vacate
certain properties, in whole or in part, during the first three years of
the Levitz Lease term. Moreover, within a specified time period, the
Debtors will also vacate certain portions of the Property, which
Klaff-Adler may redevelop, as part of their warehouse rationalization plan.
In the event the Debtors do not vacate certain other identified properties,
the annual basic rent for each property not vacated shall increase to 10
3/4% of the market value of that parcel, as defined in the agreement.
Further, the Debtors shall remain responsible for all rent and other
performance obligations under any preexisting lease of the properties.
Under an order dated May 19, 1999, the Sale-Leaseback Transaction
was approved, and the Sale-Leaseback Transaction closed on June 8, 1999.
The Sale-Leaseback Transaction was intended to permit the Debtors to
realize the value contained in the Property, yet continue to operate in its
current locations. In addition, the proceeds from the Sale-Leaseback
Transaction were used to pay down a large portion of the Debtors' DIP
Facility.
9. Bulk Sale Transaction
As part of the Debtors' plan to close stores in markets where they
lacked a strong market presence, the Debtors entered into a transaction to
sell certain properties in which former Levitz stores were operated (the
"Bulk Sale Transaction").
Under an agreement dated May 3, 1999, the Debtors entered into a
separate agreement (the "Bulk Sale Agreement") with Klaff-Adler to
memorialize the terms of the Bulk Sale Transaction. Under the Bulk Sale
Agreement, the Debtors' agreed to sell (a) their fee interests in five
parcels of real property (the "Bulk Sale Fee Property") and (b) their right
to control the disposition of their leasehold interests (i.e., the right to
direct the Debtors to assume, assume and assign or reject, the "Lease
Rights") in six properties (the "Bulk Sale Leases") to Klaff-Alder for
approximately $23,300,000, less typical closing adjustments.
Under an order dated June 3, 1999, the Bulk Sale Transaction was
approved, and the Bulk Sale Transaction closed on July 6, 1999. The
proceeds from the Bulk Sale Transaction were used to further pay down the
Debtors' obligations under the DIP Facility.
10. Other Significant Court Actions
In addition to the matters described above, the Debtors have
obtained the following court orders that are of particular importance in
the operation of the Debtors' business or in the administration of the
Chapter 11 cases.
o Preference Claims. In the course of their due diligence, the
Debtors identified over 250 persons who were potentially liable to
the estates under Code section 547. Agreements to toll the
applicable statute of limitations was reached with approximately
100 of them. On September 3, 1999, the Debtors commenced eleven
omnibus adversary proceedings against 152 defendants seeking to
avoid preferential transfers and recover the transferred property
or the value thereof for the estates. Subsequently, pursuant to
court order, the Debtors filed a separate adversary proceeding
against each defendant. On August 28, 2000, by order of the
Bankruptcy Court, each defendant's time to respond to the complaint
was extended to January 15, 2001, the pre-trial conference was
postponed until January 29, 2001, and discovery was postponed until
after January 15, 2001.
o Extension of Exclusivity Periods. The Debtors have obtained several
orders granting extension of the exclusive right to file and seek
acceptance of reorganization plans. Most recently, the Bankruptcy
Court extended the Debtors' exclusive right to file reorganization
plans to December 29, 2000, and to solicit acceptances to February
28, 2001.
o Establishment of Bar Date. The Debtors filed their schedules of
assets and liabilities on November 5, 1997, and amended their
schedules on or about June 9, 1998. By order dated May 21, 1998,
the District Court established August 10, 1998 as the final time
for filing proofs of claim in these Chapter 11 cases (the "Bar
Date").
o Claims and Objection to Claims. The Debtors have filed fourteen
Omnibus Objections to Claims. As a result of those objections, more
than 600 claims with an asserted value of more than $188.6 million
have been disallowed, reduced and/or expunged. In addition, upon
substantive consolidation of the Debtors' estates, 144 claims filed
against multiple debtors shall be expunged in the aggregate amount
of approximately $87 million. The Debtors anticipate that they will
file more Omnibus Objections to Claims in the future.
o Reclamation Claims. Levitz received more than 40 reclamation
demands seeking the return of goods, which goods had allegedly been
delivered during the statutory reclamation period. In order to
prevent an onslaught of litigation, on the Petition Date, the
Debtors filed a motion seeking, among other things, an order
providing for administrative expense treatment for certain holders
of valid reclamation claims and prohibiting third parties from
interfering with the Debtors' delivery of goods. As a result, only
one commenced a proceeding against Levitz to reclaim its goods. In
addition, the Bankruptcy Court has approved settlements of certain
creditors' reclamation claims. These claims were reduced - and one
duplicative reclamation claim expunged - and were settled as
administrative claims in amounts that reflected the Debtors' books
and records or were otherwise in the best interest of the Debtors'
estates. Additional settlements in principle are being documented.
Levitz believes that the total amount of reclamation claims is less
than $3 million.
The Debtors have internally reconciled these claims and have
communicated with some of the vendors regarding their reclamation
claims.
o Real Estate Tax Litigation. The Debtors are parties to "net"
leases, whereby the Debtors pay all operating costs of the subject
property, including real estate taxes, on behalf of the landlord.
As the Debtors began to receive bills for real estate taxes that
covered the Debtors' prepetition occupancy of the subject property,
they decided the appropriate treatment was to prorate the bills and
pay that portion relating to the Debtors' postpetition occupancy.
Several landlords moved the Court for an order compelling the
Debtors to pay the prepetition portion of the bills under the
theory that the "obligation" to pay the taxes "arose" under Code
section 365(d)(3) when the bill was received. The Debtors
successfully litigated the issue and the Court issued a memorandum
opinion upholding the Debtors' treatment of the real estate tax
bills received postpetition.
o Settlement of Debtors' Former Executives' Claims. Twenty-seven of
the Debtors' former executives, and/or their spouses or former
spouses, filed supplemental executive retirement plan claims,
employment claims and life insurance claims against LFC. The
Debtors obtained Court approval for the settlements of these 27
claims, which reduced these claims significantly from the amounts
asserted.
o Settlement of Current SERP Claims. The Debtors have resolved - -
albeit not yet documented - - the remaining SERP claims of the
following current employees: (i) Lawrence R. McDevitt, (ii)
Nicholas S. Masullo, (iii) Richard Mazzoni and (iv) Edward P.
Zimmer. These employees shall receive 40% of their portion of their
Current Serp Claims on the Effective Date of the Plan, 30% on the
first anniversary of the Effective Date of the Plan, and 30% on the
second anniversary of the Effective Date of the Plan. The
settlement shall be in the aggregate amount of $4,891,815 with
interest to be paid on outstanding amounts at the same rate as
provided in the Post-Confirmation Senior Working Capital Facility
Agreement.
o Settlement of Adequate Protection Disputes. Nationsbank, N.A.
("Nationsbank") is a prepetition lender and the purported mortgagee
of certain real property owned by the Debtors in South Miami,
Florida. Nationsbank sought relief from the automatic stay under
Code section 362(d) (the "Nationsbank Lift Stay Motion") because it
was not receiving adequate protection payments. The Debtors
negotiated a favorable settlement, and later sold the property and
paid off the loan from the sale proceeds. Similarly, the Debtors
consensually resolved the claim of the State Street Bank by
providing adequate protection payments. State Street Bank
purportedly held a first priority lien upon and security interest
in Levitz's property in Paramus, New Jersey (the "Paramus
Property") and asserted that all rents, income and profits derived
from a lease of the Paramus Property was its cash collateral.
Therefore, in connection with the sublease of a portion of the
Paramus Property to Baby Superstore, Inc., Levitz and State Street
Bank entered into a stipulation and order requiring Levitz to pay
$34,000 per month to State Street Bank from the monthly rent paid
to it from Baby Superstore, Inc. Subsequently, Levitz sold this
property and paid off the loan with the proceeds from that sale.
o State Farm Lift Stay Litigation. State Farm Life Insurance Company
("State Farm") is a prepetition lender and was the purported
mortgagee of real property owned by the Debtors in Southington,
Connecticut. State Farm sought relief from the automatic stay under
Code section 362(d) (the "State Farm Lift Stay Motion") because it
was not receiving postpetition payments on its purported mortgage.
The Debtors objected to the State Farm Lift Stay Motion. On
February 17, 1999, the Court denied State Farm relief from the
automatic stay, but required the Debtors to make postpetition
payments to State Farm at the contract rate of interest.
Subsequently, Levitz sold this property and paid off the State Farm
loan.
o Apollo Litigation: The Debtors resolved claims filed by three
Apollo Investment Fund entities (collectively "Apollo") arising out
of warrants, granted to Apollo in 1996, allowing Apollo to acquire
14.4% of LFI's common stock and a related secured indemnity granted
by Levitz. Apollo contended that the warrants would survive the
reorganization of LFI and that the indemnity was secured by
substantially all the assets of the non-LFI Debtors. The Debtors
and the Creditors Committee jointly objected to Apollo's claims.
The parties ultimately settled the claims by allowing Apollo a
$300,000 superpriority administrative claim in return for a full
release of claims. The Court approved this settlement.
o Utilities. The Debtors successfully negotiated with numerous
utility companies to prevent the threatened disruption of services,
without the necessity of litigation.
o Release of Escrow Funds. On or about February 8, 2000, the Court
authorized the release of over $4.8 million held in escrow, less
expense reserves, to be paid to former shareholders of the John M.
Smyth Company in connection with a 1994 merger with John M. Smyth
Company.
o Other Asset Dispositions. As part of their plan to maximize the
value of the Debtors' estates by identifying and selling particular
stores and regions that are underperforming in order to raise cash
and reduce secured indebtedness or potential administrative claims
against the Debtors' estates, Levitz conducted a regional as well
as a store-by-store analysis of the possible benefits of closing
certain stores and warehouses and obtained court approval to sell
certain assets.
o Sale of Real Property. In connection with the Debtors'
restructuring efforts, Levitz sold a number of properties,
including the following assets:
o The former corporate offices located at 6111 Broken
Sound Parkway, Boca Raton, Florida (the "Boca Raton
Property") to Rexall Sundown, Inc. for (i) $8.1
million, and (ii) permission to remain in possession
of the Boca Raton Property for four months rent free
and for an additional two months at a below market
rent while replacement offices were being built at an
existing Levitz store;
o Real property located at 825 West North Avenue,
Chicago, Illinois to the Clare Group Ltd. for $13.5
million;
o Real property with the improvements thereon, located
at 6945 Northeast Expressway, Doraville, Georgia to
Home Luxury Corporation of America for $4.5 million;
o Real property and improvements and buildings thereon,
located at 7215 West 88th Avenue, Westminster,
Colorado and all related property to Home Depot for
$3.2 million;
o Real property located in Lakewood, Colorado and
Colorado Springs, Colorado for a total purchase price
of $6.935 million to Stephen Elkin and Thomas Gart;
o Real property located at 5757 South Loop East,
Houston Texas to Weingarten Realty Investors for
$3.325 million;
o Real property and improvements located at 4740 South
Cleveland Avenue, Fort Myers, Florida to Robb &
Stucky Limited for $1.7 million;
o Real property and improvements on two parcels located
in Springdale, Ohio to Lowe's Home Centers, Inc. for
a net $5.3 million purchase price; and
o Real property and improvements located at 18633 LBJ
Freeway, Mesquite, Texas to Mays & Company Real
Estate Development, Inc. for $1,341,510.
o San Dimas Sale-Leaseback Transaction. Exercise of lease
purchase option and simultaneous sale and leaseback of real
property and improvements located at 633 West Bonita Avenue,
San Dimas, California to Diamond Development for a $7.24
million purchase price and a five-year term leaseback.
o Concord, California Lease Assignment and Execution of
Replacement Store Lease. Court approval of a proposed
assignment for the lease of property at 1695 Willow Pass
Road, Concord, California to Fry's Electronics for a
purchase price of $4.0 million and the execution of a
replacement store lease in Concord.
o Los Angeles Sale-Leaseback Transaction. Sale and leaseback
of real property and improvements located at 5375 West San
Fernando Road, Los Angeles, California to Goldrich & Kest
Industries for a $7.6 million purchase price and a seven
year term leaseback.
o Sale of JMS and JMS Realty. As part of their plan to sell
particular stores in underperforming regions, the Debtors
determined to close their operations in the Chicago,
Illinois market and sell substantially all of the remaining
assets of JMS and JMS Realty (the "Smyth Assets"). By order
dated December 15, 1997, the Debtors sold the Smyth Assets
to the Heilig-Meyers Company for approximately $37 million.
o Auction. In the spring of 1999, the Debtors also decided to
auction eight properties to the highest bidder. The auction
resulted in the Debtors selling their (i) fee interest in
the premises located at 4740 South Cleveland Avenue, Fort
Myers, Florida 33970, to Robb Stucky Ltd. for $1,700,000 and
(ii) leasehold interest in the premises located at 4401
South Tamarac Parkway, Denver, Colorado 80237, for $185,000.
o Sale, Assumption and Assignment of Leases. The Debtors
determined that it was in their best interest to sell,
assume and assign certain leases, including (i) their lease
for the store located in the Eastgate Station Shopping
Center in Cincinnati, Ohio (the "Eastgate Lease") to ESA,
L.P., their landlord under the Eastgate Lease, in exchange
for the landlord waiving its claim for damages, (ii) their
leasehold interests in their store and real property located
at 1009 Brittmore Road, Houston, Texas to Levbritt LLC for
$1.02 million, (iii) their long-term leasehold interests in
their showroom located at 1940 North Federal Highway, Fort
Lauderdale, Florida and improvements thereon, together with
all easements, rights and appurtenances relating thereto, to
Ansel Properties, Inc. for $1.33 million, (iv) their
leasehold in real property located at 14250 Manchester Road,
Manchester, Missouri to Kloss Furniture Interiors, Inc., for
$550,000; (v) their leaseholds in real property located at
(1) 2950 Gallows Road, Falls Church, Virginia, (2) 1400 N.W.
167th Street, Miami, Florida, (3) 9325 Rosehill Road,
Lenexa, Kansas, (4) 6610 Baltimore National Pike, Baltimore,
Maryland, (5) 50 Orchard Road, Glen Burnie, Maryland, and
(6) 12011 Rockville Pike, Rockville, Maryland, to Levitz
C.S. Leases, L.L.C., as part of the Bulk Sale Transaction
with Klaff-Adler (see above, section B-9). In addition, the
Debtors have assumed and assigned leases in Concord,
California and Fort Lauderdale, Florida.
o Assumption of Leases. In connection with the Debtors'
restructuring efforts, the Debtors determined that it was in
their best interests to amend and assume certain leases,
including leases for property located at 470 McKinley
Street, Corona, California and 5870 W. Bell Road, Glendale,
Arizona.
o Assignment of Leasehold in Austin, Texas. The Debtors leased
non-residential real property at 9012 Research Boulevard,
Austin, Texas (the "Austin Lease"). The Debtors decided to
close their operations in the Austin market. By order dated
November 16, 1999, the Court approved the assignment of the
Debtors interest in the Austin Lease to Big Sur Waterbeds,
Inc. for $600,000.
o Termination of San Antonio, Texas Lease. The Debtors leased
non-residential real property located at 6707 N.W. Loop
#400, San Antonio, Texas (the "San Antonio Lease") from West
Park Plaza, Ltd. The Debtors decided to close their
operations in the San Antonio market. On January 13, 1999,
the Court entered an order authorizing the Debtors to close
the store and conduct a store closing sale. By order dated
August 17, 1999, the Court approved the termination of the
San Antonio Lease, effective as of July 31, 1999.
o Boca Raton, Florida Lease Amendment. The Debtors decided
that is was in their best interest to amend the lease of
their corporate office building by reducing the size of the
leased area, increasing the rent and decreasing the length
of the term. The Debtors received $3.0 million as
consideration for that amendment. By order dated December
29, 1999, the Court approved the amendment.
o Termination of 1414 South 500 West, Salt Lake City, Utah
Lease. The Debtors leased non-residential real property
located at 1414 South 500 West, Salt Lake City, Utah (the
"Salt Lake City Lease") from Harry Ross Industries ("HRI").
As a result of the State of Utah's condemnation of a portion
of the leased property, the Debtors had claims against HRI
and withheld rent. HRI moved to lift the automatic stay to
permit HRI to pursue certain condemnation proceeds and to
seek related declaratory relief in Utah state court against
LFC. The Debtors and HRI settled their dispute. As part of
the settlement, the Debtors obtained Court approval for (i)
the termination of the Salt Lake City Lease, (ii) a $875,000
payment by HRI to the Debtors and (iii) a mutual release of
claims.
o Sale of Personal Property. In vacating the Boca Raton Property, the
Debtors left behind minimal personal property. With the Court
approval, the Debtors sold that personal property to Dillon &
Associates for $7,500. Subsequently, the Debtors obtained Court
approval for authority to sell certain obsolete personal property
for up to $5,000 per item and $150,000 in the aggregate.
o Settlement of Postpetition Claims. To expedite the settlement of
small postpetition claims without incurring undue expense, the
Debtors obtained Court authority to settle and pay postpetition
claims up to a maximum of $2,000 per claim without Court approval.
The Debtors have also obtained court approval of settlements of
Post-petition litigation.
o Extension of Time to Assume or Reject Unexpired Leases. As of the
Petition Date, the Debtors were party to approximately 105 leases
of real property. In order to give the Debtors an opportunity to
review each of their leases in connection with their restructuring
efforts, the Debtors filed eleven motions seeking to extend the
Debtors' time within which to assume or reject such leases. Most
recently, the Bankruptcy Court issued the thirteenth such order,
dated August 31, 2000, extending the time for the Debtors to assume
or reject most of their remaining unexpired non-residential leases
to October 27, 2000. The Debtors anticipate filing a new motion
before October 27, 2000 further extending its time to assume or
reject leases.
o The Laguna Hills Lease. As part of the Debtors' restructuring
initiatives, the Debtors have determined to focus their operations
in the east coast and west coast. As part of that plan, the Debtors
obtained court authorization for Pacific to enter into a new three
year lease at their satellite showroom in Laguna Hills, California.
o The Plainville Lease. As part of the Debtors' long term business
plans and pursuant to the Bulk Sale Transaction, the Debtors must
vacate property located at 55 Graham Place, Southington,
Connecticut. In order to maintain a presence in that area, the
Debtors obtained court authorization to enter into a new fifteen
year lease to operate a showroom in Plainville, Connecticut.
o New Leases. As part of the Debtors' plan to focus their operations
in the west coast and east coast, the Debtors entered into leases
for new stores in Phoenix, Arizona and Valencia, California.
