<PAGE>
Exhibit T-3(E)
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOEHMANN'S, INC., ) Case No. 99-1138 (MFW)
)
Debtor. )
SECOND AMENDED DISCLOSURE
STATEMENT ACCOMPANYING SECOND AMENDED
PLAN OF REORGANIZATION OF LOEHMANN'S, INC. UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE AS MODIFIED ON JULY 28, 2000
PAUL, WEISS, RIFKIND, WHARTON YOUNG CONAWAY STARGATT
& GARRISON & TAYLOR, LLP
Alan W. Kornberg James L. Patton, Jr.
Jeffrey D. Saferstein Pauline K. Morgan
Susan E. Welber 1110 N. Market Street
1285 Avenue of the Americas P.O. Box 391
New York, New York 10019-6064 Rodney Square North, 11th Floor
(212) 373-3000 Wilmington, Delaware 19801
(302) 571-6600
Dated: July 28, 2000
<PAGE>
ALL CREDITORS ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND
THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN
SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT, INCLUDING THE
FOLLOWING SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN,
OTHER EXHIBITS ANNEXED TO THE PLAN, THE PLAN SUPPLEMENT AND THIS DISCLOSURE
STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE ONLY
AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED, AND THERE CAN BE NO ASSURANCE
THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER SUCH
DATE. ALL CREDITORS SHOULD READ CAREFULLY THE "RISK FACTORS" SECTION HEREOF
BEFORE VOTING FOR OR AGAINST THE PLAN. SEE SECTION X, "CERTAIN RISK FACTORS TO
BE CONSIDERED."
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS NEITHER BEEN
APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING, OR
TRANSFERRING SECURITIES OF THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT
AND THE PLAN IN LIGHT OF THE PURPOSES FOR WHICH THEY WERE PREPARED.
CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING
PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED
ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS
WILL REFLECT ACTUAL OUTCOMES.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR
PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN. NOTHING IN THIS DISCLOSURE
STATEMENT MAY BE USED BY ANY ENTITY FOR ANY OTHER PURPOSE. THE FACTUAL
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE DESCRIPTION OF
THE DEBTOR, ITS BUSINESS AND EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER
11 CASE, HAS BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS, AND OTHER
WRITINGS RELATING TO THE DEBTOR. NEITHER THE DEBTOR NOR ANY OTHER PARTY MAKES
ANY REPRESENTATION OR WARRANTY REGARDING SUCH INFORMATION.
THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE
SUMMARIES IN THIS DISCLOSURE
i
<PAGE>
STATEMENT. ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO AND
ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.
AS TO CONTESTED MATTERS, EXISTING LITIGATION INVOLVING THE DEBTOR,
ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE
STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR
LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE WITHOUT
PREJUDICE SOLELY FOR SETTLEMENT PURPOSES, WITH FULL RESERVATION OF RIGHTS, AND
IS NOT TO BE USED FOR ANY LITIGATION PURPOSE WHATSOEVER. AS SUCH, THIS
DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING
INVOLVING THE DEBTOR, OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED
TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, FINANCIAL OR OTHER EFFECTS OF
THE REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN THE
DEBTOR.
ii
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION.....................................................1
A. Holders of Claims Entitled to Vote.........................3
B. Voting Procedures..........................................3
C. Confirmation Hearing.......................................4
II. OVERVIEW OF THE PLAN.............................................5
III. OVERVIEW OF CHAPTER 11...........................................7
IV. DESCRIPTION OF THE DEBTOR'S BUSINESS.............................8
A. Overview...................................................8
B. History....................................................8
C. Merchandising..............................................9
D. Pricing...................................................10
E. Distribution..............................................10
F. Store Operations..........................................10
G. Store Layout..............................................11
H. Marketing and Advertising.................................11
I. Store Locations...........................................12
J. Competition...............................................12
K. Employees.................................................13
L. Trademark and Service Mark................................13
M. Properties................................................13
N. The Prepetition Loan Documents............................14
O. Industrial Development Bonds..............................14
V. KEY EVENTS LEADING TO COMMENCEMENT
OF THE CHAPTER 11 CASE..........................................15
A. Decrease in Overall Store Performance and Operating
Results...................................................15
1 Market Trends ......................................15
2 Effects of High Leverage............................16
B. Discussions with Financial Advisors and Trade Creditors...16
C. Defaults under Indenture..................................16
VI. STEPS TAKEN TO STRENGTHEN THE DEBTOR'S FINANCIAL
PERFORMANCE AND OPERATIONS......................................17
A. Re-Emphasize The Back Room................................17
B. Offer Consistent Value....................................17
C. Enhance Brand Image.......................................18
D. Re-Emphasize Core Assortment .............................18
E. Focus on Core Markets.....................................18
F. Improve Customer Service..................................19
i
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Page
VII. THE CHAPTER 11 CASE.............................................19
A. Significant "First Day" Motions During the Chapter 11
Case......................................................19
B. DIP Credit Facility.......................................20
C. The Official Committee of Unsecured Creditors.............21
D. Other Professionals Retained by Debtor....................21
E. Management Retention and Severance Plan...................21
F. Store Closings............................................22
G. Last Date to File Proofs of Claim.........................22
H. Assumption/Rejection of Leases and Executory Contracts....22
I. First Amended Disclosure Statement/Agreement With
Informal Noteholders Committee............................23
J. Second Amended Disclosure Statement/Plan Confirmation
Hearing...................................................23
VIII. SUMMARY OF THE PLAN OF REORGANIZATION...........................24
A. Introduction..............................................24
B. Classification and Treatment of Administrative Claims,
Claims and Equity Interests Under the Plan................24
1 Unclassified -- Administrative Claims...............26
2 Unclassified -- Professional Compensation and
Reimbursement Claims................................26
3 Unclassified -- Priority Tax Claims.................27
4 Class 1 -- Other Priority Claims....................28
5 Class 2-- Other Secured Claims......................28
6 Class 3-- DIP Financing Claims......................29
7 Class 4-- Convenience Claims........................29
8 Class 5-- General Unsecured Claims..................30
9 Class 6-- Equity Interests..........................32
C. Provisions Regarding Corporate Governance and Management
of Loehmann's Holdings and the Reorganized Debtor.........32
1 Formation of Loehmann's Holdings....................32
(a) Board of Directors............................32
(b) Officers of Loehmann's Holdings...............33
(c) Loehmann's Holdings Certificate of Incorporation
and By-Laws...................................33
3 Reorganized Loehmann's..............................33
(a) Board of Directors............................33
(b) Officers of Reorganized Loehmann's............33
(c) Amended Certificate of Incorporation and
Amended Loehmann's By-Laws....................34
4 Securities to be Issued Pursuant to the Plan........34
(a) New Common Stock..............................34
(b) New Senior Notes..............................34
D. Securities Laws Matters...................................36
E. Equity Incentive Plan.....................................36
ii
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Page
1 Loehmann's Holdings' Equity Incentive Plan..........36
2 Description of Loehmann's Holdings' Equity Incentive
Plan................................................36
F. Distributions Under the Plan..............................38
1 Method of Distributions under the Plan..............38
(a) Date and Delivery of Distributions............38
(b) Distribution of Cash..........................38
(c) Effective Date Distributions..................38
(d) Distributions on Subsequent Distribution
Dates.........................................38
(e) Distributions on the Final Distribution Date..39
(f) Reserve Shares and Notes for Disputed Claims..39
(g) Unclaimed Distributions.......................40
(h) Saturdays, Sundays, or Legal Holidays.........40
(i) Fractional Notes and Fractional Shares........40
(j) Distributions to Holders as of the Record
Date..........................................41
(k) Senior Note Indenture Trustee's Fees and
Expenses......................................41
2 Disputed General Unsecured Claims...................41
G. Objections to and Resolution of Administrative Claims and
Claims; Administrative and Priority Claims Reserve........41
1 Objections to and Resolution of Administrative
Claims and Claims...................................41
2 Administrative, Priority and Convenience Claims
Reserve.............................................42
(a) Establishment of Administrative, Priority and
Convenience Claims Reserve..........................42
(b) Cash Held in Administrative, Priority and
Convenience Priority Claims Reserve.................42
3 Allowance of Disputed Administrative, Priority and
Convenience Claims..................................42
4 Release of Shares and Notes from Disputed Claims
Reserve.............................................43
H. Allocation of Consideration...............................43
I. Cancellation and Surrender of Existing Securities and
Agreements................................................43
J. Administrative Claims of Indenture Trustee................44
K. Nonconsensual Confirmation................................44
L. Implementation of the Plan, the Amended Certificate of
Incorporation, the Amended By-Laws and Other
Implementation Documents..................................44
M. Effect of Confirmation of the Plan........................45
1 Continued Corporate Existence.......................45
2 Vesting of Assets...................................45
3 Discharge of the Debtor.............................45
4 Injunction..........................................46
5 Extinguishment of Causes of Action Under the
Avoiding Power Provisions...........................46
6 Votes Solicited in Good Faith.......................46
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Page
7 Administrative Claims Incurred after the Confirmation
Date................................................47
8 The Debtor's Release................................47
9 Exculpation and Release and Injunction of Released
Parties.............................................47
(a) Exculpation...................................47
(b) Injunction....................................48
10 Limitation of Governmental Release..................48
11 Term of Bankruptcy Injunction or Stays..............48
12 Preservation of Insurance...........................48
13 Officers' and Directors' Indemnification Rights and
Insurance...........................................49
N. Retention of Jurisdiction.................................49
O. Miscellaneous Provisions..................................50
1 Payment of Statutory Fees...........................50
2 Dissolution of Creditors Committee..................50
3 Modification of the Plan............................50
4 Governing Law.......................................50
5 Filing or Execution of Additional Documents.........50
6 Withholding and Reporting Requirements..............50
7 Exemption from Transfer Taxes.......................51
8 Section 1145 Exemption..............................51
9 Waiver of Federal Rule of Civil Procedure 62(a).....51
10 Plan Supplement.....................................51
11 Setoff by the United States.........................51
P. Executory Contracts and Unexpired Leases..................52
Q. Benefit Plans.............................................52
IX. PROJECTIONS AND VALUATION ANALYSIS..............................53
A. Projections...............................................53
B. Valuation.................................................55
X. CERTAIN RISK FACTORS TO BE CONSIDERED...........................56
A. Projected Financial Information...........................57
B. Ability to Refinance Certain Indebtedness and Restrictions
Imposed by Indebtedness...................................57
C. Competitive Conditions and Need to Fund Future Capital
Requirements..............................................58
D. Significant Holders.......................................58
E. Lack of Established Market for New Common Stock...........58
F. Lack of Trading Market for New Notes......................59
G. Dividend Policies.........................................59
H. Certain Bankruptcy Law Considerations.....................59
1 Risk of Non-Confirmation of the Plan................59
2 Risk of Non-Occurrence of the Effective Date........59
iv
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Page
I. Certain Tax Matters.......................................59
XI. CONFIRMATION PROCEDURE..........................................60
A. Solicitation of Votes.....................................60
B. The Confirmation Hearing..................................60
C. Confirmation..............................................61
1 Acceptance..........................................62
2 Unfair Discrimination and Fair and Equitable Tests..62
(a) Secured Creditors.............................62
(b) Unsecured Creditors...........................62
(c) Equity Interests..............................62
3 Feasibility.........................................63
4 Best Interests Test.................................64
XII. EFFECTIVENESS OF THE PLAN.......................................65
A. Conditions Precedent to Effectiveness.....................65
B. Waiver of Conditions......................................66
C. Effect of Failure of Conditions...........................66
D. Vacatur of Plan...........................................66
XIII. SECURITIES LAWS MATTERS.........................................66
A. Bankruptcy Code Exemptions from Registration Requirements.67
1 Initial Offer and Sale of Plan Securities...........67
2 Subsequent Transfers of Plan Securities.............67
3 Certain Transactions by Stockbrokers................69
B. Registration Rights.......................................70
XIV. FINANCIAL INFORMATION...........................................70
A. Financial Statements......................................70
B. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................71
C. Recent Performance........................................71
XV. ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN........................................71
A. Liquidation Under Chapter 7...............................71
B. Alternative Plan of Reorganization........................72
XVI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE PLAN....................................................72
A. Consequences to Creditors.................................73
1 Tax Securities......................................73
2 Claims and Consideration Constituting Tax
Securities..........................................74
3 Claims or Consideration not Constituting Tax
Securities..........................................75
4 Application of OID Rules............................75
v
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Page
B. Consequences to the Debtor................................77
1 Cancellation of Debt................................77
2 Applicable High-Yield Discount Obligations..........77
3 Alternative Minimum Tax.............................78
C. Additional Tax Considerations for All Claim Holders.......78
1 Distributions in Discharge of Accrued Interest......78
2 Subsequent Sale of New Senior Notes or New Common
Stock...............................................79
3 Market Discount.....................................79
XVII. CONCLUSION......................................................80
vi
<PAGE>
I.
INTRODUCTION
On May 18, 1999 (the "PETITION DATE"), Loehmann's, Inc.
("LOEHMANN'S" or the "DEBTOR") filed a petition for relief under chapter 11 of
the Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware (the "COURT"). On July 12, 2000, Loehmann's filed its proposed second
amended plan of reorganization, dated July 12, 2000.1/ On July 28, 2000,
Loehmann's filed a modified version of its Second Amended Plan of Reorganization
(as it may be amended, modified or supplemented, the "PLAN"), which sets forth
the manner in which Claims against and Equity Interests in the Debtor will be
treated. This Second Amended Disclosure Statement, as modified on July 28, 2000
(the "DISCLOSURE STATEMENT") describes certain aspects of the Plan the Debtor's
business and related matters. Unless otherwise defined herein, all capitalized
terms contained herein have the meanings ascribed to them in the Plan.
After a long and careful review of the Debtor's business and its
prospects as a going concern, the Debtor, in consultation with its legal and
financial advisors and the official committee of unsecured creditors appointed
by the United States Trustee in this case (the "CREDITORS COMMITTEE") and the
Creditors Committee's legal and financial advisors, concluded that recoveries to
creditors and equity holders would be maximized by the Debtor's continued
operation as a going concern under the terms of the Plan. In other words, the
Debtor is worth more to its creditors and equity holders as a going concern than
it would be upon liquidation. To achieve that higher value, the Plan
contemplates: (i) payment in full of (a) Priority Tax Claims, (b) Other Priority
Claims, (c) Other Secured Claims, and (d) DIP Financing Claims; (ii) Cash
payment to holders of Allowed Claims of less than $2,000 or to those who elect
to reduce their Claim to $2,000; (iii) the Pro Rata distribution of 3,333,333 to
5,000,000 shares in New Common Stock (subject to increase in accordance with the
management Equity Incentive Plan described in Section VIII.E) and up to
$25,000,000 in New Senior Notes to holders of Allowed General Unsecured Claims,
including holders of Senior Notes; and (iv) the cancellation of Equity Interests
in the Debtor.
This Disclosure Statement is submitted pursuant to section 1125 of
the Bankruptcy Code to holders of Claims against the Debtor in connection with
(i) the solicitation of acceptances of the Debtor's Plan and (ii) the hearing to
consider confirmation of the Plan (the "CONFIRMATION HEARING") scheduled for
September 6, 2000, at 10:30 a.m., Eastern Time.
----------
1/ For a description of events leading up to the Debtor's filing of a second
amended Plan and Disclosure Statement, SEE Section VII.I, "First Amended
Disclosure Statement/Agreement With Informal Noteholders Committee."
<PAGE>
Attached as Exhibits to this Disclosure Statement are copies of the
following:
o The Plan (Exhibit A);
o An Order of the Court dated July 28, 2000 (the "DISCLOSURE STATEMENT
ORDER"), among other things, approving the Disclosure Statement and
establishing certain procedures with respect to the solicitation and
tabulation of votes to accept or reject the Plan (Exhibit B);
o Loehmann's, Inc. 1999 Form 10-K and Annual Report
(Exhibit C);
o Loehmann's, Inc. Projected Financial Information
(Exhibit D);
o Loehmann's, Inc. Liquidation Analysis (Exhibit E);
o Loehmann's, Inc. April 29, 2000 Form 10-Q (Exhibit F);
o Loehmann's, Inc. Recovery Analysis (Exhibit G); and
In addition, a Ballot for the acceptance or rejection of the Plan is
enclosed with the Disclosure Statement submitted to the holders of Claims that
are entitled to vote to accept or reject the Plan.
On July 28, 2000, after notice and a hearing, the Court signed the
Disclosure Statement Order approving this Disclosure Statement as containing
adequate information of a kind and in sufficient detail to enable hypothetical,
reasonable investors typical of the Debtor's creditors to make an informed
judgment whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE
STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed hereto as
Exhibit B, sets forth in detail the deadlines, procedures and instructions for
voting to accept or reject the Plan and for filing objections to confirmation of
the Plan, the record date for voting purposes, and the applicable standards for
tabulating Ballots. In addition, detailed voting instructions accompany each
Ballot. Each holder of a Claim entitled to vote on the Plan should read in their
entirety the Disclosure Statement, the Plan, the Disclosure Statement Order and
the instructions accompanying the Ballots before voting on the Plan. These
documents contain, among other things, important information concerning the
classification of Claims and Equity Interests for voting purposes and the
tabulation of votes. No solicitation of votes to accept the Plan may be made
except pursuant to section 1125 of the Bankruptcy Code.
2
<PAGE>
A. HOLDERS OF CLAIMS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired are entitled to vote to accept or reject a proposed chapter 11
plan. Classes of claims or equity interests in which the holders of claims or
equity interests are unimpaired under a chapter 11 plan are deemed to have
accepted the plan and are not entitled to vote to accept or reject the plan.
Classes 4 (Convenience Claims), 5 (General Unsecured Claims) and 6
(Equity Interests) of the Plan are impaired. To the extent Claims in Classes 4
and 5 are Allowed Claims, the holders of such Claims are entitled to vote to
accept or reject the Plan. Holders of Equity Interests in Class 6 shall receive
no distribution under the Plan and pursuant to section 1126(g) of the Bankruptcy
Code are therefore deemed to have rejected the Plan. Classes 1, 2 and 3 of the
Plan are unimpaired. Pursuant to section 1126(f) of the Bankruptcy Code, holders
of Claims in Classes 1, 2 and 3 are conclusively deemed to have accepted the
Plan.
The Bankruptcy Code defines "acceptance" of a plan by a class of
claims as acceptance by creditors in that class that hold at least two-thirds in
dollar amount and more than one-half in number of the claims that cast ballots
for acceptance or rejection of the plan. For a more detailed description of the
requirements for confirmation of the Plan, SEE Section XI, "Confirmation
Procedure."
If either of the classes of Claims entitled to vote on the Plan
votes to reject the Plan, the Debtor intends to request confirmation of the Plan
pursuant to section 1129(b) of the Bankruptcy Code. Section 1129(b) permits the
confirmation of a plan of reorganization notwithstanding the nonacceptance of a
plan by one or more impaired classes of claims or equity interests. Under that
section, a plan may be confirmed by a bankruptcy court if it does not
"discriminate unfairly" and is "fair and equitable" with respect to each
nonaccepting class. The determination as to whether to seek confirmation of the
Plan under such circumstances will be announced before or at the Confirmation
Hearing. For a more detailed description of the requirements for confirmation of
a nonconsensual plan, SEE Sections XI.C and XI.C.2, "Confirmation Procedure" and
"Unfair Discrimination and Fair and Equitable Tests."
B. VOTING PROCEDURES
If you are entitled to vote to accept or reject the Plan, a Ballot
is enclosed for the purpose of voting on the Plan. If you hold a Claim in more
than one Class and you are entitled to vote Claims in more than one Class, you
will receive separate Ballots that must be used for each separate Class of
Claims. Please vote and return your Ballot(s).
If you received a Ballot from a broker, bank or other institution,
return the completed Ballot to such broker, bank or institution promptly so that
it can be forwarded to the Debtor's tabulation agent, Logan & Company, Inc. If
you received
3
<PAGE>
Ballot(s) from the Debtor, please vote and return your Ballot(s) directly to the
following address:
Logan & Company, Inc.
546 Valley Road
Upper Montclair, NJ 07043
Attn: Loehmann's, Inc.
Balloting Center
DO NOT RETURN YOUR NOTES OR ANY OTHER INSTRUMENTS OR AGREEMENTS THAT
YOU MAY HAVE WITH YOUR BALLOT.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE
PLAN MUST BE RECEIVED NO LATER THAN 4:00 P.M., EASTERN STANDARD TIME, ON AUGUST
30, 2000.
Any Claim in Class 4 or 5 as to which an objection or request for
estimation is pending or which is scheduled by the Debtor as unliquidated,
disputed or contingent is not entitled to vote unless the holder of such Claim
has obtained an order of the Court temporarily allowing such Claim for the
purpose of voting on the Plan.
Pursuant to the Disclosure Statement Order, the Court set July 27,
2000 as the record date for voting on the Plan. Accordingly, only holders of
record as of July 27, 2000 that are otherwise entitled to vote under the Plan
will receive a Ballot and may vote on the Plan.
If you are a holder of a Claim entitled to vote on the Plan and did
not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you
have any questions concerning the Disclosure Statement, the Plan or the
procedures for voting on the Plan, please call Logan & Company, Inc. at (973)
509-3190 from 10:00 a.m.
to 4:00 p.m. Monday through Friday.
