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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 26, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from_____________ to ___________________
______________Commission File Number 33-13622_____________________
BRENDLE'S INCORPORATED
Elkin, North Carolina 56-0497852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 North Bridge Street, Elkin, North Carolina 28621
(910) 526-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No________
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No Not Applicable
--------- -------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of December 10, 1996, there were 12,758,717 shares of the issuer's
Common Stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BRENDLE'S INCORPORATED
Consolidated Statement of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended
Oct. 26, Oct. 28,
1996 1995
Net sales $ 9,996 $ 29,505
Other income 41 36
Total revenue 10,037 29,541
Cost and expenses:
Cost of merchandise sold 7,046 22,510
Selling, operating and
administrative expenses 4,937 10,772
Depreciation and amortization 357 784
Interest expense:
Capitalized leases (28) 42
Other 195 855
Gain on sale of facilities --- (8)
Gain on life insurance proceeds (Note 2) --- (2,555)
Reorganization costs 1,953 ---
14,460 32,400
Loss before provision for income taxes (4,423) (2,859)
Provision for income taxes (Note 3) --- ---
Net loss $ (4,423) $ (2,859)
Weighted average shares outstanding 12,757 12,757
Net loss per share $ (0.35) $ (0.22)
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BRENDLE'S INCORPORATED
Consolidated Statement of Income
(Unaudited)
(In thousands except per share data)
Nine Months Ended
Oct. 26, Oct. 28,
1996 1995
Net sales $ 46,007 $ 83,534
Other income 59 269
Total revenue 46,066 83,803
Cost and expenses:
Cost of merchandise sold 33,968 61,440
Selling, operating and
administrative expenses 20,578 30,349
Depreciation and amortization 1,470 2,507
Interest expense:
Capitalized leases (5) 143
Other 1,424 2,278
Gain on sale of facilities --- (963)
Gain on life insurance proceeds (Note 2) --- (2,555)
Reorganization costs 11,575 (1)
69,010 93,198
Loss before provision for income taxes (22,944) (9,395)
Provision for income taxes (Note 3) --- ---
Net loss $ (22,944) $ (9,395)
Weighted average shares outstanding 12,758 12,758
Net loss per share $ (1.80) $ (0.74)
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BRENDLE'S INCORPORATED
Consolidated Balance Sheet
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Oct. 26, January 28, Oct. 28,
1996 1996 1995
<S> <C> <C> <C>
Assets
Current Assets:
Cash and temporary cash investments $ 1,198 $ 1,380 $ 2,903
Accounts receivable 921 1,295 2,260
Merchandise inventories 24,498 50,147 72,159
Other current assets 2,216 1,211 4,067
Total current assets 28,833 54,033 81,389
Property and equipment, less accumulated
depreciation and amortization 4,923 7,387 7,544
Other assets 830 568 152
$ 34,586 $ 61,988 $ 89,085
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility $ 7,932 $ 22,275 $ 31,716
Accounts payable
Trade 2,963 4,709 20,444
Outstanding checks (Note #4) 970 3,432 4,372
Current portion of capitalized lease obligations 168 183
Current portion of restructuring reserve 206 426
Other accrued liabilities (Note #5) 6,048 4,150 5,744
Total current liabilities 17,913 34,940 62,885
Reorganization notes 177 207 350
Capitalized lease obligations, less current portion 282 323
Other liabilities 292 1,328 1,025
Other deferred credit 425 425 472
Total long-term liabilities 894 2,242 2,170
Liabilities subject to compromise 13,915 0 ---
Total Liabilities 32,722 37,182 65,055
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized, 12,756,284, 12,756,284
and 12,756,623 shares issued and outstanding 12,756 12,756 12,757
Capital in excess of par value 20,895 20,895 20,896
Retained earnings (deficit) (31,787) (8,845) (9,623)
Total shareholders' equity 1,864 24,806 24,030
$ 34,586 $ 61,988 $ 89,085
</TABLE>
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BRENDLE'S INCORPORATED
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
Oct. 26, Oct. 28,
1996 1995
Operating activities:
Net loss $ (22,944) $ (9,395)
Items not requiring (providing) cash:
Depreciation and amortization 1,470 2,507
Changes in assets and liabilities:
Accounts receivable 374 (1,289)
Merchandise inventories 25,649 (23,708)
Other current assets (1,005) (2,706)
Accounts payable and accrued liabilities 152 19,237
Cash provided (used) by operating activities 3,696 (15,354)
Investing Activities:
Net (additions) retirements to property and equip. 994 (1,275)
(Addition) reduction in other assets (262) 636
Cash provided (used) by investing activities 732 (639)
Financing Activities:
Increase in liabilities subject to compromise 13,915 ---
Increase (decrease) in outstanding checks (2,462) 3,319
Decrease in long-term liabilities (1,066) (417)
Decrease in capitalized lease obligations (450) (1,184)
Net borrowings on revolving credit facility (14,343) 16,348
Decrease in reorganization reserve (206) (19)
Redemption of common stock --- (2)
Increase (decrease) in retained earnings (Note 2) 2 (930)
Cash provided (used) by financing activities (4,610) 17,115
Net increase (decrease) in cash and
temporary cash investments (182) 1,122
Cash and temporary cash investments
- beginning of period 1,380 1,781
Cash and temporary cash investments
- end of period $ 1,198 $ 2,903
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BRENDLE'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the results of the interim period.
Note 2. In April 1986, four shareholders of the Company agreed not to
transfer or sell their Common Stock to any unrelated party (as
defined) without the written consent of the other parties to
the agreement. In addition, in the event of the death of one
of the four shareholders, the Company can be required to
purchase their Common Stock at fair value up to the life
insurance proceeds, consisting of policies with a face value of
$5,250,000, $5,000,000, $3,070,000 and $3,000,000,
respectively.
On September 29, 1995, Patty Brendle Redway, one of the four
shareholders, died. The Company subsequently recognized a gain
of approximately $2,555,000 from life insurance proceeds,
which represents the face value of the policy ($3,000,000),
less cash surrender value previously recorded. Pursuant to the
shareholders' agreement, the estate of the shareholder can
require the Company to purchase the shareholder's Common
Stock at fair value up to the life insurance proceeds. At
October 28, 1995, the Company recorded a liability of
$988,000 for the potential purchase of up to 1,812,667 shares
of stock with a corresponding cumulative reduction in retained
earnings. At October 26, 1996, a liability of $632,000 is
included in liabilities subject to compromise to reflect the
amount of the rights exercised by the Estate of Mrs. Redway and
one of the heirs. The Company will not be able to comply with
the terms of this Agreement without the approval of the
Bankruptcy Court.
An amount equal to the cash surrender value of these
remaining policies at October 26, 1996 and October 28, 1995 of
$425,000 and $472,000, respectively, has been shown as an other
deferred credit on the balance sheet with a
corresponding reduction in retained earnings. As of October
26, 1996, the Company has taken out loans against the cash
surrender value of these policies in the sum of $1,852,000 to
finance current capital requirements.
Note 3. Tax refunds resulting from losses incurred are calculated using
tax payments of three prior years. Any losses in excess of
those allowed for carry-back are carried forward
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for use as future earnings allow. Tax loss carry-backs were
exhausted during the second quarter of Fiscal 1992.
Note 4. Outstanding checks totaling $970,000 on October 26, 1996 were
classified under current liabilities (as outstanding checks)
and included in cash at October 26, 1996.
Note 5. The Company received a tax refund of $3,385,000 related to net
operating loss carrybacks of previous years. This refund is
currently under review by the Internal Revenue Service (IRS).
The Company did not record a benefit for the item, but recorded
it in accrued liabilities until clearance is received from the
IRS.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information set forth below reports results of the Company for the
third quarter of its fiscal year ended October 26, 1996. However, on December
6, 1996, the Bankruptcy Court confirmed the Company's Plan of Reorganization as
a plan of liquidation for the Company. See "Liquidity & Capital Resources" for
discussion of the planned liquidation of the Company.
Overview
On April 16, 1996 the Company filed for protection under Chapter 11 of the
Bankruptcy Code in order to implement a new strategic business plan premised
upon a significantly revised merchandise strategy which eliminated certain
departments of merchandise, presented new product lines in the "Party Universe"
and crafts departments and expanded offerings in "for the home" merchandise.
The strategy also included corporate down-sizing, closing 18 of the Company's 30
stores and renovation of the twelve "go-forward" stores.
The Company discontinued normal operations in the eighteen stores during
the first week of May and over the next 10 weeks conducted inventory liquidation
sales of merchandise from those 18 stores and the inventory from the exited
departments using the services of Schottenstein Bernstein Capital Group. The
inventory liquidation sales were not reflected in sales and gross margin
results, but the estimated loss on inventory was included in the restructuring
expense in the first quarter of Fiscal 1997.
Comparison of Operations
Third Quarter Fiscal 1997 Compared to Third Quarter Fiscal 1996
Net sales for the third quarter of FYE January 1997, ("Fiscal 1997") were
$9,996,000 versus $29,505,000 for the same period last year which is a decrease
of $19,509,000, or 66.1%. This decrease in sales is attributed to the Company
operating 18 fewer stores during the third quarter of Fiscal 1997 compared to
the third quarter of Fiscal 1996. Comparable store sales decreased 24.9% from
the third quarter of last year due primarily to the elimination of certain
merchandise offerings in accordance with the new merchandise strategy as
discussed above and the general disruption in sales during the change-over of
the existing stores to "the New Brendle's" format and lower than anticipated
sales in the party universe and craft departments.
Other income, which consists of miscellaneous non-recurring items was
$41,000 for the third quarter of Fiscal 1997 compared to $36,000 for the same
period last year.
The cost of merchandise sold in the third quarter of Fiscal 1997 was
$7,046,000 compared to $22,510,000 for the same period last year. The decrease
in cost of goods sold was primarily the result of the decrease in sales because
of store closings.
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Gross margin as a percentage of revenues was 29.80% for the third quarter of
Fiscal 1997 compared to 23.80% for the same period last year. This increase in
the gross margin percentage is primarily the result of the elimination of
certain lower margin departments of merchandise and the addition of the higher
margin party and craft departments.
Selling, operating, and administrative expenses ("SO & A") for the third
quarter of Fiscal 1997 and 1996 were $4,937,000 and $10,772,000, respectively.
This decrease is primarily the result of operating 18 fewer stores than last
year. SO & A expenses, as a percentage of revenues, increased to 49.2%, compared
to 36.5% for the same period last year. The increase in SO & A expense, as a
percentage of revenues, is attributed to the decrease in total sales dollars.
Depreciation and amortization expense for the third quarter of Fiscal 1997
and Fiscal 1996 was $357,000 and $784,000, respectively. Expense for fixed asset
depreciation and amortization is less because certain assets have become fully
depreciated and certain leases which were previously accounted for as capital
leases were renewed in the third quarter of last year and have been included as
operating leases in SO & A expense.
Interest expense on capital leases for Fiscal 1997 and Fiscal 1996 was
($28,000) and $42,000, respectively. This interest expense is less due to the
renewal of nine leases in the third quarter of last year, which are being
accounted for as operating leases and the cost is reflected in the SO & A
expense. Interest expense on other debt and bank fees was $195,000 compared to
$855,000 for the same quarter last year. This decrease in interest expense is
due to decreased borrowings under the Company's $25 million Debtor-in-Possession
Revolving Credit Facility ("DIP Facility"). Borrowings were less than last year
resulting from liabilities deferred by Chapter 11 and because of inventory
liquidation in the eighteen closed stores and the resulting paydown on the DIP
Facility.
Reorganization costs of $1,953,000 for the third quarter of Fiscal 1997
reflect the costs associated with the closing of the 18 stores, corporate down-
sizing, and other costs of the Chapter 11 Proceeding. There were no
reorganization costs for the third quarter of Fiscal 1996.
Net loss for the third quarter of Fiscal 1997 was $4,423,000 compared to
$2,859,000 for the third quarter of Fiscal 1996. Fiscal 1997 net loss includes
$1,953,000 of reorganization costs as discussed above. Management believes
earnings (loss) before interest, taxes, depreciation, amortization, other gains
and reorganization items ("EBITDA") is a useful tool for measuring performance
because net income (loss) is not comparable with the previous period due to the
Chapter 11 Proceeding.
EBITDA(loss) for the third quarter of Fiscal 1997 was ($1,946,000) compared
with ($3,741,000) for the same period last year.
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The Company's tax loss carry-backs were exhausted in Fiscal 1992 resulting
in the loss of any tax benefit for the first quarter of Fiscal 1996. The loss
carry-forwards will be used as future earnings allow.