Moreover, the Debtors filed a motion to enter into a new lease for
its current store in Tukwila, Washington. On October 13, 2000, the
Court approved the Tukwila motion.
VIII. SUMMARY OF THE PLAN
This section provides a summary of the structure, means for
implementation of the Plan, classification and treatment of Claims and
Interests under the Plan, and is qualified in its entirety by reference to
the Plan, which is attached to this Disclosure Statement as Exhibit A. The
structure of the Plan and the distribution to holders of Claims and
Interests thereunder reflect the result of extensive negotiations between
RAM, the Creditors' Committee and Cerberus. Each of these three groups has
advised the Debtors that they support the Plan.
The statements contained in this Disclosure Statement include
summaries of the provisions contained in the Plan and in documents referred
to therein. The statements contained in this Disclosure Statement do not
purport to be precise or complete statements of all the terms of the Plan
or documents referred to therein, and reference is made to the Plan and to
such documents for the full and complete statements of such terms.
The Plan itself and the documents referred to therein control the
actual treatment of claims against and interests in the Debtors under the
Plan and will, upon the Effective Date, be binding upon all holders of
Claims against and Interests in the Debtors and their Estates, Reorganized
Levitz and other parties in interest.
A. OVERALL STRUCTURE OF THE PLAN
The Debtors have filed the Plan, which provides for substantive
consolidation of their estates. If the Plan is confirmed by the Bankruptcy
Court and consummated, on the Effective Date, the Initial Distribution Date
and thereafter as Claims are resolved, liquidated or otherwise allowed, the
Debtors will distribute Cash, securities and other property in respect of
certain Classes of Claims as provided in the Plan. The Debtors believe that
the Plan provides the best recovery to the Debtors' Claim holders.
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
Under the Plan, Claims against and Interests in the Debtors are
divided into different Classes. Only certain Allowed Claims are entitled to
receive distributions under the Plan. The following is a description of the
Plan's treatment of the Claims against and Interests in the Debtors.
1. Unclassified Claims
(a) Administrative Claims
The Plan provides that Administrative Claims, if any, are
unimpaired. Administrative Claims include any actual and necessary costs
and expenses of administration of the Chapter 11 Cases allowable under
Bankruptcy Code sections 503(b), 507(b) or 1114(e)(2) and entitled to
priority under section 507(a)(1). Such expenses may include, among other
things, the cost of operating the Debtors' business since the Petition Date
and the outstanding unpaid fees and expenses of the professionals retained
by the Debtors and the Creditors' Committee in these Chapter 11 cases.
Administrative Claims also include without limitation, Reclamation Claims,
DIP Financing Claims, Emergence Bonus Claims, Household Agreement Claims,
Professional Fees, Current Employee Contract Claims, Current SERP Claims,
Indenture Trustee Fees, the actual and necessary costs and expenses
incurred, after the Petition Date, in preserving any of the Estates or
operating the Debtors' business, and fees or charges payable to the Office
of the United States Trustee.
The Plan provides that on the Effective Date, or as soon thereafter
as practicable, a Creditor holding an Allowed Administrative Claim shall
receive in full satisfaction, settlement, release, and discharge of such
Allowed Administrative Claim (a) Cash equal to the unpaid portion of such
Allowed Administrative Claim; (b) such other treatment as to which Levitz
and such Creditor shall have agreed in writing, which shall include the
SERP Settlement and any amended credit agreement between any other parties;
or (c) in the case of the holders of the Claims arising under the
Overadvance Term Loan, 18.7% of the issued and outstanding stock of LHFI in
exchange for the forgiveness of all of the Overadvance Term Loan except for
approximately $7.0 million, which is being rolled into the Junior Secured
Debt Facility; provided, however, that Allowed Administrative Claims
representing obligations incurred by the Debtors in the ordinary course of
business shall be paid in the ordinary course of business in accordance
with the terms and conditions of any agreements relating thereto. The
Debtors retain the right at any time prior to confirmation to repay the
Overadvance Term Loan and the obligations thereunder in full and in Cash in
full satisfaction of the right of the holders of claims under the
Overadvance Term Loan to the issuance of equity hereunder.
On the Effective Date, or as soon thereafter as practicable,
Indenture Trustee Fees shall be paid in full in Cash provided that such
Indenture Trustee Fees are consistent with the estimates of Indenture
Trustee Fees which were provided to the Debtors on October 12, 2000 (the
"Estimates") after deducting any payments of Indenture Trustee Fees that
were made by the Debtors after the Petition Date to the applicable
Indenture Trustee; provided, however, that, if the Effective Date does not
occur by December 31, 2000, the Estimates may need to be revised.
(b) Priority Tax Claims
Priority Tax Claims include the allowed claims of governmental
units entitled to a priority in right of payment under the Bankruptcy Code.
The Plan provides that on the Effective Date, or as soon thereafter
as practicable, a Creditor holding an Allowed Priority Tax Claim shall be
entitled to receive in full satisfaction, settlement, release, and
discharge of such Allowed Priority Tax Claim (a) deferred Cash payments in
an aggregate principal amount equal to the amount of such Allowed Priority
Tax Claim plus interest on the unpaid portion thereof at the rate of seven
percent (7%) per annum from the Effective Date through the date of payment
thereof or (b) such other treatment as to which Levitz and such Creditor
shall have agreed upon in writing. If deferred Cash payments are made to a
Creditor holding an Allowed Priority Tax Claim, payments of principal shall
be made in annual installments, each such installment amount being equal to
10 percent of such Allowed Priority Tax Claim plus accrued and unpaid
interest, with the first payment to be due on the Initial Distribution
Date, and subsequent payments to be due on the anniversary of the first
payment date or as soon thereafter as is practicable; provided, however,
that any installments remaining unpaid on the date that is six years after
the date of assessment of the tax that is the basis for the Allowed
Priority Tax Claim shall be paid on the first Business Day following such
date, together with any accrued and unpaid interest to the date of payment;
and provided, further, that Levitz reserves the right to pay any Allowed
Priority Tax Claim, or any remaining balance of any Allowed Priority Tax
Claim, in full at any time on or after the Effective Date without premium
or penalty; and provided, further, that no Creditor shall be entitled to
any payments on account of any pre-Effective Date interest accrued on or
penalty arising after the Petition Date with respect to or in connection
with such Allowed Priority Tax Claim.
2. Unimpaired Classes Of Claims
(a) Class 1: Other Priority Claims
Class 1 Other Priority Claims are entitled to a priority in right
of payment under section 507(a) of the Bankruptcy Code and are not
Administrative Claims or Priority Tax Claims. Examples of Other Priority
Claims include unsecured Claims for accrued employee compensation,
including vacation, severance, and sick-leave pay, earned within 90 days
before the Petition Date, to the extent of $4,000 per employee, and
contributions to employee benefit plans arising from services rendered
within the 180-day period before the Petition Date, but only for such plans
to the extent of the number of employees covered by such plans multiplied
by $4,000, less the aggregate amount paid to such employees for accrued
employee compensation.
The Plan provides that on the Effective Date, or as soon thereafter
as practicable, a Creditor holding an Allowed Class 1 Other Priority Claim
shall receive in full satisfaction, settlement, release, and discharge of
such Allowed Class 1 Other Priority Claim (a) Cash payment equal to the
amount of such Allowed Class 1 Other Priority Claim or (b) such other
treatment to which Levitz and such Creditor shall have agreed upon in
writing.
(b) Class 2: Setoff Claims
Class 2 Setoff Claims are held by creditors who have asserted
before the Confirmation Date a right of setoff that is valid and
enforceable under section 553 of the Bankruptcy Code for the amount of such
Claim and such setoff right is determined by a Final Order of the
Bankruptcy Court or as otherwise agreed by the Debtors and the holder of
such Claim. To the extent that such setoff right is exercised, the
Unsecured Claim against the Debtors shall be reduced by the amount of the
setoff.
The Plan provides that on the Effective Date, or as soon thereafter
as practicable, a Creditor holding an Allowed Class 2 Setoff Claim, in full
satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Class 2 Setoff Claim, shall (a) be entitled to set off such
Allowed Class 2 Setoff Claim or (b) receive such other treatment as to
which Levitz and such Creditor shall have agreed upon in writing.
(c) Class 3: Miscellaneous Secured Claims
Class 3 Miscellaneous Secured Claims are Secured Claims under
section 506(a) of the Bankruptcy Code other than any Claims arising under
the DIP Credit Agreement or the Household Agreement. Each holder of a
Miscellaneous Secured Claim shall be deemed to be in a separate subclass.
The legal, equitable and contractual rights of holders of Allowed
Class 3 Miscellaneous Secured Claims shall be Reinstated by the Plan.
Notwithstanding section 1141(c) or any other provision of the Bankruptcy
Code, all prepetition liens on property of Reorganized Levitz securing such
Claims shall survive the Effective Date and continue in accordance with the
contractual terms or statutes governing such liens until, as to each
Creditor holding an Allowed Class 3 Miscellaneous Secured Claim, such Claim
is paid in full. Any failure by Levitz to object to such Claims during the
Chapter 11 cases shall not prejudice the rights of Reorganized Levitz to
contest or otherwise defend against such Claims in the appropriate forum
when and if sought to be enforced by the Creditors holding them.
3. Impaired Classes of Claims
(a) Class 4: Small Unsecured Claims
Class 4 Small Unsecured Claims are Allowed Claims as of the
Effective Date that are not Administrative Claims, Priority Tax Claims,
Other Priority Claims, Setoff Claims, Miscellaneous Secured Claims,
Subordinated Claims, or Intercompany Claims and are allowed in an amount of
$40,000 or less (the "Cut-Off Amount") on the Effective Date. The Cut-Off
Amount may be amended by Levitz in its sole discretion to ensure that after
all distributions are made, there will be less than 300 shareholders of
LHFI, provided that Levitz has adequate cash available to fund the payments
to holders of Class 4 Small Unsecured Claims.
Class 4 Small Unsecured Claims are comprised of four subclasses.
The Plan provides that a holder of an Allowed Class 4 Small Unsecured Claim
- which includes Allowed General Unsecured Claims equal to or less than
$40,000 arising from (i) the 13.375% Senior Notes due October 15, 1998
(Class 4.02), (ii) the 9.625% Senior Subordinated Notes due July, 2003
(Class 4.03), (iii) the Senior Deferred Coupon Debentures due June 15, 2002
(Class 4.04), and (iv) all other General Unsecured Claims, including trade
claims, rejection claims for prepetition contracts and leases, and personal
injury claims (Class 4.01) - shall receive a distribution, in the amount
set forth below, in Cash in full satisfaction, settlement, release, and
discharge of such Allowed Class 4 Small Unsecured Claim, including any
right of contractual subordination under the Senior Note Indenture and the
Senior Notes. The approximate percentage recovery of such Allowed Class 4
Small Unsecured Claims shall be as follows:
Approximate
Subclass % Distribution
-------- --------------
4.01 9.4%
4.02 12.6%
4.03 6.3%
4.04 9.4%
The treatment of Subclasses 4.02 and 4.03 incorporates a settlement
of subordination issues in the form of a 2 to 1 step down between the
13.375% Senior Notes due October 15, 1998 and the 9.625% Senior
Subordinated Notes due July, 2003. This settlement was reached after
extensive negotiations between the largest holders of these securities.
(b) Class 5: General Unsecured Claims
Class 5 General Unsecured Claims are Claims that are not
Administrative Claims, Current SERP Claims Priority Tax Claims, Other
Priority Claims, Setoff Claims, Miscellaneous Secured Claims, Small
Unsecured Claims, Subordinated Claims, or Intercompany Claims, and includes
without limitation, Senior Note Claims, Senior Deferred Coupon Debenture
Claims, Subordinated Note Claims, Pre-petition SERP Claims, trade claims,
rejection claims relating to prepetition contracts and leases and personal
injury claims, not covered by insurance.
Class 5 General Unsecured Claims are comprised of four subclasses.
Holders of Allowed Class 5 General Unsecured Claims - which include Claims
in excess of $40,000 arising from (i) the 13.375% Senior Notes due October
15, 1998 (Class 5.02), (ii) the 9.625% Senior Subordinated Notes due July,
2003 (Class 5.03), (iii) the Senior Deferred Coupon Debentures due June 15,
2002 (Class 5.04), (iv) all other General Unsecured Claims, including trade
claims, rejection claims for prepetition contracts and leases, and personal
injury claims (Class 5.01) - shall receive in total, a distribution of
approximately 7.0% of the LHFI Initially Issued and Outstanding Common
Stock, in full satisfaction, settlement, release, and discharge of such
Allowed Class 5 General Unsecured Claims, including any right of
contractual subordination under the Senior Note Indenture and the Senior
Notes. The distribution of LHFI Stock to holders of Allowed Class 5 General
Unsecured Claims is subject to a final determination of the amount of
Allowed Claims in these cases and depends on the nature of the claim made.
It is anticipated that distributions will be made in approximate accordance
with the following table:
Approximate Approximate
Subclass Estimated Claims % Ownership % Distribution
-------- ----------- --------------
5.01 $ 99.6 million 2.3% 9.4%
5.02 $ 96.4 million 3.0% 12.6%
5.03 $101.3 million 1.6% 6.3%
5.04 $ 8.7 million 0.2% 9.4%
---------------
Total $306.0 million
The treatment of Subclasses 5.02 and 5.03 incorporates a settlement
of subordination issues in the form of a 2 to 1 step down between the
13.375% Senior Notes due October 15, 1998 and the 9.625% Senior
Subordinated Notes due July, 2003. This settlement was reached after
extensive negotiations between the largest holders of these securities.
The above estimates of Class 5 percentage ownership of LHFI equity
assume (1) a New Investor equity dilution of $26.8 million and (2) the
claims estimates as set forth above. These estimates are subject to change,
and, accordingly, actual distributions may very from the estimates set
forth above.
(c) Class 6: Subordinated Claims
Class 6 Subordinated Claims are Claims (i) arising from fines,
penalties or punitive damages; or (ii) arising from rescission of a
purchase or sale of a security of the Debtors, for damages arising from the
purchase or sale of such a security, or for reimbursement or contribution
allowed under section 502 of the Bankruptcy Code on account of such a
claim, or (iii) otherwise subject to subordination under 11 U.S.C. ss.
510(b) or (c).
The Plan provides that a Creditor holding a Class 6 Subordinated
Claim shall not receive or retain any property or interest in property on
account of such Class 6 Subordinated Claim.
(d) Class 7: Intercompany Claims
Class 7 Intercompany Claims are Claims held by a Debtor against
another Debtor.
The Plan provides that, on the Effective Date, all Class 7
Intercompany Claims shall be cancelled, and their holders shall not receive
or retain any property or interest in property on account of their Class 7
Intercompany Claims.
4. Impaired Class of Interests
Class 8: Interests
Class 8 Interests are the rights of any current or former holder or
owner of Old Equity Securities authorized and issued before the
Confirmation Date.
The Plan provides that, on the Effective Date, all Class 8
Interests shall be cancelled and the Interest Holders shall not receive or
retain any property or interest in property on account of their Class 8
Interests.
C. MEANS OF PLAN IMPLEMENTATION
1. Cancellation Of Existing Securities
The Plan provides that on the Effective Date, except as otherwise
provided for herein, the Existing Securities shall be deemed cancelled and
of no further force or effect without any further action on the part of the
Bankruptcy Court or any Person. The holders of such cancelled Existing
Securities shall have no rights against Reorganized Levitz or LHFI arising
from or relating to such Existing Securities or the cancellation thereof,
except the rights provided herein.
2. Substantive Consolidation
The Plan requires entry of an order substantively consolidating the
Debtors' Estates and Chapter 11 cases for purposes of all actions
associated with confirmation and consummation of the Plan. On the
Confirmation Date or such other date after the Effective Date as may be set
by an order of the Bankruptcy Court (i) all Intercompany Claims will be
eliminated, (ii) all assets of the Estates will be consolidated into a
single Estate, (iii) any obligation of a Debtor and all guarantees thereof
by one or more other Debtors will be deemed to be a single obligation of
Levitz, and (iv) each Claim filed or to be filed against any Debtor will be
deemed filed only once against Levitz and will be deemed a single Claim
against and a single obligation of Levitz. On the Confirmation Date, and in
accordance with the terms of the Plan and the consolidation of the assets
and liabilities of the Debtors, all Claims based upon guarantees of
collection, payment, or performance made by the Debtors as to the
obligations of another Debtor will be released and of no further force and
effect.
Unless the Bankruptcy Court has ordered substantive consolidation
of the Chapter 11 cases before the Confirmation Hearing, the Plan will
serve as, and will be deemed to be, a motion for entry of an order
substantively consolidating the Debtors' Chapter 11 cases. If no objection
to substantive consolidation is timely filed and served by any holder of a
Claim in a Class impaired by the Plan on or before the deadline for
submitting objections to the Plan or such other date as may be established
by the Bankruptcy Court, an order approving substantive consolidation
(which may be the Confirmation Order) may be entered by the Bankruptcy
Court. If any such objections are timely filed and served, a hearing with
respect to the substantive consolidation of the Chapter 11 cases and the
objections thereto will be scheduled by the Bankruptcy Court, which hearing
may, but is not required to, coincide with the Confirmation Hearing.