C. CONFIRMATION HEARING
Pursuant to section 1128 of the Bankruptcy Code, the Confirmation
Hearing will be held on September 6, 2000 at 10:30 a.m. Eastern Time, before the
Honorable Mary F. Walrath, United States Bankruptcy Court, 824 North Market
Street, Wilmington, Delaware. The Court has directed that objections, if any, to
confirmation of the Plan be served and filed so that they are received on or
before August 30, 2000 at 4:00 p.m., Eastern Time, in the manner described below
in Section XI.B, "The Confirmation Hearing." The Confirmation Hearing may be
adjourned from time to time by the Court without further notice except for the
announcement of the adjournment date made at the Confirmation Hearing or at any
subsequent adjourned Confirmation Hearing.
4
<PAGE>
THE DEBTOR BELIEVES THAT THE PLAN WILL ENABLE IT TO REORGANIZE
SUCCESSFULLY AND TO ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE
OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTOR AND ITS CREDITORS. THE DEBTOR
URGES CREDITORS TO VOTE TO ACCEPT THE PLAN.
AS DESCRIBED IN THE ENCLOSED LETTER, THE CREDITORS COMMITTEE
APPOINTED IN THE DEBTOR'S CHAPTER 11 CASE SUPPORTS THE PLAN AND RECOMMENDS THAT
UNSECURED CREDITORS VOTE TO ACCEPT THE PLAN.
II.
OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and
treatment of Claims and Equity Interests under the Plan.
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN2/
<TABLE>
<CAPTION>
Type of Claim or Estimated Estimated
Class Equity Interest Treatment Claim Amount Recovery
----- --------------- --------- ------------ --------
<S> <C> <C> <C> <C>
-- Administrative Unimpaired; paid in full, in Cash $4.8mM3/ 100%
Claims on the Effective Date, or in
accordance with the terms and
conditions of transactions or
agreements relating to obligations
incurred in the ordinary course
of business during the pendency
of the Chapter 11 Case or
assumed by the Debtor in
Possession.
</TABLE>
----------
2/ This table is only a summary of the classification and treatment of Claims
and Equity Interests under the Plan. Reference should be made to the
entire Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
3/ This amount excludes claims of entities against the Debtor for (i) goods
provided after the Petition Date by such entities to the Debtor for resale
to the general public in the ordinary course of business, and (ii) goods
(not resold to the general public) and services provided to the Debtor in
the ordinary course of the Debtor's businesses. These claims are being
paid in the ordinary course of business.
5
<PAGE>
<TABLE>
<CAPTION>
Type of Claim or Estimated Estimated
Class Equity Interest Treatment Claim Amount Recovery
----- --------------- --------- ------------ --------
<S> <C> <C> <C> <C>
-- Priority Tax Unimpaired; at the option of the $1.2mm 100%
Claims Debtor either (i) paid in full, in
Cash on the Effective Date, or
(ii) paid over a six-year period
from the date of assessment as
provided in section 1129(a)(9)(c)
of the Bankruptcy Code with
interest at the statutory rate
provided for under applicable
federal, state or local law.
1 Other Priority Unimpaired; paid in full in Cash $0.00 100%
Claims on the Effective Date.
2 Other Secured Unimpaired; at the option of the de minimis 100%
Claims Debtor to be (i) reinstated by
curing all outstanding defaults
with all legal, equitable and
contractual rights remaining
unaltered, (ii) paid in full, in
Cash, plus any interest required
to be paid pursuant to section
506(b) of the Bankruptcy Code,
on the Effective Date, or (iii)
fully and completely satisfied
by delivery or retention of the
collateral securing the Other
Secured Claim and payment of any
interest required to be paid
pursuant to section 506(b) of
the Bankruptcy Code.
3 DIP Financing Unimpaired; paid in full, in Cash $25.8mm 100%
Claims on the Effective Date.
4 Convenience Impaired; distribution of 50% of $245,000.00 50%
Claims Allowed Claim up to $1,000 on
the later of (i) the Effective
Date and (ii) 30 days after the
date on which such Claim becomes
an Allowed Claim.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Type of Claim or Estimated Estimated
Class Equity Interest Treatment Claim Amount Recovery
----- --------------- --------- ------------ --------
<S> <C> <C> <C> <C>
5 General Unsecured Impaired; distribution of Pro $140.9mm 53%4/
Claims Rata share of 3,333,333 to
5,000,000 shares of New
Common Stock and up to
$25,000,000 of New Senior
Notes on the later of (i) the
Effective Date and (ii) 30 days
after the date on which such
Claim becomes an Allowed
Claim.
6 Equity Interests Impaired; no distribution shall be N/A $0.00
made, and all existing Equity
Interests will be canceled.
</TABLE>
III.
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself, its creditors and equity interest holders.
In addition to permitting rehabilitation of a debtor, another goal of chapter 11
is to promote equality of treatment for similarly situated creditors and equity
interest holders with respect to the distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate that is
comprised of all of the legal and equitable interests of the debtor as of the
filing date. The Bankruptcy Code provides that the debtor may continue to
operate its business and remain in possession of its property as a "debtor in
possession."
The consummation of a plan of reorganization is the principal
objective of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against and interests in the debtor.
Confirmation of a plan of reorganization by the bankruptcy court makes the plan
binding upon a debtor, any issuer of securities under the plan, any person
acquiring property under the plan and any creditor or equity interest holder of
a debtor. Subject to certain limited exceptions, the confirmation order
discharges a debtor from any debt that arose prior to the date of confirmation
of the plan and substitutes therefor the obligations specified under the
confirmed plan.
----------
4/ For an analysis of the estimated recovery, see Recovery Analysis attached
as Exhibit G.
7
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After a plan of reorganization has been filed, the holders of claims
against or interests in a debtor are generally permitted to vote to accept or
reject the plan. Before soliciting acceptances of the proposed plan, however,
section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure
statement containing adequate information of a kind, and in sufficient detail,
to enable a hypothetical reasonable investor to make an informed judgment about
the plan. The Debtor is submitting this Disclosure Statement to holders of
Claims against the Debtor to satisfy the requirements of section 1125 of the
Bankruptcy Code.
IV.
DESCRIPTION OF THE DEBTOR'S BUSINESS
A. OVERVIEW
Loehmann's is a leading national specialty retailer of well-known
designer and brand name women's fashion apparel, men's furnishings, accessories
and shoes offered at prices that are typically 30% to 60% those offered by
department stores. Loehmann's believes it is one of the largest national upscale
off-price specialty retailers in the industry. Loehmann's has a strong brand
name, loyal customer base and long-standing relationships with leading designers
and vendors of quality merchandise.
Loehmann's currently operates 44 retail stores in major metropolitan
markets located in 17 states, in various regions of the country. Loehmann's also
operates two distribution facilities -- one located at its headquarters in the
Bronx, New York, and the other located in Rutherford, New Jersey. Loehmann's is
a Delaware corporation with no subsidiaries.
B. HISTORY
Frieda Loehmann founded the original Loehmann's business in 1921.
She acquired the overruns and samples from designers who supplied major
department stores and sold these goods at discount prices at her store in
Brooklyn, New York. With the success of the original Brooklyn store, her son
Charles began expanding the business, first in the northeastern United States
and then nationally. Loehmann's remained privately held until 1964. After 17
years as a public company, Loehmann's was acquired in 1981 by AEA Investors in a
leveraged buyout transaction. AEA then sold the company in 1983 to Associated
Dry Goods Corporation ("ADG"), owners of the Lord & Taylor and other retail
chains. Loehmann's ownership changed again in October 1986 when the May
Department Stores purchased ADG. On September 19, 1988 Loehmann's was acquired
in a leveraged buyout transaction led by Sefinco Ltd., an affiliate of
Entrecanales y Tavora, S.A., the Sprout Group, a venture capital affiliate of
Donaldson, Lufkin & Jenrette, Inc., Desai Capital Management, Inc. and certain
of its affiliates and members of senior management. On May 10, 1996, Loehmann's
issued and sold 3,572,000 shares of common stock in an initial public
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offering (the "INITIAL PUBLIC OFFERING") and issued and sold $100 million
principal amount of the Senior Notes in a concurrent debt offering.
Prior to consummation of the Initial Public Offering in May 1996,
Loehmann's Holdings, Inc. ("HOLDINGS"), the former parent of Loehmann's, whose
only material assets consisted of all of the outstanding stock of Loehmann's and
an intercompany note with the company, was merged with and into a new
wholly-owned Delaware subsidiary formed for the purpose of reincorporating
Holdings from Maryland to Delaware. Subsequently, but prior to consummation of
the Initial Public Offering, the surviving corporation of such merger was merged
with and into Loehmann's with Loehmann's being the ultimate surviving
corporation.
C. MERCHANDISING
As an off-price retailer of upscale merchandise, Loehmann's is able
to offer merchandise comparable to that offered in better department stores at
significantly reduced prices. Loehmann's offers name-brand merchandise from
designers such as Anne Klein, Calvin Klein, Donna Karan and Ralph Lauren.
Loehmann's buys both in-season merchandise as available from vendors for
immediate distribution to its stores and end-of-season overruns that are then
held in the company's warehouse for distribution at the start of the next
years's season. Loehmann's' merchandising strategy is to maintain and develop
its unique position as an off-price retailer of better merchandise.
Loehmann's purchases its inventory from over 400 suppliers, which in
many cases include separate divisions of a single manufacturer or designer.
These suppliers include a substantial majority of the designer and name brand
apparel manufacturers in the United States. Some purchases are also made in the
European market, primarily Italy. Loehmann's does not have any long-term supply
contracts with its suppliers. Vendors who sell to Loehmann's generally do not
need to build into their price structure any anticipation of returns, markdown
allowances or advertising allowances, all of which are typical in the department
store industry.
Over the past three years, Loehmann's has expanded its product
offerings to include men's furnishings, junior's apparel, accessories and
intimate apparel and gifts. Because of these additions, Loehmann's' sales mix
shifted from approximately 80% women's apparel in 1996 to approximately 65% in
1999.
Loehmann's maintains its own central buying staff, comprised of 16
experienced off-price buyers, many of whom also have extensive experience with
traditional department stores. Historically, Loehmann's has had very low
turnover within its buying group, enabling the company to capitalize on an
experienced, respected group of buyers capable of enhancing its already strong
vendor relationships.
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<PAGE>
D. PRICING
Loehmann's seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 30% to 60% below prices
charged by department stores for the same items and that are comparable to or
lower than prices charged by other off-price retailers. Loehmann's' central
buying staff adheres to a disciplined approach to acquiring merchandise that
enables the company to consistently offer its merchandise at favorable prices.
Each item of merchandise offered by Loehmann's carries a price tag displaying
the company's price as well as the typical department store's initial price for
the same item.
Loehmann's has historically used a cyclical permanent markdown
policy to reduce prices automatically as goods age. Over the past several years,
this policy was modified in response to a more promotional competitive
environment. As department stores increased their promotional pricing,
Loehmann's included promotional coupons in its customer mailings. These coupons
generally allow customers to receive a discount on any merchandise in the store.
The popularity of these coupons had resulted in an increase in point of sale
("POS") markdowns, which Loehmann's has partially offset by decreasing permanent
markdowns. As further discussed below in Section VI.B, "Offer Consistent Value"
herein, Loehmann's has returned to a cyclical permanent markdown policy.
E. DISTRIBUTION
Loehmann's operates two distribution facilities: a 126,000 square
foot centralized distribution center located at Loehmann's Bronx headquarters
and a 272,000 square foot facility in Rutherford, New Jersey. Loehmann's began
leasing the Rutherford facility in May 1999. That facility replaces a 150,000
square foot warehouse facility in Secaucus, New Jersey and a 32,000 square foot
satellite facility Loehmann's formerly maintained in the Bronx.
F. STORE OPERATIONS
Loehmann's' stores are organized into several geographic districts
each with a regional manager. Regional managers monitor the financial
performance of the stores in their respective geographic districts and
frequently visit stores to ensure adherence to Loehmann's' merchandising,
operations and personnel standards. The typical staff for a Loehmann's store
consists of a store manager, a number of associate and department managers,
sales specialists and additional full and part-time hourly associates depending
upon the store's needs.
Senior management meets with the regional managers on a periodic
basis to maintain a clear line of communication. In addition, mystery shoppers
shop the stores to help ensure that sales associates are friendly, helpful and
maintain all of the company's merchandising, customer service and loss
prevention standards. New store management personnel currently complete a
training program at a designated training store before assuming management
responsibility. Sales specialists receive product and customer service training
at the store level.
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<PAGE>
G. STORE LAYOUT
Loehmann's' store format and merchandise presentation are designed
to project the image of deep discount and exceptional value, as well as to
emphasize Loehmann's' niche as the off-price equivalent of an upscale specialty
store. Loehmann's' stores are divided into two shopping areas: a large, open
selling area with wall-to-wall merchandise and a smaller, separate, and more
intimate area called The Back Room. All stores are low maintenance, simple and
functional facilities designed to maximize selling space and contain overhead
costs. Store layouts are flexible in that product groupings can be easily moved
or expanded. All stores have two or more communal fitting rooms. However, in
response to customer preferences, private fitting rooms have been added in most
stores. Because Loehmann's is committed to maintaining virtually all of its
in-store inventory on the selling floor, its stores do not require significant
space devoted to inventory storage.
Loehmann's presents moderate and better sportswear, dresses and
suits, as well as all outerwear, men's, accessories, intimate apparel and shoes
on the main selling floor. Designer and bridge and import merchandise, including
evening dresses and suits, are displayed in The Back Room. The Back Room
provides a key point of differentiation to the consumer, as it projects the
image of designer goods sold in a no-frills environment and, therefore, at
exceptional values. Although Loehmann's estimates that The Back Room generally
accounts for only approximately 10% to 15% of a typical store's selling space,
The Back Room has historically generated approximately one-third of the
company's apparel revenues.
H. MARKETING AND ADVERTISING
Over the years, Loehmann's has principally relied on word-of-mouth
advertising. In the last three fiscal years, Loehmann's has significantly
increased its advertising expenditures, predominantly for direct mail and, to a
lesser extent, for newspaper advertising. A significant portion of Loehmann's'
advertising efforts involve direct mail announcements to members of The Insider
Club, a free member ship program. Members receive notification of special events
throughout the year and a 15% discount on their birthdays. The list of members
now includes approximately one million active customers (those who have shopped
at Loehmann's within the past 12 months). Loehmann's has developed a database of
customer information from Insider Club members. This database allows Loehmann's
to track purchase activity of current customers. These customers accounted for
approximately 75% of total company sales in fiscal 1998.
During the fourth quarter of fiscal 1998, the company intensified
its marketing programs with the objective of increasing its customer base. The
focus of the marketing program was primarily: (1) reactivating existing
customers whose shopping frequency has decreased; (2) prospecting for new
customers, particularly in new and expansion store markets; and (3) nurturing
customer loyalty among existing Loehmann's frequent shoppers.
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<PAGE>
I. STORE LOCATIONS
Since its initial public offering in 1996, Loehmann's had opened 17
new stores. Consistent with its move towards a model store format of
approximately 25,000 square feet, Loehmann's also closed ten of its older,
smaller stores during the first quarter of fiscal 1998. In July 1999, with
approval of the Court, Loehmann's closed fourteen of its underperforming stores
bringing its total store population to 55. As a last step to shedding unwanted
stores, Loehmann's closed an additional seven stores in April, 2000, and
received Court approval to conduct going out of business sales at four
additional stores, which were closed after such sales were completed, SEE
Section VII.F, "Store Closings."
Loehmann's' 44 remaining stores are concentrated in three major
markets: New York/Mid-Atlantic, South Florida and Southern California.
Loehmann's also continues to operate in certain other markets throughout the
country which have proven to have demand for the Loehmann's product. Focusing on
these three major and selected ancillary markets allows less diffusion of the
company's marketing dollars, and makes major media advertising campaigns more
economically feasible. The following chart illustrates the relative strength of
Loehmann's' sales in various regions of the country:
<TABLE>
<CAPTION>
% OF 1998
REGION NUMBER OF STORES COMPARABLE-SALES
------ ---------------- ----------------
<S> <C> <C>
Tri-State 13 37.9%
Mid-Atlantic 4 9.2%
South Florida 4 8.6%
California 12 28.9%
Other 11 15.4%
---------------- ----------------
Total 44 100.0%
================ ================
</TABLE>
Loehmann's' business plan envisions gradually opening several new
stores each year beginning in 2001. Each of the new stores will be located in
existing core markets.
J. COMPETITION
The off-price fashion apparel business is highly competitive.
Loehmann's competes primarily with finer department stores by offering a wide
selection of comparable quality merchandise at significantly lower prices. Many
department stores have increased their promotional efforts, although such
promotions are typically focused on moderate merchandise. Should finer
department stores continue to price more aggressively, Loehmann's' margins may
be adversely affected. Most of the department stores and some of the off-price
and discount retailers with
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<PAGE>
which Loehmann's competes have access to substantially greater financial and
marketing resources than those available to Loehmann's.
Loehmann's also faces competition from factory outlet malls and a
variety of off-price and discount retailers, some of which are relatively new
companies, but many of which are established retail chains or divisions thereof.
Such competitors include Filene's Basement, Marshall's, Saks Off 5th, Syms,
Burlington Coat Factory and T.J. Maxx.
K. EMPLOYEES
As of February 15, 2000, Loehmann's had 2,185 employees, of whom
1,629 were store sales and clerical employees, 158 performed store managerial
functions, and 398 were corporate and warehouse personnel. Except for managerial
employees, professional support staff and Loehmann's' buyers, all employees are
paid on an hourly basis. None of Loehmann's' employees are represented by a
labor union. Loehmann's believes that its employee relations are good.
L. TRADEMARK AND SERVICE MARK
Loehmann's name is registered as a trademark and a service mark with
the United States Patent and Trademark Office. Loehmann's believes its trademark
and service mark have received broad recognition and their continued existence
is important to its business.
M. PROPERTIES
Loehmann's follows the general industry practice of leasing all of
its stores. Loehmann's also does not own any of its manufacturing facilities.
Loehmann's' stores range in size from 9,000 to 60,000 square feet and are held
under leases expiring from 2000 to 2021, excluding option periods. The leases
for the company's stores typically provide for a 15- to 20-year term with three
five-year renewals that are automatic unless Loehmann's elects to terminate the
lease. The rental rate is a fixed amount rather than a contingent payment based
on a store's gross sales. The leases typically contain tax escalation clauses
and require Loehmann's to pay insurance, utilities, repair and maintenance
expenses. Increases in the fixed rent payable during the renewal terms are
generally less than 10% to 15% of the base rent (although this percentage may
increase for new stores). Loehmann's has generally been successful in renewing
its store leases as they expire.
Loehmann's leases the land for its 153,000 square foot facility
located in the Bronx, New York, which serves as its corporate headquarters and
as the site of its central warehousing and distribution operations (the "BRONX
FACILITY"). This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. As of the Petition Date, the Bronx Facility was
subject to a mortgage with the City of
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New York, SEE Section IV.O, "Industrial Development Bonds," which Loehmann's
paid off on June 19, 2000. Loehmann's' lease for the Rutherford, New Jersey
facility provides for annual rental payments of $1,251,000.
N. THE PREPETITION LOAN DOCUMENTS
Prior to the Petition Date, Loehmann's had entered into a Loan and
Security Agreement, dated May 12, 1998 (the "PREPETITION LOAN AGREEMENT") with
Congress Financial Corporation ("CONGRESS"), as lender, pursuant to which
Congress made available to Loehmann's a secured credit facility in an aggregate
amount not to exceed $60,000,000 consisting of (i) a revolving credit facility
in an aggregate amount not to exceed $50,000,000 and (ii) a letter of credit
facility in an aggregate amount not to exceed $10,000,000. Credit availability
under the Prepetition Loan Agreement was determined by reference to a specified
percentage of eligible inventory, less certain reserves, all as set forth in a
borrowing base certificate delivered by Loehmann's to Congress on a periodic
basis. The obligations under the Prepetition Loan Agreement were secured by
liens on and security interests in, among other things, Loehmann's' inventory,
accounts receivable, property and related assets, including its rights under the
lease of its Bronx store.
As of the Petition Date, the Debtor was indebted to Congress under
the Prepetition Loan Agreement in the aggregate principal amount of
approximately $38 million, together with accrued, but unpaid, interest, fees and
expenses, including attorneys' fees. In addition, as of the Petition Date,
letters of credit having an aggregate face amount equal to approximately $9.5
million remained issued and outstanding under the Prepetition Loan Agreement.
Pursuant to the terms of that certain Agreement between Loehmann's
and Fleet Bank, N.A. ("FLEET"), Fleet made a loan to Loehmann's in the amount of
$7,850,000. The term loan was supported by a letter of credit issued under the
Prepetition Loan Agreement. As a result of the chapter 11 filing, Fleet drew on
the letter of credit issued by Congress to pay off the term loan, increasing the
balance owed by the Debtor to Congress by the same amount.
O. INDUSTRIAL DEVELOPMENT BONDS
Prior to the Petition Date, Loehmann's had entered into a Loan
Agreement, dated as of January 15, 1980 (as amended, the "LOAN AGREEMENT"), with
the City of New York (the "CITY") under which the City loaned Loehmann's funds
(received by the City pursuant to an Urban Development Action Grant) evidenced
by certain promissory note in the principal amount of $1,500,000 (as amended and
restated, the "NOTE"). The Note was secured by a certain Mortgage, dated March
14, 1980, between the New York City Industrial Development Agency (the "AGENCY")
as mortgagor, and the City as mortgagee (as amended, the "MORTGAGE") on the
lease of the Bronx Facility. As of the Petition Date, the Debtor was indebted to
the City in the aggregate principal amount of $412,763 on account of the Note.