First Nine Months Fiscal 1997 Compared to First Nine Months Fiscal 1996
Net sales of $46,007,000 for the first nine months of FYE January 1997,
("Fiscal 1997") decreased $37,527,000, or 44.9% from $83,534,000 for the same
period last year. The Company operated 30 stores during a substantial portion of
the first quarter of both years. However, following store closings in the first
week of May, 1996, second and third quarter results for Fiscal 1997 included
sales for only 12 stores compared to thirty stores for the second and third
quarters of last year. Comparable store sales for the first nine months of
Fiscal 1997 decreased 16.06% because of the elimination of certain merchandise
departments the Company offered during the prior year and the disruption in
sales due to remodeling stores during the change-over to the new Brendle's
format.
Other income, which consists of miscellaneous non-recurring items was
$59,000 for the first nine months of Fiscal 1997 compared to $269,000 for the
same period last year.
The cost of merchandise sold in the first nine months of Fiscal 1997 was
$33,968,000 compared to $61,440,000 for the same period last year. The decrease
in cost of goods sold was primarily the result of the decrease in sales during
the second and third quarters of Fiscal 1997, as discussed above, offset by a
store closing sale in Greensboro, North Carolina during the first quarter of the
year.
Gross margin as a percentage of revenues was 26.3% for the first nine
months of Fiscal 1997 compared to 26.7% for the same period last year. This
decrease in the gross margin percentage is primarily the result of a store
closing sale during the first quarter of this year offset by the elimination of
certain gross profit margin product lines exited during the second quarter of
Fiscal 1997.
Selling, operating, and administrative expenses ("SO & A") for the first
nine months of Fiscal 1997 and 1996 were $20,578,000 and $30,349,000,
respectively. This decrease is primarily the result of operating 18 fewer
stores during the second and third quarters of the year. SO & A expenses, as a
percentage of revenues, increased to 44.7%, compared to 36.2% for the same
period last year. The increase in SO & A expense, as a percentage of revenues,
is attributed to the decrease in total sales dollars.
Depreciation and amortization expense for the first nine months of Fiscal
1997 and Fiscal 1996 was $1,470,000 and $2,507,000, respectively. Expense for
fixed asset depreciation and amortization is less because certain assets have
become fully depreciated and certain leases which
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were previously accounted for as capital leases were renewed during the third
quarter of last year and have been included as operating leases in SO & A
expense.
Interest expense on capital leases for Fiscal 1997 and Fiscal 1996 was
($5,000) and $143,000, respectively. This interest expense is less due to the
renewal of nine leases during the third quarter of last year, which are being
accounted for as operating leases and the cost is reflected in the SO & A
expense. Interest expense on other debt and bank fees was $1,424,000 compared
to $2,278,000 for the same period last year. This decrease in interest expense
is due to a decrease in borrowings under the Company's DIP Facility in the
second and third quarters of Fiscal 1997.
Reorganization costs of $11,575,000 for the first nine months of Fiscal
1997 reflect the reserve for the liquidation of inventory and other costs
associated with the closing of the 18 stores, corporate down-sizing, and other
costs of the Chapter 11 Proceeding. Reorganization costs were ($1,000) for the
first nine months of Fiscal 1996.
Net loss for the first nine months of Fiscal 1997 was $22,944,000 compared
to $9,395,000 for the first nine months of Fiscal 1996. Fiscal 1997 net loss
includes $11,575,000 of reorganization costs as discussed above. Management
believes earnings (loss) before interest, taxes, depreciation, amortization,
other gains and reorganization items ("EBITDA") is a useful tool for measuring
performance because net income (loss) is not comparable with the previous period
due to the Chapter 11 Proceeding.
EBITDA(loss) for the first nine months of Fiscal 1997 was ($8,480,000)
compared with ($7,986,000) for the same period last year.
The Company's tax loss carry-backs were exhausted in Fiscal 1992 resulting
in the loss of any tax benefit for the first quarter of Fiscal 1996. The loss
carry-forwards will be used as future earnings allow.
Liquidity and Capital Resources
Liquidation of the Company: On April 16, 1996, Brendle's, Inc. (the
"Company") filed for protection under Chapter 11 of the United States Bankruptcy
Code by filing a petition with the United States Bankruptcy Court for the Middle
District of North Carolina (the "Court"). Since the date the petition was
filed, the Company has worked to develop a Plan of Reorganization. The original
Plan of Reorganization was filed with the Court on August 14, 1996. After
considerable negotiations with the Unsecured Creditors Committee, the Company
developed its First Amended Plan of Reorganization (the "Amended Plan") which
was filed with the Court on October 16, 1996 and which set forth payment terms
to creditors and provided for other organizational and operational changes for
the
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reorganized Company. In addition, the Company's Amended Plan alternately
provided for the liquidation of the Company in the event the Company was
unable to meet its initial funding obligations to certain creditors and further
provided for the liquidation of the Company in the event that the Company was
unable to meet certain minimum performance criteria for the months of October
and November, 1996 or if exit financing for the purpose of funding the Amended
Plan requirements was not available. A hearing on the Amended Plan was held
on December 5, 1996 and the Amended Plan was confirmed by the Court as a plan
of liquidation. An Order approving the Amended Plan as a plan of liquidation
was entered on December 5, 1996. Even though an order has been entered
confirming the Amended Plan as a plan of liquidation, it remains possible for
interested parties to file an appeal of such order.
The Amended Plan that has been developed by the Company and that has been
confirmed by the court is included to this Report as an Exhibit. Summarily, the
Amended Plan provides for reorganization of the Company under the terms set
forth in the Amended Plan and also includes certain default provisions. The
Amended Plan provides that the occurrence of any of the following shall
constitute a default under the Amended Plan:
1. A default occurs under the Foothill post-petition loan which is not
cured or waived and which results in Foothill's termination of the facility
unless an alternative facility is established and funding thereunder becomes
available within forty-five (45) days following the termination of the existing
facility by Foothill.
2. The Company fails to achieve earnings before interest, taxes,
depreciation and amortization for the respective months of October and November,
1996 in at least the following amounts:
October: ($650,000)
November: $0
3. The Company's minimum and maximum inventory levels for
October, November, and December, 1996 are as follows:
OCTOBER NOVEMBER DECEMBER
Minimum Inventory 20,892,000 21,319,000 15,498,000
Maximum Inventory 25,534,000 26,057,000 19,498,000
4. The failure of the Company to make initial distributions to unsecured
creditors as required by the Amended Plan before January 15, 1997.
5. The Company's filing of an Amended Plan modification which adversely
affects the rights of general unsecured creditors unless the Unsecured Creditors
Committee consents to such modification.
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The Amended Plan provides that upon the occurrence of any event of default,
the Court will enter a liquidation order. Upon the entry of the liquidation
order, the Company and a representative of the Creditors Committee will
immediately begin the process of selecting an inventory liquidation specialist
and negotiating the terms of a liquidation contract. The Company is further
required to prepare and submit to the Court and to the Creditors Committee a
proposed twelve (12) month liquidation budget. The proceeds from asset sales
are to be deposited into a Liquidation Fund (as defined in the Amended Plan) and
are to be paid to creditors generally in accordance with the priority of
distribution scheme set forth in the Bankruptcy Code.
On December 2, 1996, the Board of Directors of the Company met and reviewed
the performance of the Company since the implementation of its revised
merchandising strategy and projections relating to the Company's likely future
performance. The Board of Directors also reviewed the performance of the
Company during the respective months of October and November, 1996. The Board
of Directors determined that for the month of November, 1996, it had not met its
performance obligation under the Amended Plan and that, in fact, an event of
default had occurred. Under the Amended Plan, the Company had the right to cure
the default by securing exit financing and proceeding with an early consummation
of the Amended Plan. After carefully considering the Company's recent
performance, forecasts of its future performance, and other options for
continuing the Company's business, the Board of Directors determined that there
were no reasonable alternatives remaining for the Company except to discontinue
its operations.
On December 5, 1996, the Bankruptcy Court approved the Company's Plan of
Reorganization as a plan of liquidation. On December 6, 1996, the Court entered
an Order authorizing Gordon Brothers Partners to act as agent for the Company to
liquidate the inventory in the twelve stores. In addition, the Company is
downsizing corporate headquarters and the distribution center to the minimum
personnel required to complete the liquidation of the Company's assets.
In the Company's Amended Disclosure Statement filed with the Court on
October 16, 1996 the liquidation analysis indicated that unsecured claims would
be paid a dividend ranging between 55.47 Cents and 63.75 Cents for each Dollar
of allowed claim. This analysis, however, assumed that the Company would
continue normal operations through the end of January, 1997. The timing and
amount of liquidation proceeds is inherently subject to great uncertainty, and
is subject to significant variance from the analysis included in the Company's
Amended Disclosure Statement. In addition, the Company has two (2) assets of
uncertain value which, to the extent possible, the Company is obligated to
protect and preserve during the liquidation process. The first of these assets
is certain life insurance policies which the Company owns and maintains on a
current basis on former officers and major shareholders. Under the Amended
Plan, the Company will not take any action with respect to these policies
(except for the payment of premiums thereon) without an order of the Court
affirming such action entered after notice of an opportunity to be heard has
been given to the creditors committees. In
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addition, the Company has received a tax refund in excess of $4.7 Million and
has asserted a right to receive additional tax refunds of over $13 Million.
These income tax refunds are based in part on Section 172 of the Internal
Revenue Code. The basis for the income tax refund claims, which were
prosecuted principally through the efforts of one of the Company's independent
accounting firm advisers, is untested and uncertain. Although the Company
believes its claims to be meritorious and supportable, the Internal Revenue
Service has asserted a claim in the bankruptcy proceeding for a return of the
refund previously received by the Company and has contested the Company's right
to receive further refunds. Since the issue of whether the income tax refunds
are an asset or a liability will not be resolved for a substantial period of
time, the tax refunds have not been included in any liquidation analysis either
as an asset to be liquidated or as a claim to be paid. Accordingly, the Company
cannot, at this time, determine with any degree of certainty the amount of
liquidation proceeds, if any, that will be available to pay unsecured
creditors or the amount of liquidation proceeds, if any, that will be available
for distribution to shareholders after payments to creditors.
The Company currently has 12,758,717 shares issued and outstanding.
Information relating to the Company's assets and liabilities are included in the
Amended Plan and the Amended Disclosure Statement filed herewith.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 16, 1996, the Company filed a Voluntary Petition with the United
States Bankruptcy Court for the Middle District of North Carolina instituting a
Chapter 11 reorganization proceeding. The case has been assigned number B-96-
50495C-11W. Subsequent to the filing of the voluntary Petition, the Company
sought and obtained numerous orders from the Bankruptcy Court which were
intended to stabilize and enhance its business operations. These include, among
others, orders (i) authorizing the employment of various professionals to assist
the Debtor and Committees; (ii) authorizing payment of employee wages and
benefits in the ordinary course of its business; (iii) authorizing the Company
to maintain its existing bank accounts; (iv) authorizing the Company to honor
all layaway agreements, gift certificates and merchandise credits; (v)
authorizing the Company to continue in effect all employee benefit plans; (vi)
authorizing the Company to make payment to utility companies in the ordinary
course of business and determining that such payments constituted adequate
assurance of future performance; (vii) establishing an expedited claims bar date
of July 15, 1996; (viii)authorizing store closings and approving the sale of
inventory located therein; (ix) authorizing and approving a revolving post
petition credit line with
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Foothill Capital Corporation; (x) authorizing the retention of professionals
to market closed store leases; (xi) authorizing the auction sale of equipment at
closed store locations; (xii) establishing fee guideline procedures; (xiii)
approving a stock balancing program which allows the Debtor to return
merchandise to creditors for credits against pre-petition claims; and (xiv)
approving various lease termination agreements and settlements reached with
landlords.
On December 5, 1996, the Bankruptcy Court approved the Company's Plan of
Reorganization as a liquidation. On December 6, 1996, the Court entered an
Order that Gordon Brother Partners would act as agent for the Company to
liquidate the inventory in the twelve stores. See "Management's Discussion and
Analysis" for additional information. In addition, the Company is downsizing
corporate headquarters and the distribution center to the minimum personnel
required to complete the liquidation of the Company's assets.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULT UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A: Financial Statements: None required
B: Pro forma Financial Information: None required
C: Exhibits
Exhibit 1. First Amended Plan of Reorganization, Dated October 16, 1996
Page 16 of 17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRENDLE'S INCORPORATED
(Registrant)
David R. Renegar
Vice President and
Chief Financial Officer
Date: December 16, 1996
Page 17 of 17
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
WINSTON-SALEM DIVISION
IN RE: )
)
)
BRENDLE'S INCORPORATED )CASE NUMBER B-96-50495C-11W
)
)
DEBTOR. )
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DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION
OCTOBER 16, 1996
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R. Bradford Leggett
C. Edwin Allman, III
M. Joseph Allman
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.