3. Termination of DIP Facility
The Plan provides that, on the Effective Date, all obligations of
Levitz under the DIP Facility shall be paid or otherwise satisfied in full
in accordance with the terms of the DIP Facility. Without limiting the
foregoing, with the consent of the DIP Lenders, any letters of credit that
have not expired will be replaced with letters of credit as a part of the
Post-Confirmation Financing Agreement. Upon payment or satisfaction in full
of all obligations under the DIP Facility in accordance with the terms
thereof, all liens and security interests granted to secure such
obligations will be deemed cancelled and will be of no further force and
effect.
4. The Creditors' Committee
The Creditors' Committee will continue in existence until the
Effective Date, at which time it will be dissolved and its members will be
released from all their duties, responsibilities and obligations in
connection with the Chapter 11 cases or the Plan and its implementation,
except that the Creditors' Committee will continue in existence for the
limited purpose of reviewing and, if necessary, objecting to final
applications for Professional Fees and opposing any appeal of the
Confirmation Order. The retention or employment of the Creditors'
Committee's attorneys, accountants, and other agents, will terminate when
the Creditors' Committee's existence terminates. All Allowed expenses of
Creditors' Committee members and the Allowed fees and expenses of their
professionals through the Effective Date will be paid by Reorganized Levitz
in accordance with the terms and conditions of the Professional Fee Order
and all such reasonable fees and expenses incurred after the Effective Date
will be paid by Reorganized Levitz.
D. MISCELLANEOUS
1. Litigation Concerning Management Agreement and Shared
Services Agreement
On April 27, 2000, other shareholders of Seaman, including T. Rowe
Price Recovery Fund, L.P. ("Rowe") and Carl Marks Management Co., L.P.
("Marks"), commenced an action in the Chancery Court for the State of
Delaware to enjoin transactions involving Seaman and Levitz that were
proposed as part of an earlier Levitz reorganization plan. Rowe and Marks,
inter alia, alleged that the earlier Seaman-Levitz transactions were
intended solely to benefit the majority shareholder of Seaman, entities
affiliated with RAM. In addition, Rowe and Marks sued certain Seaman
officers, alleging that selling their Seaman shares to RAM violated their
fiduciary duties to all shareholders. Levitz moved in the Bankruptcy Court
(the "Bankruptcy Court Action") for an order enjoining the Chancery Court
action on the ground that the action violated the automatic stay, 11 U.S.C.
ss. 362(a)(3), because it was an attempt to interfere with the property of
the estate, but the Bankruptcy Court denied the motion. Subsequently,
Levitz voluntarily dismissed the Bankruptcy Court Action. Levitz
understands that the Chancery Court action has been settled, subject to
certain conditions, pursuant to an agreement among, inter alia, Seaman,
RAM, Rowe and Marks.
2. Officers and Directors
The board of directors and officers of LHFI will be disclosed in a
writing, which will be filed with the Bankruptcy Court seven days prior to
the Confirmation Hearing.. The LHFI board of directors will be comprised of
seven members, two of which will be management and five will be
non-employee directors.
3. Post Emergence Employment Contracts
It is anticipated that LHFI or one of its affiliates will enter
into employment contracts with certain members of the senior management
team.
4. Certificate Of Incorporation And By-Laws
The certificates of incorporation and by-laws of LHFI shall satisfy
the provisions of the Plan and the Bankruptcy Code. The certificate of
incorporation of LHFI shall, among other things: (i) authorize 100,000,000
shares of LHFI Stock (as defined below), $0.01 par value per share, and
(ii) provide, under Bankruptcy Code section 1123(a)(6), for (x) a provision
prohibiting the issuance of nonvoting equity securities, and (y) if
applicable, a provision as to the class of securities issued pursuant to
the Plan or thereafter possessing voting power, for an appropriate
distribution of such power among such classes, including in the case of any
class of equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the election
of directors representing such preferred class in the event of default in
the payment of such dividends.
E. DISTRIBUTIONS UNDER THE PLAN
1. Disbursing Agent
The Disbursing Agent shall make all distributions required under
the Plan, except for distributions to Creditors holding Debt Securities,
which distributions shall be deposited with the appropriate Indenture
Trustee, agent, or servicer, who shall deliver such distributions in
accordance with the Plan's provisions and the terms of the relevant
indenture or other governing agreement. The Disbursing Agent and the
Indenture Trustees shall not be required to give any bond or surety or
other security for the performance of its duties unless otherwise ordered
by the Bankruptcy Court, in which case all costs and expenses of procuring
any such bond shall be paid by Reorganized Levitz. Reorganized Levitz shall
pay the reasonable fees and expenses of the Disbursing Agent and the
Indenture Trustees incurred in connection with the making of the
distributions.
2. LHFI Stock
Under its certificate of incorporation, LHFI's authorized capital
stock ("LHFI Stock") will consist of 100,000,000 shares of LHFI Stock, of
which up to 25,000,000 shares will be issued under the Plan. All shares of
the LHFI Stock, when issued pursuant to the Plan, will be fully paid and
nonassessable. Under the Plan, as of the Effective Date, all shares of the
LHFI Stock to be issued under the Plan will be issued as follows:
Approximate %
Entity of LHFI Stock*
------ -------------
Class 5 General Unsecured Claims 7.0%
RAM (excluding its Class 5 Claims) 81.8%
Ableco Parent (or its designee) 4.7%
New Investors 6.6%
----
100%
------------------
* Numbers may not be equal to
100% due to rounding
3. Issuance of Warrants
In addition, Ableco Parent and RAM shall receive warrants
representing 4.7% of the LHFI Stock, on a pro rata basis, in respect of
their $40 million and $7 million commitments in the Junior Secured Debt
Facility, respectively, on a fully diluted basis, without taking into
consideration the grants of equity interests of management of Levitz and
Seaman to purchase up to 15% of the common stock of LHFI. The warrants will
entitle Ableco Parent and RAM to purchase the stock pursuant to the
warrants at a price of $8.00 per share. In addition, the management of
Levitz and Seaman will subject to LHFI's board of directors' determination,
receive grants of equity interests to purchase up to 15% of the common
stock of LHFI on a fully diluted basis, taking into consideration the
warrants issued to Ableco Parent and RAM.
4. Date of Distributions
Except as otherwise provided for herein or ordered by the
Bankruptcy Court, distributions under the Plan shall be made on the
Distribution Dates, or as soon thereafter as is practicable.
5. Surrender Of Debt Securities
The Plan provides that on or before the Initial Distribution Date,
or as soon as practicable thereafter, all Creditors holding Debt Securities
shall surrender them to the appropriate Indenture Trustee, agent, or
servicer. No distribution of property hereunder shall be made to or on
behalf of any Creditor holding a Debt Security that does not surrender it
or reasonably establish its unavailability to the satisfaction of the
appropriate Indenture Trustee, agent or servicer. Any lost, stolen,
mutilated, or destroyed Debt Security shall be deemed surrendered when (i)
the appropriate Indenture Trustee, agent or servicer is satisfied that such
Debt Security is unavailable and (ii) the Creditor whose Claim is based on
such Debt Security delivers security or indemnity to the appropriate
Indenture Trustee, agent or servicer. Any Creditors holding Debt Securities
that fail to (x) surrender them or cause them to be surrendered or (y) fail
to execute and deliver an affidavit of loss and indemnity reasonably
satisfactory to the appropriate Indenture Trustee, agent or servicer before
the first anniversary of the Effective Date, shall be deemed to have
forfeited all rights and Claims with respect to such Debt Securities and
shall not participate in any distribution hereunder, and all property in
respect of such forfeited distribution, including interest accrued thereon,
shall revert to Reorganized Levitz notwithstanding any federal or state
escheat laws to the contrary.
6. Record Date For Distribution To Creditors Holding Debt Securities
The Plan provides that, at the close of business on the Record
Date, the transfer ledgers of the Indenture Trustees, agents, and servicers
of the Debt Securities shall be closed, and there shall be no further
changes in the record holders of the Debt Securities. Reorganized Levitz
and the Indenture Trustees, agents, and servicers for such Debt Securities
and the Disbursing Agent shall have no obligation to recognize any transfer
of such Debt Securities occurring after the Record Date. Reorganized Levitz
and the Indenture Trustees, agents, and servicers for such Debt Securities
and the Disbursing Agent shall be entitled instead to recognize and deal
for all purposes hereunder with only those record holders stated on the
transfer ledgers as of the close of business on the Record Date.
7. Means Of Cash Payment
Cash payments made under the Plan shall be in Cash, by the means
agreed to by the payor and the payee, including by check or wire transfer,
or, in the absence of an agreement, such commercially reasonable manner as
the payor shall determine in its sole discretion.
8. Interest on Claims
Unless otherwise specifically provided for in the Plan or in the
Confirmation Order or required by the Bankruptcy Code, interest shall not
accrue on Claims, and no Creditor shall be entitled to interest accruing on
or after the Petition Date on any Claim. Interest shall not accrue or be
paid upon any Disputed Claim in respect of the period from the Petition
Date to the date the Final Distribution is made if and after such Disputed
Claim becomes an Allowed Claim.
9. No Fractional Securities Issued
No fractional shares of LHFI Stock shall be issued or distributed
under the Plan. Each Creditor entitled under the Plan to receive LHFI Stock
on account of an Allowed Claim shall receive the total number of whole
shares of LHFI Stock to which such Creditor is entitled based on the total
amount of Allowed Claims entitled to LHFI Stock. Any fractional interests
in LHFI Stock allocated for distribution from the Unsecured Claims
Distribution Reserve will continue to be held there until such interests
are allocated and distributed to Creditors in connection with the Final
Distribution. Once all the whole shares of LHFI Stock authorized under this
Plan have been allocated and distributed, all remaining fractional
entitlements to LHFI Stock shall be cancelled and shall be of no further
force and effect.
F. RESOLUTION OF DISPUTED CLAIMS
1. Objection Deadline
As soon as practicable, but on or before 120 days after the
Confirmation Date (or such other later date as the Bankruptcy Court may fix
from time to time), Levitz or Reorganized Levitz shall file objections to
Claims with the Bankruptcy Court and serve such objections on the Creditors
holding the Claims to which objections are made. Nothing contained herein,
however, shall limit Levitz's or Reorganized Levitz's right to object to
Claims, if any, filed or amended more than 100 days after the Confirmation
Date.
2. No Distributions Pending Allowance
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made with respect to all or any portion of a
Disputed Claim unless and until all objections to such Disputed Claim have
been settled or withdrawn or have been determined by a Final Order.
3. Administrative Claims Distribution Reserve
On the Effective Date or as soon after as is practicable,
Reorganized Levitz will establish and fund with cash the Administrative
Claims Reserve for the benefit of the holders of Disputed Administrative
Claims, Disputed Other Priority Claims and Disputed Priority Tax Claims.
The initial amount of the Administrative Claims Reserve will equal the sum
of the Face Amounts of all Disputed Administrative Claims, Disputed
Priority Tax Claims and Disputed Other Priority Claims. On the request of
Levitz or Reorganized Levitz, the Bankruptcy Court may estimate for the
purpose of the Administrative Claims Distribution Reserve the amount of a
Disputed Administrative Claim, Disputed Other Priority Claim or Disputed
Priority Tax Claim. Based on such estimations, the amount of the
Administrative Claims Distribution Reserve may be adjusted. On the
Distribution Date on which all or part of a Disputed Claim ultimately
becomes an Allowed Claim pursuant to a Final Order of the Bankruptcy Court,
the Disbursing Agent shall make distributions from the Administrative
Claims Distribution Reserve to the holder of such Claim.
4. Unsecured Claims Distribution Reserve
(a) RESERVED AMOUNTS AND ESTIMATIONS. On the request of
Levitz or Reorganized Levitz, the Bankruptcy Court may estimate for the
purpose of distribution the amount of Disputed Distribution Reserve Claims
not otherwise treated in the Plan. The Bankruptcy Court's estimation of a
Disputed Distribution Reserve Claim is the maximum amount for which such
Disputed Claim may ultimately be allowed, if allowed in whole or in part.
Based on such estimations, the Disbursing Agent shall reserve sufficient
shares of LHFI Stock and/or Cash in the Unsecured Claims Distribution
Reserve for such Claims in view of the distributions on the Initial
Distribution Date to Creditors holding Allowed Class 5 General Unsecured
Claims or Allowed Class 4 Small Unsecured Claims, as appropriate. If Levitz
or Reorganized Levitz elect not to request such an estimation with respect
to a Disputed Distribution Reserve Claim, the Disbursing Agent shall
reserve LHFI Stock and/or Cash in the Unsecured Claims Distribution Reserve
based on the Face Amount of such Disputed Claim.
The Disbursing Agent also will place in the Unsecured Claims
Distribution Reserve any dividends, payments, or other distributions made
on account of, as well as any obligations arising from, the LHFI Stock
reserved under this Article to the extent that such property continues to
be reserved at the time such distributions are made or such obligations
arise.
(b) INITIAL DISTRIBUTIONS. On the Initial Distribution Date,
the Disbursing Agent shall distribute shares of LHFI Stock and/or Cash from
the Unsecured Claims Distribution Reserve to each Creditor holding an
Allowed Class 5 General Unsecured Claim or Allowed Class 4 Small Unsecured
Claim, as applicable, in accordance with Article III of the Plan.
(c) DISTRIBUTIONS AFTER ALLOWANCE. On the Distribution Date
following the date on which all or part of a Disputed Distribution Reserve
Claim ultimately becomes an Allowed Claim pursuant to a Final Order of the
Bankruptcy Court, the Disbursing Agent shall distribute from the Unsecured
Claims Distribution Reserve to the Creditor holding such Allowed Claim the
shares of LHFI Stock or Cash that the Creditor would have received on the
Initial Distribution Date for such an Allowed Claim.
(d) FINAL DISTRIBUTION. After the Bankruptcy Court has by
Final Order adjudicated or resolved all Disputed Distribution Reserve
Claims, the Disbursing Agent shall distribute any unallocated shares of
LHFI Stock remaining in the Unsecured Claims Distribution Reserve to
Creditors holding Allowed Class 5 General Unsecured Claims in accordance
with Article III of the Plan. The Final Distribution of LHFI Stock,
together with any dividends, payments, or other distributions made on
account of, as well as any obligations arising from, such LHFI Stock since
the Effective Date will be made by the Disbursing Agent as promptly as
possible. Any remaining undistributed Cash shall be returned to LHFI.
5. Miscellaneous
(a) No Creditor holding a Disputed Claim will have any claim
against any property reserved in the Unsecured Claims Distribution Reserve
on account of such Claim until such Disputed Claim becomes an Allowed
Claim. In no event will any holder of any Disputed Claim be entitled to
receive from the Unsecured Claims Distribution Reserve any distribution
that is greater than the amount of property reserved on account of such
Claim pursuant to this Article, plus any dividends, payments, or interest
accrued thereon since the Effective Date. In no event will Reorganized
Levitz have any responsibility or liability for the Unsecured Claims
Distribution Reserve or any property reserved thereunder or distributed
therefrom.
(b) Neither the Disbursing Agent, nor any other party, shall
be entitled to vote any shares of the LHFI Stock held in the Unsecured
Claims Distribution Reserve. In the event that any matter requires approval
by the shareholders of Reorganized Levitz prior to the distribution of all
shares of LHFI Stock from the Unsecured Claims Distribution Reserve, the
shares of LHFI Stock held by the Disbursing Agent in the Unsecured Claims
Distribution Reserve shall be deemed for voting purposes only not to have
been issued.
G. ADMINISTRATIVE CLAIMS BAR DATES
1. Professional Fees
All final requests for payment of Professional Fees, including
Creditors' Committee's expenses, must be filed no later than sixty days
after the Effective Date, unless otherwise ordered by the Court. Objections
to applications for Professional Fees, including Creditors' Committee's
expenses, must be served on Reorganized Levitz, counsel for Reorganized
Levitz, and the requesting Professional or other entity no later than
thirty days after the date on which the applicable application was served.
After notice and a hearing in accordance with the procedures established by
the Bankruptcy Code and prior orders of the Bankruptcy Court, the allowed
amounts of such Professional Fees, including Creditors' Committee's
expenses, shall be determined by the Bankruptcy Court.
2. Other Administrative Claims
All other requests for payment of an Administrative Claim (except
for Professional Fees, including the expenses of members of the Creditors'
Committee) must be filed with the Bankruptcy Court and served on counsel
for Levitz and the Creditors' Committee no later than thirty days after the
Confirmation Date. Unless Levitz or Reorganized Levitz objects to an
Administrative Claim within forty-five days after receipt, such
Administrative Claim shall be deemed allowed in the amount requested. In
the event that Levitz or Reorganized Levitz objects to an Administrative
Claim, the Bankruptcy Court shall determine the allowed amount of such
Administrative Claim. Notwithstanding the foregoing, no request for payment
of an Administrative Claim need be filed with respect to an Administrative
Claim that is paid or payable by Levitz or Reorganized Levitz in the
ordinary course of business.
H. MISCELLANEOUS PLAN PROVISIONS
1. Preservation of Litigation Claims
In accordance with Bankruptcy Code section 1123(b)(3), and except
as otherwise provided in the Plan, Reorganized Levitz retains and may, in
its sole discretion, enforce, sue on, settle or compromise (or decline to
do any of the foregoing) all claims rights or causes of action, suits, and
proceedings, whether in law or in equity, whether known or unknown, that
any Debtor or its Estate may hold against any entity, except for any
preference claims arising under 11 U.S.C. ss. 547(b), which preference
claims shall be dismissed or waived. Reorganized Levitz or any of its
successors may pursue such retained litigation claims in accordance with
the best interests of Reorganized Levitz or its successors who hold such
rights of action.