Loehmann's paid off the Note on June 19, 2000.
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<PAGE>
A second mortgage was placed on the Bronx Facility pursuant to an
Indenture of Mortgage and Trust, dated as of December 1, 1983 between the Agency
and IBJ Whitehall Bank & Trust Company, as trustee, securing the Agency's
$2,250,000 Industrial Development Revenue and Refunding Bonds (the "BONDS"), for
which Loehmann's is the obligor. As part of its debtor-in-possession financing,
and in particular, the term loan contemplated thereunder, on or about September
14, 1999 the Bonds were redeemed by Loehmann's. The redemption permitted
Loehmann's to borrow against the value of the property.
V.
KEY EVENTS LEADING TO COMMENCEMENT
OF THE CHAPTER 11 CASE
A. DECREASE IN OVERALL STORE PERFORMANCE AND OPERATING
RESULTS
Two interrelated factors were the primary reasons Loehmann's found
it necessary to file its Chapter 11 Case: unfavorable operating results caused
by a divergence in the direction of external retail market trends and the
preferences of Loehmann's' customers and a highly-leveraged capital structure.
1 MARKET TRENDS
In recent years, Loehmann's' management had observed several
external trends in the women's apparel retail business: (i) a demand by
customers for more casual apparel; (ii) bridge and designer departments being
de-emphasized in department stores; (iii) an increase in promotions by
department stores; and (iv) a broadening of product mix by off-price retailers.
Loehmann's' initial response to these trends was to try to attract younger
customers seeking casual/contemporary apparel and to expand merchandise
categories. As a result of such efforts, Loehmann's' casual/contemporary sales
have increased 44% since 1996. New merchandise categories such as junior's
apparel, men's furnishings and gifts have been added to the product mix at
Loehmann's' stores. Despite these efforts, Loehmann's' sales did not respond
favorably. For the nine months ended October 31, 1998, same store sales declined
3.7% from the comparable period in the preceding year. By April 1999, in
particular the later part of the month, Loehmann's' sales, gross margin and
earnings before interest, taxes, depreciation and amortization ("EBITDA") were
significantly below its business plan.
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<PAGE>
2 EFFECTS OF HIGH LEVERAGE
As described above in Section IV, "Description of Debtor's
Business," over the past several years Loehmann's opened a number of new stores
and invested significantly in its store base and distribution facilities. These
acquisitions and investments were financed in part through the issuance of
Senior Notes. As a result, as of the Petition Date, Loehmann's had approximately
$100.6 million in principal and interest in Senior Notes outstanding that would
require approximately $11.3 million of debt service for the fiscal year ending
January 29, 2000 ("FISCAL 1999"). Loehmann's' high degree of leverage and the
cash required to satisfy its debt service obligations, capital expenditure and
working capital needs meant that it could not effectively operate and service
its debt obligations if EBITDA, LIFO provision and unusual and extraordinary
items declined significantly over an extended period.
Loehmann's experienced declines in revenues, EBITDA and operating
income during the fiscal year ended January 31, 1998 and incurred continued
declines during the first quarter of Fiscal 1999. Because of these adverse
developments and the substantial amount of indebtedness owed to financial
institutions and noteholders, there was a substantial risk that Loehmann's would
not be able to secure sufficient trade credit from its vendors and factors for
the second half of Fiscal 1999. Without such credit, Loehmann's would be unable
to obtain sufficient inventory to continue to meet the expectations of its
customers and to stock its stores at appropriate levels.
B. DISCUSSIONS WITH FINANCIAL ADVISORS AND TRADE CREDITORS
In response to its increasing liquidity concerns, Loehmann's'
management engaged The Blackstone Group L.P. ("BLACKSTONE") to act as its
financial advisor to explore its strategic alternatives and to assist it in
negotiating a consensual restructuring. Loehmann's also sought assistance from
its factors and their agreement to continue extending the trade credit necessary
to keep the shelves of Loehmann's' stores stocked and in business.
C. DEFAULTS UNDER INDENTURE
In order to preserve capital and maintain flexibility in light of
its difficulties in obtaining trade credit, Loehmann's decided not to make its
scheduled debt service payment on its Senior Notes due May 17, 1999. In light of
this nonpayment and its liquidity problems, Loehmann's determined that it was
necessary to file for chapter 11 protection on May 18, 1999.
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<PAGE>
VI.
STEPS TAKEN TO STRENGTHEN THE DEBTOR'S
FINANCIAL PERFORMANCE AND OPERATIONS
In response to external market trends, Loehmann's' management has
recently developed and begun to implement several strategic initiatives designed
to improve its sales and financial performance.
A. RE-EMPHASIZE THE BACK ROOM
The Back Room creates a key point of differentiation for Loehmann's
in the women's apparel market. The Back Room contains merchandise of higher
quality than that found on the selling floors of off-price retailers and outlet
stores. Off-price retailers carry very little, if any, bridge or designer
apparel. Similarly, very few outlet stores carry bridge and designer apparel and
those cannot match The Back Room's assortment. Finally, department stores cannot
come close to matching the prices of the bridge and designer apparel found in
The Back Room.
During the fall of 1999, Loehmann's implemented a plan to increase
gradually Back Room apparel sales to nearly a third of total apparel sales,
consistent with historic levels, and to maintain such levels for the next five
years. Although this represents a significant increase relative to The Back Room
penetration in 1998 and 1999, the forecasts are consistent with historical Back
Room performance. Despite industry trends towards casualization, market research
shows that Loehmann's customers continue to have strong demand for bridge and
designer merchandise. Management believes that the de-emphasis of The Back Room
in recent years diluted a key point of differentiation from other apparel
discounters. Thus, by reemphasizing The Back Room, Loehmann's can (a)
re-establish a unique market niche to attract new customers, and (b) regain the
loyalty of its existing Back Room customers, who represent Loehmann's' most
frequent and highest spending shoppers.
B. OFFER CONSISTENT VALUE
In response to the aggressive promotional strategies of department
stores, in recent years Loehmann's became reliant on point-of-sale (POS)
markdowns and price promotions (e.g., coupons) as a means to drive customer
traffic. However, Loehmann's derives its competitive advantage from its ability
to consistently offer merchandise at prices 30% to 60% below department store
prices. Emphasis on POS promotions undercuts the company's positioning as
offering the best everyday low prices.
Management believes that Loehmann's can offer a more consistent and
distinguishable value proposition if merchandise is priced using permanent
markdowns as opposed to promotional events and POS markdowns. Loehmann's has
de-empha sized POS markdowns and takes permanent markdowns on a more regular
schedule and will continue to do so. In this way, customers can be assured that
Loehmann's offers the best value every day, not just during advertised
promotional events.
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Management also believes that it can make the transition to regular
permanent markdowns without sacrificing margins. As part of the transition, the
company had modified its promotional calendar to emphasize product-driven
events, and de-emphasize price promotions. Further, to the extent that coupons
continue to be used, they will be good for clearance merchandise only and not
regularly priced products.
C. ENHANCE BRAND IMAGE
In conjunction with offering consistent value, Loehmann's seeks to
enhance its brand image. Enhancing brand image will serve to (a) strengthen the
loyalty of its existing core customers, and (b) attract a potentially large base
of new customers.
Management believes that the most effective tool it has to build
brand image and customer loyalty is to provide outstanding merchandise offerings
that encourage "word-of-mouth" advertising by existing customers.
In addition, Loehmann's plans to enhance its brand image through
strategic initiatives to develop a campaign to build and reinforce its brand
image; development of an Internet strategy which will enable customers to access
the Loehmann's website to obtain information regarding the arrival of new
merchandise in stores; and investment in its customer database system to enhance
the productivity of direct-mail marketing.
D. RE-EMPHASIZE CORE ASSORTMENT
While Loehmann's has broadened its product mix over the past several
years in order to offer the customer more options, a re-emphasis of its core
assortment is underway. In particular, Loehmann's will focus on women's better-
to designer-price points in sportswear, dresses, coats, shoes and handbags. This
will ensure that customers will find a wider range of well-known designer
merchandise at Loehmann's than at other off-price retailers.
In order to strengthen the product offering, Loehmann's will
aggressively pursue buying opportunities with existing vendors and will develop
new sources for designer and branded merchandise. In addition, Loehmann's will
focus on improving the in-store experience through improved merchandising. The
Back Room which features a wide selection of bridge and designer labels, will be
more prominently advertised and promoted. And although Loehmann's' emphasis will
be on its core assortment, the company will continue to pursue opportunities in
men's apparel and gifts.
E. FOCUS ON CORE MARKETS
To optimize store performance, Loehmann's is focusing on the three
major markets (New York Metro/Mid-Atlantic, Florida and California).
Concentrating in these select markets will allow Loehmann's to benefit from its
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existing brand image and core customer base in these areas, and to target its
advertising spending on enhancing awareness in these markets.
To this end, during the Chapter 11 Case Loehmann's closed 21
non-core stores and will be closing four additional stores at which going out of
business sales are currently being held. Loehmann's continues to operate some
profitable stores in non-core markets and the company plans to retain these
profitable locations. However, Loehmann's plans for all future growth to be
inside its three core markets.
F. IMPROVE CUSTOMER SERVICE
Market research has confirmed that customers' number one issue with
respect to customer service is the time-consuming checkout process. Loehmann's
plans to install new registers in all of its stores over the course of the next
two years, which will significantly reduce check-out time.
VII.
THE CHAPTER 11 CASE
A. SIGNIFICANT "FIRST DAY" MOTIONS DURING THE CHAPTER 11 CASE
On the Petition Date and during the first few weeks of the Chapter
11 Case, the Court entered several orders authorizing the Debtor to pay various
prepetition claims. These orders were designed to ease the strain on the
Debtor's relationships with customers and employees as a consequence of the
filings. The Court entered orders authorizing the Debtor to, among other things,
(i) pay prepetition compensation, benefits and employee reimbursement to
employees; (ii) honor certain prepetition obligations to customers, including
obligations relating to the Debtor's return and exchange policy, gift
certificates and coupon programs; (iii) grant administrative expense status to
the Debtor's obligations arising from the postpetition delivery of goods and
services based on prepetition orders and authorizing the Debtor to pay such
expenses in the ordinary course of business; (iv) confirm administrative expense
treatment for holders of valid reclamation claims and prohibit third parties
from interfering with the Debtor's delivery of goods; and (v) pay certain
prepetition customs and shipping charges and related liens.
In addition, the Debtor filed several motions seeking orders
authorizing the Debtor's retention of professionals. Specifically, the Debtor
filed motions to retain (i) Paul, Weiss, Rifkind, Wharton & Garrison and Young,
Conaway, Stargatt & Taylor, LLP as co-counsel, (ii) The Blackstone Group L.P.,
as financial advisor and (iii) certain ordinary course professionals. The Debtor
also filed motions seeking certain relief from administrative requirements of
the Bankruptcy Code.
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B. DIP CREDIT FACILITY
To provide the Debtor with the cash and liquidity necessary to
continue operations and to maintain normal vendor relations, on May 19, 1999
Loehmann's sought court approval of a $75 million debtor-in-possession credit
facility in the form of a Ratification and Amendment Agreement (the "DIP CREDIT
FACILITY"), dated as of May 19, 1999, with Congress. The DIP Credit Facility
consists of a revolving credit and letter of credit facility (the "REVOLVING
CREDIT FACILITY") and a term loan facility (the "TERM LOAN FACILITY"). The
Revolving Credit Facility is for an amount up to $75 million, less the then
outstanding amount of the Term Loan Facility and any Letter of Credit
accommodations. The Term Loan Facility (x) is in a maximum amount equal to the
lesser of $3,500,000 and 50% of the fair market value of the real estate
comprising Loehmann's' Bronx Facility and (y) amortizes monthly on a 48- month
straight line basis with final payment due upon the earlier of the second
anniversary of the closing and the DIP Credit Facility termination date.
On May 19, 1999, the Court approved interim financing arrangements
(the "INTERIM FINANCING ARRANGEMENTS") with Congress. The Interim Financing
Arrangements provided for a credit line of $20 million in excess of the amount
of the outstanding indebtedness at the Petition Date, which was $47.9 million,
to cover the period through June 7, 1999. On June 7, 1999, the Bankruptcy Court
entered a final order (the "DIP FINANCING ORDER") approving the DIP Credit
Facility in full.
The availability under the Revolving Credit Facility component of
the DIP Credit Facility is subject to certain inventory-related borrowing base
requirements. The indebtedness under the DIP Credit Facility bears interest, at
the Debtor's election (i) in the case of the Revolving Credit Facility, at
either the Eurodollar rate plus 225 basis points or the Prime Rate plus 50 basis
points and (ii) in the case of the Term Loan Facility, at either the Eurodollar
Rate plus 250 basis points or the Prime Rate plus 75 basis points, in each case
calculated on the basis of a 360 day year. The DIP Credit Facility contains
certain customary covenants (including limitations on indebtedness, liens and
restricted payments) but does not contain any financial covenants. As of March
18, 2000 the company had borrowing of $14,302,768 and letters of credit of
$1,308,030 outstanding under the DIP Credit Facility, with $25,939,381 of
availability for borrowings under the DIP Credit Facility. On May 22, 2000,
Loehmann's exercised its right to reduce the amount of the Revolving Credit
Facility from $75 million to $60 million.
Loehmann's' obligations to Congress under the DIP Credit Facility
(the "DIP OBLIGATIONS") are secured by substantially all of Loehmann's' assets,
subject only to Permitted Liens (as defined in the DIP Credit Facility) and
Carve-Out Expenses (as defined below). In addition, pursuant to the DIP
Financing Order, the DIP Obligations have been accorded administrative expense
status with priority over all other administrative claims, other than certain
agreed-to administrative claims, including the fees and expenses of
professionals retained by the Debtor and any official committees appointed in
the Chapter 11 Case in the amount of $2 million (the "CARVE-OUT EXPENSES").
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The DIP Facility expires on the earliest of (a) the second
anniversary of the DIP Credit Facility, (b) the effective date of a plan of
reorganization for the company, or (c) acceleration following the occurrence of
an event of default.
Loehmann's believes that cash generated from operations and funds
available under the DIP Credit Facility will be sufficient to satisfy its cash
requirements through the anticipated pendency of the Chapter 11 Case.
C. THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
On September 8, 1999, the United States Trustee for the District of
Delaware appointed an Official Committee of Unsecured Creditors in the Chapter
11 Case. The Creditors Committee currently consists of United States Trust
Company of New York, as indenture trustee, C.I.T. Commercial Services, Inc., The
Ralph Lauren Womenswear Company, L.P., The Donna Karan Company, Republic
Business Credit Corporation, Jones Apparel Group, BNY Financial Corporation and
State Street Research and Management Company.
The Creditors Committee has retained Kronish Lieb Weiner &
Hellman, LLP and Morris, Nichols, Arsht & Tunnell as co-counsel and Mahoney
Cohen & Company CPA, P.C. as its accountants.
D. OTHER PROFESSIONALS RETAINED BY DEBTOR
In addition to those professionals retained pursuant to first day
motions, the Debtor subsequently sought and obtained approval for the retention
of three other professionals essential to its reorganization: (i)
PricewaterhouseCoopers, as the Debtor's strategic retail consultant; (ii) DJM
Asset Management, LLC, as the Debtor's real estate consultant; and (iii) Ernst &
Young LLP, as the Debtor's independent auditors and tax advisors. The Debtor
also obtained approval to use Logan & Company, Inc. as the Debtor's Claims,
Noticing, Voting and Tabulation Agent.
E. MANAGEMENT RETENTION AND SEVERANCE PLAN
On July 9, 1999, the Debtor filed a motion seeking Court authority
to implement a Management Retention and Severance Plan (the "RETENTION PLAN").
The Retention Plan provides for a (i) bonus for key management and other key
personnel payable on the Debtor's emergence from chapter 11 and (ii) a severance
program. Through the Retention Plan, the Debtor has sought to minimize
management and other key personnel turnover by providing incentives for
employees, including senior management, to remain in the Debtor's employ and to
work towards a successful reorganization of the Debtor's business. The Court
approved the Retention Plan on July 21, 1999.
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F. STORE CLOSINGS
In July 1999, in an effort to streamline its operations and
rationalize its merchandising and marketing programs, the Debtor sought and
obtained an order from the Court authorizing it through its liquidating agent,
Hilco/Great American Group, to conduct certain store closing sales at 13 of its
underperforming stores (the "GOB STORES"). Next, the Debtor sought court
authority to dispose of the leases in respect of the GOB Stores (the "GOB
LEASES"). On September 29, 1999 the Debtor obtained an order, among other
things, (i) approving bidding procedures for the sale of the GOB Leases, (ii)
setting an auction date for the sale of such leases, and (iii) scheduling a
hearing date to approve the sale and assignment of the GOB Leases to the
successful bidders at the auction. On October 18, 1999 an auction was held, and
eight of the GOB Leases were bid upon. The Court subsequently approved the sale
of the Debtor's interests in those eight GOB Leases free and clear of liens,
claims, encumbrances and interests. The Debtor realized $2.4 million on the
disposition of those GOB Leases. By Court order dated October 27, 1999, those
GOB Leases for which there were no bids were deemed rejected by the Debtor.
On April 10, 2000, the Court authorized the Debtor to conduct going
out of business sales at four additional stores and to retain Hilco/Great
American Group as a consultant in respect of such sales. Contemporaneously, the
Debtor closed an additional seven of its underperforming stores. On May 15, 2000
the Court granted the Debtor's application for authority to auction and sell or
otherwise dispose of the additional closed store leases. Subsequently, the
Debtor disposed of nine of such leases by either assuming and assigning them or
rejecting them. The Debtor is still in negotiations with respect to the
assumption and assignment of the two remaining additional closed store leases.
G. LAST DATE TO FILE PROOFS OF CLAIM
On September 16, 1999, the Court entered an order (the "BAR DATE
ORDER") requiring any person or entity holding or asserting a Claim against the
Debtor to file a written proof of claim with Loehmann's, Inc., Claims Processing
Department, c/o Logan & Company, Inc., 546 Valley Road, Upper Montclair, New
Jersey 07043, on or before 5:00 p.m. (EST) on November 8, 1999 (the "BAR DATE").
The Bar Date Order provided that any person or entity (other than, among others,
employees and individual holders of Senior Notes and Common Stock) which fails
to timely file a proof of claim will be forever barred, estopped and enjoined
from voting on, or receiving a distribution under, the Plan and will be forever
barred, estopped and enjoined from asserting a Claim against the Debtor, its
estate, the Reorganized Debtor, and any of its successors or assigns.
H. ASSUMPTION/REJECTION OF LEASES AND EXECUTORY CONTRACTS
Pursuant to the Bankruptcy Code, the Debtor has 60 days after the
entry of the order for relief (which is the Petition Date) to assume or reject
executory contracts or unexpired leases unless such time period is extended by
the Bankruptcy Court for cause. By Court order the deadline has been extended to
the Effective Date
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(except for a limited number of leases for which individual deadlines were set)
date of confirmation of the Debtor's Plan. The Debtor has already obtained Court
approval to reject thirteen leases. The Debtor is reviewing its remaining leases
and will decide shortly whether to reject any other leases. The Debtor, in
conjunction with its attorneys, financial advisors and accountants will also
review the Debtor's executory contracts to determine which, if any, of such
contracts should be assumed or rejected. The Debtor will make any appropriate
motions with respect to assumed or rejected leases and existing contracts within
the time period established by the Bankruptcy Code or such other time as set by
the Court.
I. FIRST AMENDED DISCLOSURE STATEMENT/AGREEMENT WITH INFORMAL
NOTEHOLDERS COMMITTEE
On March 24, 2000 the Debtor filed its first plan of reorganization
and accompanying disclosure statement. On April 24, 2000, after a hearing on the
adequacy of the Debtor's disclosure statement, the Court entered an order (the
"SOLICITATION ORDER") which, among other things, approved the disclosure
statement, as amended on April 24, 2000, and scheduled a June 27, 2000
confirmation hearing on the plan, also amended on April 24, 2000. Subsequently,
on or about May 25, 2000, the Debtor commenced the process of soliciting votes
in favor of the amended plan.
Prior to the Court's June 20, 2000 deadline for voting on the
amended plan, a group of significant holders of the Debtor's Senior Notes (the
"INFORMAL NOTEHOLDERS COMMITTEE") advised the Debtor that they intended to vote
against the amended plan. As a result, the Debtor, its professional advisors and
the Informal Noteholders Committee began discussions concerning the plan's terms
and possible modifications thereto. As a result of the discussions, the Debtor
agreed to file a second amended Plan incorporating certain modifications and a
second amended Disclosure Statement in exchange for the Consenting Holders'
agreement to, among other things, timely vote when properly solicited to do so
in favor of the Debtor's second amended Plan and to support its confirmation
(the "AGREEMENT"). The Agreement was executed by the parties on July 27, 2000.
The Agreement specifically provides that no consideration will be given to the
noteholder parties thereto in exchange for their promise to support the Debtor's
Plan.
J. SECOND AMENDED DISCLOSURE STATEMENT/PLAN CONFIRMATION HEARING
On July 12, 2000, the Debtor filed its second amended Plan and
second amended Disclosure Statement. Simultaneously, the Debtor filed a motion
to consider the adequacy of this Disclosure Statement. On July 28, 2000, the
Court entered the Disclosure Statement Order. As provided by the Disclosure
Statement Order, the confirmation of the Plan is scheduled for September 6,
2000.