380 Knollwood Street, Suite 700
Post Office Drawer 5129
Winston-Salem, NC 27113-5129
Telephone: (910) 722-2300
Counsel for the Debtor
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TABLE OF CONTENTS
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ARTICLE I.........................................................................................................1
SUMMARY OF PLAN..........................................................................................1
ARTICLE II........................................................................................................4
DEFINITIONS..............................................................................................4
2.1 Administrative Expense.................................................................4
2.2 Allowed................................................................................4
2.3 Ballot.................................................................................5
2.4 Bankruptcy Administrator...............................................................5
2.5 Bankruptcy Causes of Action............................................................5
2.6 Bankruptcy Code........................................................................5
2.7 Bankruptcy Court.......................................................................5
2.8 Bankruptcy Rules.......................................................................5
2.9 Brenco.................................................................................6
2.10 Brendle's or Brendle's Incorporated....................................................6
2.11 Business Day...........................................................................6
2.12 Causes of Action.......................................................................6
2.13 Chapter 11.............................................................................6
2.14 Chapter 11 case........................................................................6
2.15 Claim..................................................................................6
2.16 Class..................................................................................6
2.17 Committees.............................................................................6
2.18 Company................................................................................7
2.19 Confirmation Date......................................................................7
2.20 Confirmation Order.....................................................................7
2.21 Contingent Assets......................................................................7
2.22 Convenience Claim......................................................................7
2.23 Creditor...............................................................................7
2.24 Debtor.................................................................................7
2.25 Debtor's First Case....................................................................7
2.26 Default................................................................................7
2.27 Disclosure Statement...................................................................7
2.28 Discounted Cash Option.................................................................7
2.29 Disputed Claim.........................................................................8
2.30 Disputed Claim Reserve.................................................................8
2.31 Effective Date.........................................................................8
2.32 Election Form..........................................................................8
2.33 Employee Wage or Benefit Claim.........................................................8
2.34 Entity.................................................................................9
2.35 Equity Security Holders Committee......................................................9
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2.36 Estate Property........................................................................9
2.37 Excess Liquidation Proceeds............................................................9
2.38 Filing Date............................................................................9
2.39 Final Order............................................................................9
2.40 Foothill Capital Corporation or Foothill...............................................9
2.41 General Unsecured Claim................................................................9
2.42 Impaired Claims.......................................................................10
2.43 Initial Distributions.................................................................10
2.44 Insurance Proceeds....................................................................10
2.45 Interest..............................................................................10
2.46 Liquidation...........................................................................10
2.47 Liquidation Fund......................................................................10
2.48 Liquidation Order.....................................................................10
2.49 Liquidation Term......................................................................10
2.50 Participation Rights..................................................................11
2.51 Plan..................................................................................11
2.52 Priority Claim........................................................................11
2.53 Real Estate Proceeds..................................................................11
2.54 Reorganization........................................................................11
2.55 Reorganization Credit Facility........................................................11
2.56 Reorganization Notes..................................................................12
2.57 Reorganized Debtor or Company.........................................................12
2.58 Secured Claim.........................................................................12
2.59 Stock of Brendle's Incorporated.......................................................12
2.60 Substantial Consummation..............................................................12
2.61 Tax Claims............................................................................12
2.62 Tax Refunds...........................................................................13
2.63 Unsecured Claim.......................................................................13
2.64 Unsecured Creditor....................................................................13
2.65 Unsecured Creditors Committee.........................................................13
ARTICLE III......................................................................................................13
CLASSIFICATION, IMPAIRMENT AND TREATMENT OF
CLAIMS AND INTERESTS...........................................................................13
3.1 Class 1 - Administrative Expenses.....................................................13
a. Classification...............................................................13
b. Impairment...................................................................13
c. Treatment....................................................................13
3.2 Class 2 - Wage and Benefit Claims.....................................................14
a. Classification...............................................................14
b. Impairment...................................................................14
c. Treatment....................................................................14
3.3 Class 3 - Tax Claims..................................................................14
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a. Classification...............................................................14
b. Impairment...................................................................14
c. Treatment....................................................................14
3.4 Class 4 - Foothill Capital Corporation Secured Claim..................................16
a. Classification...............................................................16
b. Impairment...................................................................16
c. Treatment....................................................................16
3.5 Class 5 -AT&T Capital Corporation Claim...............................................16
a. Classification...............................................................16
b. Impairment...................................................................16
c. Treatment....................................................................16
3.6 Class 6 - General Unsecured Claims....................................................17
a. Classification...............................................................17
b. Impairment...................................................................17
c. Treatment....................................................................17
3.7 Class 7 - Convenience Claims..........................................................21
a. Classification...............................................................21
b. Impairment...................................................................21
c. Treatment....................................................................21
3.8 Class 8 - Shareholders................................................................21
a. Classification...............................................................21
b. Impairment...................................................................21
c. Treatment....................................................................22
ARTICLE IV.......................................................................................................22
IMPLEMENTATION OF THE PLAN..............................................................................22
4.1 Generally.............................................................................22
4.2 Funding Requirement...................................................................22
4.3 Funding Sources.......................................................................23
4.4 Revesting of Property in the Company..................................................23
4.5 Shareholders Meeting..................................................................24
ARTICLE V........................................................................................................24
DEFAULT AND LIQUIDATION PROVISIONS......................................................................24
5.1 Generally.............................................................................24
5.2 Default...............................................................................24
(a) DIP Financing Default........................................................24
(b) EBITDA Default...............................................................25
(c) Inventory Default............................................................25
(d) Payment Default..............................................................25
(e) Plan Modification............................................................25
5.3 Effect of Default.....................................................................25
(a) Entry of Liquidation Order...................................................25
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(b) Creation of Liquidation Fund.................................................26
(c) Submission of Liquidation Budget and Reporting Requirements..................26
(d) Sale of Operating Assets.....................................................27
5.4 Cure Provision........................................................................27
5.5 Liquidation Upon Motion of the Debtor.................................................28
5.6 Distribution Priority.................................................................28
(a) Liquidation Costs............................................................28
(b) Administrative Expenses of Professionals.....................................28
(c) Priority Claims and Unsecured Claims.........................................29
(d) Equity Interests.............................................................29
5.7 Preservation of Certain Assets........................................................30
(a) Life Insurance Policies......................................................30
(b) Tax Refunds Claimed by the Company Pursuant to Section 172 of the
Internal Revenue Code........................................................30
ARTICLE VI.......................................................................................................31
ACCEPTANCE OR REJECTION OF THE PLAN.....................................................................31
6.1 Separate Voting.......................................................................31
6.2 Acceptance by Classes.................................................................31
6.3 Persons entitled to vote..............................................................31
ARTICLE VII......................................................................................................31
PROVISIONS CONCERNING UNDELIVERABLE DISTRIBUTIONS.......................................................31
7.1 Undeliverable Distributions...........................................................31
ARTICLE VIII.....................................................................................................32
EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................................................32
8.1 Assumption and Rejection Under Reorganization.........................................32
8.2 Assumption and Rejection Upon Liquidation.............................................33
8.3 Bar to Rejection Damages..............................................................33
ARTICLE IX.......................................................................................................33
PROCEDURES FOR RESOLVING DISPUTED CLAIMS................................................................33
9.1 Objections to Claims..................................................................33
9.2 Payments and Distributions with respect to Disputed Claims:...........................34
9.3 Timing of Payments and Distributions with respect to Disputed Claims
34
9.4 Retention and Enforcement of Rights...................................................34
ARTICLE X........................................................................................................35
RELEASES, TERMINATIONS AND SETTLEMENTS OF CLAIMS........................................................35
10.1 Discharge and Release by Holders of Claims and Interests:.............................35
10.2 Termination of Guaranties and Claims of Subordination.................................36
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10.3 Survival of Indemnification Obligations...............................................37
10.4 Preferences...........................................................................38
10.5 No Release Upon Liquidation...........................................................38
ARTICLE XI.......................................................................................................38
EFFECTUATION AND SUPERVISION OF PLAN....................................................................38
11.1 Retention of Jurisdiction.............................................................38
11.2 Committees............................................................................39
ARTICLE XII......................................................................................................40
MISCELLANEOUS PROVISIONS................................................................................40
12.1 Compliance with Tax Requirements......................................................40
12.2 Binding Effect of Plan................................................................41
12.3 Non-voting Stock......................................................................41
12.4 Authorization of Corporate Action.....................................................41
12.5 Modification of this Plan.............................................................41
12.6 Captions..............................................................................41
12.7 Method of Notice......................................................................41
12.8 Reservation...........................................................................42
12.9 Savings Clause........................................................................42
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Brendle's Incorporated, Debtor in the above-captioned Chapter 11
proceeding, proposes the following First Amended Plan of Reorganization pursuant
to Section 1121(a) of the Bankruptcy Code:
ARTICLE I
SUMMARY OF PLAN
The original Plan of Reorganization, accompanied by a Disclosure
Statement, was filed with the Court on August 14, 1996. Although the Plan was
designated as a Plan of Reorganization, the Plan had default provisions which
effectively converted the Plan to one of Liquidation in the event the Company
was unable to fund its obligations thereunder within a given period of time.
This First Amended Plan is the result of considerable negotiations with the
Unsecured Creditors Committee concerning its terms. As a result of such
negotiations, this First Amended Plan contains certain additional "triggers"
which would cause the liquidation of the Company if the Company is unable to
achieve certain minimal levels of performance during the October and November,
1996 period. This Plan, therefore, is designed alternatively both as a
Reorganization and, if necessary, a Liquidation Plan. It is possible that
confirmation of this Plan will occur prior to a final determination concerning
whether the Company will be reorganized or liquidated. This Plan is designed to
cover both situations. If the Company is able to secure exit financing from an
asset based lender in an amount sufficient to fund the Initial Distributions to
Creditors, the Plan will be consummated as a Reorganization. Otherwise, the Plan
will be consummated as a Liquidation.
If consummated as a Reorganization, this Plan provides for the full
payment of all Creditor Claims over a period not to exceed five (5) years from
the Effective Date. All Administrative, Secured and Priority Claims will be paid
in full, in cash, on the Effective Date or as soon thereafter
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as the same may be determined and allowed. Unsecured Creditors will receive a
cash distribution of thirty-five percent (35%) and a Reorganization Note for the
remaining sixty-five percent (65%) of their respective Allowed Claims on the
Effective Date. The Reorganization Notes will bear interest at the rate of
eleven percent (11%) per annum and will be paid in the following manner:
Interest only on the first and second anniversary dates of the Reorganization
Note; on the third and fourth anniversary dates principal and interest based on
a twelve (12) year amortization; and the balance of principal and accrued
interest shall be due on the fifth anniversary date of the Note. The Plan gives
Unsecured Creditors a Discounted Cash Option pursuant to which each may elect to
receive a one time cash distribution equal to sixty-five percent (65%) of its
Allowed Unsecured Claim on the Effective Date in full and complete satisfaction
of such Allowed Claim, except that additional payments of up to the remaining
thirty-five percent (35%) of such Allowed Claim may be made as the result of
Participation Rights granted to Unsecured Creditors in the Contingent Assets.
The Plan is premised upon the successful implementation of a strategic
business plan based initially on the operations of twelve (12) stores. The
strategic business plan is described in greater detail in the Disclosure
Statement, but generally it involves significant corporate downsizing coupled
with new business and merchandising strategies for the operating stores. The
Company's performance during the past six (6) weeks under the strategic business
plan has been less than satisfactory and the Company has experienced sales
considerably below that which it had projected.
The Plan contemplates that Brendle's will secure a loan commitment
which will serve as its exit financing and which, when combined with available
cash then on deposit, will enable Brendle's to meet its initial cash payment
obligations under the Plan, including the payment of Claims of
Unsecured Creditors electing the Discounted Cash Option offered by the Plan.
Thereafter, operating
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revenues and credit advances will be used to make the remaining Reorganization
Note payments to Creditors.
Although the Plan is one of Reorganization, it alternatively provides
for the liquidation of the Company in the event the Company is unable to meet
its initial funding obligations to Unsecured Creditors contemplated herein. In
addition, this Plan provides for the liquidation of the Company in the event
that the Company is unable to meet certain minimum performance criteria for the
months of October and November, 1996 and exit financing for the purpose of
funding the Reorganization Plan requirements is not available. Finally, although
the minimal performance criteria contained herein may otherwise be met, the Plan
also provides that the Company's Board of Directors may direct the Company to
file a motion with the Bankruptcy Court seeking the entry of an Order of
Liquidation in the event the Board determines, in the exercise of its reasonable
business judgment based on circumstances then existing, that the Company is not
viable as a going concern.