2. Treatment of Executory Contracts and Unexpired Leases
The Plan provides that each executory contract and unexpired
lease to which any of the Debtors is a party shall be deemed automatically
assumed as of the Effective Date unless (i) previously rejected by the
Debtors, (ii) the subject of a motion to assume or assume and assign or
reject, or extend the time to reject, assume, or assume and assign, filed
on or before the Confirmation Date or (iii) listed on the schedule of
rejected executory contracts and unexpired leases annexed as Exhibit A to
the Plan. The Confirmation Order shall constitute an order of the
Bankruptcy Court approving the assumption of such executory contracts and
unexpired leases, pursuant to Bankruptcy Code section 365, as of the
Confirmation Date. Any lease rejection shall provide that the property will
be vacated within 90 days of the notice of rejection. No extension of the
time to reject, assume, or assume and assign shall be for greater than 90
days after the Effective Date.
(a) Payments related to Assumption of Executory Contracts
and Unexpired Leases
Any monetary amounts by which each executory contract and unexpired
lease to be assumed under the Plan is in default shall be satisfied, under
Bankruptcy Code section 365(b)(1), by Cure payable by the Debtors or their
designee, at the option of the Debtors, within 10 days after the Effective
Date. In the event of a dispute regarding (i) the nature or the amount of
any Cure, (ii) the ability of Reorganized Levitz or any assignee to provide
"adequate assurance of future performance" (within the meaning of
Bankruptcy Code section 365) under the contract or lease to be assumed, or
(iii) any other matter pertaining to assumption, Cure shall occur following
the entry of a Final Order of the Bankruptcy Court resolving the dispute
and approving the assumption and, as the case may be, assignment.
(b) Bar to Rejection Damages
If Levitz's rejection of an executory contract or unexpired lease,
under the Plan or otherwise, results in a Claim, then such Claim shall be
forever barred and not enforceable against Levitz or their properties
unless proof of such Claim is filed with the Clerk of the Bankruptcy Court
and served upon counsel to Reorganized Levitz no later than thirty days
after service of the earlier of (i) notice of entry of the Confirmation
Order or (ii) other notice that the executory contract or unexpired lease
has been rejected.
3. 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.
4. Retention of Jurisdiction
The Plan generally provides for the retention of jurisdiction by
the Bankruptcy Court over the Chapter 11 cases for the purpose of
determining all disputes relating to Claims, Interests and other issues
presented by or arising under the interpretation, implementation or
enforcement of the Plan, and to determine all other matters pending on the
Confirmation Date.
5. Injunction Regarding Worthless Stock Deduction
At the Confirmation Hearing, the Debtors may request that the
Bankruptcy Court include in the Confirmation Order a provision enjoining
any "50-percent shareholder" of LFI 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 Interest for any
taxable year of such shareholder ending prior to the Effective Date and
thereby causing an ownership change under section 382(g)(4)(D) of the
Internal Revenue Code.
6. Revesting of Assets
Under the Plan and pursuant to Bankruptcy Code section 1141(b), the
property of all the Estates shall revest in Reorganized Levitz on the
Effective Date. Thereafter, Reorganized Levitz may operate its business and
may use, acquire, and dispose of property free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the
Effective Date, all property of Levitz shall be vested in Reorganized
Levitz free and clear of all Claims and Interests, except as specifically
provided in the Plan or the Confirmation Order. Without limiting the
foregoing, Reorganized Levitz may, without application to or approval by
the Bankruptcy Court, pay fees and expenses that it incurs after the
Effective Date and sell any of its assets as required to pay such fees and
expenses incurred after the Effective Date.
I. MODIFICATIONS AND AMENDMENTS TO THE PLAN
After consultation with the Creditors' Committee, RAM and Cerberus,
Levitz may alter, amend, or modify the Plan or any Exhibits thereto under
Bankruptcy Code section 1127(a) at any time before the Confirmation Date.
After the Confirmation Date and before substantial consummation of the Plan
as defined in Bankruptcy Code section 1101(2), Levitz may, under Bankruptcy
Code section 1127(b), institute proceedings in the Bankruptcy Court to
remedy any defect or omission or reconcile any inconsistencies in the Plan,
the Disclosure Statement approved with respect to the Plan, or the
Confirmation Order, and such matters as may be necessary to carry out the
purpose and effect of the Plan so long as such proceedings do not adversely
affect the treatment of holders of Claims or Interests under the Plan;
provided, however, that prior notice of such proceedings shall be served in
accordance with the Bankruptcy Rules or order of the Bankruptcy Court.
J. EXCULPATION AND LIMITATION OF LIABILITY
Neither Levitz, Reorganized Levitz, the Creditors' Committee, RAM,
Cerberus, Ableco nor any of their respective present or former members,
officers, directors, employees, advisors, attorneys, agents, affiliates or
other representatives shall have or incur any liability to any Creditor,
Interest Holder or any other party in interest, or any of their respective
agents, employees, representatives, financial advisors, attorneys, or
affiliates, or any of their successors or assigns, for any act or omission
in connection with, relating 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 their willful misconduct, and in all respects shall be
entitled to reasonably rely upon the advice of counsel with respect to
their duties and responsibilities under the Plan.
Notwithstanding any other provision of this Plan, all Creditors,
Interest Holders, other parties in interest, and any of their respective
agents, employees, representatives, financial advisors, attorneys, or
affiliates, and any successors or assigns of the foregoing or any
professionals retained by them, shall have no right of action against
Levitz, Reorganized Levitz, the Creditors' Committee, RAM, Cerberus Ableco
or any of their respective present or former members, officers, directors,
employees, advisors, attorneys, affiliates or agents, for any act or
omission in connection with, relating 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 their willful misconduct, and each such Person
is expressly enjoined from asserting or commencing any such action.
On the Effective Date, each of the Debtors and Reorganized Levitz
shall be deemed to have settled, released and waived any and all claims,
suits and/or causes of action of any nature whatsoever that any of the
Debtors or Reorganized Levitz holds or might hold or assert against any
officer, director, agent, employee, advisor, accountant or attorney of any
Debtor serving in such capacity immediately prior to the Effective Date.
IX. CERTAIN FACTORS TO BE CONSIDERED
A. GENERAL CONSIDERATIONS
There are events that could occur and risks associated with the
Debtors' reorganization. These risk factors include, but are not limited
to, the following:
B. CERTAIN BANKRUPTCY CONSIDERATIONS
1. Objection to Classifications.
Bankruptcy Code ss. 1122 provides that a plan may place a claim or
an interest in a particular class only if such claim or interest is
substantially similar to the other claims or interest of such class. The
Debtor believes that the classification of Claims and Interests under the
Plan complies with the requirements set forth in the Bankruptcy Code.
However, there can be no assurance that the Bankruptcy Court would reach
the same conclusion.
2. Risk of Nonconfirmation of the Plan.
Even if all Classes of Claims that are entitled to vote to accept
the Plan, the Plan might not be confirmed by the Bankruptcy Court.
Bankruptcy Code ss. 1129 sets forth the requirements for confirmation and
requires, among other things, that the confirmation of a reorganization
plan is not likely to be followed by the liquidation or the need for
further financial reorganization, and that the value of distributions to
dissenting creditors and Interest Holders not be less than the value of
distributions such creditors and interest holders would receive if the
Debtors were liquidated under Chapter 7 of the Bankruptcy Court. The
Debtors believe that the Plan satisfies all the requirements for
confirmation of a reorganization plan under the Bankruptcy Code. There can
be no assurance, however, that the Bankruptcy Court would also conclude
that the requirements for Confirmation of the Plan have been satisfied.
C. LITIGATION
The Debtors have been named as a defendant in a variety of
litigations. The Debtors expect that they will continue to be named as a
defendant in future litigation, although the Debtors do not expect such
litigation to have a material adverse impact on the Debtors' performance
under the Plan.
D. ILLIQUID REORGANIZED EQUITY
The Debtors do not anticipate that the LHFI Stock distributed under
the Plan will be publicly traded; therefore, LHFI will not file financial
statements and other reports with the SEC as a reporting company. There can
be no assurance when, and if, LHFI will become a publicly traded company or
file public reports. Even if it became a publicly traded company or filed
public reports, there can be no assurance that a market will develop for
LHFI's stock.
LHFI will provide shareholders with unaudited quarterly financial
statements following the completion of each fiscal quarter, and audited
financial statements following each fiscal year end. These statements will
be accompanied by management comments regarding trends of operations,
liquidity and use of capital.
E. UNLIQUIDATED CLAIMS
Numerous unliquidated claims have been filed against the Debtors'
estates, including personal injury claims. Levitz intends to evaluate such
personal injury claims using several factors, including (i) severity of
injury (ii) amount of medical bills and other out-of-pocket expenses, (iii)
permanence of injury and (iv) apportionment of liability.
F. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS
The Projections (as defined herein) set forth in Exhibit E cover
LHFI's operations through the fiscal year ending March 31, 2005. The
Projections provided in the disclosure statement have been prepared by
Levitz's management with the assistance of its financial advisors, The
Blackstone Group, L.P., and incorporate projections prepared independently
by Seaman management solely with respect to Seaman. These Projections,
while presented with numerical specificity, are necessarily based on a
variety of estimates and assumptions which, though considered reasonable by
Levitz's management, may not be realized, and are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the respective management's
control. No representations can be made as to the accuracy of these
financial projections or to LHFI's ability to achieve the projected
results. Some assumptions inevitably will not materialize. Further, events
and circumstances occurring subsequent to the date on which these
projections were prepared may be different from assumed or, alternatively,
may have been unanticipated and thus the occurrence of these events may
affect financial results in a material and possibly adverse manner. The
Projections, therefore, may not be relied upon as a guaranty or other
assurance of the actual results that will occur.
Finally, the Projections include assumptions as to the fair value
of LHFI's assets and actual liabilities as of the effective date. LHFI will
be required to make such estimations as of the effective date. Such
determination will be based upon the fair values as of that date, which
could be materially greater or lower than the values assumed in the
foregoing estimates.
Because the actual results achieved throughout the periods covered
by the Projections may vary from the projected results, the Projections
should not be relied upon as a guaranty, representation, or other assurance
of the actual results that will occur.
Estimates of value do not purport to be appraisals nor do they
necessarily reflect the values which may be realized if assets are sold.
The estimate of value represents a hypothetical reorganized equity value
assuming the implementation of managements' projections as well as other
significant assumptions. Such estimate was developed solely for purposes of
formulating and negotiating a plan of reorganization and analyzing the
projected recoveries thereunder.
The estimated equity value is highly dependent upon achieving the
future financial results set forth in the Projections as well as the
realization of certain other assumptions which are not guaranteed.
The valuation set forth herein represents an estimated
reorganization equity value and does not necessarily reflect the value that
could be attained in public or private markets. The reorganization equity
value ascribed in the analysis does not purport to be an estimate of the
post-reorganization market value. Such trading value, if any, may be
materially different from the reorganization equity value presented herein.
Furthermore, it is anticipated that the equity of LHFI will not be publicly
traded upon emergence from bankruptcy. This may materially impact the
trading value of the equity.
G. DIVIDENDS
The Debtors do not anticipate that any dividends will be paid with
respect to the LHFI Stock in the near-term.
H. EXIT FINANCING
The Debtors are discussing with several lenders the possibility of
them providing exit financing; however, the Debtors have not yet received
commitments for the debt and equity exit financing necessary to fund the
Plan. The Debtors believe that they will be able to receive such financing.
Receiving such funding is a condition to Plan effectiveness.
I. CERTAIN TAX CONSIDERATIONS
There are a number of material income tax considerations, risks and
uncertainties associated with consummation of the Plan. Interested parties
should read carefully the discussion set forth in section XI of this
Disclosure Statement, entitled "Material United States Federal Income Tax
Consequences of the Plan" for a discussion of the Material United States
federal income tax consequences and risks for holders of claims and Levitz
resulting from the transactions occurring in connection with the Plan.
X. RESALE OF SECURITIES RECEIVED UNDER THE PLAN
Under section 1145(a) of the Bankruptcy Code, the issuance of the
LHFI Stock to be distributed under the Plan in exchange for Claims against
Levitz, and the subsequent resale of such securities by entities that are
not "underwriters" (as defined in section 1145(b) of the Bankruptcy Code),
is not subject to the registration requirements of section 5 of the
Securities Act of 1933. Because of the complex, subjective nature of the
question of whether a particular holder may be an underwriter, Levitz does
not make any representation concerning the ability of any person to dispose
of the LHFI Stock to be distributed under the Plan.
Section 1145(b)(1) of the Bankruptcy Code provides:
(b)(1) Except as provided in paragraph (2) of this
subsection and except with respect to ordinary trading
transactions of an entity that is not an issuer, an entity
is an underwriter under section 2(11) of the Securities Act
of 1933, if such entity -
(A) purchases a claim against, interest in, or claim
for an administrative expense in the case concerning,
the debtor, if such purchase is with a view to
distribution of any security received or to be
received in exchange for such a claim or interest;
(B) offers to sell securities offered or sold under
the plan for the holders of such securities;
(C) offers to buy securities offered or sold under
the plan from the holders of such securities, if such
offer to buy is -
(i) with a view to distribution of such
securities; and
(ii) under an agreement made in connection
with the plan, with the consummation of the
plan, or with the offer or sale of securities
under the plan; or
(D) is an issuer, as used in such section 2(11), with
respect to such securities.
(2) An entity is not an underwriter under section 2(11) of
the Securities Act of 1933 or under paragraph (1) of this
subsection with respect to an agreement that provides only
for -
(A) (i) the matching or combining of fractional
interests in securities offered or sold under
the plan into whole interest, or
(ii) the purchase or sale of such fractional
interests from or to entities receiving such
fractional interests under the plan; or
(B) the purchase or sale for such entities of such
fractional or whole interests as are necessary to
adjust for any remaining fractional interests after
such matching.
(3) An entity other than an entity of the kind specified in
paragraph (1) of this subsection is not an underwriter under
section 2(11) of the Securities Act of 1933 with respect to
any securities offered or sold to such entity in the manner
specified in subsection (a)(1) of this section.
Levitz recommends that recipients of securities under the Plan
consult with legal counsel concerning the limitations on their ability to
dispose of these securities.
There is no present intention to register under the Securities Act
of 1933 the LHFI Stock to be distributed.
XI. MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
THE FOLLOWING DISCUSSION WAS PREPARED BY LEVITZ AFTER CONSULTATION
WITH ITS COUNSEL, SKADDEN ARPS, AND SUMMARIZES ANTICIPATED MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS PROPOSED IN THE PLAN TO
LEVITZ AND TO THE CREDITORS AND SHAREHOLDERS OF LEVITZ. THE SUMMARY IS
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS BASED ON THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "IRC"), THE TREASURY REGULATIONS
PROMULGATED UNDER THE IRC, JUDICIAL AUTHORITY AND CURRENT ADMINISTRATIVE
RULINGS AND PRACTICE, ALL AS IN EFFECT AS OF THE DATE OF THIS DISCLOSURE
STATEMENT AND ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE
EFFECT THAT COULD ADVERSELY AFFECT LEVITZ, ITS CREDITORS AND ITS EQUITY
SECURITY HOLDERS.
THE SUMMARY DOES NOT ADDRESS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF A CLAIM OR INTEREST
IN LIGHT OF ITS PARTICULAR FACTS AND CIRCUMSTANCES OR TO SPECIFIED TYPES OF
HOLDERS OF CLAIMS OR INTERESTS SUBJECT TO SPECIAL TREATMENT UNDER THE IRC
(FOR EXAMPLE, FOREIGNERS, FINANCIAL INSTITUTIONS, BROKER-DEALERS, LIFE
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER HOLDERS
WHOSE CLAIMS OR INTERESTS ARE NOT HELD AS CAPITAL ASSETS) AND ALSO DOES NOT
DISCUSS ANY ASPECT OF STATE, LOCAL, OR FOREIGN TAXATION.
IN ADDITION, A SUBSTANTIAL AMOUNT OF TIME MAY ELAPSE BETWEEN THE
CONFIRMATION DATE AND THE RECEIPT OF A FINAL DISTRIBUTION UNDER THE PLAN.
EVENTS SUBSEQUENT TO THE DATE OF THIS DISCLOSURE STATEMENT, SUCH AS THE
ENACTMENT OF ADDITIONAL TAX LEGISLATION, COURT DECISIONS OR ADMINISTRATIVE
OR REGULATORY CHANGES, COULD AFFECT THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN AND THE TRANSACTIONS CONTEMPLATED UNDER THE PLAN.
NO RULING WILL BE SOUGHT FROM THE INTERNAL REVENUE SERVICE (THE "SERVICE")
WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN AND NO OPINION OF
COUNSEL HAS BEEN OBTAINED BY LEVITZ WITH RESPECT TO THOSE TAX ASPECTS.
FURTHERMORE, LEVITZ IS NOT MAKING ANY REPRESENTATION OR WARRANTY REGARDING
THE PARTICULAR TAX CONSEQUENCES OF THE CONFIRMATION AND CONSUMMATION OF THE
PLAN AS TO ANY CREDITOR OR SHAREHOLDER, NOR IS LEVITZ RENDERING ANY FORM OF
LEGAL OPINION AS TO THOSE TAX CONSEQUENCES. ACCORDINGLY, EACH HOLDER OF A
CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PLAN.
A. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO LEVITZ
1. Cancellation of Indebtedness Income
A taxpayer generally must include in gross income the amount of any
discharged indebtedness realized during the taxable year, except to the
extent payment of the indebtedness would have given rise to a deduction.
Those amounts, however, are not included in income where the discharge of
indebtedness is accomplished pursuant to a plan approved by a court in a
case under the Bankruptcy Code. Instead, the amount of discharged
indebtedness that would otherwise have been required to be included in
income will generally be applied to reduce specified tax attributes of the
taxpayer under the general rules of IRC section 108 in the following order:
net operating loss carryovers ("NOLs"), general business credit carryovers,
capital loss carryovers, the taxpayer's basis in property and foreign tax
credit carryovers. However, under IRC section 1017(b), a taxpayer is not
required to reduce the aggregate bases of property held by it immediately
after the discharge of its indebtedness pursuant to a court approved plan
under the Bankruptcy Code below the aggregate amount of the taxpayer's
liabilities immediately after such discharge.