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VIII.
SUMMARY OF THE PLAN OF REORGANIZATION
A. INTRODUCTION
The Debtor believes that confirmation of the Plan is critical to its
continued survival and that the Plan provides the best opportunity for maximum
recoveries for its creditors. The Debtor believes, and will demonstrate to the
Court, that its creditors will receive at least as much, if not more, in value
under the Plan than they would receive in a liquidation under chapter 7 of the
Bankruptcy Code.
The following is a summary of the Plan, in pertinent part. The Plan
is attached as Exhibit A to this Disclosure Statement. The terms of the Plan
govern in the event of any discrepancies with the following discussion.
B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS,
CLAIMS AND EQUITY INTERESTS UNDER THE PLAN
Only administrative expenses, claims and equity interests that are
"allowed" may receive distributions under a chapter 11 plan. An "allowed"
administrative expense, claim or equity interest simply means that the debtor
agrees, or in the event of a dispute, that the court determines, that the
administrative expense, claim or equity interest, including the amount, is in
fact a valid obligation of the debtor. Section 502(a) of the Bankruptcy Code
provides that a timely filed administrative expense, claim or equity interest is
automatically "allowed" unless the debtor or another party in interests objects.
However, section 502(b) of the Bankruptcy Code specifies certain claims that may
not be "allowed" in a bankruptcy case even if a proof of claim is filed. These
include, without limitation, claims that are unenforceable under the governing
agreement or applicable non-bankruptcy law, claims for unmatured interest,
property tax claims in excess of the debtor's equity in the property, claims for
certain services that exceed their reasonable value, lease and employment
contract rejection damage claims in excess of specified amounts, and late-filed
claims. In addition, Bankruptcy Rule 3003(c)(2) prohibits the allowance of any
claim or equity interest that either is not listed on the debtor's schedules or
is listed as disputed, contingent, or unliquidated if the holder has not filed a
proof of claim or equity interest before the deadline to file proofs of claim
and equity interests.
The Bankruptcy Code also requires that, for purposes of treatment
and voting, a chapter 11 plan divide the different claims against, and equity
interests in, the debtor into separate classes based upon their legal nature.
Claims of a substantially similar legal nature are usually classified together,
as are equity interests of a substantially similar legal nature. Because an
entity may hold multiple claims and/or equity interests which give rise to
different legal rights, the holders of such claims and/or equity interests may
find themselves members of multiple classes of claims and/or equity interests.
As a result, under the Plan, for example, a creditor that holds both a Claim
based on a Senior Note and Old Common Stock would have its Claim classified in
Class 5 and its Equity Interest classified in Class 6. To the
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extent of this holder's Claim, the holder would be entitled to the voting and
treatment rights that the Plan provides with respect to Class 5, and, to the
extent of the holder's Equity Interest, the voting and treatment rights that the
Plan provides with respect to Class 6.
Under a chapter 11 plan, the separate classes of claims and equity
interests must be designated either as "impaired" (altered by the plan in any
way) or "unimpaired" (unaltered by the plan). If a class of claims is
"impaired," the Bankruptcy Code affords certain rights to the holders of such
claims, such as the right to vote on the plan (unless the plan provides for no
distribution to the holder, in which case, the holder is deemed to reject the
plan), and the right to receive an amount under the chapter 11 plan that is not
less than the value that the holder would receive if the debtor were liquidated
under chapter 7. Under section 1124 of the Bankruptcy Code, a class of claims or
interests is "impaired" unless, with respect to each claim or interest of such
class, the plan (i) does not alter the legal, equitable, and contractual rights
of the holders of such claims or interests or (ii) irrespective of the holder's
right to receive accelerated payment of such claims or interests after the
occurrence of a default, cures all defaults (other than those arising from,
among other things, the debtor's insolvency or the commencement of a bankruptcy
case), reinstates the maturity of the claims or interests in the class,
compensates the holders of such claims or interests for any damages incurred as
a result of their reasonable reliance upon any acceleration rights and does not
otherwise alter their legal, equitable or contractual rights. Typically, this
means that the holder of an unimpaired claim will receive on the later of the
effective date of the plan of reorganization or the date on which amounts owing
are due and payable, payment in full, in cash, with postpetition interest to the
extent permitted and provided under the governing agreement between the parties
(or if there is no agreement, under applicable non-bankruptcy law), and the
remainder of the debtor's obligations, if any, will be performed as they come
due in accordance with their terms. Thus, other than its right to accelerate the
debtor's obli gations, the holder of an unimpaired claim will be placed in the
position it would have been in had the debtor's case not been commenced.
Consistent with these requirements, the Plan divides the Claims
against, and Equity Interests in, the Debtor into the following Classes:
Unclassified Administrative Claims Paid in full
Unclassified Priority Tax Claims Paid in full
Class 1 Other Priority Claims Unimpaired
Class 2 Other Secured Claims Unimpaired
Class 3 DIP Financing Claims Unimpaired
Class 4 Convenience Claims Impaired
Class 5 General Unsecured Claims Impaired
Class 6 Equity Interests Impaired
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For purposes of computing distributions under the Plan, Allowed
Claims do not include postpetition interest unless otherwise specified in the
Plan.
1 UNCLASSIFIED -- ADMINISTRATIVE CLAIMS
Administrative Claims are Claims constituting a cost or expense of
administration of the Chapter 11 Case allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code. Such Claims include any actual and necessary
costs and expenses of preserving the Debtor's estate, any actual and necessary
costs and expenses of operating the Debtor in Possession's business, any
indebtedness or obligations incurred or assumed by the Debtor in Possession in
connection with the conduct of its business including, without limitation, for
the acquisition or lease of property or an interest in property or the rendition
of services, all compensation and reimbursement of expenses to the extent
Allowed by the Court under section 330, 331 or 503 of the Bankruptcy Code and
any fees or charges assessed against the Debtor's estate under section 1930 of
chapter 123 of title 28 of the United States Code. In addition, pursuant to
court order all valid reclamation claims will be treated as Administrative
Claims.
Except as provided for below with respect to Professional
Compensation and Reimbursement Claims (as defined below), pursuant to the Plan
or to the extent that any entity entitled to payment of any Allowed
Administrative Claim agrees with the Debtor in writing to different treatment
(subject to the consent of the Creditors Committee), each holder of an Allowed
Administrative Claim (a) will be paid in full, in Cash, on the later of the
Effective Date and the date such Administrative Claim becomes an Allowed
Administrative Claim, or as soon thereafter as is practicable or (b) receive
such other treatment as the Debtor and such holder shall have agreed upon in
writing, subject to the consent of the Creditors Committee; PROVIDED, HOWEVER,
that Allowed Administrative Claims representing liabilities incurred in the
ordinary course of business by the Debtor in Possession or liabilities arising
under loans or advances to or other obligations incurred by the Debtor in
Possession (to the extent authorized and approved by the Court if such
authorization and approval was required under the Bankruptcy Code, including
amounts owed to vendors and suppliers that have sold goods or furnished services
to the Debtor in Possession since the Petition Date) shall be paid in full and
performed by the Reorganized Debtor in the ordinary course of business in
accordance with the terms and subject to the conditions of any agreements that
govern instruments evidencing, or other documents relating to such transaction.
The Debtor estimates that allowed Administrative Claims should not
exceed $4.8 million in the aggregate.
2 UNCLASSIFIED -- PROFESSIONAL COMPENSATION AND
REIMBURSEMENT CLAIMS
Professional Compensation and reimbursement claims are
Administrative Claims for the compensation of professionals and reimbursement of
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expenses incurred by such professionals pursuant to sections 503(b)(2),
503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the "COMPENSATION AND
REIMBURSEMENT CLAIMS"). All payments to professionals for Compensation and
Reimbursement Claims will be made in accordance with the procedures established
by the Bankruptcy Code, the Bankruptcy Rules and the Court relating to the
payment of interim and final compensation for services rendered and
reimbursement of expenses. The Court will review and determine all applications
for compensation for services rendered and reimbursement of expenses.
Section 503(b) of the Bankruptcy Code provides for payment of
compensation to creditors, indenture trustees and other entities making a
"substantial contribution" to a reorganization case, and to attorneys for and
other professional advisors to such entities. The amounts, if any, which may be
sought by entities for such compensation are not known by the Debtor at this
time. Requests for compensation must be approved by the Court after a hearing on
notice at which the Debtor and other parties in interest may participate and, if
appropriate, object to the allowance of any compensation and reimbursement of
expenses.
Pursuant to the Plan, holders of Compensation and Reimbursement
Claims (i) shall file their respective final applications for allowance of
compensation for services rendered and reimbursement of expenses incurred
through the Effective Date by the date that is 30 days after the Effective Date
or such other date as may be fixed by the Court, and (ii) if granted, such an
award by the Court shall be paid in full in such amounts as are Allowed (a) on
the date such Compensation and Reimbursement Claim becomes an Allowed
Administrative Claim or as soon thereafter as is practicable, or (b) upon such
other terms as may be mutually agreed upon between such holder of an Allowed
Administrative Claim and the Debtor in Possession or, on and after the Effective
Date, the Reorganized Debtor. The Debtor estimates that Allowed Compensation and
Reimbursement Claims should not exceed $500,000 in the aggregate.
Pursuant to the Plan, the Debtor will support an application filed
by the Informal Noteholders Committee with the Court seeking reimbursement of
the reasonable fees and expenses incurred by its counsel, Andrews & Kurth,
L.L.P., up to a maximum aggregate amount of $50,000, in connection with the
negotiation of the Agreement and certain documents in connection therewith.
3 UNCLASSIFIED -- PRIORITY TAX CLAIMS
A Priority Tax Claim consists of any Claim of a governmental unit of
the kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
These unsecured Claims are given a statutory priority in right of payment.
Except to the extent that a holder of an Allowed Priority Tax Claim agrees to a
different treatment, each holder of an Allowed Priority Tax Claim will receive,
at the sole option of the Reorganized Debtor, (a) Cash in an amount equal to
such Allowed Priority Tax Claim on the later of the Effective Date and the date
such Priority Tax Claim becomes an Allowed Priority Tax Claim, or as soon
thereafter as is practicable, or (b) equal annual Cash payments in an aggregate
amount equal to such Allowed Priority Tax
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Claim, together with interest (i) with respect to federal taxes, at a fixed
annual rate equal to the federal statutory rate as provided in 26 U.S.C. ss.
6621 over a period through the sixth anniversary of the date of assessment of
such Allowed Priority Tax Claim; and (ii) with respect to state and city taxes,
at the rate applicable under state or local law. The Debtor estimates that
Allowed Priority Tax Claims should not exceed approximately $1.2 million in the
aggregate.
4 CLASS 1 -- OTHER PRIORITY CLAIMS (UNIMPAIRED; THEREFORE,
DEEMED TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.)
Other Priority Claims are Claims which are entitled to priority in
accordance with section 507(a) of the Bankruptcy Code (other than Administrative
Claims and Priority Tax Claims). Such Claims include (i) General Unsecured
Claims for accrued employee compensation earned within 90 days prior to the
commencement of the Chapter 11 Case to the extent of $4,300 per employee and
(ii) contributions to employee benefit plans arising from services rendered
within 180 days prior to the commencement of the Chapter 11 Case, but only for
each such plan to the extent of (a) the number of employees covered by such plan
multiplied by $4,300, less (b) the aggregate amount paid to such employees from
the estate for priority wages, salaries or commissions. Pursuant to the Plan,
except to the extent that a holder of an Allowed Other Priority Claim shall have
agreed in writing to a different treatment, subject to the consent of the
Creditors Committee, holders of Allowed Other Priority Claims, if any exist,
will be paid in full in Cash on the later of the Effective Date and the date
such Other Priority Claim becomes an Allowed Claim, or as soon thereafter as is
practicable. The legal, equitable and contractual rights of the holders of Other
Priority Claims, if any exist, are not altered by the Plan. Because the Court
entered an order authorizing the Debtor to pay, among other things, unpaid
priority prepetition compensation and benefits, the Debtor estimates that the
Allowed Claims in Class 1 that are due and payable pursuant to the Plan on or
before the Effective Date will be DE MINIMIS, if any.
5 CLASS 2 -- OTHER SECURED CLAIMs (UNIMPAIRED; THEREFORE, DEEMED
TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.)
Other Secured Claims include Claims (other than the DIP Financing
Claims), to the extent reflected in the Schedules or a proof of claim filed as a
Secured Claim which is secured by a Lien on Collateral to the extent of the
value of such Collateral, as determined in accordance with section 506(a) of the
Bankruptcy Code, or, in the event that such Claim is subject to setoff under
section 553 of the Bankruptcy Code, to the extent of such setoff.
Except to the extent that a holder of an Allowed Other Secured Claim
shall have agreed in writing to a different treatment, subject to the consent of
the Creditors Committee, at the sole option of the Debtor, in full and complete
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satisfaction of such Allowed Other Secured Claim, (i) each Allowed Other Secured
Claim shall be reinstated and rendered unimpaired in accordance with section
1124(2) of the Bankruptcy Code, notwithstanding any contractual provision or
applicable nonbankruptcy law that entitles the holder of an Allowed Other
Secured Claim to demand or receive payment of such Allowed Other Secured Claim
prior to the stated maturity of such Allowed Other Secured Claim from and after
the occurrence of a default, (ii) each holder of an Allowed Other Secured Claim
shall receive Cash in an amount equal to such Allowed Other Secured Claim,
including any interest on such Allowed Other Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective
Date and the date such Allowed Other Secured Claim becomes an Allowed Other
Secured Claim, or as soon thereafter as is practicable, or (iii) each holder of
an Allowed Other Secured Claim shall receive the Collateral securing its Allowed
Other Secured Claim and any interest on such Allowed Secured Claim required to
be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the
Effective Date and the date such Allowed Other Secured Claim becomes an Allowed
Other Secured Claim, or as soon thereafter as is practicable.
The Debtor estimates that Allowed Other Secured Claims in Class 2
will be DE MINIMIS, if any.
6 CLASS 3 -- DIP FINANCING CLAIMs (UNIMPAIRED; THEREFORE, DEEMED
TO HAVE ACCEPTED THE PLAN AND NOT ENTITLED TO VOTE.)
DIP Financing Claims consist of the Claims of Congress arising under
the DIP Credit Facility and all agreements and instruments relating thereto,
which claims are secured by a first priority security interest in certain of the
Debtor's real and personal property, including inventory, accounts receivable,
equipment, certain real property interests and amounts held in certain deposit
accounts, subject only to Permitted Liens (as defined in the DIP Credit
Facility).
Each holder of a DIP Financing Claim (which shall be deemed Allowed)
shall receive Cash in an amount equal to its Allowed DIP Financing Claim on the
Effective Date.
7 CLASS 4 -- CONVENIENCE CLAIMs
(IMPAIRED; THEREFORE, ENTITLED TO VOTE TO ACCEPT OR REJECT THE
PLAN.)
A Class 4 Convenience Claim includes any General Unsecured Claim
that is Allowed in the amount of $2,000 or less, or is Allowed in an amount
greater than $2,000, but which Claim is reduced to $2,000 by the election of the
holder thereof on such holder's Ballot. Each holder of an Allowed Convenience
Claim shall receive Cash in an amount equal to 50% of such Allowed Convenience
Claim on the later of (i) the Effective Date, and (ii) 30 days after the date
such Convenience Claim becomes an Allowed Convenience Claim, or as soon
thereafter as is practicable. Any
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holder of a Claim which would otherwise be an Allowed Convenience Claim may
elect on such holder's Ballot to have such Allowed Claim treated as an Allowed
General Unsecured Claim under Class 5, in which event the holder of such Allowed
Claim shall receive distributions under Class 5 on account of such Allowed Claim
and shall forfeit its right to distributions under Class 4 on account of such
Allowed Claim.
By checking the appropriate box on a timely cast Ballot, the holder
of an Allowed General Unsecured Claim in an amount greater than $2,000 may elect
to reduce the amount of such holder's Allowed General Unsecured Claim to $2,000
and to receive a distribution upon such Allowed Class 4 Convenience Claim in the
amount of $2,000 as described above. Such an election shall constitute a waiver
of the right to collect, and a release of, the amount of the Allowed General
Unsecured Claim in excess of $2,000, and the holder of such Allowed Class 4
Convenience Claim shall be deemed to have released the Debtor and its estate,
and its property from any and all liability for such excess amount. The holder
of an Allowed General Unsecured Claim which timely elects to reduce the amount
of its Allowed Claim shall be deemed to be the holder of an Allowed Class 4
Convenience Claim for classification, voting, and all other purposes under the
Plan. The Debtor estimates that the Allowed Claims in Class 4 will be
approximately $245,000.
8 CLASS 5 -- GENERAL UNSECURED CLAIMs (IMPAIRED; THEREFORE,
ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN.)
Class 5 includes all General Unsecured Claims against the Debtor
other than Administrative Claims, including, without limitation (a) Claims of
trade creditors of Loehmann's, (b) Claims of customers of Loehmann's that are
not Priority Claims, (c) Claims of employees of Loehmann's that are not Priority
Claims, (d) Claims arising as a result of the rejection by Loehmann's of
executory contracts or unexpired leases pursuant to section 365 of the
Bankruptcy Code, (e) Claims arising as a result of pre-Petition Date litigation
against Loehmann's that are not subordinated under section 510(b) of the
Bankruptcy Code and (f) Senior Note Claims. Pursuant to the Plan, Senior Note
Claims will be allowed in the aggregate amount of $100,740,217.29. The Debtor
estimates that the Allowed Claims in Class 5 will be approximately $140.9
million.
Pursuant to the Plan, each holder of an Allowed General Unsecured
Claim in Class 5 has the option to receive one of the following three
distributions under the Plan by checking the appropriate box on a timely cast
Ballot:
o THE STOCK/NOTES ELECTION -- The first option available to a holder
of an Allowed General Unsecured Claim is to elect to receive its Pro
Rata share of (i) Available Shares and (ii) Available Notes (the
"STOCK/NOTES ELECTION").
o THE STOCK ONLY DISTRIBUTION -- Under the second option, a holder of
an Allowed General Unsecured Claim may elect to receive (i) its Pro
Rata share of Available Shares and (ii) an additional 66.67 shares
of
30
<PAGE>
New Common Stock for every $1000 in New Senior Notes it would
otherwise receive under the Stock/Notes Election (the "STOCK ONLY
DISTRIBUTION").
o THE ADDITIONAL NOTES ELECTION -- Under the third option, a holder of
an Allowed General Unsecured Claim may elect to receive (i) its Pro
Rata share of Available Notes; (ii) an additional $1000 in New
Senior Notes for every 66.67 shares of New Common Stock it would
otherwise receive as its Pro Rata share of Available Shares under
the Stock/Notes Election (to the extent New Senior Notes are
available for such conversion); and (iii) the remainder of its Pro
Rata share of Available Shares.
The following is an illustration of the outcome of each distribution
option for a claimholder with a $50,000 Claim5/:
<TABLE>
<CAPTION>
STOCK/NOTES STOCK ONLY ADDITIONAL
ELECTION DISTRIBUTION NOTES ELECTION
<S> <C> <C> <C>
TOTAL CLAIM $50,000 $50,000 $50,000
DISTRIBUTION IN NEW SENIOR NOTES $ 8,900 $ 0 $17,700
DISTRIBUTION IN NEW COMMON STOCK $17,730 $26,595 $ 8,865
TOTAL $26,630 $26,595 $26,565
% RECOVERY 53% 53% 53%
STOCK SHARES DISTRIBUTED 1,182 1,773 591
NEW SENIOR NOTES DISTRIBUTED 89 0 177
</TABLE>
If a holder of an Allowed General Unsecured Claim fails to indicate its
selection of the Stock/Notes Election or Additional Notes Election on a timely
cast ballot, such claimholder will receive the Stock Only Distribution. The
holder of an Allowed General Unsecured Claim which timely makes either a
Stock/Notes Election or an Additional Notes Election shall continue to be deemed
the holder of an Allowed Class
----------
5/ For purposes of this illustration, it is assumed that 50% of claimholders
selected the Stock/Notes Election, 25% of claimholders selected the Stock
Only Distribution and 25% of claimholders selected the Additional Notes
Election. Actual distributions under the Additional Notes Election may
vary depending on how many claimholders choose the Stock Only Distribution
and/or Additional Notes Election. At a minimum, claimholders making the
Additional Notes Election will receive a distribution of New Senior Notes
equal to that they would receive by making the Stock/Notes Election. At
most, Additional Notes Election claimholders will receive a distribution
of all New Senior Notes.
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<PAGE>
5 General Unsecured Claim for classification, voting and all other purposes
under the Plan.
Pursuant to the Plan a holder of a Class 5 General Unsecured Claim
will receive its distribution on the later of (i) the Effective Date, or (ii) 30
days after the date on which such Claim becomes an Allowed General Unsecured
Claim, or as soon thereafter as is practicable. If, after the Effective Date,
any further Available Shares are available from the release of New Common Stock
from the Disputed Claims Reserve, then pursuant to the Plan each holder of an
Allowed General Unsecured Claim will receive on a Subsequent Distribution Date,
if any, and the Final Distribution Date, Available Shares on account of its
Allowed General Unsecured Claim in accordance with Articles VI.B.1(d) and (e) of
the Plan. Any further New Senior Notes released from the Disputed Claims Reserve
shall be canceled pursuant to Article VI.B.5 of the Plan.