The Plan may be thus consummated as a Plan of Reorganization (if the
Company is able to make the Initial Distributions to Creditors) or as a Plan of
Liquidation (if the Company is unable to make the Initial Distributions). In the
event the Plan is consummated as a Reorganization, payments to Unsecured
Creditors holding Allowed Claims would be made on or before January 15, 1997. In
the event the Plan is consummated as a Liquidation, such liquidation will likely
begin in December, 1996 or January, 1997.
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ARTICLE II
DEFINITIONS
The capitalized terms used in this Plan shall have the meanings set
forth in this Article II. Any term defined in the Bankruptcy Code or Bankruptcy
Rules and not otherwise defined in this Article II shall have the meaning set
forth in the Bankruptcy Code or Bankruptcy Rules. A reference to an "Article" or
a "Paragraph" refers to an Article or a Paragraph of the Plan. A reference to a
"Section" refers to a Section of the Bankruptcy Code. The rules of construction
set forth in Section 102 of the Bankruptcy Code shall apply in the
interpretation of the Plan.
2.1 ADMINISTRATIVE EXPENSE: Any cost or expense of administration of
the Chapter 11 case allowed under Section 503(b) including, without limitation,
any such allowed items constituting (a) actual and necessary post-petition costs
and expenses of preserving the Debtor's estate or operating the business of the
Debtor, (b) post-petition costs and indebtedness or obligations duly and validly
incurred or assumed by the Debtor, (c) payments to cure defaults on executory
contracts and unexpired leases under Paragraph 8.1, or (d) compensation or
reimbursement of expenses to the extent allowed by the Bankruptcy Court under
Section 330(a).
2.2 ALLOWED: With respect to Claims and Interests, (a) any Claim
against or Interest in the Debtor, proof of which was timely filed or by order
of the Bankruptcy Court was not required to be filed, or (b) any Claim or
Interest that has been, or hereafter is, listed in the schedules of liabilities
filed by the Debtor as liquidated in amount and not disputed or contingent, and,
in each such case in (a) and (b) above, as to which either (i) no objection to
the allowance thereof has been filed within the applicable period of limitation
fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy
Court, or (ii) an objection has been filed and not withdrawn and the Claim
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or Interest has been allowed by a Final Order (but only to the extent
so allowed). Unless otherwise expressly specified in the Plan, an
Allowed Claim shall not include post-petition interest on the
principal amount of the Claim. With respect to General Unsecured
Claims, such Claims shall be allowed only after adjustment for stock
balancing and returns for damaged goods and advertising credits.
2.3 BALLOT: The form or forms for voting on the Plan that will be
distributed to holders of Claims or Interests in Classes that are impaired under
the Plan and entitled to vote under Section 1126. The Ballot to be distributed
to Unsecured Creditors shall contain an election form consistent with the
provisions of Paragraph 3.6(c)(1)(B).
2.4 BANKRUPTCY ADMINISTRATOR: The duly appointed Bankruptcy
Administrator, or an authorized representative of the Bankruptcy Administrator
for the Middle District of North Carolina.
2.5 BANKRUPTCY CAUSES OF ACTION: Any and all claims, rights and Causes
of Action created by the Bankruptcy Code in favor of the Debtor, including all
claims, rights and Causes of Action arising under any of the Sections 502, 510,
and 542 through 553, inclusive.
2.6 BANKRUPTCY CODE: Title 11 of the United States Code, as amended
from time to time, as applicable to the Chapter 11 case.
2.7 BANKRUPTCY COURT: The United States Bankruptcy Court for the Middle
District of North Carolina, and any Appellate Court that exercises jurisdiction
over the Chapter 11 case, also referred to herein as the "Court".
2.8 BANKRUPTCY RULES: The Federal Rules of Bankruptcy Procedure, as
amended from time to time, as applicable to the Chapter 11 case.
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2.9 BRENCO: A North Carolina general partnership consisting of Douglas
D. Brendle, S. Floyd Brendle, William F. Cosby, and two trusts under an
agreement with J. Harold Brendle, dated October 20, 1982, which leases stores
and a corporate office building to the Debtor.
2.10 BRENDLE'S OR BRENDLE'S INCORPORATED: A North Carolina corporation
and Debtor in the Chapter 11 case bearing Case No. B-96-50495C-11W.
2.11 BUSINESS DAY: Any day other than a Saturday, Sunday or Legal
Holiday.
2.12 CAUSES OF ACTION: Any and all actions, claims, demands and
liabilities, whether known or unknown, in law, equity, or otherwise, held by or
against the Debtor.
2.13 CHAPTER 11: Chapter 11 of Title 11 of the United States Code.
2.14 CHAPTER 11 CASE: In re Brendle's Incorporated, Case No.
96-50495-C-11W pending in the Bankruptcy Court.
2.15 CLAIM: Any right to (a) payment from the Debtor, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured; or (b) an equitable remedy for breach of performance if such breach
gives rise to a right to payment from the Debtor, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
2.16 CLASS: Shall mean any one of the Classes of Claims or Interest
designated in Article III of the Plan.
2.17 COMMITTEES: Collectively, the Equity Security Holders Committee
and the Unsecured Creditors Committee.
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2.18 COMPANY: Brendle's Incorporated.
2.19 CONFIRMATION DATE: The date on which the Confirmation Order is
entered.
2.20 CONFIRMATION ORDER: The Order of the Bankruptcy Court confirming
the Plan.
2.21 CONTINGENT ASSETS: Collectively, the Tax Refunds, the Insurance
Proceeds, the Real Estate Proceeds, and Excess Liquidation Proceeds.
2.22 CONVENIENCE CLAIM: Any General Unsecured Claim against the Debtor
that is Allowed in an amount of $100.00 or less.
2.23 CREDITOR: Any entity that is the holder of either a Claim against
the Debtor that arose on or before the Filing Date or a Claim against the
Debtor's estate of the kinds specified in Sections 502(g), 502(h) or 502(i).
2.24 DEBTOR: Brendle's Incorporated, a debtor in possession under
Chapter 11.
2.25 DEBTOR'S FIRST CASE: The Chapter 11 cases filed in 1992 in the
Bankruptcy Court styled In re Brendle's Stores, B-92-14520 C-11W and In re
Brendle's Incorporated, B-92-14519 C- 11W.
2.26 DEFAULT: The occurrence of an event described in Paragraph 5.2.
2.27 DISCLOSURE STATEMENT: The Disclosure Statement describing this
Plan, prepared in accordance with Section 1125 and approved by Order of the
Bankruptcy Court.
2.28 DISCOUNTED CASH OPTION: The option pursuant to which a holder of
an Allowed Unsecured Claim may elect to forego receipt of a Reorganization Note
and elect instead to receive on the Effective Date a total cash payment of
sixty-five percent (65%) of its Allowed Unsecured
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on the Effective Date a total cash payment of sixty-five percent (65%) of its
Allowed Unsecured Claim in full satisfaction thereof. However, Creditors
electing the Discounted Cash Option shall have Participation Rights in the
Contingent Assets.
2.29 DISPUTED CLAIM: Any Claim (a) that is scheduled by the Debtor as
disputed, contingent or unliquidated, or (b) proof of which has been filed with
the Bankruptcy Court and with respect to which an objection to its allowance, in
whole or in part, has been filed or will be filed within the applicable
limitation period, and which objection has not been withdrawn, settled or
determined by a Final Order.
2.30 DISPUTED CLAIM RESERVE: Either (a) the availability under a
post-confirmation credit facility (including the Reorganization Credit Facility)
which availability is specifically reserved for the payment of Disputed Claims,
or (b) an interest-bearing escrow account which shall hold funds sufficient for
the payment of Disputed Claims.
2.31 EFFECTIVE DATE: If consummated as a Reorganization, the Effective
Date shall be the date of Substantial Consummation of this Plan and shall not
occur prior to the day following the Confirmation Date nor later than January
15, 1997 (provided the Confirmation Order is final).Notwithstanding the
foregoing, in the event the Liquidation Order is entered, the Effective Date
shall be ten days after the date the Liquidation Order becomes a Final Order.
2.32 ELECTION FORM: The form attached to or made a part of the Ballot
by which Unsecured Creditors may elect the Discounted Cash Option.
2.33 EMPLOYEE WAGE OR BENEFIT CLAIM: A Priority Claim asserted under
Section 507(a)(3) or (4).
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2.34 ENTITY: Any individual, corporation, limited or general
partnership, joint venture, association, estate, entity, trust, trustee,
unincorporated organization, government, governmental unit, agency or political
subdivision thereof.
2.35 EQUITY SECURITY HOLDERS COMMITTEE: The Committee of Equity
Security Holders appointed by the Bankruptcy Court pursuant to Order entered on
May 2, 1996.
2.36 ESTATE PROPERTY: Shall mean all of the property of the Debtor as
defined in Section 541. If the Plan is consummated as a Reorganization, Estate
Property shall revest to Brendle's upon the initial payments to Class 6
Creditors in amounts sufficient to cause Substantial Consummation to occur. If
the Plan is consummated as a Liquidation, Estate Property shall not revest but
shall be liquidated in accordance with the terms and conditions of this Plan,
under and pursuant to the control and jurisdiction of the Bankruptcy Court.
2.37 EXCESS LIQUIDATION PROCEEDS: The proceeds generated from the sale
of substantially all assets of the Debtor which are actually received by the
Debtor within twelve months of the Effective Date, to the extent the same are in
excess of all liabilities (exclusive of Participation Rights) which a court of
competent jurisdiction would recognize and enforce against the Debtor.
2.38 FILING DATE: April 16, 1996, the date the Chapter 11 Petition was
filed by the Debtor.
2.39 FINAL ORDER: An order, ruling or judgment of the Bankruptcy Court
which is no longer subject to review, reversal, modification or amendment by
appeal or writ of certiorari.
2.40 FOOTHILL CAPITAL CORPORATION OR FOOTHILL: The Debtor's
post-petition secured lender.
2.41 GENERAL UNSECURED CLAIM: Any Unsecured Claim other than an
Administrative Expense or a Priority Claim.
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2.42 IMPAIRED CLAIMS: The Claims in Class 6. Generally, Section 1124 of
the Bankruptcy Code provides that a Class of Claims or Interests is impaired
under a plan if the plan alters the legal or equitable rights of the claimants
or interest holders in the class.
2.43 INITIAL DISTRIBUTIONS: The thirty-five percent (35%) payment and
the issuance of the Reorganization Notes to Class 6 Creditors, the sixty-five
percent (65%) payment to Class 6 Creditors electing the Discounted Cash Option,
and the payment to Class 7 Creditors.
2.44 INSURANCE PROCEEDS: The net proceeds payable to the Debtor on life
insurance policies owned by the Debtor on the lives of Douglas D. Brendle, S.
Floyd Brendle and William F. Cosby.
2.45 INTEREST: An equity interest evidenced by a share certificate in
Brendle's Incorporated.
2.46 LIQUIDATION: The sale of all assets of the Company following the
entry of the Liquidation Order as provided in Article V hereof.
2.47 LIQUIDATION FUND: A separate adequately secured interest bearing
depository account established pursuant to Paragraph 5.4(a) from which payments
to Creditors shall be made in the event of Liquidation.
2.48 LIQUIDATION ORDER: The Order of the Bankruptcy Court which
provides for the Liquidation of the Company in accordance with Paragraphs 5.3
and 5.4 hereof.
2.49 LIQUIDATION TERM: The period beginning with the entry of the
Liquidation Order and ending with the final distribution of the proceeds from
the sale or transfer of all remaining estate assets to holders of all Allowed
Creditor Claims and Interests in accordance with the priority established
herein.
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2.50 PARTICIPATION RIGHTS: Upon Reorganization, the rights of Unsecured
Creditors electing the Discounted Cash Option, vested without the necessity of
any additional filing, to participate in the Debtor's recovery of Tax Refunds as
provided in Paragraph 3.6(c)(3), Insurance Proceeds as provided in Paragraph
3.6(c)(4), Real Estate Proceeds as provided in Paragraph 3.6(c)(5), and Excess
Liquidation Proceeds as provided in Paragraph 3.6(c)(6). The Participation
Rights granted to Class 6 Creditors shall be secured by liens subordinate to the
liens granted to secure the Reorganization Credit Facility, provided that the
granting of such liens does not adversely affect the Debtor's ability to obtain
the Reorganization Credit Facility necessary to fund the Initial Distributions
hereunder. The liens granted hereunder may be perfected through an Order in Aid
of Consummation or in such other manner as is acceptable to the Creditors
Committee.
2.51 PLAN: This First Amended Chapter 11 Plan of Reorganization as it
may be modified from time to time.