Under the Plan, satisfaction of the Claims would give rise to
discharge of indebtedness income to Reorganized Levitz in an amount equal
to the difference between (i) the sum of the adjusted issue prices of those
Claims that constitute debt instruments for U.S. federal income tax
purposes and the amount of those Claims that do not constitute debt
instruments and (ii) the sum of (a) the amount of Cash, if any, paid by
Reorganized Levitz in partial satisfaction of those Claims and (b) the fair
market value of stock and other consideration issued in satisfaction of
those Claims, except to the extent that the discharged Claims would have
given rise to a deduction had they been paid in full and a deduction for
those amounts has not already been claimed.
Levitz estimates that as of March 31, 2000, for U.S. federal income
tax purposes the amount of its indebtedness that would be impaired under
the Plan would be approximately $322 million, which includes approximately
$60 million of interest accrued since the Petition was filed (these sums
are projected to be approximately $338 million and $77 million,
respectively, at December 31, 2000). (Creditors' claims in this proceeding
do not include any portion of these post-petition interest tax accruals.)
Levitz estimates that the aggregate amount of consideration to be issued in
satisfaction of impaired indebtedness is approximately $29 million as
determined for U.S. federal income tax purposes based on the projected
recoveries under the Plan and, accordingly that approximately $293 million
of discharge of indebtedness would result upon consummation of the Plan
(determined as of March 31, 2000, and projected to be approximately $308
million at December 31, 2000, subject to adjustment to reflect the actual
figures for the tax year in which the Plan is consummated). Generally, the
appropriate valuation of the consideration to be paid is subject to both
legal and factual uncertainty, and thus the amount of discharge of
indebtedness could differ substantially from the amounts ultimately
determined by Levitz.
Because the discharge will be accomplished pursuant to a
reorganization plan under the Bankruptcy Code, Reorganized Levitz will not
be required to recognize income in respect of the discharge. Instead, under
the rules of IRC section 108, the amount of the discharge will reduce
specified tax attributes existing after the determination of Reorganized
Levitz's taxable income for the short taxable year ending at the close of
the Effective Date.
2. Amount and Use of Net Operating Loss Carryforwards and Other
Tax Attributes
(a) General Limitation on Use of NOLs Following an Ownership
Change
Based on tax returns as filed and estimates for the fiscal year
ended March 31, 2000, Levitz believes that, as of March 31, 2000, it had
approximately $131 million (projected to be approximately $204 million at
December 31, 2000) of NOLs on a consolidated U.S. federal income tax basis
("Consolidated NOLs"). Levitz estimates that following consummation of the
Plan (and application of the discharge of indebtedness and attribute
reduction rules described in this discussion) Reorganized Levitz will have
no Consolidated NOLs after application of the rules of IRC section 108 and,
based on current estimates and projection, does not expect to be required
to reduce its other tax attributes, including the tax bases of its
inventory, as limited by IRC section 1017(b). See section XI.A.1 - -
"United States Federal Income Tax Consequences to Levitz - Cancellation of
Indebtedness Income," above.
In general, a corporation is permitted to carry forward an unused
net operating loss for 15 years (20 years for those losses incurred in
taxable years beginning after August 5, 1997) following the year in which
the net operating loss is incurred and may use those NOLs to offset taxable
income recognized in years prior to expiration of the NOLs. The schedule
set forth below shows Levitz's estimates of the approximate amount of NOLs
expiring in each of the years indicated.
EXPIRATIONS OF CONSOLIDATED NOLS
AS OF MARCH 31, 2000 (ESTIMATED)
------------------------------------------------------------------------------
Expires Tax Approximate Pre-Plan NOLs
Year Ending March 31 ($ Millions omitted)
-------------------------------------------- ----------------------------
2001 - 2012 -
2013 8
2014 67
2019 53
2020 3
--------
TOTAL 131
========
------------------------------------------------------------------------------
As a result of the issuance of LHFI Stock to holders of Class 5
Claims under the Plan and LHFI's acquisition of all of the common stock of
Reorganized LFI, Levitz will experience an "ownership change" as defined in
IRC section 382(g). In general, an ownership change for these purposes
occurs when the total percentage of stock (determined on the basis of
value) of a loss corporation owned by one or more "5% shareholders" of the
loss corporation has increased by more than 50 percentage points of the
total amount of stock in the corporation over the lowest total of the
percentage of the stock that was owned by those "5% shareholders" at any
time during the applicable testing period under rules attributing stock
owned by an entity (including a corporation) to its owners. For these
purposes, specified "public groups" of less than 5% shareholders are
treated as a single 5% shareholder. The testing period is generally the
shorter of (i) three years or (ii) the period of time since the
corporation's most recent prior ownership change. Levitz's ownership change
should occur on the Effective Date (the "Change Date").
Section 382 of the IRC generally restricts a corporation's use of
its pre-Change Date losses after the corporation undergoes an ownership
change by limiting the amount of income earned by the corporation after the
ownership change that may be offset by the losses that arose prior to the
ownership change to an annual amount equal to the equity value of the
corporation on the Change Date multiplied by the "long term tax-exempt
rate" applicable to ownership changes occurring on the Change Date (the
"Section 382 Limitation"). A corporation's pre-Change Date losses include
its NOLs and certain built-in losses and deductions that arose or are
allocable to days prior to or including the Change Date. The long term
tax-exempt rate is adjusted monthly and is 5.53% for ownership changes
occurring in October 2000 but may be different for the Effective Date. The
value of a corporation's equity used in computing the Section 382
Limitation is limited to the lesser of (i) the value of its stock
immediately after the ownership change taking into account the effect of
the discharge of indebtedness occurring on the Effective Date or (ii) the
value of its pre-change assets determined without regard to liabilities
immediately before the ownership change. Additionally, net unrealized
built-in gains and losses at the time of the ownership change determined
under IRC section 382(h) affect the application of the Section 382
Limitation: the annual limitation is increased by such gains when
recognized and such losses when recognized are treated as losses that arose
before the Change Date. Where the general Section 382 Limitation applies,
if a corporation does not continue its pre-ownership change business
enterprise for two years following the Change Date, its Section 382
Limitation will be zero (the "Continuity of Business Requirement"). The
general Section 382 Limitation will be applied to Levitz's consolidated
U.S. federal income tax group as if such group consisted of a single entity
and will not be applied separately to the members of such group. However,
the application of IRC Section 382 to consolidated groups such as Levitz is
uncertain because the relevant regulations provide only partial guidance.
For example, regulations published late in June 1999 clarify that the
Continuity of Business Requirement applies on a consolidated basis, but
those same regulations specifically reserve generally on providing guidance
for corporations in a title 11 case. Despite this uncertainty, Levitz
intends to apply the general Section 382 Limitation by treating references
in the limitation to "assets" and "liabilities" as reference to
"consolidated assets" and "consolidated liabilities" determined after
elimination of intercompany items.
A second ownership change that occurs following the Effective Date
would subject Reorganized Levitz's use of its pre-Change Date losses to a
second application of the general Section 382 Limitation, and could
substantially impair or eliminate the use of NOLs and other tax attributes
existing at the time of the second ownership change. There are no
restrictions on the transferability of LHFI Stock to avoid an ownership
change of Levitz following the Effective Date. ACCORDINGLY, HOLDERS OF
CLAIMS SHOULD NOT DEPEND UPON THE CONTINUED EXISTENCE OR USE OF LEVITZ'S
PRE-CHANGE DATE LOSSES FOLLOWING CONSUMMATION OF THE PLAN.
(b) The Bankruptcy Exception
Notwithstanding an ownership change, the Section 382 Limitation
does not apply (unless the corporation elects for it to apply), where (i)
immediately before the ownership change the corporation is under the
jurisdiction of a court pursuant to Chapter 11 of the Bankruptcy Code, (ii)
the ownership change results from the court-approved plan of reorganization
and (iii) the post-reorganization stock ownership of the corporation
satisfies specified conditions (the "Bankruptcy Exception"). If the
Bankruptcy Exception applies to a corporation, the corporation's pre-Change
Date losses are reduced by the amount of any interest deductions claimed
during the three taxable years preceding the effective date of the
reorganization, and during the part of the taxable year prior to and
including the effective date of the reorganization. The stock ownership
condition requires that the stockholders and specified creditors of the
corporation (described below), determined immediately before the ownership
change, own (after the ownership change and as a result of being
stockholders or creditors immediately before the change) in the aggregate,
stock of the reorganized corporation having 50% or more of both the value
and voting power of the total outstanding stock of the reorganized
corporation. For purposes of the Bankruptcy Exception, stock received by
creditors in satisfaction of their debt claims against the corporation will
only be counted to the extent the creditors received the stock in
satisfaction of (i) indebtedness held by the creditors for at least 18
months before the filing of the Chapter 11 petition with respect to the
corporation or (ii) indebtedness which arose in the ordinary course of the
trade or business of the corporation and which at all times has been held
by the creditors. For purposes of determining whether the
post-reorganization stock ownership requirements are met, Reorganized
Levitz generally must determine whether a creditor who becomes a 5%
shareholder as a result of the reorganization held the debt for the
requisite 18 months prior to the commencement of the Chapter 11 Case, and
may rely on a written statement of the creditor, signed under penalties of
perjury, to that effect. In general, absent actual knowledge to the
contrary, Reorganized Levitz may presume that a creditor that is not a 5%
shareholder immediately after the ownership change held the debt for the
required 18-month period.
After the Effective Date, Levitz will evaluate whether the
Bankruptcy Exception could be applicable to it and, if applicable, whether
the application of the Bankruptcy Exception would be beneficial or whether
to elect to have the general Section 382 Limitation apply in lieu of the
Bankruptcy Exception. However, as of the date hereof, Levitz does not
expect that the Bankruptcy Exception will be available to it.
(c) Section 269 of the IRC
Section 269 of the IRC grants the Internal Revenue Service (the
"Service") the power to disallow any deduction, credit or allowance
(including the use of NOLs and built in losses and deductions) where a
corporation undertakes specified transactions including the acquisition of
control of another corporation for the principal purpose of avoiding or
evading U.S. federal income taxes. IRC section 269 should not apply to
LHFI's acquisition of control of Levitz because the strategic business
purposes for the acquisition of Levitz by LHFI exceed in importance any
purpose to reduce U.S. federal income taxes. Additionally, in the case of
an ownership change to which the Bankruptcy Exception applies, Treasury
Regulation section 1.269-3(d) provides specifically that unless the
corporation carries on "more than an insignificant amount" of an active
trade or business (which does not have to be the historic trade or
business) during and subsequent to the Title 11 or similar case, an
acquisition of control is considered to be made for the prohibited purpose,
absent strong evidence to the contrary. The determination of whether more
than an insignificant amount of business is being carried on is based on
all the facts and circumstances, including the amount of business assets
that remain in use and the number of employees who continue employment. As
described in this Disclosure Statement, Levitz intends to continue
operating in substantially the same businesses in which it now operates.
Furthermore, Levitz intends to take the position that IRC section 269 and
the related Treasury regulations would not apply, even where the ownership
change qualifies for the Bankruptcy Exception, because, among other things,
Levitz expects that on a consolidated basis it will carry on a significant
amount of an active trade or business. In conclusion, although there can be
no certainty due to the factual nature of the IRC section 269 inquiry and
uncertainty as to the application of IRC section 269 to a consolidated
group, Levitz believes that the application of IRC section 269 should not
adversely affect any built-in losses or deductions that it will retain
after the Effective Date and that, subject to the other risks and
limitations described in this tax discussion, any built-in losses or
deductions should be available to be used against future operating income.
Moreover, Reorganized Levitz would vigorously contest any challenge brought
by the Service under IRC section 269.
(d) Consolidated Return Rules
In addition to the foregoing limitations affecting Levitz's
Consolidated NOLs and other tax attributes, complex rules in the
consolidated return Regulations may limit the use of Levitz's pre-Effective
Date tax attributes as a deduction against the income of subsidiaries that
are acquired after the Effective Date and join in filing a consolidated
return with LHFI. Accordingly, holders of Claims should not depend on the
use of Levitz's pre-Effective Date Consolidated NOLs or other tax
attributes following consummation of the Plan to reduce the U.S. federal
income taxes on income earned by Seaman or other subsidiaries of LHFI that
may be acquired after the Effective Date.
3. Deductions of Accrued Interest by Reorganized Levitz
To the extent a portion of the consideration issued to creditors
pursuant to the Plan is attributable to accrued and unpaid interest on
their Claims, Reorganized Levitz would be entitled to interest deductions
in the amount of the accrued interest, to the extent Levitz has not already
deducted the amounts. Although the amount of consideration allocable to
accrued interest where creditors are receiving less than the full principal
amount of their claims is unclear under present law, Levitz intends to
allocate the full amount of the consideration transferred to Creditors
pursuant to the Plan to the principal amount of the Creditors' Claims and
to take the position that no amount of the consideration to be received by
creditors pursuant to the Plan is attributable to accrued interest on the
creditors' Claims.
4. Alternative Minimum Tax
For purposes of computing a corporation's regular tax liability,
all of the taxable income recognized in a taxable year generally may be
offset by the carryover of NOLs (to the extent permitted under the IRC).
Although all of the corporation's regular tax liability for a given year
may be reduced to zero by virtue of its NOLs, in any given year, the
corporation may be subject to the alternative minimum tax ("AMT"). The AMT
imposes a tax equal to the amount by which 20% of a corporation's
alternative minimum taxable income ("AMTI") exceeds the corporation's
regular tax liability. AMTI is calculated pursuant to specific rules in the
IRC which eliminate or limit the availability of specified tax deductions
and which include as income specified amounts not generally included in
computing regular tax liability. Of particular importance to Reorganized
Levitz is that in calculating AMTI, only 90% of its AMTI may be offset by
net operating loss carryovers (as computed for these purposes). Thus, in
any year for which Reorganized Levitz may be subject to the AMT, even if it
had net operating loss carryovers which could be used to reduce its entire
AMTI to zero, any AMTI recognized would be taxable at an effective rate of
2% (i.e., 10% of the 20% AMT tax rate).
B. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS
AND INTERESTS
1. Class 1 (Other Priority Claims), Class 2 (Setoff Claims) and
Class 4 (Small Unsecured Claims)
On the exchange of its Claim for Cash or in setoff, each Holder of
a Class 1, Class 2 or Class 4 Claim will recognize gain or loss measured by
the difference between the amount realized on the exchange and its tax
basis in the Claim. The amount realized will be equal to the Cash received
or the amount of the Levitz claim cancelled in setoff, as applicable, to
the extent not allocable to interest. Furthermore, a holder of a Class 2
Claim will be treated as if it had satisfied such claim of Levitz with a
cash payment equal to the amount of that claim. The character and taxation
of any recognized gain or loss will depend on the status of the Creditor,
the nature of the Claim in the Creditor's hands (including whether the
Claim was acquired with any "market discount" and whether the Creditor has
claimed a "bad debt or loss deduction" with respect to its Claim), the
Creditor's holding period and the nature of the related claim of Levitz.
See sections XI.B.5-6 --"United States Federal Income Tax Consequences to
Holders of Claims and Interest - Market Discount" and "- Bad Debt or Loss
Deduction," below. Each Creditor should consult with its own tax advisors
regarding the consequences to it of receiving Cash or a setoff in exchange
in whole or in part for its Claim.
2. Class 3 (Miscellaneous Secured Claims)
Each holder of a Class 3 Claim should not recognize gain or loss on
the reinstatement of its Claim. Under IRC section 1001 and the relevant
Treasury Regulations, the reinstated Claim should be treated as a
continuation of the original Claim. As a result, there should be no U.S.
federal income tax consequences to the holder of a such Class 3 Claim.
3. Class 5 (General Unsecured Claims)
(a) General
The U.S. federal income tax consequences of the implementation of
the Plan to a Class 5 Creditor receiving LHFI Stock under the Plan will
depend primarily on a number of factors, including whether the exchanged
Claim is an obligation that constitutes a "security" for U.S. federal
income tax purposes (a "Tax Security"). The term "security" is not defined
in the IRC or the Treasury regulations. Whether a Claim constitutes a Tax
Security is based on the facts surrounding the origin and nature of the
Claim and its maturity date. Generally, stock and bonds or debentures with
an original term of at least ten years have been considered to be Tax
Securities. In contrast, instruments with terms of five years or less
rarely qualify as Tax Securities. Levitz believes that it is likely,
although not entirely free from doubt, that the Senior Notes, the
Subordinated Notes and the Senior Deferred Coupon Debentures in Class 5.02,
5.03 and 5.04, respectively, would be treated as Tax Securities and,
accordingly, intends to take the position that the Class 5.01 Claims are
not Tax Securities for U.S. federal income tax purposes. Additionally, the
character and taxation of any gain or loss will depend on the status of the
Creditor, the nature of the Claim in the Creditor's hands (including
whether the Claim was acquired with any "market discount" and whether the
Creditor has claimed a "bad debt or loss deduction" with respect to its
Claim) and the Creditor's holding period. See sections XI.B.5-6 --"United
States Federal Income Tax Consequences to Holders of Claims and Interest -
Market Discount" and "- Bad Debt or Loss Deduction," below. Each Class 5
Creditor should consult with its own tax advisors regarding the
consequences to it of receiving LHFI Stock in exchange for its Claim.
Although the matter is not free from doubt, Levitz intends to take
the position that for federal income tax purposes, the exchange of Class 5
Claims for LHFI Stock will be treated as if, first, the holder of such
Claim had transferred such Claim to LFI in exchange for stock of LFI in a
transaction that should constitute (i) for holders of Class 5 Tax Security
Claims, a recapitalization pursuant to a plan of reorganization within the
meaning of IRC section 368(a) and (ii) for holders of Class 5 Claims that
are not Tax Securities, a taxable transaction, and then, immediately
thereafter, transferred such LFI stock to LHFI in exchange for LHFI Stock
in a transaction that should constitute a reorganization within the meaning
of IRC section 368(a) and also a transaction described within IRC section
351(a).