9 CLASS 6 -- EQUITY INTERESTs (IMPAIRED; NO DISTRIBUTIONS SHALL
BE MADE, THEREFORE, DEEMED TO HAVE REJECTED THE PLAN AND NOT
ENTITLED TO VOTE.)
Class 6 includes the outstanding common and preferred stock of
Loehmann's and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
The Plan provides that holders of Class 6 Equity Interests shall
receive no distributions on account of such Equity Interests and are
conclusively presumed to have rejected the Plan. All Equity Interests shall be
canceled on the Effective Date.
C. PROVISIONS REGARDING CORPORATE GOVERNANCE AND
MANAGEMENT OF LOEHMANN'S HOLDINGS AND THE REORGANIZED
DEBTOR
1 FORMATION OF LOEHMANN'S HOLDINGS
Pursuant to the Plan, on the Effective Date Loehmann's Holdings will
be formed as a holding company which will own 100% of Reorganized Loehmann's.
Loehmann's Holdings will issue the New Senior Notes and New Common Stock
pursuant to Article V.B. of the Plan.
2 LOEHMANN'S HOLDINGS
(A) BOARD OF DIRECTORS. Pursuant to the Plan, as of
the Effective Date, the board of directors of Loehmann's Holdings shall
initially consist of seven (7) members, five (5) of whom shall be jointly
designated by the Creditors Committee and Informal Noteholders Committee whose
names shall be disclosed on or before the date of the Confirmation Hearing, and
two (2) of whom shall be Robert Friedman and Robert Glass. The Board of
Directors of Loehmann's
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<PAGE>
Holdings will select a Chairman of the Board of Directors of Loehmann's Holdings
at its initial meeting.
(B) OFFICERS OF LOEHMANN'S HOLDINGS. The officers of
Loehmann's Holdings shall be disclosed on or before the date of the Confirmation
Hearing.
(C) LOEHMANN'S HOLDINGS CERTIFICATE OF INCORPORATION AND
BY-LAWS. Pursuant to the Plan, the adoption of Loehmann's Holdings Certificate
of Incorporation and Loehmann's Holdings By-Laws will be deemed to have occurred
and be effective as of the Effective Date without any further action by the
directors or stockholders of Loehmann's Holdings. The Loehmann's Holdings
Certificate of Incorporation will, among other things, contain appropriate
provisions consistent with the Plan governing the authorization of up to
3,333,333 shares of New Common Stock,6/ subject to increase by the Equity
Incentive Plan. On or prior to the Effective Date, Loehmann's Holdings will file
with the Secretary of State of the State of Delaware, in accordance with
sections 103 and 303 of the Delaware General Corporation Law, the Loehmann's
Holdings Certificate of Incorporation and such certificate shall be the
certificate of incorporation for Loehmann's Holdings. The Loehmann's Holdings
Certificate of Incorporation and By-Laws shall be substantially in the forms
contained in the Plan Supplement.
3 REORGANIZED LOEHMANN'S
(A) BOARD OF DIRECTORS. Pursuant to the Plan, as of the
Effective Date, the board of directors of Reorganized Loehmann's shall initially
consist of seven (7) members, five (5) of whom shall be jointly designated by
the Creditors Committee and Informal Noteholders Committee whose names shall be
disclosed on or before the date of the Confirmation Hearing, and two (2) of whom
shall be Robert Friedman and Robert Glass. The Board of Directors of Reorganized
Loehmann's will select a Chairman of the Board of Directors of Reorganized
Loehmann's at its initial meeting.
(B) OFFICERS OF REORGANIZED LOEHMANN'S. Pursuant to the
Plan, the officers of Loehmann's immediately prior to the Effective Date shall
serve as the initial officers of Reorganized Loehmann's on or after the
Effective Date. Such officers shall serve in accordance with employment
agreements to be negotiated with Reorganized Loehmann's and applicable
nonbankruptcy law. Key officers of Loehmann's who shall serve in the same
position for the Reorganized Debtor, include, among others, the following:
----------
6/ Pursuant to the Plan, Loehmann's Holdings is authorized to issue
additional shares of New Common Stock, not to exceed an aggregate of
5,000,000 shares, if required for distribution to those claimholders with
Allowed General Unsecured Claims receiving the Stock Only Distribution or
making the Stock/Notes Election under Article IV.E of the Plan.
33
<PAGE>
<TABLE>
<CAPTION>
Name Age Title
--------------------------------------------------------------------------------
<S> <C> <C>
Robert N. Friedman 58 Chairman, Chief Executive Officer and
Director
Robert Glass 53 President, Chief Operating Officer, Chief
Financial Officer and Director
Anthony D'Annibale 38 Senior Vice President, Merchandising
John Mains 44 Senior Vice President, Merchandising
Richard Morretta 46 Vice President and Controller
</TABLE>
(C) AMENDED CERTIFICATE OF INCORPORATION AND AMENDED
LOEHMANN'S BY-LAWS. The adoption of the Amended Certificate of Incorporation and
Amended By-Laws will be deemed to have occurred and be effective as of the
Effective Date without any further action by the directors or stockholders of
the Debtor or the Reorganized Debtor. On or prior to the Effective Date,
Loehmann's will file with the Secretary of State of the State of Delaware, in
accordance with sections 103 and 303 of the Delaware General Corporation Law,
the Amended Certificate of Incorporation and such certificate shall be the
certificate of incorporation for Reorganized Loehmann's. Pursuant to the Plan,
the Amended Certificate of Incorporation shall provide, among other things, for
a prohibition of the issuance of nonvoting equity securities as required by
section 1123(a)(6) of the Bankruptcy Code. The Amended Certificate of
Incorporation and Amended By-Laws shall be substantially in the forms contained
in the Plan Supplement.
4 SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
(A) NEW COMMON STOCK. On the Effective Date, pursuant to the
Plan, issuance by Loehmann's Holdings of 3,333,333 shares of New Common Stock
(plus any additional shares required for distribution under Article IV.E of the
Plan, up to an aggregate of 5,000,000 shares) is authorized without further act
or action under applicable law, regulation, rule or order. Each share of New
Common Stock will entitle its holder to one vote with no cumulative voting
rights. Holders of New Common Stock will have the right to participate
proportionately in any dividends distributed by Loehmann's Holdings. Loehmann's
Holdings will use its best efforts to have the New Common Stock listed on a
nationally recognized market or exchange.
(B) NEW SENIOR NOTES. The New Senior Notes will be issued by
Loehmann's Holdings pursuant to an indenture (the "NEW NOTES INDENTURE"), which
will be qualified under the Trust Indenture Act of 1939, as amended. An
indenture trustee will be selected prior to the Confirmation Hearing.
34
<PAGE>
The New Senior Notes will be issued in $100 denominations in the
aggregate principal amount of up to $25,000,000 and will be distributed to
holders of Allowed General Unsecured Claims making the Stock/Notes Election or
Additional Notes Election. Maturity of the New Senior Notes will occur five
years and one month from the Effective Date. The New Senior Notes will bear
interest at a fixed annual rate of 11% per annum, and be payable semi-annually
(each April 30 and October 30) (i) for the period from the earlier of the
Effective Date and November 1, 2000 through April 30, 2001, by the issuance of
additional New Senior Notes, and (ii) for subsequent periods (a) in cash if the
"Free Cash Flow Test" is met, or (b) otherwise, by the issuance of additional
New Senior Notes. If interest is to be payable by the issuance of additional New
Senior Notes and such issuance would result in the issuance of a fraction of a
New Senior Note, such interest shall be recorded in book-entry form only and
will not be payable until interest aggregating a whole New Senior Note
denomination or a multiple thereof has accrued.
The New Senior Notes will also contain the following material terms
and provisions:
o FREE CASH FLOW TEST: Reorganized Loehmann's will be subject to the
Free Cash Flow Test, pursuant to which Reorganized Loehmann's will
be required to have, on a pro forma basis, at least $0 of free cash
flow (as defined in the New Notes Indenture) assuming that interest
on the New Senior Notes and any required matching early amortization
payments (the "MATCHING AMORTIZATION") on Reorganized Loehmann's'
New Credit Facility (as defined in Section X.B. of the Disclosure
Statement) were paid in cash for the prior twelve months ending on
the January 31 or July 31 preceding the interest payment date. If
Reorganized Loehmann's has minimum excess availability of $25
million under the New Credit Facility on the date of the Free Cash
Flow Test, Matching Amortization is not required to be paid, and is
not deducted in the calculation of free cash flow.
o RANKING: The New Senior Notes will be unsecured senior obligations
of Loehmann's Holdings and will rank PARI PASSU to all existing and
future senior indebtedness of Loehmann's Holdings senior to all
future subordinated indebtedness. There will be no guarantees of the
New Senior Notes by Reorganized Loehmann's or its subsidiaries.
The New Notes Indenture also will contain customary and usual
affirmative covenants as may be mutually agreeable to Loehmann's Holdings and
the Creditors Committee, including compliance with laws, payment of taxes and
maintenance of corporate existence, properties and insurance, and negative
covenants, including limitations on (i) the incurrence of new indebtedness and
liens, subject to permitted exceptions, (ii) sale/leaseback transactions,
subject to permitted exceptions, (iii) dispositions of assets, (iv) transactions
with affiliates and (v) restricted payments. Events of default for the New
Senior Notes will be usual for indebtedness of this kind, with customary grace
and notice provisions, including non-payment of principal and interest,
violation of covenants, cross-default and cross-acceleration, material
35
<PAGE>
judgments and bankruptcy. A copy of the New Notes Indenture will be included in
the Plan Supplement.
D. SECURITIES LAWS MATTERS
Pursuant to the Plan, each Initial Holder receiving a distribution
of New Common Stock representing more than 10% of the aggregate New Common Stock
issued on the Effective Date shall be entitled to become a party to the
Registration Rights Agreement, which provides that Loehmann's Holdings will file
and maintain the effectiveness of a shelf registration right statement for such
Initial Holder of the New Common Stock and the New Senior Notes, covering the
resale of all such securities. Certificates evidencing shares of New Common
Stock received by an Initial Holder who is deemed to be an affiliate of
Loehmann's Holdings by reason of its equity holdings or otherwise will bear a
legend stating, in substance, that such shares have not been registered under
the Securities Act or under the securities laws of any state or other
jurisdiction and may not be sold, offered for sale or otherwise transferred
unless registered or qualified under such Act and applicable state securities
laws or unless Loehmann's Holdings receives a certificate executed by a duly
authorized officer of such Initial Holder or an opinion of counsel, as
applicable, reasonably satisfactory to them that such registration or
qualification is not required. The Registration Rights Agreement will be in
substantially the form included in the Plan Supplement.
E. EQUITY INCENTIVE PLAN
1 LOEHMANN'S HOLDINGS' EQUITY INCENTIVE
PLAN
Pursuant to the Plan, on the Effective Date, Loehmann's Holdings
will adopt a stock option plan (the "EQUITY INCENTIVE PLAN") which permits
Reorganized Loehmann's to grant to its directors and certain key senior
management executives of the Company options to acquire shares of New Common
Stock. Such stock option plan shall be on the terms in substantially the form
contained in the Plan Supplement. Options granted under the stock option plan
are generally intended to qualify as "incentive stock options" described in the
Internal Revenue Code.
2 DESCRIPTION OF LOEHMANN'S HOLDINGS' EQUITY INCENTIVE
PLAN
The purposes of the Loehmann's Holdings Equity Incentive Plan are to
promote the interests of Loehmann's Holdings and its shareholders by (i)
attracting and retaining exceptional officers, directors and key employees of
Reorganized Loehmann's and (ii) enabling such individuals to participate in the
long-term growth and financial success of Reorganized Loehmann's. In connection
with and pursuant to the Plan, the Equity Incentive Plan will be adopted and
certain of the options will be granted to certain persons under the Equity
Incentive Plan, effective as of the Effective Date. The Equity Incentive Plan
makes available the grant of options to acquire an aggregate of 425,000 shares
of New Common Stock and an aggregate of
36
<PAGE>
262,500 shares will be issued as of the Effective Date. The remaining options to
acquire 162,500 shares of New Common Stock will be issued by a compensation
committee of Reorganized Loehmann's' Board of Directors. All of Loehmann's'
directors, officers and employees are eligible to receive options under the
Equity Incentive Plan.
The following are further terms respecting the Equity Incentive Plan:
Shares Available: The number of options that will be available for grant
pursuant to the Equity Incentive Plan will be equal to
425,000 shares of New Common Stock.
Eligible Participants: All members of the Board of Directors and certain key
senior management executives of Reorganized Loehmann's
will be eligible to participate in the Equity
Incentive Plan.
Effective Date Grants: On the Effective Date, Robert Friedman and Robert
Glass will each receive options to acquire 131,250
shares of New Common Stock for a total of 262,500 of
the shares.
Strike Price: The strike price shall be $15.00.
Vesting: Options granted under the Equity Incentive Plan will
vest in four (4) equal tranches on each of the
Effective Date and the first three (3) anniversaries
thereafter.
Duration of Options: Options must be exercised on or before the fifth (5th)
anniversary of the grant date.
Change of Control: In the event a sale of Reorganized Loehmann's or
Loehmann's Holdings (whether stock or substantially
all of the assets) occurs, all options that have not
vested as of such date shall automatically vest in
full.
Termination of Option If an option holder is terminated from employment by
Holder Reorganized Loehmann's or removed as a director of
Reorganized Loehmann's (in each case other than for
"cause"), such option holder's options that are vested
as of such date shall be exercisable for a period of
60 days following such date of termination or removal
and all unvested options will on such date be
forfeited.
37
<PAGE>
F. DISTRIBUTIONS UNDER THE PLAN
1 METHOD OF DISTRIBUTIONS UNDER THE PLAN
(A) DATE AND DELIVERY OF DISTRIBUTIONS. Distributions under
the Plan shall be made by the Reorganized Debtor or its designee to the holders
of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Other
Priority Claims, Allowed DIP Financing Claims, Allowed Other Secured Claims,
Allowed Convenience Claims and Allowed General Unsecured Claims at the addresses
set forth on the Schedules, unless such addresses are superseded by proofs of
claim or transfers of claim filed pursuant to Bankruptcy Rule 3001 (or at the
last known addresses of such holders if the Debtor or the Reorganized Debtor has
been notified in writing of a change of address), except that all distributions
to the holders of Allowed Senior Note Claims shall be made in accordance with
the Senior Note Indenture. Distributions of New Senior Notes and New Common
Stock shall be made initially to the Transfer Agent who shall make distributions
to the holders of Allowed General Unsecured Claims or, in the case of holders of
Allowed Senior Note Claims to the Senior Note Indenture Trustee for further
distribution to individual holders of Senior Note Claims. Notwithstanding any
provision in the Plan to the contrary, the Senior Note Indenture will continue
in effect to the extent necessary to allow the Senior Note Indenture Trustee to
receive and make distributions pursuant to the Plan on account of the Senior
Note Claims. New Senior Notes (including any interest earned thereon) and New
Common Stock (including dividends paid on account thereof) will be held in trust
by the disbursing agent or the Reorganized Debtor, as applicable, for the
benefit of the potential claimants of such securities until such time as such
shares are distributed to the holders of Allowed Claims. Until such
distribution, shares of New Common Stock held for the benefit of potential
claimants will be treated as treasury stock for voting purposes.
(B) DISTRIBUTION OF CASH. Any payment of Cash by the
Reorganized Debtor pursuant to the Plan shall be made at the option and in the
sole discretion of the Reorganized Debtor, by (i) a check drawn on, or (ii) wire
transfer from, a domestic bank selected by the Reorganized Debtor.
(C) EFFECTIVE DATE DISTRIBUTIONS. On the Effective Date, or as
soon thereafter as practicable, the Reorganized Debtor shall distribute all
Available Notes and Available Shares to the holders of Allowed General Unsecured
Claims.
(D) DISTRIBUTIONS ON SUBSEQUENT DISTRIBUTION DATES. Unless
otherwise provided in the Plan, to the extent there are Available Shares
subsequent to the Effective Date as a result of the release of shares of New
Common Stock from the Disputed Claims Reserve in accordance with Article VI.B.5.
of the Plan or the return of unclaimed, undeliverable or time-barred
distributions to holders of Allowed General Unsecured Claims pursuant to Article
VI.B.1.(g) of the Plan, the Reorganized Debtor shall, on a Subsequent
Distribution Date, distribute (with the written consent of the Creditors
Committee or Court order on notice to the Creditors
38
<PAGE>
Committee) such Available Shares to the holders of General Unsecured Claims
entitled thereto that were Allowed on the Effective Date or subsequently have
become Allowed on or before the Subsequent Distribution Date in amounts
necessary to cause such holders to have received aggregate distributions of
shares of New Common Stock in respect of such Allowed General Unsecured Claims
equal to the distributions that such holders would have received in respect of
such Allowed General Unsecured Claims on the Effective Date if (x) such
Available Shares had been available for distribution on the Effective Date, (y)
such Allowed General Unsecured Claims had been Allowed on the Effective Date in
the amounts in which they are Allowed on the Subsequent Distribution Date, and
(z) Claims or portions thereof that have become disallowed subsequent to the
Effective Date and on or before the Subsequent Distribution Date had been
disallowed on the Effective Date.
(E) DISTRIBUTIONS ON THE FINAL DISTRIBUTION DATE. Unless
otherwise provided in this Plan, to the extent there are Available Shares
subsequent to the Effective Date from the release of shares of New Common Stock
from the Disputed Claims Reserve in accordance with Article VI.B.5. of the Plan,
or the return of unclaimed, undeliverable or time-barred distributions to
holders of Allowed General Unsecured Claims pursuant to Article VI.B.1.(g) of
the Plan, the Reorganized Debtor shall, on the Final Distribution Date,
distribute all such Available Shares to the holders of General Unsecured Claims
entitled thereto that were Allowed on the Effective Date, or subsequently have
become Allowed on or before the Final Distribution Date in amounts necessary to
cause such holders to have received aggregate distributions of shares of New
Common Stock in respect of such Allowed Claims equal to the distributions that
such holders would have received in respect of such Allowed General Unsecured
Claims on the Effective Date if (x) such Available Shares had been available for
distribution on the Effective Date, (y) such Allowed General Unsecured Claims
had been Allowed on the Effective Date in the amounts in which they are Allowed
on the Final Distribution Date, and (z) Claims or portions thereof that have
become disallowed subsequent to the Effective Date and on or before the Final
Distribution Date had been disallowed on the Effective Date; PROVIDED, HOWEVER,
that in no event shall the Reorganized Debtor be obligated to make such a
distribution if, in the discretion of the Reorganized Debtor and the Creditors
Committee, there are insufficient Available Shares to make a cost-efficient
distribution, taking into account the size of the distribution to be made and
the number of recipients of such distribution, in which event such shares of New
Common Stock shall become the property of the Reorganized Debtor.
(F) RESERVE SHARES AND NOTES FOR DISPUTED CLAIMS. On the date
on which the Reorganized Debtor makes its initial distribution to holders of
Allowed General Unsecured Claims pursuant to Article VI.B.1 of the Plan, the
Reorganized Debtor shall deposit with the Transfer Agent an aggregate number of
New Senior Notes and shares of New Common Stock sufficient to distribute to each
holder of a Disputed Claim (i) the number of New Senior Notes and/or shares of
New Common Stock that such holder would have been entitled to receive under the
Plan if such Claim had been an Allowed General Unsecured Claim on the date of
such initial
39
<PAGE>
distribution, or (ii) such lesser amount as the Court may estimate pursuant to
Article VI.C. of the Plan or may otherwise order. New Senior Notes and shares of
New Common Stock will be withheld by the Transfer Agent and reserved for
distribution to holders of Disputed Claims until such time as such shares are
distributed to holders of Allowed Claims. Until such distribution, shares of New
Common Stock held for the benefit of Disputed Claims holders shall be treated as
treasury stock for voting purposes.
(G) UNCLAIMED DISTRIBUTIONS. Any distribution of Cash under
the Plan which is unclaimed after the later to occur of (a) two years after
distribution and (b) six months after the date on which such claimant's Claim is
Allowed shall be transferred to the Reorganized Debtor notwithstanding state or
other escheat or similar laws to the contrary. Distributions under the Plan
consisting of New Senior Notes or New Common Stock that are unclaimed for a
period of two years after distribution shall be canceled and any dividends or
interest which has been paid with respect to such securities shall be
transferred to the Reorganized Debtor and entitlement by the holder of a Claim
to such distribution shall be extinguished and forever barred.
(H) SATURDAYS, SUNDAYS, OR LEGAL HOLIDAYS. If any payment or
act under the Plan is required to be made or performed on a date that is not a
Business Day, then the making of such payment or the performance of such act may
be completed on the next succeeding Business Day, and shall be deemed to have
been completed as of the required date.
(I) FRACTIONAL NOTES AND FRACTIONAL SHARES.
(i) FRACTIONAL NOTES. Notwithstanding any other
provision in the Plan to the contrary, no fractional denominations of New Senior
Notes shall be issued pursuant to the Plan. Whenever the issuance of any New
Senior Note would otherwise call for the issuance in an amount for a fraction of
a New Senior Note (issued in $100 denominations), the actual issuance of such
New Senior Note shall reflect a rounding of such fraction to the nearest whole
denomination (up or down), with half denominations being rounded down.