2.52 PRIORITY CLAIM: Any Claim, other than a Secured Claim, entitled to
a priority of distribution over the Claims of General Unsecured Creditors
pursuant to Sections 507 or 364.
2.53 REAL ESTATE PROCEEDS: Proceeds generated from the sale of the
Debtor's Salisbury and Enka real estate which exceed the greater of (i) $750,000
or (ii) the amount of financing realized from the Salisbury and/or Enka real
estate.
2.54 REORGANIZATION: Substantial Consummation of this Plan by virtue of
the Debtor causing the Initial Distributions to be made to Creditors.
2.55 REORGANIZATION CREDIT FACILITY: The secured credit facility,
consisting of an extension of credit (which may require the conveyance of
equity) and/or a capital investment, in a principal amount sufficient to enable
the Company to fund its payment obligations hereunder,
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including the Claims of Unsecured Creditors on the Effective Date . This
facility may be part of the revolving credit facility that the Reorganized
Company will utilize in its business operations following the Effective Date.
2.56 REORGANIZATION NOTES: Promissory notes issued to Unsecured
Creditors not electing the Cash Option, and having attributes more particularly
set forth in Paragraph 3.6(c)(1)(B) hereof.
2.57 REORGANIZED DEBTOR OR COMPANY: Brendle's Incorporated after
Substantial Consummation of the Plan.
2.58 SECURED CLAIM: Any Claim that is secured by Estate Property to the
extent such Claim is subject to allowance as a Secured Claim under Section
506(a).
2.59 STOCK OF BRENDLE'S INCORPORATED: The common stock, which is
currently traded on the NASDAQ National Market System under the symbol BRDLQ at
$1.00 par value.
2.60 SUBSTANTIAL CONSUMMATION: The payment of the Initial Distributions
to Class 6 Creditors as provided in Paragraph 3.6(c)(1) and the payment to Class
7 Creditors as provided in Paragraph 3.7(c), shall constitute Substantial
Consummation of the Plan. In the event the Liquidation Order is entered,
Substantial Consummation shall occur upon the first distribution to Creditors
from the Liquidation Fund.
2.61 TAX CLAIMS: Any Claim by a federal, state or local taxing
authority, including a Claim for ad valorem taxes, entitled to priority pursuant
to Section 507(a)(7), inclusive of tax claims being paid as a result of the
confirmed plan of reorganization in the Debtor's First Case.
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2.62 TAX REFUNDS: Refunds received after the Filing Date by the Debtor
as the result of refund requests based on ss. 172 of the Internal Revenue Code
filed by the Debtor with the Internal Revenue Service prior to the Filing Date.
2.63 UNSECURED CLAIM: Any Claim that is not a Secured Claim or a
Priority Claim.
2.64 UNSECURED CREDITOR: The holder of a General Unsecured Claim.
2.65 UNSECURED CREDITORS COMMITTEE: The Committee of Unsecured
Creditors appointed by Order of the Bankruptcy Court on April 25, 1996.
ARTICLE III
CLASSIFICATION, IMPAIRMENT AND TREATMENT OF
CLAIMS AND INTERESTS
3.1 CLASS 1 - ADMINISTRATIVE EXPENSES:
---------------------------------
A. CLASSIFICATION: Class 1 Claims consist of all claims for
Administrative Expenses.
B. IMPAIRMENT: Class 1 Claims are not impaired.
C. TREATMENT:
(1) UPON REORGANIZATION: Each holder of an Allowed
Administrative Expense shall receive the full amount of its
Allowed Administrative Expense in cash on the Effective Date;
provided, however, that Administrative Expenses representing
(i) post-petition liabilities incurred in the ordinary course
of business by the Debtor, and (ii) post-petition liabilities
arising under loans or advances to the Debtor whether or not
incurred during the ordinary course of business, shall be paid
by the Reorganized
13
<PAGE>
Company in accordance with the terms and conditions of the
particular transaction relating to such liability and any
agreement relating thereto; and provided further, that
Administrative Expenses representing compensation or
reimbursement of expenses for professionals shall be paid in
accordance with orders and procedures applicable to this
Chapter 11 case.
(2) UPON LIQUIDATION: Administrative Expenses incurred
prior to the Effective Date shall be paid as provided in
Paragraph 3.1(c)(1). Administrative Expenses incurred after
the Effective Date shall be paid from the Liquidation Fund as
incurred and when due.
3.2 CLASS 2 - WAGE AND BENEFIT CLAIMS:
A. CLASSIFICATION: Class 2 Claims shall consist of all allowed
Employee Wage and Benefit Claims entitled to priority pursuant to Section
507(a)(3) and (4). Brendle's is aware of no such Claims.
B. IMPAIRMENT: Class 2 Claims are not impaired.
C. TREATMENT: Class 2 Claims shall be paid in full, in cash
on the later of the Effective Date or the date which is twenty business days
after the date on which the Employee Wage or Benefit Claim becomes an Allowed
Claim.
3.3 CLASS 3 - TAX CLAIMS:
A. CLASSIFICATION: Class 3 shall consist of Allowed Tax Claims.
B. IMPAIRMENT: Class 3 Claims are not impaired.
C. TREATMENT:
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<PAGE>
(1) UPON REORGANIZATION: Allowed Tax Claims shall be paid
over a period not exceeding six (6) years after the date of
assessment of such claim, in quarterly payments with interest
at seven percent (7%) per annum, amortized over that period
beginning on the Effective Date and ending on the date which
is six years after the date of assessment, or in such other
manner as the Reorganized Company and the Class 3 Creditor
agree. In the absence of a formal assessment, the date each
Tax Claim is determined and allowed by the Court shall be
deemed to be the date of assessment of such Claim for purposes
of this Paragraph. Payments by the Reorganized Debtor on Tax
Claims (other than Tax Claims allowed in the Debtor's First
Case) shall not begin until such Claim has been determined and
allowed by the Bankruptcy Court. Tax Claims from the Debtor's
First Case shall be unaffected by this Plan and such payments
shall continue as provided in the plan confirmed in the
Debtor's First Case and any arrearage thereon shall be paid on
or before the Effective Date; or
(2) UPON LIQUIDATION: Allowed Tax Claims shall be paid in
full in cash from the Liquidation Fund after sufficient funds
are set aside to cover expected Administrative Expenses and
Class 2 Allowed Claims. In the event a Tax Claim is a Disputed
Claim, the Disputed Claim Reserve shall be funded in a
sufficient amount for the payment thereof prior to the payment
of any amount to Class 6 from the Liquidation Fund.
15
<PAGE>
3.4 CLASS 4 - FOOTHILL CAPITAL CORPORATION SECURED CLAIM:
A. CLASSIFICATION: Class 4 shall consist of the Allowed
Secured Claims of Foothill Capital Corporation, the Debtor's Court approved
post-petition lender.
B. IMPAIRMENT: The Class 4 Claim is not impaired.
C. TREATMENT: Foothill Capital Corporation Claim shall be paid
in full in cash on or before the Effective Date of the Plan. Any letters of
credit outstanding shall be transferred to the financing facility in place on
the Effective Date or shall be otherwise secured in a manner mutually
satisfactory to Foothill and the Debtor or as may be approved by the Court. If
there should be a Liquidation requiring payments pursuant to the terms of
letters of credit, Foothill will be paid, if not from cash on hand, from the
first net proceeds derived from the liquidation of inventory.
3.5 CLASS 5 -AT&T CAPITAL CORPORATION CLAIM:
A. CLASSIFICATION: Class 5 shall consist of the Allowed
Secured Claim of AT&T Capital Corporation in connection with lease agreements
executed with the Debtor on September 15, 1994 and March 23, 1995. The Debtor's
obligations under the AT&T leases are secured by two Letters of Credit issued by
First Union National Bank under which AT&T Capital Corporation is the
beneficiary.
B. IMPAIRMENT: Class 5 Claims are not impaired.
C. TREATMENT: The Class 5 Claims will be paid in accordance
with its terms of the Leases between AT&T and the Debtor provided such Leases
are assumed by the Debtor after notice and hearing or as may be otherwise
provided in this Plan. In the event the AT&T Leases are rejected, AT&T's Allowed
Secured Claim (determined after notice and hearing) will be satisfied
16
<PAGE>
through the Letters of Credit and the balance of such claim, if any, (the
deficiency claim), shall be treated and satisfied as a Class 6 Claim pursuant to
Paragraph 3.6.
3.6 CLASS 6 - GENERAL UNSECURED CLAIMS:
A. CLASSIFICATION: Class 6 shall consist of the Claims of
General Unsecured Creditors.
B. IMPAIRMENT: Class 6 Claims are impaired.
C. TREATMENT: The holder of an Allowed Unsecured Claim may by
Ballot elect to be treated under Class 7. All other Allowed Unsecured Claims
shall be paid, satisfied and fully discharged as follows:
(1) UPON REORGANIZATION:
(A) CASH AND REORGANIZATION NOTE: On the Effective
Date, Unsecured Creditors shall receive: (i) cash
distributions equal to thirty-five percent (35%) of their
respective Allowed Unsecured Claims; and (ii) Reorganization
Notes in the principal amount of sixty-five percent (65%) of
their respective Allowed Unsecured Claims. The Reorganization
Notes will be dated as of the Effective Date and will accrue
interest at the rate of eleven percent (11%) per annum. The
Reorganization Notes will be paid as follows: interest
payments only shall be made on the first and second
anniversaries of the Notes; accrued interest plus principal
payments based on a twelve (12) year amortization will be paid
on the third and fourth anniversary dates of the Notes; and
the balance of principal and interest then outstanding shall
be paid on the fifth anniversary date of the Reorganization
Note. The Reorganization
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Note will be in a standard form for unsecured negotiable notes
containing usual and customary acceleration provisions upon
default.
(B) DISCOUNTED CASH OPTION: Each Unsecured Creditor may,
by written notice given to the Debtor on the Ballot within the
time fixed for filing acceptances or rejections to the Plan,
elect not to receive the thirty-five percent (35%) cash
payment and the Reorganization Note but to receive instead, on
the Effective Date, a cash payment of sixty-five percent (65%)
of its Allowed Unsecured Claim. In the absence of one or more
Tax Refund Distributions as provided in Paragraph 3.6(c)(3),
the recovery of Insurance Proceeds as provided in Paragraph
3.6(c)(4), the recovery of Real Estate Proceeds as provided in
Paragraph 3.6(c)(5) or the recovery of Excess Liquidation
Proceeds as provided in Paragraph 3.6(c)(6), the sixty-five
percent (65%) distribution provided in this Paragraph shall be
in full and complete satisfaction of each Unsecured Creditor's
Allowed Claim.
(2) UPON LIQUIDATION: Unsecured Creditors, regardless of any
election made under Paragraph 3.6(c)(1)(B) above, shall receive
periodic distributions from the Liquidation Fund, as provided in
Article V, until all Allowed Unsecured Claims, together with interest
at the rate of eight percent (8%) per annum from the Petition Date,
shall have been paid in full and thereupon fully discharged. An
election to take the Discounted Cash Option shall not effect a
reduction in the Unsecured Claim if the Liquidation Order is entered.
(3) TAX REFUND DISTRIBUTION: Upon Reorganization the Tax
Refunds received by the Debtor as a result of refund requests filed
pre-petition (as are more particularly
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<PAGE>
described in Paragraph 5.6(b)) which are no longer subject to
recapture by the Internal Revenue Service, shall first be distributed
to the holders of Reorganization Notes, pro-rata, to be applied
against the principal balance then due under such Notes until the same
are paid in full. After the Reorganization Notes have been satisfied
and discharged, seventy-five (75%) of the remaining proceeds, if any,
from the Tax Refunds shall be distributed pro-rata to holders of
Allowed Unsecured Claims electing the Discounted Cash Option until
each such Creditor shall have received an additional distribution of
thirty-five percent (35%) of its Allowed Unsecured Claim. The
distributions shall be made as soon as practicable following receipt
of a Tax Refund which is no longer subject to recapture by the
Internal Revenue Service, and each Creditor shall receive with its
distribution a statement reflecting the amount of the Tax Refund
received and the calculation supporting such Unsecured Creditor's
distribution of a portion thereof. In the event Tax Refunds serve as
collateral for the Reorganization Credit Facility and are paid or
applied against such facility, the amount so paid or applied shall be
promptly drawn from the facility by the Debtor and used to make the
payments to Creditors required herein. In the event of Liquidation,
Tax Refunds shall first be applied against the Reorganization Credit
Facility (to the extent Tax Refunds serve as collateral for such
facility) and the balance, if any, shall be deposited in a Liquidation
Fund for distribution in accordance with Article V.