(b) Class 5 Non-Tax Security Claims
As stated above, Levitz believes that some Class 5 Claims do not
constitute Tax Securities and, thus, a holder of such a Claim who receives
LHFI Stock in exchange for such Claim will be taxable on such exchange
because, for federal income tax purposes, such holder should be treated as
if it had first received LFI stock for such Claim in a taxable transaction
and had, immediately thereafter, received LHFI Stock in exchange for such
LFI stock in a transaction in which gain or loss will not be recognized.
Accordingly, the aggregate basis of the LHFI Stock received by a holder of
a Class 5 Claim that does not constitute a Tax Security will equal the
value of such LHFI Stock on the Effective Date and the holding period of
such LHFI Stock will commence on the day after the Effective Date.
(c) Class 5 Tax Security Claims
Subject to the discussions of the "market discount" rules and the
"bad debt and loss deduction," below, no gain or loss should be recognized
by a holder of a Class 5 Tax Security Claim who receives LHFI Stock in
exchange for its Claim pursuant to the Plan, except to the extent, if any,
such LHFI Stock is treated as received in satisfaction of interest accrued
on such holder's Claim after the beginning of its holding period ("accrued
interest"). See sections XI.B.5-6 -- "United States Federal Income Tax
Consequences to Holders of Claims and Interest - Market Discount," and "-
Bad Debt or Loss Deduction," and section XI.B.3(d) --"United States Federal
Income Tax Consequences to Holders of Claims and Interest - Class 5
(General Unsecured Claims)-Accrued Interest on Claims," below. Accordingly,
the aggregate tax basis of the LHFI Stock received by a holder of a Class 5
Tax Security Claim pursuant to the Plan will be the same as the aggregate
tax basis of such Claim surrendered in exchange therefor and the holding
period of such LHFI Stock will include the holding period for the Claim
surrendered in exchange therefor (except to the extent such LHFI Stock is
attributable to accrued interest).
(d) Accrued Interest on Claims
As discussed above, the manner in which consideration is to be
allocated between accrued unpaid interest and principal of the Class 5
Claims for U.S. federal income tax purposes is unclear under present law.
Although there can be no assurance with respect to the issue, Levitz
intends to take the position that no portion of the consideration
distributed to holders of Class 5 Claims pursuant to the Plan is allocable
to accrued and unpaid interest on the Senior Deferred Coupon Debentures,
the Subordinated Notes and the Senior Notes in Class 5. See section XI.A.3
-- "United States Federal Income Tax Consequences to Levitz - Deductions of
Accrued Interest by Reorganized Levitz," above.
A holder of a Class 5 Tax Security Claim that previously included
in income accrued but unpaid interest attributable to its Claim should
recognize an ordinary loss to the extent that the previously included
accrued interest exceeds the amount of consideration received by the holder
that is attributable to accrued interest for U.S. federal income tax
purposes. To the extent the holder did not previously include in income
accrued but unpaid interest attributable to its Claim, any portion of the
consideration received that is allocable to accrued but unpaid interest
should be recognized as ordinary income, regardless of whether the holder
realizes an overall gain or loss upon the surrender of its Claim or whether
the gain or loss is recognized. Based on Levitz's position that no portion
of the consideration is allocable to accrued and unpaid interest on those
Class 5 Claims, no income inclusion should be required.
Notwithstanding the general discussion above, the basis of a holder
of a Claim in LHFI Stock treated as received in satisfaction of accrued
interest on its Claims, if any, should be equal to the amount of interest
income treated as satisfied by the receipt of the LHFI Stock. Additionally,
a creditor's tax holding period in that LHFI Stock should begin on the day
following the date on which it has a right to receive those securities.
(e) Sale, Exchange or Redemption of LHFI Stock
Subject to the "market discount" rules discussed below, the sale or
exchange of LHFI Stock generally should result in capital gain or loss
equal to the difference between the amount realized and the holder's tax
basis in the LHFI Stock. See section XI.A.5 --"United States Federal Income
Tax Consequences to Holders of Claims and Interest - Market Discount,"
below. Depending upon the circumstances, a redemption by LHFI of LHFI Stock
may result in capital gain or loss to the holder of the stock, or may be
treated as a dividend, generally taxable as ordinary income to the holder
to the extent of LHFI's consolidated earnings and profits for U.S. federal
income tax purposes at the time of the redemption.
4. Class 6 (Subordinated Claims) and Class 8 (Interests)
Holders of Class 6 Claims and Class 8 Interests will recognize loss
upon the cancellation of their Claim or Interest, to the extent of their
respective basis in the Claim or Interest.
5. Market Discount
The IRC generally requires holders of "market discount bonds" to
treat as current interest income any gain realized on the disposition of
such bonds to the extent of the market discount accrued during the holder's
period of ownership. A "market discount bond" is a debt obligation
purchased at a market discount, subject to a statutory de minimis
exception. For this purpose, a purchase at a market discount includes a
purchase after the original issue at a price below the stated redemption
price at maturity. The amount of market discount on a bond generally equals
the excess of (i) the stated redemption price at maturity of a debt
obligation (or, in the case of a debt instrument issued with original issue
discount, its "revised issue price") over (ii) the tax basis in the hands
of the holder immediately after the bond's acquisition. The accrued market
discount generally equals a ratable portion of the bond's market discount,
based on the number of days the taxpayer has held the bond at the time of
such disposition, as a percentage of the number of days from the date the
taxpayer acquired the bond to its date of maturity. Also, holders of market
discount bonds are required, under certain circumstances, to defer the
deduction of all or a portion of the interest on indebtedness incurred
or maintained to acquire or carry market discount bonds. Neither the rule
treating accrued market discount as ordinary income on a disposition nor
the rule deferring interest deductions applies if the holder of a "market
discount bond" elects to include the accrued market discount in income
currently. In addition, the rule treating accrued market discount as
ordinary income does not apply to bonds issued on or before July 19, 1984.
Thus, gain, if any, recognized by holders of Class 5 Claims that do
not constitute tax securities will be treated as interest income to the
extent of accrued market discount, if any, as of the Effective Date.
However, based on an exception to the market discount rules for certain
tax-free exchanges, Levitz does not expect that a holder of a Class 5 Tax
Security Claim with accrued market discount at the Effective Date would be
required to treat any portion of such discount as current interest income
as a result of receiving LHFI Stock in exchange for such Class 5 Tax
Security Claim. Nevertheless, on a subsequent disposition of the LHFI Stock
received by a Creditor in exchange for such Class 5 Tax Security Claim, any
realized gain will be treated as ordinary income to the extent of an
allocable portion of the accrued market discount not recognized at the
Effective Time.
Holders of Claims should consult their own tax advisors as to the
potential application of the market discount rules to them in light of
their particular circumstances, including the effect of an election to
accrue market discount on a current basis.
6. Bad Debt or Loss Deduction
Under certain circumstances, a holder of a Claim may recognize
ordinary income to the extent that such holder is deemed on the Effective
Date to have received consideration for such Claim that represents a
recovery of a prior bad debt or loss deduction, regardless of whether gain
or loss would have otherwise been realized or recognized by such holder on
consummation of the Plan. Holders of Claims who have taken a bad debt or
loss deduction with respect to their claims should consult their own tax
advisors as to the effect of such deduction in light of their particular
circumstances.
7. Information Reporting and Backup Withholding
Under the backup withholding rules of the IRC, holders of Claims
may be subject to backup withholding at the rate of 31 percent with respect
to payments made pursuant to the Plan unless the holder (i) is a
corporation or comes within specified other exempt categories and, when
required, demonstrates this fact, or (ii) provides a correct taxpayer
identification number and certifies under penalties of perjury that the
taxpayer identification number is correct and that it is not subject to
backup withholding due to a failure to report all dividends and interest.
Any amount withheld under these rules is not an additional tax but will be
credited against the holder's U.S. federal income tax liability. Holders of
Claims may be required to establish an 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 THE ANTICIPATED
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE U.S.
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE COMPLEX
AND, IN MANY AREAS, UNCERTAIN. ACCORDINGLY, EACH HOLDER OF A CLAIM OR
INTEREST IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR.
XII. PLAN CONFIRMATION
Described below are certain important considerations under the
Bankruptcy Code in connection with confirmation of the Plan.
A. REQUIREMENTS FOR PLAN CONFIRMATION
At the Confirmation Hearing, the Court will determine
whether the confirmation requirements specified in Bankruptcy Code section
1129(a) have been satisfied, including:
o The Plan and Levitz comply with the applicable provisions of
the Bankruptcy Code.
o Levitz has proposed the Plan in good faith and not by any
means proscribed by law.
o Any payment made or promised by Levitz or by a person
issuing securities or acquiring property under the Plan for
services or for costs and expenses in, or in connection
with, the Chapter 11 cases, or in connection with the Plan
and incident to the Chapter 11 cases, has been disclosed to
the Bankruptcy Court, and any such payment made before the
confirmation of the Plan is reasonable, or if such payment
is to be fixed after confirmation of the Plan, such payment
is subject to the approval of the Bankruptcy Court as
reasonable.
o Levitz has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the
Plan, as a director, officer, or voting trustee of Levitz,
an affiliate of Levitz participating in a joint plan with
Levitz, or a successor to Levitz under the Plan, and the
appointment to, or continuance in, such office of such
individual is consistent with the interests of Creditors and
Interest Holders and with public policy, and Levitz have
disclosed the identity of any insider that will be employed
or retained by Levitz, and the nature of any compensation
for such insider.
o With respect to each class of Claims or Interests, each
impaired Creditor and each impaired Interest Holder has
either accepted the Plan or will receive or retain under the
Plan on account of the Claims or equity held by such entity,
property of a value, as of the Effective Date of the Plan,
that is not less than the amount that such entity would
receive or retain if Levitz were liquidated on such date
under Chapter 7 of the Bankruptcy Code. This is the
so-called "Best Interests" Test.
o The Plan provides to all Claims accorded a priority under
Bankruptcy Code section 507(a) -- in this Plan, such Claims
consist of Administrative Claims, Priority Tax Claims and
Other Priority Claims -- payment of a value, as of the
Confirmation Date, equal to the Allowed Amount of such
Claims, or other treatment to which Levitz and such holders
have agreed in writing.
o At least one class of impaired Claims has accepted the Plan,
determined without including any acceptance of the Plan by
any insider holding a Claim in such class.
o Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial
reorganization, of Levitz or any successor to Levitz under
the Plan. This is the so-called "feasibility" test.
Levitz believes that, upon satisfaction of the conditions to
the effectiveness of the Plan, the Plan will satisfy all applicable
statutory requirements of Chapter 11 of the Bankruptcy Code, that Levitz
have complied or will have complied with all applicable requirements of
Chapter 11, and that the Plan is being proposed and submitted to the
Bankruptcy Court in good faith.
B. PLAN FEASIBILITY
Bankruptcy Code section 1129(a)(11) requires a judicial
determination that confirmation of the Plan will not likely be followed by
liquidation or the need for further financial reorganization of Levitz,
Reorganized Levitz or LHFI.
To demonstrate Plan feasibility, the Debtors, with the assistance
of The Blackstone Group L.P. , have prepared financial projections for the
period 2001 through 2005 for LHFI. These projections incorporate
projections prepared independently by Seaman management solely with respect
to Seaman. These projections are annexed hereto as Exhibit "E."
The projections indicate that Reorganized Levitz should have
sufficient cash flow to make the payments required under the Plan on the
Effective Date and to repay and service its debt obligations and to
maintain its operations. The projections provided herein have been prepared
by Levitz management and incorporate projections prepared independently by
Seaman management solely with respect to Seaman. These projections, while
presented with numerical specificity, are necessarily based on a variety of
estimates and assumptions which, though considered reasonable by Levitz
management, may not be realized, and are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond the respective management's control. The Debtors caution
that no representations can be made as to the accuracy of these financial
projections or to LHFI's ability to achieve the projected results. Some
assumptions inevitably will not materialize. Further, events and
circumstances occurring after the date on which these projections were
prepared may be different from assumed or, alternatively, may have been
unanticipated and thus the occurrence of these events may affect financial
results in a material and possibly adverse manner. The projections,
therefore, may not be relied upon as a guaranty or other assurance of the
actual results that will occur. See "CERTAIN FACTORS TO BE CONSIDERED" for
a discussion of certain risk factors that may affect financial feasibility
of the Plan.
C. ACCEPTANCE OF THE PLAN
As a condition to confirmation, the Bankruptcy Code requires that
each Class of Impaired Claims vote to accept the Plan, except under certain
circumstances.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan
by a class of impaired claims as acceptance by holders of at least
two-thirds in dollar amount and more than one-half in number of claims in
that class, but for that purpose counts only those who actually vote to
accept or to reject the Plan. Thus, a Class will have voted to accept the
Plan only if two-thirds in amount and a majority in number actually voting
cast their Ballots in favor of acceptance. Claimholders who fail to vote
are not counted as either accepting or rejecting a plan. Classes 6, 7 and 8
are deemed to have rejected the Plan.
D. BEST INTERESTS OF CLAIMHOLDERS
Under Bankruptcy Code section 1129(a)(7) (the so-called "Best
Interests Test"), to confirm the Plan the Bankruptcy Court must determine
that, with respect to each impaired Class of Claims or Interests, each
holder of an impaired Claim or Interest in such Class either (i) has
accepted the Plan or (ii) will receive or retain property of a value, as of
the Effective Date of the Plan, not less than the amount that such holder
would receive or retain on account of such Claim or Interest if the Debtors
were liquidated under Chapter 7 of the Bankruptcy Code. Accordingly, the
Debtors and their advisors have considered the effect that conversion of
the Chapter 11 cases to Chapter 7 would have on distributions to various
Classes of Claims and Interests. The comparison of recoveries for impaired
Classes indicates that recoveries under the Plan are at least equal to, and
in some cases better than, those expected in a liquidation under Chapter 7,
therefore satisfying the Best Interests Test.
E. LIQUIDATION ANALYSIS
As noted above, the Debtors believe that under the Plan all holders
of impaired Claims and impaired Interests will receive property with a
value not less than the value such holder would receive in a liquidation of
the Debtors under Chapter 7 of the Bankruptcy Code. To estimate the likely
returns to holders of Claims and Interests in a Chapter 7 liquidation, the
Debtors determined the amount of liquidation proceeds that would be
available for distribution to, and the allocation of such proceeds among,
the Classes of Claims and Interests based on their relative priority. In
conducting this analysis, the Debtors were assisted by The Blackstone
Group, L.P., financial advisors to the Debtors.
The relative priority of distribution of liquidation proceeds with
respect to any Claim or Interest depends on (i) its status as secured,
priority unsecured or nonpriority unsecured and (ii) its relative
subordination (including both contractual subordination, (e.g., as is
provided for in the Subordinated Notes) and statutory subordination (e.g.,
as is required by section 510(b) of the Bankruptcy Code). In view of the
expected substantive consolidation of the Debtors' Estates, a consolidated
liquidation analysis is appropriate.
In general, liquidation proceeds would be allocated in the
following priority: (i) first, to the Claims of secured creditors to the
extent of the value of their collateral; (ii) second, to the costs, fees
and expenses of the liquidation, as well as other administrative expenses
of the Debtors' Chapter 7 cases, including tax liabilities incurred in the
Chapter 7 cases; (iii) third, to the unpaid Administrative Claims of the
Debtors' Chapter 11 cases; (iv) fourth, to Priority Tax Claims and other
Claims entitled to priority in payment under section 507 of the Bankruptcy
Code; (v) fifth, to general unsecured claims; (vi) sixth, to Subordinated
Claims, if any, (vii) seventh, to Interests. As described more fully below,
the Debtors' management believes that in a Chapter 7 liquidation, based on
the priorities outlined above, the proceeds remaining after satisfaction of
all Administrative Claims, Priority Tax Claims, Other Priority Claims, and
Secured Claims will not be sufficient to pay any unsecured claims, and no
distributions would be made to holders of Subordinated Claims or Interests.
In the liquidation analysis attached hereto as Exhibit F, Levitz and The
Blackstone Group L.P. have assumed that wind-down costs, severance and
professional fees will be paid before secured claims, which depends on
secured creditor consent or a court order.
In reaching this conclusion, the Debtors and their advisors made a
number of assumptions, which are set forth below, and estimates regarding
anticipated differences in expenses, fees, asset recoveries, claims
litigation and settlements, recoveries on rates, deposits and escrows, and
total claims filed that could occur if the Debtors' Chapter 11 cases were
converted to Chapter 7 liquidation. The liquidation analysis is annexed
hereto as Exhibit "F".
These estimates and assumptions are inherently subject to
significant uncertainties and contingencies, many of which would be beyond
the control of the Debtors. Accordingly, there can be no assurance as to
values that would actually be realized in a Chapter 7 liquidation, nor can
there be any assurance that a Bankruptcy Court would accept the Debtors'
conclusions or concur with such assumptions in making its determinations
under section 1129(a)(7) of the Bankruptcy Code.
1. Assumptions
The Debtors have made a number of assumptions, which are set forth
on Exhibit F.
2. Distributions; Absolute Priority
Under a Chapter 7 liquidation, all secured claims are required to
be satisfied from the proceeds of the collateral securing such claims
before any such proceeds would be distributed to any other creditors. The
Debtors' liquidation analysis assumes the application of the rule of
absolute priority of distributions with respect to the remaining proceeds
of the Debtors, as well as application of contractual and statutory
subordination. Under that scenario, no junior creditor receives any
distribution until all senior creditors are paid in full. To the extent
that proceeds remain after satisfaction of all Secured Claims, the proceeds
would first be distributed to the holders of Administrative Claims,
Priority Tax Claims and Other Priority Claims, with the balance being made
available to satisfy, first, other nonpriority, unsecured Claims and, last,
Interests. Based on the liquidation assumptions of the Debtors' management,
the Debtors believe that the liquidation and distribution of the Debtors'
assets in a Chapter 7 case would be insufficient to pay holders of General
Unsecured Claims a distribution.