(ii) FRACTIONAL SHARES. Notwithstanding any other
provision in the Plan to the contrary, no fractional shares of New Common Stock
shall be issued pursuant to the Plan. Whenever any payment of a fraction of a
share of New Common Stock would otherwise be required under the Plan, the actual
distribution made shall reflect a rounding of such fraction to the nearest whole
share (up or down), with half shares or less being rounded down and fractions in
excess of half of a share being rounded up. If two or more holders are entitled
to equal fractional entitlements and the number of holders so entitled exceeds
the number of whole shares, which remain to be allocated, the Transfer Agent
shall allocate the remaining whole shares to such holders by random lot or such
other impartial method as the Transfer Agent deems fair, in the Transfer Agent's
sole discretion. Upon the
40
<PAGE>
allocation of all of the whole shares authorized under the Plan, all remaining
fractional portions of the entitlements shall be canceled and shall be of no
further force and effect.
(J) DISTRIBUTIONS TO HOLDERS AS OF THE RECORD DATE. As at the
close of business on the Record Date, the claims register shall be closed, and
there shall be no further changes in the record holders of any Claims. Further,
at the close of business on the Record Date, the Senior Note Indenture Trustee
shall close the register for the Senior Notes. The Debtor, the Reorganized
Debtor and the Senior Note Indenture Trustee shall have no obligation to
recognize any transfer of any Claims (including Senior Note Claims) occurring
after the Record Date. The Debtor, the Reorganized Debtor and the Senior Note
Indenture Trustee shall instead be entitled to recognize and deal for purposes
under the Plan (except as to voting to accept or reject the Plan) with only
those record holders stated on the claims register and the register for Senior
Note as of the close of business on the Record Date.
(K) SENIOR NOTE INDENTURE TRUSTEE'S FEES AND EXPENSES. The
Senior Note Indenture Trustee shall be entitled to payment from Reorganized
Loehmann's of Indenture Trustee Expenses incurred in connection with such
Trustee's making distributions under the Plan without further Bankruptcy Court
approval. These payments will be made on terms agreed to with Reorganized
Loehmann's and will not be deducted from distributions to be made pursuant to
the Plan to holders of Allowed Senior Note Claims.
2 DISPUTED GENERAL UNSECURED CLAIMS
The holder of a Disputed General Unsecured Claim that becomes
an Allowed Claim subsequent to the Initial Distribution Date shall receive a
distribution of New Senior Notes and/or New Common Stock as soon thereafter as
is practicable. Such distribution shall be made in accordance with the Plan
based on the distributions that would have been made to such holder under the
Plan if the Disputed General Unsecured Claim had been an Allowed Claim on or
prior to the Effective Date.
G. OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE CLAIMS AND
CLAIMS; ADMINISTRATIVE AND PRIORITY CLAIMS RESERVE
1 OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE CLAIMS
AND CLAIMS
The Debtor, the Reorganized Debtor and the Creditors Committee
shall have the exclusive right to make and file objections to Administrative
Claims and Claims subsequent to the Confirmation Date. All objections shall be
litigated to a Final Order. Unless otherwise ordered by the Court, the Debtor,
the Reorganized Debtor and the Creditors Committee shall file all objections to
Administrative Claims and Claims that are the subject of proofs of claim or
requests
41
<PAGE>
for payment filed with the Court (other than applications for allowance of
compensation and reimbursement of expenses) and serve such objections upon the
holders of the Administrative Claims and Claims as to which the objection is
made as soon as is practicable, but in no event later than 60 days after the
Effective Date or such later date as may be approved by the Court.
2 ADMINISTRATIVE, PRIORITY AND CONVENIENCE CLAIMS RESERVE
(A) ESTABLISHMENT OF ADMINISTRATIVE, PRIORITY AND CONVENIENCE
CLAIMS RESERVE. Pursuant to the Plan, on the Effective Date, the Reorganized
Debtor shall place into reserve an amount of Cash equal to (i) the sum of the
aggregate amount of all Disputed Administrative Claims, Disputed Priority Tax
Claims, Disputed Other Priority Claims and Disputed Convenience Claims, plus
(ii) an amount to be determined by the Court to be reserved for any Disputed
Administrative Claims, Disputed Priority Tax Claims and Disputed Other Priority
Claims that are unliquidated (the "ADMINISTRATIVE, PRIORITY AND CONVENIENCE
CLAIMS RESERVE").
(B) CASH HELD IN ADMINISTRATIVE, PRIORITY AND CONVENIENCE
PRIORITY CLAIMS RESERVE. Cash held in the Administrative, Priority and
Convenience Claims Reserve shall be deposited in a segregated bank account or
accounts in the name of the Reorganized Debtor and designated as held in trust
for the benefit of holders of Allowed Administrative Claims, Allowed Priority
Tax Claims, Allowed Other Priority Claims and Allowed Convenience Claims. Cash
held in the Administrative, Priority and Convenience Claims Reserve shall not
constitute property of the Reorganized Debtor. The Reorganized Debtor shall
invest the Cash held in the Administrative, Priority and Convenience Claims
Reserve in a manner consistent with investment guidelines to be included in the
Plan Supplement. The Reorganized Debtor shall pay, or cause to be paid, out of
the funds held in the Administrative, Priority and Convenience Claims Reserve,
any tax imposed on the Administrative, Priority and Convenience Claims Reserve
by any governmental unit with respect to income generated by Cash held in the
Administrative, Priority and Convenience Claims Reserve. Any Cash held in the
Administrative, Priority and Convenience Claims Reserve after all
Administrative, Priority and Convenience Claims have been Allowed or disallowed
shall be transferred to and become the property of the Reorganized Debtor.
3 ALLOWANCE OF DISPUTED ADMINISTRATIVE, PRIORITY AND
CONVENIENCE CLAIMS
Pursuant to the Plan, if, on or after the Effective Date, any
Disputed Administrative, Priority or Convenience Claim becomes an Allowed Claim,
the Reorganized Debtor shall, 30 days after the date on which such Claim becomes
an Allowed Claim, or as soon thereafter as is practicable, distribute from the
Administrative, Priority and Convenience Claims Reserve to the holder of such
Allowed Administrative, Priority or Convenience Claim Cash equal to the amount
that
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such holder would have been entitled to had such Claim been Allowed on the
Effective Date.
4 RELEASE OF SHARES AND NOTES FROM DISPUTED CLAIMS RESERVE
If at any time or from time to time after the Effective Date,
there shall be New Senior Notes and/or shares of New Common Stock in the
Disputed Claims Reserve in an amount in excess of the amount which the
Reorganized Debtor is required at such time to reserve on account of Disputed
Claims under the Plan or pursuant to any Order of the Court, (i) such excess
shares of New Common Stock shall become available for distribution in accordance
with the Plan, and (ii) such excess New Senior Notes shall be canceled.
H. ALLOCATION OF CONSIDERATION
The aggregate consideration to be distributed to the holders of
Allowed Claims in each Class under the Plan (other than the Claims, if any, of
the Internal Revenue Service) shall be treated as first satisfying an amount
equal to the stated principal amount of the Allowed Claim for such holders and
any remaining consideration as satisfying accrued, but unpaid, interest and
costs, if any, and attorneys' fees where applicable.
I. CANCELLATION AND SURRENDER OF EXISTING SECURITIES AND
AGREEMENTS
On the Effective Date, the Senior Notes and Equity Interests shall
be deemed canceled and the underlying agreements and securities, including the
Senior Note Indenture (except as provided in Article VI.B.1.(a) of the Plan),
together with all instruments issued pursuant thereto, shall have no further
legal effect other than as evidence of any right to receive distributions, fees
and expenses under the Plan. In addition, the Indenture Trustee's obligations
shall be discharged, except as contemplated under Article VI.B. of the Plan.
Notwithstanding any other provision of the Plan, as a condition
precedent to receiving any distribution under the Plan, each holder of a
promissory note, share certificate, or other instrument or security evidencing a
Claim must tender such promissory note or other instrument or security to the
Reorganized Debtor or its designee or must execute and deliver an affidavit of
loss and furnish an indemnity or bond in substance and amount reasonably
satisfactory to the Reorganized Debtor and the Indenture Trustee.
Any holder of a Claim that fails to surrender such instrument or to
provide the affidavit and indemnity or bond, before the later to occur of (i)
the second anniversary of the Effective Date and (ii) six months following the
date such holder's Claim becomes an Allowed Claim shall be deemed to have
forfeited all rights and/or Claims and may not receive or participate in any
distribution under the Plan.
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Pursuant to the Plan, the Debtor, the Reorganized Debtor or the
Creditors Committee may, at any time, request that the Court estimate any
Disputed Claim pursuant to section 502(c) of the Bankruptcy Code regardless of
whether the Debtor, the Reorganized Debtor or the Creditors Committee have
previously objected to such Claim. The Court will retain jurisdiction to
estimate any Claim at any time, including during litigation concerning any
objection to such Claim. In the event that the Court estimates any Disputed
Claim, that estimated amount may constitute either the Allowed amount of such
Claim, the amount on which a reserve is to be calculated for purposes of the
Disputed Claims Reserve, or a maximum limitation on such Claim, as determined by
the Court. If the estimated amount constitutes a maximum limitation on such
Claim, the Debtor, the Reorganized Debtor or the Creditors Committee may elect
to pursue any supplemental proceedings to object to any ultimate payment of such
Claim. All of the aforementioned Claims objection, estimation and resolution
procedures are cumulative and not necessarily exclusive of one another.
J. ADMINISTRATIVE CLAIMS OF INDENTURE TRUSTEE
In addition to any other Administrative Claim that may be filed by
the Indenture Trustee, the Indenture Trustee shall have an Allowed
Administrative Claim in an amount equal to the reasonable and necessary fees and
expenses incurred by the Indenture Trustee and its legal counsel in accordance
with and to the extent provided for in the Senior Note Indenture for the period
covering the Petition Date through and including the Effective Date.
K. NONCONSENSUAL CONFIRMATION
As the holders of Equity Interests in Class 6 are deemed to reject
the Plan, the Debtor will seek to have the Court confirm the Plan under section
1129(b) of the Bankruptcy Code.
L. IMPLEMENTATION OF THE PLAN, THE AMENDED CERTIFICATE OF
INCORPORATION, THE AMENDED BY-LAWS AND OTHER
IMPLEMENTATION DOCUMENTS
On or before the Effective Date, pursuant to the Plan, the
Reorganized Debtor will execute the Amended Certificate of Incorporation, the
Amended By-Laws and other implementation documents, and Loehmann's Holdings will
execute the Loehmann's Holdings Certificate of Incorporation and Loehmann's
Holdings ByLaws, the Equity Incentive Plan and the Registration Rights
Agreement. Reorganized Loehmann's and Loehmann's Holdings will execute all other
documents required and necessary to implement the Plan, without the requirement
of any further corporate action.
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M. EFFECT OF CONFIRMATION OF THE PLAN
1 CONTINUED CORPORATE EXISTENCE
The Debtor, as Reorganized Debtor, shall continue to exist after the
Effective Date with all powers of a corporation under the laws of its state of
incorporation and without prejudice to any right to alter or terminate such
existence (whether by merger or otherwise) under such applicable state law; and
the Reorganized Debtor may operate its business free of any restrictions imposed
by the Bankruptcy Code, the Bankruptcy Rules or by the Court, subject only to
the terms and conditions of the Plan
2 VESTING OF ASSETS
To take advantage of certain state tax efficiencies, except as
otherwise expressly provided in the Plan, on the Effective Date, or as soon as
practicable thereafter, the Reorganized Debtor shall form two (2) subsidiaries.
Such subsidiaries shall be vested with all of the property of the Debtor's
estate free and clear of all Claims, Liens, encumbrances, charges and other
interests of creditors and equity security holders. Tangible assets shall be
transferred to one subsidiary and intangible assets shall be transferred to the
other. As a result of the transfer of assets into two newly formed subsidiaries,
Reorganized Loehmann's will become a holding company.
3 DISCHARGE OF THE DEBTOR
The rights afforded in the Plan and the treatment of all Claims and
Equity Interests in the Plan shall be in exchange for and in complete
satisfaction, discharge, and release of all Claims and Equity Interests of any
nature whatsoever, including any interest accrued on such Claims from and after
the Petition Date, against the Debtor, the Debtor in Possession, the Reorganized
Debtor or any of its assets or properties, arising prior to the Effective Date.
Except as otherwise expressly specified in the Plan, the Confirmation Order
shall act as of the Effective Date as a discharge of all debts of, Claims
against, Liens on, and Equity Interests in the Debtor, its assets and
properties, arising at any time before the entry of the Confirmation Order,
regardless of whether a proof of Claim or Equity Interest with respect thereto
was filed, whether the Claim or Equity Interest is Allowed or whether the holder
thereof votes to accept the Plan or is entitled to receive a distribution
thereunder. Except as otherwise expressly specified in the Plan, after the
Effective Date, any holder of such discharged Claim or Equity Interest shall be
precluded from asserting against the Debtor, the Reorganized Debtor or any of
its assets or properties, any other or further Claim or Equity Interest based on
any document, instrument, act, omission, transaction or other activity of any
kind or nature that occurred before the entry of the Confirmation Order.
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4 INJUNCTION
Except as otherwise expressly provided in the Plan, the Confirmation
Order, or any other order of the Court, all entities who have held, hold or may
hold Claims against or Equity Interests in the Debtor which arose before or were
held as of the Effective Date, are permanently enjoined, on and after the
Effective Date, from (a) commencing or continuing in any manner any action or
other proceeding of any kind against the Debtor with respect to any such Claim
or Equity Interest, (b) the enforcement, attachment, collection or recovery by
any manner or means of any judgment, award, decree or order against the Debtor
on account of any such Claim or Equity Interest, (c) creating, perfecting or
enforcing any encumbrance of any kind against the Debtor or against the property
or interests in property of the Debtor on account of any such Claim or Equity
Interest and (d) asserting any right of setoff, subrogation or recoupment of any
kind against any obligation due from the Debtor or against the property or
interests in property of the Debtor on account of any such Claim or Equity
Interest. Such injunction shall extend to successors of the Debtor (including,
without limitation, the Reorganized Debtor) and its respective properties and
interests in property.
5 EXTINGUISHMENT OF CAUSES OF ACTION UNDER THE
AVOIDING POWER PROVISIONS
On the Effective Date, all rights, claims, causes of action,
avoiding powers, suits and proceedings arising under sections 544, 545, 547,
548, 549 and 553 of the Bankruptcy Code shall be extinguished whether or not
then pending. While the Debtor has not conducted an exhaustive investigation,
the Debtor does not believe that the pursuit of such claims is warranted. The
Reorganized Debtor shall have, retain, reserve and be entitled to assert all
other Claims, Causes of Action, rights of setoff and other legal or equitable
defenses which the Debtor had immediately prior to the Petition Date as fully as
if the Chapter 11 Case had not been commenced; and all of the Reorganized
Debtor's legal and equitable rights respecting any such Claim which is not
specifically waived, extinguished or relinquished by the Plan may be asserted
after the Effective Date to the same extent as if the Chapter 11 Case had not
been commenced.
6 VOTES SOLICITED IN GOOD FAITH
The Plan provides that pursuant to section 1125(e) of the Bankruptcy
Code, the Debtor, the Creditors Committee and the Informal Noteholders Committee
have, and upon confirmation of the Plan shall be deemed to have, solicited
acceptances of the Plan in good faith and in compliance with the applicable
provisions of the Bankruptcy Code. The Plan further provides that pursuant to
section 1125(e) of the Bankruptcy Code, the Debtor and the Creditors Committee
(and their respective affiliates, agents, directors, officers, members,
employees, advisors, and attorneys) have participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code in the offer,
issuance, sale and purchase of the securities offered
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and sold under the Plan and therefore have not, and on account of such offer,
issuance, sale, solicitation and/or purchase will not be, liable at any time for
the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer, issuance,
sale or purchase of the securities offered and sold under the Plan.
7 ADMINISTRATIVE CLAIMS INCURRED AFTER THE
CONFIRMATION DATE
Administrative Claims incurred by the Reorganized Debtor after the
date and time of the entry of the Confirmation Order, including (without
limitation) Claims for professionals' fees and expenses incurred after such
date, including, without limitation, fees and expenses by the Reorganized
Debtor, the Creditors Committee and the Senior Note Indenture Trustee, shall not
be subject to application and may be paid by the Reorganized Debtor in the
ordinary course of business and without application for or Court approval.
8 THE DEBTOR'S RELEASE
On the Effective Date, pursuant to the Plan, the Debtor and the
Reorganized Debtor on behalf of themselves, and their estates, shall be deemed
to release unconditionally all of their respective officers, directors,
employees, advisors, attorneys, financial advisors, accountants and other
professionals, the Creditors Committee members, counsel to the Creditors
Committee, accountants to the Creditors Committee, the Informal Noteholders
Committee members, counsel to the Informal Noteholders Committee, the Senior
Note Indenture Trustee and each of their representatives and agents (including
any professionals retained by such persons or entities) (the "RELEASED PARTIES")
from any and all claims, obligations, suits, judgments, damages, rights, Causes
of Action and liabilities whatsoever, whether known or unknown, foreseen or
unforeseen, existing or thereafter arising, in law, equity or otherwise, based
in whole or in part upon actions taken in their respective capacities described
above or any omission, transaction, event or other occurrence taking place on or
prior to the Effective Date in any way relating to the Debtor, the Chapter 11
Case or the Plan, except that (i) no individual shall be released from any act
or omission that constitutes gross negligence or willful misconduct, and (ii)
the Reorganized Debtor shall not relinquish or waive the right to assert any of
the foregoing as a legal or equitable defense or right of set-off or recoupment
against any Claims of any such persons asserted against the Debtor. While the
Debtor has not conducted an exhaustive investigation with respect to any of the
claims that may be released under the Plan, the Debtor is not aware of any such
claims.
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9 EXCULPATION AND RELEASE AND INJUNCTION OF RELEASED
PARTIES
(A) EXCULPATION. The Plan provides that the Debtor, the
Reorganized Debtor, members of the Creditors Committee, members of the Informal
Noteholders Committee, the Senior Note Indenture Trustee and the other Released
Parties (i) shall have no liability whatsoever to any holder or purported holder
of an Administrative Claim, Claim or Equity Interest for any act or omission in
connection with, or arising out of, the negotiation of the Plan, the negotiation
of the other documents included in the Plan Supplement, the pursuit of approval
of the Disclosure Statement or the solicitation of votes for the Plan, the
Chapter 11 Case, the consummation of the Plan, the administration of the Plan or
the property to be distributed under the Plan or any transaction contemplated by
the Plan or Disclosure Statement or in furtherance thereof (including, without
limitation, the Equity Incentive Plan, employment contracts, programs and
arrangements adopted in connection with the Plan or the Chapter 11 Case), except
for willful misconduct or gross negligence as determined by a Final Order, and
(ii) in all respects, shall be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities under the Plan. This exculpation
shall be in addition to, and not in limitation of, all other releases,
indemnities, exculpations and any other applicable law or rules protecting such
Released Parties from liability.
(B) INJUNCTION. The Plan provides that pursuant to section 105
of the Bankruptcy Code, no holder or purported holder of an Administrative
Claim, Claim or Equity Interest shall be permitted to commence or continue any
action, employment of process, or any act to collect, offset or recover any
claim against a Released Party that accrued on or prior to the Effective Date
and has been released or waived pursuant to the Plan.
10 LIMITATION OF GOVERNMENTAL RELEASEs
The Plan provides that, notwithstanding Articles VII.I.1 and 2
thereof, it does not release, discharge or exculpate any non-debtor party from
any debt owed to the United States Government, and/or its agencies, including
the Pension Benefit Guaranty Corporation (the "GOVERNMENT"), or from any
liability arising under the Internal Revenue Code, the Employee Retirement
Income Security Act of 1974, as amended, or environmental laws, securities laws
or criminal laws of the United States. In addition, notwithstanding Articles
VII.I.1 and 2 of the Plan, the Plan does not enjoin or prevent the Government
from collecting any such liability from any such non-debtor party.
11 TERM OF BANKRUPTCY INJUNCTION OR STAYS
The Plan provides that all injunctions or stays provided for in the
Chapter 11 Case under sections 105 or 362 of the Bankruptcy Code, or otherwise,
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and in existence on the Confirmation Date, shall remain in full force and effect
until the Effective Date.
12 PRESERVATION OF INSURANCE
The Plan provides that the Debtor's discharge and release from all
Claims as provided in the Plan, does not diminish or impair the enforceability
of any insurance policy that may cover Claims against the Debtor, the
Reorganized Debtor (including, without limitation, its officers and directors)
or any other person or entity.
13 OFFICERS' AND DIRECTORS' INDEMNIFICATION RIGHTS AND
INSURANCE
The Plan provides that notwithstanding any other provision of the
Plan, the obligations of the Debtor to indemnify its present directors, officers
and employees against any obligations, liabilities, costs or expenses pursuant
to the articles of incorporation or By-Laws of the Debtor, applicable state law,
specific agreement or any combination of the foregoing, shall survive the
Effective Date.