(4) DISTRIBUTION OF INSURANCE PROCEEDS: Upon Reorganization,
subject to prior lien rights granted as a part of the Reorganization
Credit Facility, Insurance Proceeds received by the Company shall be
distributed to the holders of Reorganization Notes, pro-rata, to be
applied against the principal balance then due under such notes until
the same are
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<PAGE>
paid in full. After the Reorganization Notes have been satisfied and
discharged, seventy-five percent (75%) of the remaining Insurance
Proceeds, if any, shall be distributed pro-rata to holders of Allowed
Unsecured Claims electing the Discounted Cash Option until each such
Creditor shall have received an additional distribution of 35% of its
Allowed Unsecured Claim. The distribution shall be made as soon as
practical following receipt of Insurance Proceeds and each Creditor
shall receive with its distribution a statement reflecting the amount
of the Insurance Proceeds received and the calculation supporting each
such Creditors' distribution of a portion thereof. In the event
Insurance Proceeds serve as collateral for the Reorganization Credit
Facility and are paid or applied against such facility, the Debtor
shall cause a draw in a like amount to be made against the facility
and the proceeds of such draw shall be paid to Unsecured Creditors in
lieu of Insurance Proceeds. In the event of Liquidation, Insurance
Proceeds shall first be applied against the Reorganization Credit
Facility (to the extent Insurance Proceeds serve as collateral for
such facility) and the balance, if any, shall be deposited in the
Liquidation Fund for distribution in accordance with Article V.
(5) REAL ESTATE PROCEEDS: Upon Reorganization Real Estate Proceeds
received as the result of the sale of the Debtor's Salisbury or Enka
real estate which exceed the greater of (i) $750,000 or (ii) the
amount of financing realized from the Salisbury and/or Enka real
estate used to partially fund this Plan, shall be first distributed to
the holders of Reorganization Notes, pro-rata, to be applied against
the principal balance then due under such notes until the same are
paid in full. After the Reorganization Notes have been satisfied and
discharged, seventy-five percent (75%) of the remaining Real Estate
Proceeds shall be
20
<PAGE>
distributed pro-rata to holders of Allowed Unsecured Claims electing
the Discounted Cash Option until each such Creditor shall have
received an additional aggregate distribution as a result of its
Participation Rights of thirty-five (35%) of its Allowed Unsecured
Claim.
(6) EXCESS LIQUIDATION PROCEEDS: If this Plan is consummated
as a Reorganization and substantially all of the Debtor's assets are
liquidated within one year of the Effective Date, the Excess
Liquidation Proceeds shall be distributed pro-rata to holders of
Allowed Unsecured Claims electing the Discounted Cash Option until
each such Creditor shall have received an additional distribution
(from all sources) of 35% of its Allowed Unsecured Claim prior to any
distribution to stockholders on account of their equity interests in
the Debtor.
3.7 CLASS 7 - CONVENIENCE CLAIMS:
A. CLASSIFICATION: Class 7 Claims shall consist of all
Convenience Claims.
B. IMPAIRMENT: Class 7 Claims are not impaired.
C. TREATMENT: Class 7 Claims shall be paid in full, in cash
on the Effective Date up to a maximum of $100.00 per Allowed Claim. A Class 6
Creditor may elect to have its Claim treated as a Class 7 Claim.
3.8 CLASS 8 - SHAREHOLDERS:
A. CLASSIFICATION: Class 8 shall consist of the owners of
the Stock of Brendle's Incorporated.
B. IMPAIRMENT: Class 8 Interests are not impaired.
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<PAGE>
C. TREATMENT:
(1) UPON REORGANIZATION: The Class 8 Shareholders shall
retain their stock and shall be entitled to all the rights and
privileges thereof, including, but not limited to, the right to
participate in the shareholders meeting pursuant to Paragraph 4.5
hereof.
(2) UPON LIQUIDATION: Shareholders shall retain their
respective equity interests and shall be entitled to pro-rata
distributions from the Liquidation Fund after all Allowed Creditor
Claims have been paid in full and discharged.
ARTICLE IV
IMPLEMENTATION OF THE PLAN
4.1 GENERALLY: This Plan is the outgrowth of a strategic downsizing and
repositioning plan conceived by the Company prior to the advent of this Chapter
11 case. Substantial progress has been made toward the implementation of the
Plan, including the closing of 18 store locations and the liquidation of the
inventory and personal property contained therein. The proceeds of the inventory
liquidation have been used to repay borrowings of the Company under its line of
credit with Foothill Capital Corporation, to provide the Company with a source
of capital to be used for, among other things, the renovation and restructuring
of the 12 remaining stores, to meet the working capital requirements of the
business, to provide a source of funds for the repayment of debt pursuant to the
Plan, and to pursue the Company's strategic plan.
4.2 FUNDING REQUIREMENT: The Plan provides that on the Effective Date,
the Company will satisfy and fully discharge all past due liabilities asserted
against the Company exclusive of certain Tax Claims and General Unsecured
Creditor Claims. In addition, the Plan provides an option pursuant to which each
Unsecured Creditor may elect the Discounted Cash Option and thereby receive a
one-
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<PAGE>
time cash payment equal to sixty-five percent (65%) of the amount of its
Allowed General Unsecured Claim , and Participation Rights in the Contingent
Assets in full satisfaction thereof. The amount of funding necessary in order
for the Reorganized Company to pay its obligations on the Effective Date is
dependent, in part, upon the aggregate amount of Allowed Claims held by
Unsecured Creditors electing the Discounted Cash Option. Moreover, the amount of
funding may also be influenced by Claims litigation and the amount of
Administrative Expense Claims of court appointed professionals. A summary of
Claims and an estimate of the amount of cash necessary to satisfy such Claims on
the Effective Date is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Secured Claim of Foothill Capital Corporation - $ -0-
Employee Related Claims - -0-
Tax Claims - 64,192
Lease and Executory Contract Assumption Claims - 184,000
Administrative Claims - 257,000
Initial Thirty-Five Percent (35%) Distribution to Unsecured Creditors- 708,750
Unsecured Creditors (Discounted Cash Option)- 7,458,750
Convenience Claims - 3,142
------------
Total: $ 8,675,834
</TABLE>
4.3 FUNDING SOURCES: The sources of funding available to the Company to
fund its obligations under the Plan are more particularly described in the
Disclosure Statement accompanying the Plan. However, generally the sources
consist of cash on hand (projected to be $2.0 million) and borrowings from the
revolving line of credit available to the Company, which the Company projects
will be in an amount sufficient to fund the balance of initial payments to
Creditors described above.
4.4 REVESTING OF PROPERTY IN THE COMPANY: Upon Reorganization, all
Estate Property shall revest in Brendle's on the Effective Date. In the event of
Liquidation, however, Estate Property shall not revest in Brendle's but shall be
retained by the Debtor throughout the liquidation process.
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<PAGE>
4.5 SHAREHOLDERS MEETING: In the event of Reorganization, within sixty
(60) days after the Effective Date, there will be conducted a Shareholders
Meeting at which a new board of directors for the Company consisting of no less
than three nor more than seven members will be elected. In no event shall the
membership of the new board be in an even number. This Paragraph shall not apply
in the event of Liquidation. This paragraph shall not limit, restrict, or
otherwise alter or prejudice any rights or privileges to which shareholders are
entitled under the Debtor's Charter and By-Laws and applicable North Carolina
corporate law.
ARTICLE V
DEFAULT AND LIQUIDATION PROVISIONS
5.1 GENERALLY: The purpose of this Article is to provide alternatively
for a plan of orderly liquidation of the Company's assets in the event the
Company fails to fund its initial payment obligations under the Plan, or if it
becomes clear that Reorganization is not feasible. The Default provisions set
forth hereafter thus provide triggering events which establish a basis for the
Bankruptcy Court to enter a Liquidation Order which would effectively change the
character of this Plan from one of Reorganization to one of Liquidation. The
provisions of this Article provide the means and procedures for the sale of the
Company's assets and the distribution of the proceeds thereof to the Company's
Creditors and shareholders in satisfaction of their respective Claims or
Interests.
5.2 DEFAULT: The following shall constitute events of Default under
the Plan.
(A) DIP FINANCING DEFAULT: A default occurs under the Foothill
post-petition loan which is neither cured nor waived and which results in
Foothill's termination of the post-petition loan, unless an alternative facility
is established and funding thereunder becomes available within forty-five (45)
days following the termination of the existing facility by Foothill;
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<PAGE>
(B) EBITDA DEFAULT: The Debtor fails to achieve EBITDA
(earnings before interest, taxes, depreciation and amortization) for the
respective months of October and November, 1996 of at least the following
amounts:
October: ($650,000)
November: $ -0-
(C)INVENTORY DEFAULT: The Debtor fails to maintain minimum and
maximum inventory levels for October, November and December, 1996 are as
follows:
Oct. Nov. Dec.
Minimum Inventory: 20,892 21,319 15,498
Maximum Inventory: 25,534 26,057 19,498
(D) PAYMENT DEFAULT: The failure of the Debtor to make Initial
Distributions to Unsecured Creditors as required by this Plan on or before
January 15, 1997; or
(E) PLAN MODIFICATION: The Debtor's filing of a Plan
Modification which adversely affects the rights of General Unsecured Creditors
unless the Unsecured Creditors Committee consents to such modification.
5.3 EFFECT OF DEFAULT: Upon the happening of an event of
Default, unless waived by the Unsecured Creditors Committee, the following shall
occur:
(A) ENTRY OF LIQUIDATION ORDER: Upon the occurrence of an
event of Default as provided in Paragraph 5.2, the Court shall enter an order
which shall provide for the liquidation of the assets of the Company in
accordance with this Plan. The Liquidation Order shall be subject to the cure
period established in Paragraph 5.4 herein and shall in no way prejudice or
impair the right of the Debtor to consummate this Plan as one of Reorganization
by making the Initial Distributions
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<PAGE>
to Creditors on or before December 16, 1996 in the event of an October Default,
on or before January 8, 1997 in the event of a November Default.
(B) CREATION OF LIQUIDATION FUND: Within ten (10) days
following the entry of the Liquidation Order, the Debtor shall establish a
separate, adequately secured, interest bearing depository account at an
institution acceptable to the Committees and the Bankruptcy Administrator. The
net proceeds from the sale of Company assets shall be deposited into the
Liquidation Fund on an ongoing basis. The Debtor shall be authorized to
periodically withdraw from the Liquidation Fund amounts sufficient to cover
operating costs in accordance with the Liquidation Budget, and Administrative
Expense obligations due professionals under procedures established pursuant to
Court orders previously entered in this case.
(C) SUBMISSION OF LIQUIDATION BUDGET AND REPORTING
REQUIREMENTS: Within twenty (20) days following the entry of the Liquidation
Order, the Debtor shall prepare and file with the Court a proposed Liquidation
Budget which shall project operational costs by category, on a monthly basis,
for a period of one year. The Liquidation Budget shall not include anticipated
professional fees. Following the filing of the budget, the Debtor shall be
authorized to withdraw from the Liquidation Fund amounts necessary to meet its
obligations as provided in the budget. Parties in interest may object to part or
all of the proposed Liquidation Budget and the Court may approve or disapprove
specific portions thereof. Throughout the Liquidation Term, the Debtor shall
submit monthly reports to the Court setting forth appropriate financial
information as well as a summary of the liquidation activities conducted by the
Company for the preceding month. Each monthly report shall be filed with the
Court and served upon the Committees not later than the 25th day of the next
following month.
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<PAGE>
(D) SALE OF OPERATING ASSETS: Upon the entry of the
Liquidation Order, the Debtor and a representative of the Unsecured Creditors
Committee shall enter into negotiations with inventory liquidation specialists
for the sale of the Debtor's inventory in its operating stores and in the
Debtor's warehouse facility. The Debtor and the Committee representative shall
jointly decide upon the selection of a liquidation specialist and the procedure
to be employed in the inventory liquidation process, which shall be embodied in
a proposed contract with the liquidation specialist. The Debtor shall file a
motion with the Court seeking approval of the sale under terms and conditions
set forth in the proposed contract. If the Debtor and the Committee are unable
to agree on the liquidation specialist or the terms of a proposed contract, each
may file a motion seeking approval of the sale on terms it believes appropriate.
A contract may only be approved after notice and hearing, and the standards
enunciated in Section 363 shall apply. In addition to the sale of its inventory,
the Debtor shall take reasonable steps to effectuate the sale of all remaining
personal property, including furniture, fixtures and equipment located within
its operating stores as well as within its corporate headquarters. Additionally,
the Debtor may engage, with Court approval on an expedited basis, one or more
professionals to assist the Debtor in marketing its store leases and the Company
owned store. In connection with the sale and liquidation of its assets, the
Debtor shall take reasonable steps to conclude the liquidation process within
180 days of the date on which the Liquidation Order is entered.