3. Conclusion
In summary, the Debtors believe that a Chapter 7 liquidation of the
Debtors would result in a substantial diminution in the value to be
realized by the holders of certain Claims and delay in making distributions
to all Classes of Claims entitled to a distribution. Consequently, the
Debtors believe that the Plan satisfies the requirements of section
1129(a)(7) of the Bankruptcy Code.
F. PROJECTIONS AND VALUATION ANALYSIS OF LHFI
The Debtors, with the assistance of their financial advisors, The
Blackstone Group, L.P., developed a set of financial projections (set forth
in Exhibit E) to assess the value of the LHFI Stock to be distributed to
Class 5 under the Plan. Such financial projections also incorporate those
prepared independently by Seaman management relating solely to the Seaman
business. The projections and valuations set forth below and in Exhibit E
are based on a number of significant assumptions including, among other
things, the successful reorganization of the Debtors, an assumed Effective
Date of December 31, 2000 and no significant downturn in the specific
markets in which the Debtors and Seaman operate.
THE PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL
OPERATING RESULTS AND VALUES MAY VARY.
1. Projections
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that the Bankruptcy Court determine that
confirmation is not likely to be followed by the liquidation or the need
for further financial reorganization of the debtor. In connection with the
development of the Plan, and for purposes of determining whether the Plan
satisfies this feasibility standard, the Debtors' management has, through
the development of financial projections (the "Projections"), analyzed the
ability of LHFI to meet its obligations under the Plan to maintain
sufficient liquidity and capital resources to conduct its business. The
Projections were also prepared to assist each holder of a Claim in Class 5
in determining whether to accept or reject the Plan.
The Projections should be read in conjunction with the assumptions,
qualifications and footnotes to the tables containing the Projections set
forth herein and in Exhibit E, the historical consolidated financial
information (including the notes and schedules thereto) and the other
information set forth in Levitz's Annual Report on Form 10-K for the fiscal
year ended March 31, 2000 and Levitz's Quarterly Report on Form 10-Q for
the period ended June 30, 2000 annexed hereto as Exhibits D and C,
respectively, the full texts of which are incorporated herein by reference.
The Projections were prepared in good faith based upon assumptions believed
to be reasonable. The Projections, which were prepared in September 2000,
were based, in part, on economic, competitive, and general business
conditions prevailing at the time. While as of the date of this Disclosure
Statement such conditions have not materially changed, any future changes
in these conditions may materially impact the ability of LHFI to achieve
the Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING
WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. LEVITZ'S INDEPENDENT
ACCOUNTANT, ARTHUR ANDERSEN, AND SEAMAN'S INDEPENDENT ACCOUNTANT, DELOITTE
& TOUCHE, HAVE NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND,
ACCORDINGLY, HAVE NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE
WITH RESPECT THERETO.
LHFI WILL BE A NEWLY CREATED ENTITY AND, AS SUCH, HAS NOT PUBLISHED
PROJECTIONS OF ITS ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR
CASH FLOWS. IT IS ANTICIPATED THAT LHFI DOES NOT INTEND TO, AND WILL
DISCLAIM ANY OBLIGATION TO (A) FURNISH UPDATED PROJECTIONS TO HOLDERS OF
CLAIMS OR EQUITY INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF
LHFI STOCK OR ANY OTHER PARTY AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH
UPDATED INFORMATION IN ANY DOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH
THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN
PREPARED BY LEVITZ MANAGEMENT WITH THE ASSISTANCE OF THE BLACKSTONE GROUP
L.P. AND INCORPORATE PROJECTIONS PREPARED INDEPENDENTLY BY SEAMAN
MANAGEMENT SOLELY WITH RESPECT TO SEAMAN. THESE PROJECTIONS, WHILE
PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF
ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY BOTH
LEVITZ AND SEAMAN MANAGEMENT WITH RESPECT TO THEIR RESPECTIVE PROJECTIONS,
MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS,
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE RESPECTIVE MANAGEMENT'S CONTROL. NO REPRESENTATIONS CAN BE MADE
AS TO THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO THE ABILITY TO
ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE
DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM ASSUMED
OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED AND THUS THE OCCURRENCE OF
THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY
ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A
GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
FINALLY, THE PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE ENTERPRISE
VALUE OF REORGANIZED LEVITZ, AND THE FAIR VALUE OF REORGANIZED LEVITZ'S
ASSETS AND LIABILITIES AS OF THE EFFECTIVE DATE. LHFI WILL BE REQUIRED TO
MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE
BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY
GREATER OR LOWER THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES.
2. Valuation
In order to derive the value of LHFI based on the Projections, a
discounted cash flow ("DCF") approach was used, involving a calculation of
the present value of the free cash flows derived from the Projections. The
Blackstone Group, as financial advisor to Levitz, believes that the DCF
approach is an appropriate methodology for valuing LHFI given the
significant improvement in projected profitability contained in the
Projections, especially with respect to Levitz. As described more fully on
Page E-2, Levitz has projected significant improvement in sales and
margins, with EBITDA margins increasing from negative 2.6% in fiscal 2000
(the latest actual fiscal year) to 9.2% in fiscal 2005. Other traditional
valuation approaches, such as current market trading multiples or
comparable acquisition multiples, value a company based primarily on recent
historical or projected next year financial performance. Given the recent
weak, albeit improving, financial results of Levitz, these other
methodologies would result in significantly lower valuations for LHFI.
The discounted cash flow approach involves deriving the unlevered
free cash flows that the consolidated LHFI companies would generate
assuming the Projections were realized. These cash flows, and an estimated
value for the consolidated LHFI companies at the end of the projected
period (the "Terminal Value"), are discounted to an assumed emergence date
of December 31, 2000 at LHFI's estimated post-restructuring weighted
average cost of capital to determine LHFI's enterprise value. This analysis
assumes that LHFI holds 100% of the equity of Reorganized Levitz and 100%
of the equity of Seaman.
ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY
NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD.
THE ESTIMATES OF VALUE REPRESENT HYPOTHETICAL REORGANIZED ENTERPRISE VALUES
ASSUMING THE IMPLEMENTATION OF LEVITZ MANAGEMENT'S PROJECTIONS AS WELL AS
OTHER SIGNIFICANT ASSUMPTIONS. SUCH ESTIMATES HAVE BEEN DEVELOPED SOLELY
FOR PURPOSES OF FORMULATING AND NEGOTIATING A PLAN OF REORGANIZATION AND
ANALYZING THE PROJECTED RECOVERIES THEREUNDER.
Based upon the methods described above, the estimated enterprise
value for LHFI is between $454 million and $615 million, with a midpoint
value of $535 million. After deducting the estimated pro rata long-term
indebtedness of the consolidated LHFI companies at the Effective Date of
approximately $126 million, the estimated total equity value is between
$328 million and $489 million, with a midpoint value of $409 million.
Therefore, assuming 25,000,000 shares of LHFI will be issued on the
Effective Date, the range of values of LHFI Stock is estimated to be $13.14
to $19.57 per share, with a midpoint value of $16.35 per share.
THE ESTIMATED ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING
THE FUTURE FINANCIAL RESULTS SET FORTH IN THE PROJECTIONS AS WELL AS THE
REALIZATION OF CERTAIN OTHER ASSUMPTIONS WHICH ARE NOT GUARANTEED.
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION
VALUES AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN
PUBLIC OR PRIVATE MARKETS. THE EQUITY VALUE DESCRIBED IN THE ANALYSIS DOES
NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH
TRADING VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION
EQUITY VALUE RANGES PRESENTED HEREIN. FURTHERMORE, IT IS ANTICIPATED THAT
THE EQUITY OF LHFI WILL NOT BE PUBLICLY TRADED UPON EMERGENCE FROM
BANKRUPTCY. THIS MAY MATERIALLY IMPACT THE TRADING VALUE OF THE EQUITY.
G. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES: THE
"CRAMDOWN" ALTERNATIVE
The Debtors will request Confirmation of the Plan, as it may be
modified from time to time, under section 1129(b) of the Bankruptcy Code,
and they have reserved the right to modify the Plan to the extent, if any,
that Confirmation pursuant to section 1129(b) of the Bankruptcy Code
requires modification.
Section 1129(b) of the Bankruptcy Code provides that a plan can be
confirmed even if it is not accepted by all impaired classes of claims and
interests, as long as at least one impaired class of claims has accepted
it. The Bankruptcy Court may confirm the Plan notwithstanding the rejection
of an impaired class of claims or interests if the plan "does not
discriminate unfairly" and is "fair and equitable" as to each impaired
class that has rejected, or is deemed to have rejected, the plan.
A plan does not discriminate unfairly within the meaning of the
Bankruptcy Code if a rejecting impaired class is treated equally with
respect to other classes of equal rank. A plan is fair and equitable as to
a class of secured claims that rejects such plan if, among other things,
the plan provides (a) (i) that the holders of claims in the rejecting class
retain the liens securing those claims, whether the property subject to
those liens is retained by the debtor or transferred to another entity, to
the extent of the allowed amount of such claims and (ii) that each holder
of a claim of such class receives on account of that claim deferred cash
payments totaling at least the allowed amount of that claim, of a value, as
of the effective date of the plan, of at least the value of the holder's
interest in the estate's interest in such property; (b) for the sale,
subject to section 363(k) of the Bankruptcy Code, of any property that is
subject to the liens securing the claims included in the rejecting class,
free and clear of the liens, with the liens to attach to the proceeds of
the sale, and the treatment of the liens on proceeds under clause (a) or
(c) of this subparagraph; or (c) for the realization by such holders of the
indubitable equivalent of such claims.
A plan is fair and equitable as to a class of unsecured claims that
rejects a plan, if, among other things, the plan provides (a) that each
holder of a claim in the rejecting class will receive or retain on account
of that claim property that has a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or (b) that no holder of a
claim or interest that is junior to the claims of such rejecting class will
receive or retain under the Plan any property on account of such junior
claim or interest.
A plan is fair and equitable as to a class of equity interests that
rejects a plan if the plan provides (a) that each holder of an interest
included in the rejecting class receive or retain on account of that
interest property that has a value, as of the effective date of the plan,
equal to the greatest of the allowed amount of any fixed liquidation
preference to which such holder is entitled, any fixed redemption price to
which such holder is entitled, or the value of such interest; or (b) that
no holder of an interest that is junior to the interest of such rejecting
class will receive or retain under the plan any property on account of such
junior interest.
As described above, holders of Claims and Interests in Classes 6, 7
and 8 will not receive or retain property under the Plan on account of
their Claims and Interests in such Classes. Accordingly, under section
1126(g) of the Bankruptcy Code, such classes are presumed to have rejected
the Plan. The Debtors (a) intend to request confirmation of the Plan under
section 1129(b) of the Bankruptcy Code notwithstanding the deemed rejection
of the Plan by Classes 6, 7 and 8 and (b) reserve the right to seek
confirmation of the Plan under section 1129(b) of the Bankruptcy Code
notwithstanding the rejection of the Plan by other Classes of Claims.
The Debtors believe that the Plan may be confirmed pursuant to the
above-described "cramdown" provisions, over the dissent of certain Classes
of Claims and Interests, in view of the treatment proposed for such
Classes. The Debtors believe that the treatment under the Plan of the
holders of Claims and Interests in Classes 6, 7 and 8 will satisfy the
"fair and equitable" test because, although no distribution will be made in
respect of Claims and Interests in such Classes and, as a result, such
Classes will be deemed to have rejected the Plan, no Class junior to such
non-accepting Classes will receive or retain any property under the Plan.
In addition, the Debtors do not believe that the Plan unfairly
discriminates against any dissenting Class because all dissenting Classes
of equal rank are treated equally under the Plan.
H. CONDITIONS TO THE CONFIRMATION DATE AND THE EFFECTIVE DATE
Conditions to the Confirmation Date. The following are conditions
precedent to confirmation of the Plan:
1. The Bankruptcy Court shall have approved by Final Order a
disclosure statement with respect to the Plan in form and substance
reasonably acceptable to Levitz, RAM, Cerberus, Ableco and the Creditors'
Committee.
2. The Confirmation Order shall be in a form and substance
reasonably acceptable to Levitz, the Creditors' Committee, RAM, Cerberus
and Ableco.
Conditions to the Effective Date. The following are conditions
precedent to the occurrence of the Effective Date:
1. The Confirmation Date shall have occurred. The Confirmation
Order shall have become a Final Order and shall not have been materially
amended or modified.
2. The Confirmation Order shall provide, among other things, that:
(a) The provisions of the Confirmation Order are
nonseverable and mutually dependent;
(b) All executory contracts or unexpired leases assumed by
Levitz during the Chapter 11 cases shall remain in full force and effect
for the benefit of Reorganized Levitz notwithstanding any provisions in
such contract or lease (including those described in sections 365(b)(2) and
(f) of the Bankruptcy Code) that prohibit such assignment or transfer or
that enable, permit or require termination of such contract or lease; and
(c) Except as expressly provided in the Plan, the Debtors
are discharged effective upon the Effective Date from any "debt" (as that
term is defined in section 101(12) of the Bankruptcy Code), and their
liability in respect thereof is extinguished completely, whether reduced to
judgment or not, liquidated or unliquidated, contingent or noncontingent,
asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, or known or unknown, or that arose from any
agreement that the Debtors have either assumed or rejected in the Chapter
11 cases or pursuant to the Plan, or obligation of the Debtors incurred
before the Confirmation Date, or from any conduct of the Debtors prior to
the Confirmation Date, or that otherwise arose before the Confirmation
Date, including, without limitation, all interest, if any, on any such
debts, whether such interest accrued before or after the Petition Date;
3. LHFI and its affiliated companies shall have entered into the
Senior Facility acceptable to RAM and Ableco, and the Debtors financing
under that agreement shall be effective.
4. The estimated amount of distributions to be made to holders of
Allowed Class 4 Small Unsecured Claims shall be feasible in light of the
Cash Levitz expects to have on the Effective Date;
5. LHFI and/or its subsidiaries shall have entered into a revised
private credit card arrangement on terms and conditions that are reasonably
acceptable to the Creditors Committee, RAM and Ableco;
6. LHFI shall have entered into the Junior Secured Debt Facility
with Ableco and RAM, and delivered to Ableco Parent (or its designee) 4.7%
of the Issued LHFI Stock as a facility fee and warrants to receive 4.7% of
the common stock, on a pro rata basis, in respect of their participations
in the Junior Secured Debt Facility;
7. LHFI or Levitz shall have raised sufficient cash investments
from New Investors on terms and conditions reasonably acceptable to RAM,
Cerberus and the Creditors' Committee as contemplated in the Projections
that are attached hereto as Exhibit E;
8. One hundred percent of the common stock of Seaman shall have
been transferred to LHFI on a non-recourse basis, pursuant to
documentation containing terms and conditions reasonably acceptable to
Seaman, RAM and the Debtors;
9. Any applicable waiting period under the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended, shall have expired or been
terminated.
10. In consideration for the transfer of Seaman stock to LHFI, LHFI
shall have reimbursed RAM for out of pocket expenses (including legal fees)
incurred in connection with the Chapter 11 case, including in connection
with the action commenced by certain stockholders of Seaman in the Chancery
Court for the State of Delaware to enjoin, inter alia, a transaction
involving Seaman and Levitz and related matters; and
11. All required board of director approvals and/or agreements
between Levitz or Reorganized Levitz and Seaman shall have occurred.
I. WAIVER OF CONDITIONS
The Debtors, in their sole discretion, may waive the conditions set
forth above, except condition number 8 to the Effective Date, without any
notice to parties-in-interest or the Bankruptcy Court or without a hearing,
except that the Debtors shall consult with the Creditors' Committee, RAM,
Cerberus and Ableco prior to any such waiver. The failure to satisfy any
condition to the Effective Date may be asserted by the Debtors regardless
of the circumstances giving rise to the failure of such condition to be
satisfied (including any action or inaction by the Debtors). The failure of
the Debtors to exercise any of the foregoing rights shall not be deemed a
waiver of any other rights, and each such right shall be deemed an ongoing
right, which may be asserted at any time.
J. EFFECT OF CONFIRMATION AND CONSUMMATION
On the Effective Date, the Debtors will be discharged from all
Claims and Interests that exist prior to confirmation of the Plan, except
for payments and distributions provided for in the Plan or in the order of
the Bankruptcy Court confirming the Plan (the "Confirmation Order") or as
otherwise provided in the Plan. Unless otherwise provided in the Plan or
the Confirmation Order, all injunctions or stays provided for in the
Chapter 11 cases under section 105 or 362 of the Bankruptcy Code or
otherwise, and extant on the Confirmation Date, shall remain in full force
and effect until the Effective Date. To the extent any injunction or stay
is provided under the Plan or Confirmation Order, it shall remain in effect
following the Effective Date. Notwithstanding the foregoing, the Debtors'
obligations under ERISA shall not be affected by confirmation or
consummation of the Plan, unless the Pension Plan has been terminated prior
to confirmation of the Plan.
The rights, if any, afforded in the Plan and the treatment of all
Creditors and Interest Holders therein will be in exchange for, and in
complete satisfaction, discharge, and release of, all Claims and Interests
of any nature whatsoever, including any interest accrued thereon from and
after the date of commencement of the Chapter 11 cases, against the
Debtors, their estates, assets or properties or interests in property.
Except as otherwise provided in the Plan or the Confirmation Order, on the
Effective Date, all such Claims against and Interests in the Debtors will
be deemed satisfied, discharged, and released in full. All entities will be
precluded from asserting against the Debtors, their successors, or their
assets or properties, any other or further Claims or Interests based upon
any act or omission, transaction, or other activity of any kind or nature
that occurred prior to the Effective Date.
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors believe that the Plan affords holders of Claims the
potential for the greatest realization on the Debtors' assets and,
therefore, is in the best interests of such holders.
If the Plan is not confirmed, however, the theoretical alternatives
include (a) continuation of the pending Chapter 11 cases, (b) an
alternative reorganization plan or plans or (c) liquidation of the Debtors
under Chapter 7 or Chapter 11 of the Bankruptcy Code.