5.4 CURE PROVISION: Notwithstanding the existence of an event of
Default as provided in Paragraph 5.2, or the entry of the Liquidation Order, the
Debtor shall have through and including December 16, 1996 with respect to an
October Default and through and including January 8, 1997 in the event of a
November Default to make the Initial Distributions to Creditors and to
consummate
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<PAGE>
this Plan as one of Reorganization. In the event the Debtor makes the Initial
Distribution to Creditors on or before the cure dates stated above (December 16,
1996 or January 8, 1997), the Debtor shall be deemed to be in full compliance
with the terms of this Plan and the Plan shall proceed as one of Reorganization
and the liquidation provisions contained herein shall have no force or effect.
5.5 LIQUIDATION UPON MOTION OF THE DEBTOR: Regardless of whether an
event of Default has occurred, the Debtor may file a motion seeking entry of a
Liquidation Order if the Debtor's Board of Directors determines in the exercise
of its business judgment that the Debtor is not viable as a going concern. Upon
the filing of the Liquidation Motion by the Debtor, the Court shall conduct a
hearing upon notice to the Committees, the Internal Revenue Service, the North
Carolina Department of Revenue, and the Securities and Exchange Commission.
5.6 DISTRIBUTION PRIORITY: In the event the Liquidation Order is
entered, this Plan becomes one of Liquidation and distribution from the
Liquidation Fund shall follow the following priority:
(A) LIQUIDATION COSTS: First, liquidation costs, as provided
in the Debtor's Liquidation Budget, shall be paid without further order, notice
or hearing. Specific liquidation costs which exceed one hundred ten percent
(110%) of the amount budgeted for such cost shall not be paid absent consent of
the Committees or specific Court authorization upon such notice and hearing, if
any, as the Court considers appropriate in light of circumstances then existing,
and taking into account the expense to be paid.
(B) ADMINISTRATIVE EXPENSES OF PROFESSIONALS: Second, fees and
expenses of professionals employed by the Debtor, the Unsecured Creditors
Committee and the Equity Security
28
<PAGE>
Holders Committee shall be paid pursuant to Orders and procedures applicable to
this Chapter 11 case.
(C) PRIORITY CLAIMS AND UNSECURED CLAIMS: Third, Allowed
Creditor Claims shall be paid in accordance with the statutory priority payment
scheme set forth in Sections 507 and 726. Specific Court authorization shall not
be required for payment of claims of the type set forth in Sections 507(a)(1)
[other than professional fees], 507(a)(3), 507(a)(4), 507(a)(6), and 507(a)(8).
Distributions to holders of Allowed Class 6 Claims may be made on a pro rata
basis only after all Claims of higher priority and Allowed Class 7 Claims have
been paid and adequate reserves have been established for the payment of future
liquidation expenses and professional fees and expenses. The Debtor shall file
an appropriate pleading served on the Committees setting forth its intent to
make a partial distribution to holders of Allowed Unsecured Claims and such
distribution may be made ten (10) days after service unless an objection to the
proposed payment has been filed by any party in interest or the Court determines
that a hearing concerning the proposed distribution is necessary. In the event
an objection is filed and/or if a hearing is held concerning the distribution,
such distribution will only be made upon entry of an appropriate order of the
Court.
(D) EQUITY INTERESTS: Following the full payment of all
Allowed Unsecured Claims, and after sufficient reserves have been set aside for
payment of Company expenses, the funds remaining in the Liquidation Fund shall
be used for distribution(s) to the Company's shareholders on a periodic pro-rata
basis in accordance with procedures agreeable to the Equity Security Holders
Committee which shall be contained in an Order in Aid of Consummation of the
Plan.
29
<PAGE>
5.7 PRESERVATION OF CERTAIN ASSETS: The Company has two assets of
uncertain value which, to the extent possible, shall be protected and preserved
during the Liquidation term. They are as follows:
(A) LIFE INSURANCE POLICIES: The Company owns and maintains on
a current basis certain whole life insurance policies on former officers and
major shareholders which are more particularly described in the Disclosure
Statement. In the event of Reorganization, the Debtor will borrow against the
policies and use the proceeds to partially fund the Initial Distributions. In
the event of Liquidation, no action will be taken with respect to the policies
(except for the payment of premiums thereon) without an order of the Court
approving such action entered after notice and an opportunity to be heard has
been given to the Committees.
(B) TAX REFUNDS CLAIMED BY THE COMPANY PURSUANT TO SECTION 172
OF THE INTERNAL REVENUE CODE: Prior to the filing of its bankruptcy petition,
the Company engaged the accounting firm of Deloitte & Touche, LLP on a
contingent fee basis, to prepare and prosecute tax refund claims based in part
on Section 172 of the Internal Revenue Code. Principally through the efforts of
Deloitte & Touche, LLP, the Company prepared and filed refund claims, and in
1995, the Company received a preliminary refund of over $4.0 million. Of this
amount, the Company received 75% or slightly over $3.0 million and Deloitte &
Touche, LLP received a 25% contingency fee or an amount slightly in excess of
$1.0 million. In addition, Brendle's filed additional refund requests for over
$13.0 million which are currently under consideration by the Internal Revenue
Service. The theory advanced by Deloitte & Touche, LLP in connection with these
refund claims is untested and uncertain although Brendle's believes its claims
to be meritorious and supportable. Since the IRS has asserted a Claim in this
case for a return of the refund received by Brendle's, upon Liquidation
30
<PAGE>
sufficient funds will need to be set aside for payment of this Claim prior to
any distribution to General Unsecured Creditors. Upon Reorganization, any
Allowed Claim of the IRS will be paid over a period not to exceed six (6) years
as provided in Paragraph 3.3(c).
ARTICLE VI
ACCEPTANCE OR REJECTION OF THE PLAN
6.1 SEPARATE VOTING: Each Impaired Class of Claims or Interests shall
be entitled to vote separately as a Class to accept or reject the Plan.
6.2 ACCEPTANCE BY CLASSES: Consistent with Section 1126(c) and except
as provided in Section 1126(e), a Class of Claims shall have accepted the Plan
if the Plan is accepted by the holders of at least two-thirds (2/3) in dollar
amount and more than one-half (1/2) in number of the Allowed Claims of that
Class that have timely and properly voted to accept or reject the Plan.
6.3 PERSONS ENTITLED TO VOTE: Holders of record, as of the date of
entry of the Order approving the Disclosure Statement, of Allowed Claims in
Class 6 will be entitled to vote to accept or reject the Plan.
ARTICLE VII
PROVISIONS CONCERNING UNDELIVERABLE DISTRIBUTIONS
7.1 UNDELIVERABLE DISTRIBUTIONS: If the Reorganized Company (or the
Debtor, if in liquidation) is unable to make a payment or distribution to the
holder of an Allowed Claim under the Plan for lack of a current address for the
holder or otherwise, it shall file with the Bankruptcy Court, the name and, if
known, the last known address of the holder and the reason for inability to make
payment, and if, after the passage of thirty (30) days and after any additional
effort to locate the holder that the Bankruptcy Court may direct, the payment or
distribution still cannot be made, the
31
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payment or distribution and any further payment or distribution to the holder
shall be retained by the Reorganized Company (or the Debtor, if in liquidation)
and the Claim shall be deemed discharged to the same extent as if payment or
distribution had been made to the holder of a Claim or Interest.
ARTICLE VIII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
8.1 ASSUMPTION AND REJECTION UNDER REORGANIZATION: If this Plan is
consummated as a Reorganization, on the Effective Date all executory contracts
and unexpired leases ("executory contracts") of the Debtor and the Reorganized
Company which either (a) have not been assumed or rejected pursuant to Order of
the Court prior to the Effective Date, or (b) are not the subject of a pending
motion to assume or reject, or to establish other procedures for the assumption
or rejection, filed with the Bankruptcy Court on or before the Effective Date,
shall be assumed by the Debtor and the Reorganized Company pursuant to Section
1123(b)(2) without further order of the Bankruptcy Court. Any payment to cure
defaults that may be required by Section 365(b)(1) shall be made in cash on the
Effective Date or, in the case of executory contracts subject to a pending
motion, at such other time as the Court may direct. Payments to cure defaults
shall be made to the entity that filed a proof of Claim or, if no proof of Claim
was filed, to the entity that was scheduled, unless proof of transfer of the
Claim has been filed in accordance with Bankruptcy Rule 3001(e)(1) or
3001(e)(2). In the event of a dispute regarding the amount of the payment
required to cure any default or the ability of the Debtor to provide adequate
assurance of future performance, or in the event of a dispute concerning the
interpretation or construction of any provision in any assumed executory
contract, the Debtor shall be bound by the final Order resolving the dispute.
All executory contracts which have
32
<PAGE>
been assumed or rejected by the Debtor pursuant to Orders entered in this
Chapter 11 case prior to Effective Date shall be unaffected by this Plan.
8.2 ASSUMPTION AND REJECTION UPON LIQUIDATION: Upon Liquidation, all
executory contracts not subject to a pending motion to assume or reject, or a
pending motion to establish other procedures for the assumption or rejection,
shall be deemed rejected sixty (60) days after the Effective Date. The Unsecured
Creditors Committee shall have the right to file such pleading or take such
action as it deems appropriate with respect to leases between the Debtor and
Brenco and the Debtor shall take no action with respect to the Brenco leases
(other than passively allowing for their rejection under this Paragraph) without
Court authorization upon notice to the Committees.
8.3 BAR TO REJECTION DAMAGES: A Claim for damages against the Debtor
arising from the rejection by the Debtor of any executory contract or unexpired
lease pursuant to this Article VIII shall be forever barred and shall not be
enforceable against the Debtor or the Reorganized Company or their respective
property or interests in property and no holder of any such Claim shall
participate in any distribution under the Plan with respect to that Claim unless
a proof of Claim is served on the Debtor or Reorganized Company and filed with
the Bankruptcy Court no later than sixty (60) days after the Effective Date,
unless the Bankruptcy Court has ordered otherwise.
ARTICLE IX
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
9.1 OBJECTIONS TO CLAIMS: Objections to Claims (including, but not
limited to, any Claim arising from or relating to the rejection of any executory
contract or unexpired lease pursuant to Article VIII or otherwise) shall be
filed with the Bankruptcy Court and mailed to the holder of the Claim to which
objection is made in accordance with a schedule established by order entered
hereafter
33
<PAGE>
by the Court. The Debtor shall act with reasonable promptness to process and
resolve all Claims objections. No Disputed Claim shall be compromised by the
Debtor except by Court order after notice to the Committees.
9.2 PAYMENTS AND DISTRIBUTIONS WITH RESPECT TO DISPUTED CLAIMS: Except
as otherwise specifically provided elsewhere in the Plan, no payment or
distribution shall be made in respect of a Disputed Claim until the Disputed
Claim becomes an Allowed Claim.
9.3 TIMING OF PAYMENTS AND DISTRIBUTIONS WITH RESPECT TO DISPUTED
CLAIMS: Except as otherwise specifically provided elsewhere in the Plan,
payments and distributions with respect to each Disputed Claim that becomes an
Allowed Claim after the Effective Date shall be made within twenty (20) Business
Days after the date that the Disputed Claim becomes an Allowed Claim. Holders of
Disputed Claims that become Allowed Claims shall be bound, obligated and
governed in all respects by the provisions of the Plan.
9.4 RETENTION AND ENFORCEMENT OF RIGHTS: Pursuant to Section 1123(b)(3)
the Reorganized Company will retain and will have the exclusive right (except as
provided in Paragraph 10.4) to enforce against any entity any and all causes of
action, claims and rights of the Debtor that arose either before, upon, or after
the Filing Date, including the rights and powers of a trustee and debtor in
possession and all Bankruptcy Causes of Action, other than those released or
compromised as part of or pursuant to the Plan. After the Effective Date, the
Debtor or the Reorganized Company, will retain the right to object to Claims
after the Confirmation Date in order to have the Bankruptcy Court determine the
amount and treatment of any Claim. In the event the Debtor fails to object to a
Claim within a reasonable time after receipt of a written demand from the
Unsecured Creditors Committee to file such objection, the Unsecured Creditors
Committee shall have the right and
34
<PAGE>
standing to object to such Claim and to prosecute any counter-claim relating
thereto in the name of the Unsecured Creditors Committee.
ARTICLE X
RELEASES, TERMINATIONS AND SETTLEMENTS OF CLAIMS
(REORGANIZATION ONLY)
10.1 DISCHARGE AND RELEASE BY HOLDERS OF CLAIMS AND INTERESTS: Except
for the obligations imposed by the Plan, the distributions and rights that are
provided in the Plan shall be in complete satisfaction, discharge, and release
of (a) all Claims against, liabilities of, liens on, obligations of, and
interests in the Debtor or the Reorganized Company and the assets and properties
of the Debtor or the Reorganized Company, whether known or unknown, and (b) all
Causes of Action, whether known or unknown, either directly or derivatively
through the Debtor or Reorganized Company, against successors and assigns of the
Debtor, affiliates of the Debtor, and present and former stockholders,
directors, officers, agents, attorneys, advisors, financial advisors, investment
bankers, and employees of the Debtor based on the same subject matter as any
Claim or Interest, in each case regardless of whether a proof of Claim or
interest was filed, whether or not Allowed, or based on any act or omission,
transaction or other activity or security instrument or other agreement of any
kind or nature occurring, arising or existing prior to the Effective Date, that
was or could have been the subject of any Claim or Interest, in each case
regardless of whether a proof of Claim or Interest was filed, whether or not
Allowed or whether or not the holder of the Claim or Interest has voted on the
Plan. Furthermore, but in no way limiting the generality of the foregoing,
except for the obligations imposed by the Plan, any entity accepting any
distribution or retaining any Interest pursuant to the Plan shall be presumed
conclusively to have released the Debtor and
35
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Reorganized Company, successors and assigns of the Debtor, affiliates of the
Debtor, present and former stockholders, directors, officers, agents, attorneys,
advisors, financial advisors, investment bankers, and employees of the Debtor,
and any entity claimed to be liable derivatively through any of the foregoing,
from any Cause of Action based on the same subject matter as the Claim or
Interest on which the distribution is received. This release shall be
enforceable as a matter of contract against any entity that accepts any
distribution or retains any interest pursuant to the Plan.
10.2 TERMINATION OF GUARANTIES AND CLAIMS OF SUBORDINATION: The
classification of, and the manner of satisfying, all Claims under the Plan take
into consideration the possible existence of any alleged guaranty by the Debtor
of obligations of any entity or entities, including another debtor, and that the
Debtor may be a joint obligor(s) with another entity or entities with respect to
the same obligation, as well as any contention by Creditors or holders of
Interests that the Claims of other Creditors or other holders of Interests may
be subordinated to their Claims or Interests by contract or by the certificates
or articles of incorporation or by-laws of the Debtor. All Claims against the
Debtor based upon or having any benefit of any such guaranty, joint liability,
or subordination shall be satisfied, discharged and released in the manner
provided in the Plan, and Creditors shall be entitled to only one distribution,
and no duplicative or multiple recovery, with respect to any underlying
obligation of the Debtor.
Except as otherwise provided in the Plan and to the fullest
extent permitted by applicable law, all Claims against the Debtor, and all
rights and Claims between or among Creditors or holders of Interests relating in
any manner whatsoever to Claims against or Interests in the Debtor, based on any
contractual, legal or equitable subordination rights, shall be terminated on the
Effective Date and discharged in the manner provided in the Plan, and all such
Claims, and rights so based and
36
<PAGE>
all such contractual, legal and equitable subordination rights to which any
entity may be entitled shall be irrevocably waived by the acceptance by such
entity (or the Class of which such entity is a member) of the Plan or of any
distribution pursuant to the Plan. Pursuant to Bankruptcy Rule 9019 and any
applicable state law and as consideration for the distributions and other
benefits provided under the Plan, the provisions of this Paragraph 10.2 shall
constitute a good faith compromise and settlement of any causes of action or
controversies relating to the matters described in this Paragraph 10.2 which
could be brought by any holder of a Claim or Interest. This settlement shall be
deemed approved by the Bankruptcy Court as a settlement of all such Causes of
Action and controversies. The Bankruptcy Court's approval of this Plan shall
constitute an approval of this settlement pursuant to Bankruptcy Rule 9019 and
shall constitute a finding that this is a good faith settlement pursuant to any
applicable state law, given and made after due notice and opportunity for
hearing, and shall bar any such cause of action by any holder of a Claim or
Interest against or involving another holder of a Claim or Interest or other
Released Entity.
10.3 SURVIVAL OF INDEMNIFICATION OBLIGATIONS: Notwithstanding anything
to the contrary contained in this Plan, the obligations of Debtor to indemnify
the present or former directors, officers, agents, employees and representatives
pursuant to their respective certificates of incorporation, by-laws, contractual
obligations or any applicable laws in respect of all past, present and future
actions, suits and proceedings against any of such directors, officers, agents,
employees and representatives based upon any act or omission related to service
with, for or on behalf of the Debtor shall not be discharged or impaired by
confirmation or consummation of this Plan, but shall survive unaffected by the
terms of this Plan and shall be performed and honored in full.
37
<PAGE>
10.4 PREFERENCES: If this Plan is consummated as a Reorganization, on
the Effective Date all preference actions that the Debtor or Reorganized Company
have commenced or could have commenced pursuant to Section 547, and all rights
to withhold any distribution on account of the receipt of any payment that is
recoverable under Section 547 shall be deemed waived irrevocably. If this Plan
is consummated as a Liquidation this waiver shall not apply.
10.5 NO RELEASE UPON LIQUIDATION: If this Plan is consummated as a
Liquidation, this Article X shall be null and void and shall not prejudice the
rights of the Debtor or any Creditor or third party.
ARTICLE XI
EFFECTUATION AND SUPERVISION OF PLAN
11.1 RETENTION OF JURISDICTION: The business and assets of the Debtor
shall remain subject to the jurisdiction of the Bankruptcy Court until the
Effective Date if this Plan is consummated as a Reorganization, and until all
Estate Property is liquidated and the proceeds distributed hereunder in full if
this Plan is consummated as a Liquidation. Subsequent to the Effective Date and
until the closing of the Chapter 11 case by the Bankruptcy Court pursuant to
Section 350(a) and Bankruptcy Rule 3022, the Bankruptcy Court shall retain
jurisdiction over the Reorganized Company (or the Debtor, if applicable) and the
Chapter 11 case for purposes of determining all disputes and other issues
presented by or arising under the Plan, including, without limitation,
jurisdiction: (a) to determine any and all disputes relating to Claims and
Interests and the allowance and amount thereof; (b) to determine any and all
disputes among Creditors with respect to their Claims; (c) to resolve disputes
as to the ownership of a Claim or Interest; (d) to consider and allow any and
all applications for compensation for professional services rendered and
disbursements incurred in connection
38
<PAGE>
therewith; (e) to determine any and all applications, motions, adversary
proceedings, any contested or litigated matters pending on the Effective Date
and arising and/or relating to the Chapter 11 cases or the Plan; (f) to confirm
the Plan as modified pursuant to Section 1127(b) or to remedy any defect or
omission or reconcile any inconsistency in the Confirmation Order; (g) to hear
and determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan, the Confirmation Order, or any
documents executed and delivered in connection with the Plan; (h) to enforce the
provisions of the Plan relating to the distributions to be made hereunder; (i)
to issue such orders, consistent with Section 1142, as may be necessary to
effectuate consummation and full and complete implementation of the Plan,
including, without limitation, appropriate orders to protect the Reorganized
Company against actions taken by holders of Claims or Interests; (j) to
determine any Bankruptcy Causes of Action not compromised or released by the
Plan; (k) to determine the final amounts allowable as compensation or
reimbursement of expenses pursuant to Section 503(b); (l) to hear and determine
matters concerning federal, state and local taxes in accordance with Sections
346, 505 and 1146; (m) to resolve any dispute after the Effective Date relating
to any bills submitted by any professional employed pursuant to Order of the
Bankruptcy Court; (n) to hear and determine any other matter not inconsistent
with the Bankruptcy Code; and, (o) to enter a Final Decree closing the Chapter
11 case. . In the event of Liquidation, the Court shall approve or disapprove
the sale of the Debtor's assets and as to such sales, Section 363 standards
shall apply. Further, the Court shall approve or disapprove the settlement of
all Disputed Claims and causes of action by or against the Debtor and the sale
or disposition of the Life Insurance Policies.
11.2 COMMITTEES: If this Plan is consummated as a Reorganization,
thirty (30) days following the Effective Date or on such other date as the Court
directs, the Committees shall cease
39
<PAGE>
to exist and their members and employees or agents (including, without
limitation, attorneys, financial advisors, accountants, and other professionals)
shall be released and discharged from all further authority, duties,
responsibilities, and obligations relating to and arising from and in connection
with this Chapter 11 case. In the event this Plan is consummated as a
Liquidation, the Committees shall continue to exist and shall be entitled to be
heard on all matters until such time as the Court discharges the Committees, or
either of them, or the Allowed Claims of Class 6, Creditors shall have been paid
in full and fully discharged. Additionally, the Committees, the respective
present or former members thereof and the respective employees or agents
including, without limitation, attorneys, financial advisors, accountants, and
other professionals thereof shall not have or incur any liability to the Debtor,
the Reorganized Company, any Creditor, holder of an Interest, other party in
interest or any other entity for any act or omission, whether known or unknown,
arising out of or relating to the Chapter 11 case or the Debtor except for gross
negligence or willful misconduct, and, in all respects, they shall be entitled
to rely upon the advice of counsel with respect to their duties and
responsibilities and shall be deemed to have acted in good faith in so relying.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 COMPLIANCE WITH TAX REQUIREMENTS: In connection with the Plan, the
Debtor and the Reorganized Company will comply with all withholding and
reporting requirements imposed by federal, state and local taxing authorities,
and all distributions hereunder shall be subject to such withholding and
reporting requirements.
40
<PAGE>
12.2 BINDING EFFECT OF PLAN: The provisions of this Plan shall be
binding upon and inure to the benefit of the Reorganized Company, any entity
affected by this Plan and their respective predecessors, successors, assigns,
agents, officers and directors.
12.3 NON-VOTING STOCK: In accordance with Section 1123(a)(6), the
Certificate of Incorporation of the Reorganized Company shall contain a
provision prohibiting the issuance of non-voting equity securities by the
Reorganized Company for a period of one (1) year following the Effective Date.
12.4 AUTHORIZATION OF CORPORATE ACTION: The entry of a Confirmation
Order shall constitute a direction and authorization to and of the Debtor and
the Reorganized Company to take or cause to be taken any corporate action
necessary or appropriate to consummate the provisions of this Plan prior to and
through the Effective Date (including, without limitation, taking such action as
may be necessary or appropriate to provide for the funding necessary to retire
Creditor Claims as provided herein).
12.5 MODIFICATION OF THIS PLAN: The Debtor and the Reorganized Company
reserve their rights to modify this Plan in accordance with Section 1127.
12.6 CAPTIONS: Article and Paragraph captions used in this Plan are for
convenience only and will not affect the construction of this Plan.
12.7 METHOD OF NOTICE: All notices required to be given under this Plan,
if any, shall be in writing and shall be sent by first class mail, postage
prepaid, or by overnight courier:
41
<PAGE>
If to the Debtor, to:
Brendle's Incorporated
1919 N. Bridge Street Extension
Elkin, NC 28621
Attn: David Renegar
with copies to:
Allman Spry Leggett & Crumpler, P.A.
380 Knollwood Street, Suite 700
Winston-Salem, NC 27103-4152
Attn: R. Bradford Leggett
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given under this Plan shall be
effective when received.
12.8 RESERVATION: If the Plan is not confirmed by the Bankruptcy Court
for any reason, the rights of all parties in interest in the Chapter 11 Case
will be preserved in full. Furthermore, any concession reflected herein is made
for purposes of the Plan only, and if the Plan does not become effective, no
party in interest in the Chapter 11 Case shall be bound or deemed prejudiced by
any such concession, including a vote which accepts the Plan. Nothing contained
in the Plan waives or shall be deemed to waive any rights of any holder of an
Allowed Claim in the Classes represented by any supporter of the Plan to object
to any provisions of the Plan, all such rights being expressly reserved.
12.9 SAVINGS CLAUSE: If any clause or provision of this Plan is
determined by the Bankruptcy Court to be improper or ineffective, the Plan, at
the request of the Debtor, may be confirmed without that clause or provision.
42
<PAGE>
Respectfully submitted this the 16th day of October, 1996.
BRENDLE'S INCORPORATED
By: Joseph M. McLeish, Jr.
_______________________________________
Joseph M. McLeish, Jr., President
and Chief Executive Officer
R. Bradford Leggett
- ----------------------------------
R. Bradford Leggett, State Bar No. 2697
C. Edwin Allman, III, State Bar No. 8625
M. Joseph Allman, State Bar No. 13395
ALLMAN SPRY LEGGETT & CRUMPLER, P.A.
380 Knollwood Street, Suite 700
Post Office Drawer 1529
Winston-Salem, NC 27113-5129
Telephone: (910) 722-2300
Attorneys for the Debtor
43
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