A. CONTINUATION OF THE CHAPTER 11 CASES
If the Debtors remain in Chapter 11, the Debtors could continue to
operate their businesses and manage their properties as
debtors-in-possession, but they would remain subject to the restrictions
imposed by the Bankruptcy Code. The Debtors could have difficulty retaining
employees and market vendor relations, and will likely incur high costs and
the erosion of market confidence, if the Debtors remain chapter 11
debtors-in-possession. Ultimately, the Debtors (or other parties in
interest) could propose another plan or liquidate under Chapter 7 or
Chapter 11.
B. LIQUIDATION UNDER CHAPTER 7
If no Plan is confirmed, the Debtors' Chapter 11 cases may be
converted to cases under Chapter 7 of the Bankruptcy Code. In a Chapter 7
case, a trustee or trustees would be appointed to liquidate the assets of
the Debtors for distribution in accordance with priorities established by
Chapter 7. Although it is impossible to predict precisely how the proceeds
of the liquidation would be distributed to the respective holders of Claims
and Interests, a discussion of the effects that Chapter 7 liquidation would
have on the recoveries of holders of Claims and Interests and the Debtors'
liquidation analysis are set forth below.
The Debtors believe that in liquidation under Chapter 7, before
Creditors receive any distribution, additional administrative expenses
involved in the appointment of a trustee or trustees and attorneys,
accountants and other professionals to assist such trustees would cause a
substantial diminution in the value of the Estates. The Debtors believe
that liquidation under Chapter 7 would result in smaller distributions
being made to creditors than those provided for in the Plan because (a) the
Debtors' assets would have to be sold or otherwise disposed of in a forced
sale situation over a comparatively short period of time, (b) additional
administrative expenses would be involved in the appointment of a trustee,
and (c) additional expenses and claims, some of which would be entitled to
priority, 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.
C. ALTERNATIVE PLAN OF REORGANIZATION
If the Plan is not confirmed, the Debtors (or if the Debtors'
exclusive period in which to file a plan of reorganization has expired, any
other party in interest) could attempt to formulate a different plan. Such
a plan might involve an orderly liquidation of its assets. The Debtors have
explored various alternatives in connection with the formulation and
development of the Plan. The Debtors believe that the Plan, as described
herein, enables creditors to realize the most value under the
circumstances. In a liquidation under Chapter 11, the Debtors' assets would
be sold in an orderly fashion over a more extended period of time than in a
liquidation under Chapter 7, possibly resulting in somewhat greater (but
indeterminate) recoveries than would be obtained in a Chapter 11 case, and
the expenses for professional fees would most likely be lower than those
incurred in a Chapter 7 case. Although preferable to a Chapter 7
liquidation, the Debtors believe that a liquidation under Chapter 11 is a
much less attractive alternative to creditors than the Plan because of the
greater returns provided by the Plan.
The likely form of any liquidation would be the sale of individual
assets. Based on this analysis, it is likely that a liquidation of the
Debtors' assets would produce less value for distribution to creditors than
that recoverable in each instance under the Plan. In the opinion of the
Debtors, the recoveries projected to be available in liquidation are not
likely to afford holders of Claims as great a realization potential as does
the Plan.
XIV. VOTING REQUIREMENTS
On November 1, 2000, the Bankruptcy Court entered an order (the
"Procedures Order"), among other things, approving this Disclosure
Statement, setting voting procedures, scheduling the hearing on
confirmation of the Plan, and approving the notice of the confirmation
hearing and certain related matters (the "Confirmation Hearing Notice"). A
copy of the Confirmation Hearing Notice is enclosed with this Disclosure
Statement. It sets forth in detail, among other things, procedures
governing voting deadlines and objection deadlines. The Confirmation
Hearing Notice and the instructions attached to the Ballot, if any,
accompanying this Disclosure Statement should be read in connection with
this section of this Disclosure Statement.
If you have any questions about the voting procedure for voting
your Claim or the packet of material you received, or for all
correspondence, please contact the Voting Agent:
DELIVERY BY MAIL HAND OR COURIER DELIVERY
---------------- ------------------------
Donlin, Recano & Co., Inc Donlin, Recano & Co., Inc.
Re: Levitz Furniture, Inc. Re: Levitz Furniture, Inc.
P.O. Box 2034 419 Park Avenue South, Suite 1206
Murray Hill Station New York, New York 10016
New York, New York 10156-0701 (212) 481-1411
(212) 481-1411
If you wish to obtain an additional copy of the Plan, this
Disclosure Statement, or any exhibits to such documents, at your own
expense, unless otherwise specifically required by Fed. R. Bankr. P.
3017(d), please contact the Voting Agent.
A. VOTING REQUIREMENTS
Under the Bankruptcy Code, only Classes of Claims and Interests
that are "impaired" (as that term is defined in section 1124 of the
Bankruptcy Code) under the Plan are entitled to vote to accept or reject
the Plan. A Class is impaired if the legal, equitable or contractual rights
to which the holders of Claims or Interests are entitled are modified,
other than by curing defaults and reinstating the debt. Pursuant to
sections 1126(f) and (g) of the Bankruptcy Code, Classes of Claims and
Interests that are not impaired are conclusively presumed to have accepted
the Plan and are not entitled to vote on the Plan, and Classes of Claims
and Interests whose holders will receive or retain no property under the
Plan are deemed to have rejected the Plan and are not entitled to vote on
the Plan. The classification of Claims and Interests is summarized,
together with notations as to whether each Class of Claims or Interests is
impaired or unimpaired, under the caption "Summary of the Plan." Additional
information regarding voting is contained in the instructions accompanying
the Ballots.
This Disclosure Statement and the appropriate Ballot are being
distributed to all holders of Claims who are entitled to vote on the Plan.
There is a separate Ballot designated for each Class of Claims in order to
facilitate vote tabulation; however, all Ballots are substantially similar
in form and substance and the term "Ballot" is used without intended
reference to the Ballot of any specific Class of Claims.
Each impaired Class of Claims that will (or may) receive or retain
property or any interest in property under the Plan is entitled to vote to
accept or reject the Plan. Each subclass in Classes 4 and 5 shall vote
separately. Ballots will be cast and tabulated on a consolidated basis, in
accordance with the expected substantive consolidation of the Debtors'
Chapter 11 Cases. Each unimpaired Class of Claims is deemed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
Because holders of Class 6 Subordinated Claims, Class 7 Intercompany
Claims, and Class 8 Interests are not entitled to receive or retain any
property under the Plan, Classes 6, 7 and 8 are presumed to have rejected
the Plan and, therefore, are not entitled to vote on the Plan.
An impaired Class of Claims will have accepted the Plan if (a) the
holders (other than any holder designated under section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Claims
actually voting in such Class have voted to accept the Plan and (b) the
holders (other than any holder designated under section 1126(e) of the
Bankruptcy Code) of more than one-half in number of the Allowed Claims
actually voting in such Class have voted to accept the Plan. The Procedures
Order provides that any non-voting holder of a Claim who is a member of an
impaired Class entitled to vote on the Plan, but in which no votes are
actually cast, will be deemed to have accepted the Plan for purposes of
sections 1129(a)(8) and 1129(b) of the Bankruptcy Code.
B. SPECIAL NOTE FOR HOLDER OF SECURITIES
The record date for determining which holders of public securities
of the Debtors (the "Securities") are entitled to vote on the Plan is
October 26, 2000. The indenture trustees, agents, or servicers, as the case
may be, for the Securities will not vote on behalf of the holders of such
Securities. Holders must submit their own Ballots.
1. Beneficial Owners
(a) Any beneficial owner holding Securities as record holder
in its own name should vote on the Plan by completing and signing the
enclosed Ballot and returning it directly to the Voting Agent on or before
the Voting Deadline using the enclosed self-addressed, stamped envelope.
(b) Any beneficial owner holding Securities in "street name"
through a brokerage firm, bank, trust company, or other nominee should vote
on the Plan by one of the following two methods:
(i) Complete and sign the enclosed
beneficial owner Ballot. Return the Ballot to
your nominee as promptly as possible and in
sufficient time to allow such nominee to
process the Ballot and return it to the Voting
Agent by the Voting Deadline. If no
self-addressed, stamped envelope was enclosed
for this purpose, contact the Voting Agent for
instructions; or
(ii) Complete and sign the
Pre-Validated Ballot (as defined below)
provided to you by your bank, brokerage firm,
trust company or other nominee. Return the
Pre-Validated Ballot to the Voting Agent by
the Voting Deadline using the return envelope
provided in the Solicitation Package.
Any Ballot returned to a nominee by a beneficial owner will not be
counted for purposes of acceptance or rejection of the Plan until such
nominee properly completes and delivers to the Voting Agent a master ballot
(the "Master Ballot") that reflects the vote of such beneficial owner.
If any beneficial owner owns Securities through more than one
broker, bank, or other nominee, such beneficial owner may receive multiple
mailings containing the Ballots. Each such beneficial owner should execute
a separate Ballot for each block of Securities that it holds through any
particular nominee and return each Ballot to the respective nominee in the
return envelope provided therewith. Beneficial owners who execute multiple
Ballots with respect to Securities held through more than one nominee must
indicate on each Ballot the names of ALL such other nominees and the
additional amounts of such Securities so held and voted. If a beneficial
owner holds a portion of the Securities through a nominee and another
portion as a record holder, such owner should follow the procedures
described in subparagraph (1) (a) above to vote the portion held of record
and the procedures described in subparagraph (1) (b) above to vote the
portion held through a nominee or nominees.
2. Brokerage Firms, Banks, And Other Nominees
An entity (other than a beneficial owner) that is the registered
holder of Securities should vote on behalf of the beneficial owners of such
Securities by (i) immediately distributing a copy of the Disclosure
Statement and accompanying materials, all appropriate Ballots, and
self-addressed return envelopes to all beneficial owners for whom it holds
such Securities, (ii) collecting completed Ballots from its beneficial
owners, and (iii) completing a Master Ballot compiling the votes and other
information from the Ballots so collected, and (iv) transmitting such
Master Ballot to the Voting Agent on or before the Voting Deadline. Such
entity may also pre-validate a ballot by completing all information to be
entered on the Ballot (the "Pre-Validated Ballot") and forwarding the
Pre-Validated Ballot to the beneficial owner for voting. A proxy
intermediary acting on behalf of a brokerage firm or bank may follow the
procedures outlined in the preceding sentence to vote on behalf of such
party.
C. FIDUCIARIES AND OTHER REPRESENTATIVES
If a Ballot is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or another acting in
a fiduciary or representative capacity, such person should indicate such
capacity when signing and, unless otherwise determined by the Debtors, must
submit proper evidence satisfactory to the Debtors of authority to so act.
Authorized signatories should submit separate Ballots for each beneficial
owner for whom they are voting.
UNLESS THE BALLOT OR MASTER BALLOT BEING FURNISHED IS TIMELY
SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE, SUCH
BALLOT WILL NOT BE COUNTED. TO BE COUNTED, ALL BALLOTS MUST BE ORIGINAL.
PHOTOCOPIED OR FAXED BALLOTS WILL NOT BE COUNTED. IN ADDITION, THE
SIGNATURE ON THE BALLOT MUST BE ORIGINAL FOR THE BALLOT TO BE COUNTED.
BALLOTS THAT FAIL TO INDICATE AN ACCEPTANCE OR REJECTION OR WHICH INDICATE
BOTH AN ACCEPTANCE AND REJECTION SHALL NOT BE COUNTED.
D. PARTIES IN INTEREST ENTITLED TO VOTE
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be "impaired" under a plan unless (i) the plan
leaves unaltered the legal, equitable, and contractual rights to which such
claim or interest entitles the holder thereof or (ii) notwithstanding any
legal right to an accelerated payment of such claim or interest, the plan
cures all existing defaults (other than defaults resulting from the
occurrence of events of bankruptcy) and reinstates the maturity of such
claim or interest as it existed before the default.
In general, a holder of a claim or interest may vote to accept or
to reject a plan if (i) the claim or interest is "allowed," which means
generally that no party in interest has objected to such claim or interest,
and (ii) the claim or interest is impaired by the plan. If, however, the
holder of an impaired claim or interest will not receive or retain any
distribution under the plan in respect of such claim or interest, the
Bankruptcy Code deems such holder to have rejected the plan, and,
accordingly, holders of such claims and interests do not actually vote on
the plan. If a claim or interest is not impaired by the plan, the
Bankruptcy Code deems the holder of such claim or interest to have accepted
the plan and, accordingly, holders of such claims and interests do not
actually vote on the plan.
Any Claim as to which an objection has been timely filed and has
not been withdrawn or dismissed is not entitled to vote, unless the
Bankruptcy Court, pursuant to Fed. R. Bankr. P. 3018(a), upon application
of the holder of the Claim with respect to which there has been objection,
temporarily allows the Claim in an amount that the Bankruptcy Court deems
proper for the purpose of accepting or rejecting the Plan. The procedures
for seeking such temporary allowance are set forth in the Procedures Order.
A vote may be disregarded if the Bankruptcy Court determines,
pursuant to section 1126(e) of the Bankruptcy Code, that it was not
solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
E. CLASSES IMPAIRED UNDER THE PLAN
The following Classes of Claims are Impaired under the Plan and are
entitled to vote on the Plan: Class 4 Small Unsecured Claims, including
subclasses 4.01, 4.02, 4.03 and 4.04, and Class 5 General Unsecured Claims,
including subclasses 5.01, 5.02, 5.03 and 5.04. Pursuant to the Procedures
Order, any non-voting holder of a Claim that is a member of a Class that is
entitled to vote, but in which no votes are cast, will be deemed to have
accepted the Plan for purposes of sections 1129(a)(8) and 1129(b) of the
Bankruptcy Code.
Class 6 Subordinated Claims, Class 7 Intercompany Claims and Class
8 Interests will not receive or retain any distribution or property under
the Plan on account of their Claims or Interests. Accordingly, they are
presumed, under section 1126(g) of the Bankruptcy Code, to have rejected
the Plan, and they are therefore not entitled to vote to accept or reject
the Plan.
All other Classes of Claims are not impaired under the Plan, are
deemed, under section 1126(f) of the Bankruptcy Code, to have accepted the
Plan, and accordingly are not entitled to vote to accept or reject the
Plan. Acceptances of the Plan are being solicited only from those who hold
Claims in an impaired Class whose members will (or may) receive a
distribution under the Plan.
XV. CONCLUSION
This Disclosure Statement was approved on November 1, 2000 by the
Bankruptcy Court after notice and a hearing. The Bankruptcy Court has
determined that this Disclosure Statement contains information adequate to
permit holders of Claims to make an informed judgment about the Plan. Such
approval, however, does not mean that the Bankruptcy Court recommends
either acceptance or rejection of the Plan.
A. HEARING ON AND OBJECTIONS TO CONFIRMATION
1. Confirmation Hearing
The hearing on confirmation of the Plan has been scheduled to
commence on December 8, 2000, at 2:00 p.m., Eastern Time, or as soon
thereafter as counsel may be heard, before the Honorable Mary F. Walrath in
the United States Bankruptcy Court, 824 Market Street, 6th Floor,
Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned from
time to time by announcing such adjournment in open court or otherwise, all
without further notice to parties in interest, and the Plan may be modified
by the Debtors pursuant to section 1127 of the Bankruptcy Code prior to,
during, or as a result of that hearing, without further notice to parties
in interest.
2. Date Set For Filing Objections To Confirmation
Objections, if any, to confirmation of the Plan must be filed with
the Bankruptcy Court and received by the parties listed in the Confirmation
Hearing Notice no later than 4:00 p.m., Eastern Time, on December 4, 2000.
A copy of the Confirmation Hearing Notice is enclosed with this Disclosure
Statement.
B. DOCUMENTS REFERENCED SHOULD BE READ FOR COMPLETE INFORMATION
The statements contained herein concerning the provisions of any
document are only summaries and are not necessarily complete. Thus, parties
interested in a particular provision of a document should read the document
itself. Each such statement is qualified in its entirety by such reference
to the actual document. All of the exhibits to the Plan and this Disclosure
Statement and other pleadings and orders relating to the Debtors' Chapter
11 cases are available for inspection during regular business hours (8:00
a.m. to 4:00 p.m. weekdays' (except legal holidays) at the Office of the
Clerk of the Court, United States Bankruptcy Court for the District of
Delaware, Marine Midland Plaza, 824 Market Street, 5th Floor, Wilmington,
Delaware 19801.
C. SOURCES OF INFORMATION FOR DISCLOSURE STATEMENT
The information set forth in the disclosure statement is from
numerous sources, including (i) the Debtors' books and records, (ii)
publicly filed quarterly and annual reports and (iii) court papers.
D. RECOMMENDATION
The Plan provides for an equitable and early distribution to
creditors. The Debtors believe that any alternative to confirmation of the
Plan, such as liquidation under Chapter 7 or attempts by another party in
interest to file a plan, could result in significant delays, litigation,
and costs, as well as a reduction in the distributions to holders of
certain Classes of Claims, particularly those in Class 5 General Unsecured
Claims, and delays in making distributions to all creditors. FOR THESE
REASONS, THE DEBTORS URGE YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE
PLAN.
Dated: Wilmington, Delaware
October 30, 2000
LEVITZ FURNITURE INCORPORATED, et al.,
Debtors-in-Possession
By: /s/ Michael E. McCreery
-------------------------------------
Michael E. McCreery
Senior Vice President and Chief
Financial Officer
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Levitz Furniture Incorporated, et al.,
Debtors-in-Possession
Sally McDonald Henry
Steven B. Eichel
Four Times Square
New York, New York 10036-6522
(212) 735-3000
-and-
Gregg Galardi (I.D. No. 2991)
Eric M. Davis (I.D. No. 3621)
P.O. Box 636
One Rodney Square
Wilmington, Delaware 19899
(302) 651-3001
Exhibit A
Reorganization Plan