N. RETENTION OF JURISDICTION
The Plan provides that the Court shall have exclusive jurisdiction
of all matters arising out of, and related to, the Chapter 11 Case and the Plan
pursuant to, and for the purposes of, section 105(a) and section 1142 of the
Bankruptcy Code and for, among other things, the following purposes: (1) to hear
and determine applications for the assumption or rejection of executory
contracts or unexpired leases pending on the Confirmation Date, and the
allowance of Claims resulting therefrom; (2) to determine any other
applications, adversary proceedings and contested matters pending on the
Effective Date; (3) to ensure that distributions to holders of Allowed Claims
are accomplished as provided by the Plan; (4) to resolve disputes as to the
ownership of any Claim or Equity Interest; (5) to hear and determine timely
objections to Administrative Claims and Claims; (6) to enter and implement such
orders as may be appropriate in the event the Confirmation Order is for any
reason stayed, revoked, modified or vacated; (7) to issue such orders in aid of
execution of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code; (8) to consider any modifications of the Plan, to cure any
defect or omission, or to reconcile any inconsistency in any order of the Court,
including, without limitation, the Confirmation Order; (9) to hear and determine
all applications for compensation and reimbursement of expenses of professionals
under sections 330, 331, and 503(b) of the Bankruptcy Code; (10) to hear and
determine disputes arising in connection with the interpretation, implementation
or enforcement of the Plan; (11) to hear and determine any issue for which the
Plan requires a Final Order of the Court; (12) to hear and determine matters
concerning state, local, and federal taxes in accordance with sections 346, 505
and 1146 of the Bankruptcy Code; (13) to hear any other matter not inconsistent
with the Bankruptcy Code; (14) to hear and determine disputes arising in
connection with compensation and reimbursement of expenses of
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professionals for services rendered during the period commencing on the
Confirmation Date through and including the Effective Date; and (15) to enter a
final decree closing the Chapter 11 Case.
O. MISCELLANEOUS PROVISIONS
1 PAYMENT OF STATUTORY FEES
The Plan provides that all fees payable on or before the Effective
Date (i) pursuant to section 1930 of title 28 of the United States Code, as
determined by the Court at the Confirmation Hearing, and (ii) to the United
States Trustee, shall be paid by the Debtor on or before the Effective Date and
all such fees payable after the Effective Date shall be paid by the Reorganized
Debtor.
2 DISSOLUTION OF CREDITORS COMMITTEE
The Plan provides that the appointment of the Creditors Committee
shall terminate on the Final Distribution Date.
3 MODIFICATION OF THE PLAN
The Plan provides that the Debtor reserves the right, in accordance
with the Bankruptcy Code, to amend or to modify the Plan prior to the entry of
the Confirmation Order with the prior consent of the Creditors Committee and the
Informal Noteholders Committee. The Plan also provides that after entry of the
Confirmation Order, the Reorganized Debtor or the Debtor may amend or modify the
Plan, or remedy any defect or omission or reconcile any inconsistency in the
Plan in such a manner as may be necessary to carry out the purpose and intent of
the Plan.
4 GOVERNING LAW
The Plan provides that unless a rule of law or procedure is supplied
by Federal law (including the Bankruptcy Code or Bankruptcy Rules) or the
Delaware General Corporation Law, the laws of the State of Delaware (without
reference to the conflicts of laws provisions thereof) will govern the
construction and implementation of the Plan and any agreements, documents and
instruments executed in connection with the Plan.
5 FILING OR EXECUTION OF ADDITIONAL DOCUMENTS
The Plan provides that on or before the Effective Date, the Debtor
or the Reorganized Debtor, will file with the Court or execute, as appropriate,
such agreements and other documents as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of the Plan.
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6 WITHHOLDING AND REPORTING REQUIREMENTS
The Plan provides that in connection therewith and all instruments
issued in connection therewith and distributions thereon, the Reorganized Debtor
shall comply with all withholding and reporting requirements imposed by any
federal, state, local or foreign taxing authority and all distributions
thereunder will be subject to any such withholding and reporting requirements.
7 EXEMPTION FROM TRANSFER TAXES
The Plan provides that pursuant to section 1146(c) of the Bankruptcy
Code, the issuance, transfer or exchange of New Senior Notes or New Common Stock
under the Plan, the making or assignment of any lease or sublease or the making
or delivery of any other instrument whatsoever, in furtherance of or in
connection with the Plan will not be subject to any stamp, real estate transfer,
recording or other similar tax.
8 SECTION 1145 EXEMPTION
Pursuant to, in accordance with, and solely to the extent provided
under section 1145 of the Bankruptcy Code, the issuance of New Senior Notes and
New Common Stock to the Debtor's creditors under the Plan is exempt from the
registration requirements of section 5 of the Securities Act, as amended, and
any State or local law requiring registration for offer or sale of a security or
registration or licensing of an issuer of, underwriter of, or broker or dealer
in such New Senior Notes and New Common Stock and is deemed to be a public
offering of New Senior Notes and New Common Stock.
9 WAIVER OF FEDERAL RULE OF CIVIL PROCEDURE 62(A)
The Debtor may request that the Confirmation Order include (a) a
finding that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order and
(b) authorization for the Debtor to consummate the Plan immediately after entry
of the Confirmation Order.
10 PLAN SUPPLEMENT
Forms of the documents relating to the Amended Certificate of
Incorporation, the Amended By-Laws, the Loehmann's Holdings Certificate of
Incorporation and By-Laws, the New Notes Indenture, the Registration Rights
Agreement, the investment guidelines referred to in Article V.B.3(b)(ii) of the
Plan and the Equity Incentive Plan will be contained in the Plan Supplement
which will be filed with the Clerk of the Court prior to the Confirmation
Hearing. The Plan Supplement may be inspected in the office of the Clerk of the
Court during normal court hours.
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11 SETOFF BY THE UNITED STATES
Pursuant to the Plan, the valid setoff rights, if any, of the United
States of America will be unaffected by the Plan or confirmation thereof.
P. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Bankruptcy Code grants the Debtor the power, subject to the
approval of the Court, to assume or reject executory contracts and unexpired
leases. If an executory contract or unexpired lease is rejected, the other party
to the agreement may file a claim for damages, if any, incurred by reason of the
rejection. In the case of rejection of leases of real property and employment
agreements, such damage claims are subject to certain limitations imposed by the
Bankruptcy Code.
Other than (i) executory contacts or unexpired leases which (x) are
the subject of a motion to reject pending on the Confirmation Date, (y) were
previously assumed or rejected by the Debtor, or (z) have expired or terminated
pursuant to their own terms during the pendency of the Chapter 11 Case, and (ii)
employment agreements, if any, terminated prior to or in connection with the
Plan, all of the executory contracts, unexpired leases and employment agreements
that exist between the Debtor and any person are specifically assumed as of the
Effective Date pursuant to the Plan. All Claims for damages arising from the
rejection of executory contracts or unexpired leases must be filed with the
Court in accordance with the terms of the order authorizing such rejection. Any
Claims not filed within such time will be forever barred from assertion against
the Debtor, its estate and the Reorganized Debtor. All Allowed Claims arising
from the rejection of executory contracts or unexpired leases shall be treated
as Class 5 General Unsecured Claims (subject to the claimant's option to have
the claim treated as a Class 4 Convenience Claim; see Section VIII.B.7, "Class 4
-- Convenience Claims," above). The Reorganized Debtor, except as otherwise
agreed by the parties, will cure any and all undisputed defaults within 60 days
of the Effective Date under any executory contract, unexpired lease or
employment agreement assumed pursuant to the Plan in accordance with section 365
of the Bankruptcy Code. All disputed defaults that are required to be cured
shall be cured either within 30 days of the entry of a Final Order determining
the amount, if any, of the liability of the Debtor or the Reorganized Debtor
with respect thereto, or as may otherwise be agreed to by the parties.
Q. BENEFIT PLANS
The Plan provides that all employment and severance agreements and
policies, and all employee compensation and benefit plans, policies and programs
of the Debtor applicable generally to its employees, including agreements and
programs subject to section 1114 of the Bankruptcy Code, as in effect on the
Effective Date, including, without limitation, all savings plans, retirement
plans, health care plans, disability plans, severance benefit plans, incentive
plans, and life accidental death and dismemberment insurance plans, shall be
deemed to be, and shall be treated as though
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they are, executory contracts that are assumed under the Plan, and the Debtor's
obligations under such agreements and programs shall survive the Effective Date
of the Plan, without prejudice to the Reorganized Debtor's rights under
applicable non-bankruptcy law to modify, amend, or terminate the foregoing
arrangements, except for (i) such executory contracts or plans specifically
rejected pursuant to the Plan (to the extent such rejection does not violate
section 1114 of the Bankruptcy Code) and (ii) such executory contracts or plans
as have previously been terminated, or rejected, pursuant to a Final Order, or
specifically waived by the beneficiaries of such plans, contracts or programs.
IX.
PROJECTIONS AND VALUATION ANALYSIS
The Debtor and its advisors developed a set of financial projections
(summarized below and in Exhibit D) to assess the value of the Reorganized
Debtor generally, and specifically the value of the New Common Stock to be
distributed to Class 5 under the Plan. The projections and valuations set forth
below and in Exhibit D are based on a number of significant assumptions
including, among other things, the successful reorganization of the Debtor, an
assumed Effective Date of October 1, 2000 and no significant downturn in the
specific markets in which the Debtor operates.
THE PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS.
ACTUAL OPERATING RESULTS AND VALUES MAY VARY.
A. PROJECTIONS
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that the Bankruptcy Court determine that
confirmation is not likely to be followed by the liquidation or the need for
further financial reorganization of the debtor. In connection with the
development of the Plan, and for purposes of determining whether the Plan
satisfies this feasibility standard, Loehmann's management has, through the
development of financial projections (the "PROJECTIONS"), analyzed the ability
of Loehmann's to meet its obligations under the Plan to maintain sufficient
liquidity and capital resources to conduct its business. The Projections were
also prepared to assist each holder of a Claim in Classes 4 and 5 in determining
whether to accept or reject the Plan.
The Projections should be read in conjunction with the assumptions,
qualifications and footnotes to the tables containing the Projections set forth
herein and in Exhibit D, the historical consolidated financial information
(including the notes and schedules thereto) and the other information set forth
in Loehmann's Annual Report on Form 10-K for the fiscal year ended January 29,
2000 and Loehmann's
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Quarterly Report on Form 10-Q for the period ended April 29, 2000 annexed hereto
as Exhibits C and F, respectively, the full texts of which are incorporated
herein by reference. The Projections were prepared in good faith based upon
assumptions believed to be reasonable. The Projections, which were prepared in
June 2000, were based, in part, on economic, competitive, and general business
conditions prevailing at the time. While as of the date of this Disclosure
Statement such conditions have not materially changed, any future changes in
these conditions may materially impact the ability of Loehmann's to achieve the
Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH
THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. LOEHMANN'S INDEPENDENT ACCOUNTANT,
ERNST & YOUNG, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY,
HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT
THERETO.
LOEHMANN'S DOES NOT, AS A MATTER OF COURSE, PUBLISH PROJECTIONS OF
ITS ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, LOEHMANN'S DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A)
FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO
THE EFFECTIVE DATE OR TO HOLDERS OF NEW COMMON STOCK OR ANY OTHER PARTY AFTER
THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS THAT
MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED
INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN
PREPARED EXCLUSIVELY BY LOEHMANN'S MANAGEMENT. THESE PROJECTIONS, WHILE
PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF
ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY
NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC
AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND
LOEHMANN'S' CONTROL. LOEHMANN'S CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS
TO THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO REORGANIZED LOEHMANN'S'
ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE
ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM
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ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED AND THUS THE OCCURRENCE
OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE
MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR
OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
FINALLY, THE PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE ENTERPRISE
VALUE OF REORGANIZED LOEHMANN'S, THE FAIR VALUE OF ITS ASSETS AND ITS ACTUAL
LIABILITIES AS OF THE EFFECTIVE DATE. REORGANIZED LOEHMANN'S WILL BE REQUIRED TO
MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED
UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER
THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES.
B. VALUATION
Two methodologies were used to derive the value of Reorganized
Loehmann's based on the Projections: (i) a comparison of the company and its
projected performance to how the market values comparable companies, and (ii) a
calculation of the present value of the free cash flows under the Projections,
including an assumption for a terminal value.
The market based approach involves identifying a group of publicly
traded companies whose businesses or product lines are comparable to those of
Loehmann's as a whole or significant portions of the company's operations, and
then calculating ratios of various financial results to the public market values
of these companies. The ranges of ratios derived are then applied to Loehmann's
projected financial results to derive a range of implied values. The discounted
cash flow approach involves deriving the unleveraged free cash flows that
Loehmann's would generate assuming the projections were realized. These cash
flows, and an estimated value of the company at the end of the projected period
(the "TERMINAL VALUE"), are discounted to the present at Loehmann's estimated
post-restructuring weighted average cost of capital to determine the company's
enterprise value.
ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY
NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD. THE
ESTIMATES OF VALUE REPRESENT HYPOTHETICAL REORGANIZED ENTERPRISE VALUES ASSUMING
THE IMPLEMENTATION OF MANAGEMENT'S PROJECTIONS AS WELL AS OTHER SIGNIFICANT
ASSUMPTIONS. SUCH ESTIMATES WERE DEVELOPED SOLELY FOR PURPOSES OF FORMULATING
AND NEGOTIATING A PLAN OF REORGANIZATION AND ANALYZING THE PROJECTED RECOVERIES
THEREUNDER.
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Based upon the methods described above, the estimated enterprise
value for Reorganized Loehmann's is between $90 million and $120 million, with a
midpoint value of $105 million. After deducting the estimated, long-term
indebtedness of Loehmann's under the New Secured Credit Facility at the
Effective Date of approximately $30 million, the estimated value distributable
to general unsecured creditors is between $60 million and $90 million, with a
midpoint value of $75 million. Of the $75 million in distributable value, $25
million will be issued in New Senior Notes to general unsecured creditors, and
the assumed value of the New Common Stock will be $50 million. Therefore,
assuming 3,333,333 shares of New Common Stock will be issued on the Effective
Date, the range of values of New Common Stock is estimated to be $10.50 to
$19.50 per share, with a midpoint value of $15.00 per share.
THE ESTIMATED ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING
THE FUTURE FINANCIAL RESULTS SET FORTH IN THE PROJECTIONS AS WELL AS THE
REALIZATION OF CERTAIN OTHER ASSUMPTIONS WHICH ARE NOT GUARANTEED.
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION
VALUES AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC
OR PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN THE ANALYSIS DOES NOT PURPORT
TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING VALUE,
IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION EQUITY VALUE RANGES
ASSOCIATED WITH THE VALUATION ANALYSIS.
X.
CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET FORTH
IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH
AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN.
THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY
RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.
The ultimate recoveries under the Plan to holders of Claims depend
upon the realizable value of the New Senior Notes and New Common Stock. The
securities to be issued pursuant to the Plan are subject to a number of material
risks, including, but not limited to, those specified below. The factors
specified below assume that the Plan is approved by the Bankruptcy Court and
that the Effective Date
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occurs on or about October 1, 2000. Although such risk factors are based upon a
October 1, 2000 Effective Date, Loehmann's believes that an actual Effective
Date later in the third quarter of Fiscal 2000 would not have any material
effect on the risk factors.
A. PROJECTED FINANCIAL INFORMATION
The financial projections included in this Disclosure Statement are
dependent upon the successful implementation of the Reorganized Debtor's
business plan and the validity of the other assumptions contained therein. These
projections reflect numerous assumptions, including confirmation and
consummation of the Plan in accordance with its terms, and anticipated future
performance of Loehmann's, retail industry performance, certain assumptions with
respect to competitors of Loehmann's, general business and economic conditions
and other matters, many of which are beyond the control of Loehmann's. In
addition, unanticipated events and circumstances occurring subsequent to the
preparation of the projections may affect the actual financial results of
Loehmann's. Although Loehmann's believes that the projections are reasonably
attainable, variations between the actual financial results and those projected
may occur and be material.
B. ABILITY TO REFINANCE CERTAIN INDEBTEDNESS AND
RESTRICTIONS IMPOSED BY INDEBTEDNESS
Following the Effective Date of the Plan, the Reorganized Debtor's
working capital borrowings and letters of credit requirements are anticipated to
be funded by a new credit facility (the "NEW CREDIT FACILITY"), a portion of the
proceeds of which will be used to repay in full the DIP Credit Facility. There
can be no assurance that the Reorganized Debtor will be able to obtain such
financing or that such financing may be obtained on acceptable terms.
The New Credit Facility and the New Notes Indenture will restrict,
among other things, the ability of Reorganized Loehmann's and Loehmann's
Holdings to incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, create liens on assets,
enter into transactions with affiliates, make investments, loans or advances,
consolidate or merge with or into any other person or convey, transfer or lease
all or substantially all of its assets or change the business to be conducted by
Reorganized Loehmann's. In addition, the New Credit Facility may contain certain
other and more restrictive covenants and will prohibit Loehmann's Holdings from
prepaying certain indebtedness, including the New Senior Notes. A breach of any
of these covenants could result in a default under the New Credit Facility or
the New Notes Indenture. Further, the restrictions in the New Notes Indenture
and the New Credit Facility likely will therefore restrict the ability of
Reorganized Loehmann's and Loehmann's Holdings to obtain additional financing
for working capital, capital expenditures or general corporate purposes. In
addition, substantially all of the assets of Loehmann's will be pledged as
security under the New Credit Facility.
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Reorganized Loehmann's' indebtedness will also require substantial
debt service payments, which will restrict its ability to use its operating cash
flow for capital expenditures and other working capital requirements.
C. COMPETITIVE CONDITIONS AND NEED TO FUND FUTURE
CAPITAL REQUIREMENTS
The off-price retail apparel business is highly competitive and may
be affected by general economic conditions. The number of competitors and the
degree of competition experienced by Loehmann's' stores vary by location.
Loehmann's competes with several multi-regional and regional off-price retailers
and department stores and other retailers. In addition, in order to continue to
remain competitive over time, Loehmann's will be required to make substantial
capital expenditures to remodel and replace its existing retail stores.
Loehmann's anticipates utilizing its operating cash flow and amounts available
under the New Credit Facility to finance these capital expenditure requirements.
D. SIGNIFICANT HOLDERS
If holders of significant numbers of shares of New Common Stock were
to act as a group, such holders could be in a position to control the outcome of
actions requiring stockholder approval, including the election of directors.
This concentration of ownership could also facilitate or hinder a negotiated
change of control of Loehmann's Holdings and, consequently, have an impact upon
the value of the New Common Stock.
Further, the possibility that one or more of the holders of
significant numbers of shares of New Common Stock may determine to sell all or a
large portion of their shares of New Common Stock in a short period of time may
adversely affect the market price of the New Common Stock.
E. LACK OF ESTABLISHED MARKET FOR NEW COMMON STOCK
The Debtor shall use its best efforts to cause the New Common Stock
to be listed on a national securities exchange. There can be no assurance that
such an application will be approved.
The New Common Stock will be issued to holders of Allowed General
Unsecured Claims, some or all of whom may prefer to liquidate their investment
rather than to hold it on a long-term basis. There currently is no trading
market for the New Common Stock nor is it known whether or when one would
develop. Further, there can be no assurance as to the degree of price volatility
in any such market. While the Plan was developed based on an assumed
reorganization value of $15 per share of the New Common Stock (which was
calculated based on the company's mid-point enterprise valuation), such
valuation is not an estimate of the price at which the New Common Stock may
trade in the market. Loehmann's has not
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attempted to make any such estimate in connection with the development of the
Plan. No assurance can be given as to the market prices that will prevail
following the Effective Date.
F. LACK OF TRADING MARKET FOR NEW NOTES
After the issuance of the New Senior Notes pursuant to the Plan,
there can be no assurance that an active trading market will develop therefor.
Further, there can be no assurance as to the degree of price volatility in any
such market. Accordingly, no assurance can be given that any holder of such
securities will be able to sell such securities or as to the price at which any
sale may occur. If such market were to exist, such securities could trade at
prices higher or lower than the value attributed to such securities hereunder,
depending upon many factors, including, without limitation, the prevailing
interest rates, markets for similar securities, industry conditions and the
performance of, and investor expectations for, Loehmann's on a reorganized
basis.
G. DIVIDEND POLICIES
The Debtor does not anticipate paying any dividends on the New
Common Stock in the foreseeable future. In addition, the covenants in certain
debt instruments to which Reorganized Loehmann's will be a party (including the
New Credit Facility) may limit the ability of Loehmann's Holdings to pay
dividends. Certain institutional investors may only invest in dividend-paying
equity securities or may operate under other restrictions which may prohibit or
limit their ability to invest in New Common Stock.
H. CERTAIN BANKRUPTCY LAW CONSIDERATIONS
1 RISK OF NON-CONFIRMATION OF THE PLAN
Although Loehmann's believes that the Plan will satisfy all
requirements necessary for confirmation by the Court, there can be no assurance
that the Bankruptcy Court will reach the same conclusion. Moreover, there can be
no assurance that modifications of the Plan will not be required for
confirmation or that such modifications would not necessitate the resolicitation
of votes.
2 RISK OF NON-OCCURRENCE OF THE EFFECTIVE DATE
Although Loehmann's believes that the Effective Date may occur as
soon as 10 days after the entry of the Confirmation Order, there can be no
assurance as to such timing or that such conditions will ever occur.
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I. CERTAIN TAX MATTERS
For a summary of certain federal income tax consequences of the Plan
to holders of Claims and to Loehmann's, see Section XVI, "Certain Federal Income
Tax Consequences Of The Plan."
XI.
CONFIRMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken to
confirm the Plan:
A. SOLICITATION OF VOTES
In accordance with sections 1126 and 1129 of the Bankruptcy Code,
the Claims and Equity Interests in Classes 4, 5 and 6 of the Plan are impaired
and the holders of Allowed Claims in Classes 4 and 5 are entitled to vote to
accept or reject the Plan. Claims in Classes 1, 2 and 3 are unimpaired. The
holders of Allowed Claims in each of such Classes are conclusively presumed to
have accepted the Plan and the solicitation of acceptances with respect to such
Classes therefore is not required under section 1126(f) of the Bankruptcy Code.
As the holders of Class 6 Equity Interests shall receive no distribution under
the Plan, the holders of such claims are presumed to have voted to reject the
Plan and the solicitation of acceptances with respect to such Class is therefore
not required under section 1126(g) of the Bankruptcy Code.
As to classes of claims entitled to vote on a plan, the Bankruptcy
Code defines acceptance of a plan by a class of creditors as acceptance by
holders of at least two-thirds in dollar amount and more than one-half in number
of the claims of that class that have timely voted to accept or reject a plan.
A vote may be disregarded if the Court determines, after notice and
a hearing, that acceptance or rejection was not solicited or procured in good
faith or in accordance with the provisions of the Code.
Any creditor in an impaired Class (i) whose Claim has been listed by
the Debtor in the Debtor's Schedules filed with the Court (provided that such
Claim has not been scheduled as disputed, contingent or unliquidated) or (ii)
who filed a proof of claim on or before November 8, 1999 (or, if not filed by
such date, any proof of claim filed within any other applicable period of
limitations or with leave of the Court), which Claim is not the subject of an
objection or request for estimation, is entitled to vote.
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B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Court, after notice, to hold a
confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled for September 6, 2000 at 10:30 a.m., Eastern Time, before the
Honorable Mary F. Walrath at the United States Bankruptcy Court for the District
of Delaware, 824 North Market Street, Wilmington, Delaware 19801. The
Confirmation Hearing may be adjourned from time to time by the Court without
further notice except for an announcement of the adjourned date made at the
Confirmation Hearing. Any objection to confirmation must be made in writing and
specify in detail the name and address of the objector, all grounds for the
objection and the amount of the Claim or number of shares of common stock of the
Debtor or other Interests held by the objector. Any such objection must be filed
with the Court and served so that it is received by the Court and the following
parties on or before August 30, 2000 at 4:00 p.m., Eastern Time:
Paul, Weiss, Rifkind, Wharton & Garrison Young Conaway Stargatt & Taylor, LLP
Attorneys for the Debtor Attorneys for the Debtor
1285 Avenue of the Americas 1110 North Market Street
New York, New York 10019-6064 Rodney Square North, 11th Floor
Attn: Alan W. Kornberg, Esq. Wilmington, Delaware 19801
Jeffrey D. Saferstein, Esq. Attn: Pauline K. Morgan, Esq.
Kronish Lieb Weiner & Hellman LLP Morris, Nichols, Arsht & Tunnell
Attorneys for the Creditors Committee Attorneys for the Creditors Committee
1114 Avenue of the Americas 1201 North Market Street
New York, New York 10036-7798 P.O. Box 1347
Attn: Lawrence C. Gottlieb, Esq. Wilmington, Delaware 19899-1347
Robert J. Feinstein, Esq. Attn: Robert J. Dehney, Esq.
Office of the United States Trustee Andrews & Kurth, L.L.P.
601 Walnut Street Attorneys for the Informal Noteholders
Curtis Center, Suite 950 West Committee
Philadelphia, Pennsylvania 19106 805 Third Avenue
Attn: Patricia Staiano, Esq. New York, New York 10022
Attn: Paul N. Silverstein, Esq.
Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014 and
orders of the Bankruptcy Court.
C. CONFIRMATION
At the Confirmation Hearing, the Court will confirm the Plan only if
all of the requirements of section 1129 of the Bankruptcy Code are met. Among
the requirements for confirmation of a plan are that the plan is (i) accepted by
all impaired classes of claims and equity interests or, if rejected by an
impaired class,
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that the plan "does not discriminate unfairly" and is "fair and equitable" as to
such class, (ii) feasible and (iii) in the "best interests" of creditors and
stockholders that are impaired under the plan.
1 ACCEPTANCE
Classes 4, 5 and 6 of the Plan are impaired under the Plan. Class 6
is presumed to have rejected the Plan. Classes 1, 2 and 3 of the Plan are
unimpaired and, therefore, are conclusively presumed to have voted to accept the
Plan. Thus, only Classes 4 and 5 can vote to accept or reject the Plan. If Class
4 or 5 rejects the Plan, the Debtor reserves the right to amend the Plan in
accordance with Article IX.C of the Plan or to seek nonconsensual confirmation
of the Plan under section 1129(b) of the Bankruptcy Code, or both, with respect
to Classes 4 and 5.
2 UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS
To obtain nonconsensual confirmation of the Plan, it must be
demonstrated to the Court that the Plan "does not discriminate unfairly" and is
"fair and equitable" with respect to each impaired, nonaccepting Class. The
Bankruptcy Code provides a non-exclusive definition of the phrase "fair and
equitable." The Bankruptcy Code establishes "cram down" tests for unsecured
creditors and equity holders, as follows:
(A) SECURED CREDITORS. Either (i) each impaired creditor
retains its liens securing its secured claim and receives on account of its
secured claim deferred cash payments having a present value equal to the amount
of its allowed secured claim, (ii) each impaired secured creditor realizes the
"indubitable equivalent" of its allowed secured claim or (iii) the property
securing the claim is sold free and clear of liens with such liens to attach to
the proceeds of the sale and the treatment of such liens on proceeds to be as
provided in clause (i) or (ii) of this subparagraph.
(B) UNSECURED CREDITORS. Either (i) each impaired unsecured
creditor receives or retains under the plan property of a value equal to the
amount of its allowed claim or (ii) the holders of claims and interests that are
junior to the claims of the dissenting class will not receive any property under
the plan.
(C) EQUITY INTERESTS. Either (i) each holder of an equity
interest will receive or retain under the plan property of a value equal to the
greatest of the fixed liquidation preference to which such holder is entitled,
the fixed redemption price to which such holder is entitled or the value of its
interest or (ii) the holder of an interest that is junior to the nonaccepting
class will not receive or retain any property under the plan.
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3 FEASIBILITY
The Bankruptcy Code permits a plan to be confirmed if it is not
likely to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Plan meets this
requirement, the Debtor has analyzed its ability to meet its obligations under
the Plan. As part of this analysis, the Debtor has prepared projections of its
financial performance for the five fiscal year period ending January 31, 2005
(the "PROJECTION PERIOD"). These projections, and the assumptions on which they
are based, are included in the Projected Financial Information, annexed hereto
as Exhibit D. Based upon such projections, the Debtor believes that it will be
able to make all distributions required pursuant to the Plan and, therefore,
that confirmation of the Plan is not likely to be followed by liquidation or the
need for further reorganization.
The financial information and projections appended to the Disclosure
Statement include for the Projection Period:
o Pro-forma Reorganized Loehmann's balance sheet at October 1,
2000, including all reorganization and fresh-start
adjustments.
o Projected balance sheets for fiscal years ending in 2001,
2002, 2003, 2004 and 2005.
o Projected income statements for fiscal years ending in 2001,
2002, 2003, 2004 and 2005.
o Projected statements of cash flow for the fiscal years ending
in 2001, 2002, 2003, 2004 and 2005.
The pro forma financial information and the projections are based on
the assumption that the Plan will be confirmed by the Court and, for projection
purposes, that the Effective Date under the Plan will occur on October 1, 2000.
Although the projections and information are based upon a October 1, 2000
Effective Date, the Debtor believes that an actual Effective Date in the third
quarter of fiscal year 2000 would not have any material effect on the
projections.
The Debtor has prepared these financial projections based upon
certain assumptions that it believes to be reasonable under the circumstances.
Those assumptions considered to be significant are described in the financial
projections, which are annexed hereto as Exhibit D. The financial projections
have not been examined or compiled by independent accountants. The Debtor makes
no representation as to the accuracy of the projections or their ability to
achieve the projected results. Many of the assumptions on which the projections
are based are subject to significant uncertainties. Inevitably, some assumptions
will not materialize and unanticipated events and circumstances may affect the
actual financial results. Therefore, the actual results achieved throughout the
Projection Period may vary from
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the projected results and the variations may be material. All holders of Claims
that are entitled to vote to accept or reject the Plan are urged to examine
carefully all of the assumptions on which the financial projections are based in
evaluating the Plan.
4 BEST INTERESTS TEST
With respect to each impaired Class of Claims and Equity Interests,
confirmation of the Plan requires that each holder of an Allowed Claim or Equity
Interest either (i) accept the Plan or (ii) receive or retain under the Plan
property of a value, as of the Effective Date, that is not less than the value
such holder would receive or retain if the Debtor was liquidated under chapter 7
of the Bankruptcy Code. To determine what holders of Claims and Equity Interests
of each impaired Class would receive if the Debtor was liquidated under chapter
7, the Bankruptcy Court must determine the dollar amount that would be generated
from the liquidation of the Debtor's assets and properties in the context of a
chapter 7 liquidation case. The Cash amount that would be available for
satisfaction of Claims and Equity Interests would consist of the proceeds
resulting from the disposition of the unencumbered assets and properties of the
Debtor, augmented by the unencumbered Cash held by the Debtor at the time of the
commencement of the liquidation case. Such Cash amount would be reduced by the
amount of the costs and expenses of the liquidation and by such additional
administrative and priority claims that might result from the termination of the
Debtor's business and the use of chapter 7 for the purposes of liquidation.
The Debtor's costs of liquidation under chapter 7 would include the
fees payable to a chapter 7 trustee, as well as those fees that might be payable
to attorneys and other professionals that such a trustee might engage. In
addition, claims would arise by reason of the breach or rejection of obligations
incurred and leases and executory contracts assumed or entered into by the
Debtor during the pendency of the Chapter 11 Case. The foregoing types of claims
and other claims that might arise in a liquidation case or result from the
pending Chapter 11 Case, including any unpaid expenses incurred by the Debtor
and the Creditors Committee during the Chapter 11 Case such as compensation for
attorneys, financial advisors and accountants, would be paid in full from the
liquidation proceeds before the balance of those proceeds would be made
available to pay prepetition Claims.
To determine if the Plan is in the best interests of each impaired
class, the present value of the distributions from the proceeds of a liquidation
of the Debtor's unencumbered assets and properties, after subtracting the
amounts attributable to the foregoing claims, are then compared with the value
of the property offered to such Classes of Claims and Equity Interests under the
Plan.
After considering the effects that a chapter 7 liquidation would
have on the ultimate proceeds available for distribution to creditors in the
Chapter 11 Case, including (i) the increased costs and expenses of a liquidation
under chapter 7 arising from fees payable to a trustee in bankruptcy and
professional advisors to such trustee,
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(ii) the erosion in value of assets in a chapter 7 case in the context of the
expeditious liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail and (iii) the substantial increases in Claims
which would be satisfied on a priority basis or on parity with creditors in the
Chapter 11 Case, the Debtor has determined that confirmation of the Plan will
provide each holder of an Allowed Claim or Equity Interest with a recovery that
is not less than such holder would receive pursuant to liquidation of the Debtor
under chapter 7.
The Debtor also believes that the value of any distributions to each
class of Allowed Claims in a chapter 7 case, including all Secured Claims, would
be less than the value of distributions under the Plan because such
distributions in a chapter 7 case would not occur for a substantial period of
time. It is likely that distribution of the proceeds of the liquidation could be
delayed for two years after the completion of such liquidation in order to
resolve Claims and prepare for distributions. In the likely event litigation
were necessary to resolve Claims asserted in the chapter 7 case, the delay could
be prolonged.
The Debtor's Liquidation Analysis is attached hereto as Exhibit E.
The information set forth in Exhibit E provides a summary of the liquidation
values of the Debtor's assets, assuming a chapter 7 liquidation in which a
trustee appointed by the Bankruptcy Court would liquidate the assets of the
Debtor's estate. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis. The
Liquidation Analysis was prepared by the Debtor with the assistance of
Blackstone.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by management,
are inherently subject to significant economic and competitive uncertainties and
contingencies beyond the control of the Debtor and its management. The
Liquidation Analysis is also based on assumptions with regard to liquidation
decisions that are subject to change. Accordingly, the values reflected might
not be realized if the Debtor was, in fact, to undergo such a liquidation. The
chapter 7 liquidation period is assumed to be a period of more than one year,
allowing for, among other things, the (i) discontinuation of operations, (ii)
selling of assets and (iii) collection of receivables.
XII.
EFFECTIVENESS OF THE PLAN
A. CONDITIONS PRECEDENT TO EFFECTIVENESS
The Plan shall not become effective unless and until it has been
confirmed and the following conditions have been satisfied in full or waived
pursuant to Article XII.B thereof: (1) the Confirmation Order in a form
satisfactory to the
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Debtor, the Creditors Committee and the Informal Noteholders Committee shall
have become a Final Order; (2) the Amended Certificate of Incorporation shall
have been properly filed with the Secretary of State of the State of Delaware;
(3) the Loehmann's Holdings Certificate of Incorporation shall have been
properly filed with the Secretary of State of the State of Delaware; (4) all
authorizations, consents and regulatory approvals required (if any) for the
Plan's effectiveness shall have been obtained; and (5) and on the Effective
Date, the Reorganized Debtor has entered into a senior secured New Credit
Facility, on terms acceptable to the Creditors Committee and the Informal
Noteholders Committee.
B. WAIVER OF CONDITIONS
The Debtor may waive any or all of the other conditions set forth in
Article XII.A of the Plan, with the prior consent of the Creditors Committee and
the Informal Noteholders Committee, without leave of or order of the Court and
without any formal action.
C. EFFECT OF FAILURE OF CONDITIONS
In the event that the Effective Date does not occur on or before one
hundred twenty (120) days after the Confirmation Date, upon notification
submitted by the Debtor to the Court: (a) the Confirmation Order shall be
vacated, (b) no distributions under the Plan shall be made, (c) the Debtor and
all holders of Claims and Equity Interests shall be restored to the STATUS QUO
ANTE as of the day immediately preceding the Confirmation Date as though the
Confirmation Date had never occurred, and (d) the Debtor's obligations with
respect to the Claims and Equity Interests shall remain unchanged and nothing
contained in the Plan shall constitute or be deemed a waiver or release of any
Claims or Equity Interests by or against the Debtor or any other person or to
prejudice in any manner the rights of the Debtor or any person in any further
proceedings involving the Debtor.
D. VACATUR OF PLAN
If an order denying confirmation of the Plan is entered, then the
Plan shall be null and void in all respects, and nothing contained in the Plan
shall (a) constitute a waiver or release of any Claims against or Equity
Interests in the Debtor; (b) prejudice in any manner the rights of the holder of
any Claim against, or Equity Interest in, the Debtor; (c) prejudice in any
manner any right, remedy or claim of the Debtor; or (d) be deemed an admission
against interest by the Debtor.
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XIII.
SECURITIES LAWS MATTERS
No registration statement will be filed under the Securities Act of
1933, as amended (the "SECURITIES ACT"), or any state securities laws with
respect to the offer and distribution under the Plan of New Common Stock and New
Senior Notes (the "PLAN SECURITIES"). The Debtor believes that the provisions of
section 1145(a)(1) exempt the offer and distribution of the Plan Securities to
the Debtor's creditors from federal and state securities registration
requirements.
A. BANKRUPTCY CODE EXEMPTIONS FROM
REGISTRATION REQUIREMENTS
1 INITIAL OFFER AND SALE OF PLAN SECURITIES
Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale
of securities under a plan of reorganization from registration under the
Securities Act and state laws if three principal requirements are satisfied: (i)
the securities must be offered and sold under a plan of reorganization and must
be securities of the debtor, of an affiliate participating in a joint plan with
the debtor or of a successor to the debtor under the plan; (ii) the recipients
of the securities must each hold a prepetition or administrative expense claim
against the debtor or an interest in the debtor; and (iii) the securities must
be issued entirely in exchange for the recipient's claim against or interest in
the debtor, or principally in such exchange and partly for cash or property.
Loehmann's believes that the offer and sale of the Plan Securities under the
Plan satisfy the requirements of section 1145(a)(1) of the Bankruptcy Code and
are, therefore, exempt from registration under the Securities Act and state
securities laws.
2 SUBSEQUENT TRANSFERS OF PLAN SECURITIES
In general, all resales and subsequent transactions in the New
Common Stock and New Senior Notes distributed under the Plan will be exempt from
registration under the Securities Act pursuant to section 4(1) of the Securities
Act, unless the holder thereof is deemed to be an "underwriter" with respect to
such securities, an "affiliate" of the issuer of such securities or a "dealer."
Section 1145(b) of the Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in or a
claim for administrative expense against the debtor with a
view to distributing any security received in exchange for
such a claim or interest ("accumulators");
(ii) persons who offer to sell securities offered under a plan for
the holders of such securities ("distributors");
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(iii) persons who offer to buy securities from the holders of such
securities, if the offer to buy is (a) with a view to
distributing such securities and (b) made under a distribution
agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes any "affiliate"
of the issuer, which means any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with the
issuer. Under section 2(12) of the Securities Act, a "dealer" is any person who
engages either for all or part of his or her time, directly or indirectly, as
agent, broker or principal, in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person. Whether or
not any particular person would be deemed to be an "underwriter" or an
"affiliate" with respect to any Plan Security or to be a "dealer" would depend
upon various facts and circumstances applicable to that person. Accordingly,
Loehmann's expresses no view as to whether any person would be an "underwriter"
or an "affiliate" with respect to any Plan Security or would be a "dealer."
Because certain holders of large amounts of Senior Notes (who will receive New
Common Stock) may be considered "affiliates" of Loehmann's Holdings, the Plan
provides that Loehmann's Holdings will enter into a Registration Rights
Agreement with such holders to register under the Securities Act resale of the
Plan Securities to be received by such holders. SEE, "Securities Law Matters --
Registration Rights."
The SEC has taken the position that resales by accumulators and
distributors of securities distributed under a plan of reorganization who are
not affiliates of the issuer of such securities are exempt from registration
under the Securities Act if effected in "ordinary trading transactions." The
staff of the SEC has indicated in this context that a transaction by such
non-affiliates may be considered an "ordinary trading transaction" if it is made
on an exchange or in the over-the-counter market and does not involve any of the
following factors:
(i) (a) concerted action by the recipients of securities issued
under a plan in connection with the sale of such securities or
(b) concerted action by distributors on behalf of one or more
such recipients in connection with such sales;
(ii) the use of informational documents concerning the offering of
the securities prepared or used to assist in the resale of
such securities, other than a bankruptcy court-approved
disclosure statement and supplements thereto,
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and documents filed with the SEC pursuant to the
Exchange Act; or
(iii) the payment of special compensation to brokers and dealers in
connection with the sale of such securities designed as a
special incentive to the resale of such securities (other than
the compensation that would be paid pursuant to arm's-length
negotiations between a seller and a broker or dealer, each
acting unilaterally, not greater than the compensation that
would be paid for a routine similar-sized sale of similar
securities of a similar issuer).
THE VIEWS OF THE SEC ON THE MATTER HAVE NOT, HOWEVER, BEEN SOUGHT BY LOEHMANN'S
AND, THEREFORE, NO ASSURANCE CAN BE GIVEN REGARDING THE PROPER APPLICATION OF
THE "ORDINARY TRADING TRANSACTION" EXEMPTION DESCRIBED ABOVE. ANY PERSON
INTENDING TO RELY ON SUCH EXEMPTION IS URGED TO CONSULT HIS OR HER COUNSEL AS TO
THE APPLICABILITY THEREOF TO HIS OR HER CIRCUMSTANCES.
Securities Act Rule 144 provides an exemption from registration
under the Securities Act for certain limited public resales of unrestricted
securities by "affiliates" of the issuer of such securities. Rule 144 allows a
holder of unrestricted securities that is an affiliate of the issuer of such
securities to sell, without registration, within any three-month period a number
of shares of such unrestricted securities that does not exceed the greater of
one percent (1%) of the number of outstanding securities in question or the
average weekly trading volume in the securities in question during the four
calendar weeks preceding the date on which notice of such sale was filed
pursuant to Rule 144, subject to the satisfaction of certain other requirements
of Rule 144 regarding the manner of sale, notice requirements and the
availability of current public information regarding the issuer. Loehmann's
believes that, pursuant to section 1145(c) of the Bankruptcy Code, the Plan
Securities will be unrestricted for purposes of Rule 144.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER, THE DEBTOR MAKES NO REPRESENTATIONS CONCERNING THE
RIGHT OF ANY PERSON TO TRADE IN THE PLAN SECURITIES. THE DEBTOR RECOMMENDS THAT
HOLDERS OF CLAIMS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY
TRADE SUCH SECURITIES.
State securities laws generally provide registration exemptions for
subsequent transfers by a bona-fide owner for his or her own account and
subsequent transfers to institutional or accredited investors. Such exemptions
are generally expected to be available for subsequent transfers of New Common
Stock and New Senior Notes.
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3 CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers
effecting transactions in the New Common Stock or New Senior Notes prior to the
expiration of 40 days after the Confirmation Date are required to deliver to the
purchaser of such securities a copy of this Disclosure Statement (and
supplements hereto, if any, if ordered by the Court) at or before the time of
delivery of such securities to such purchaser. In connection with prior cases
under the Bankruptcy Code, the staff of the SEC has taken so-called "no-action"
positions with respect to noncompliance by stockbrokers with such requirement in
circumstances in which the debtor was, and the reorganized debtor was to
continue to be, subject to and in compliance with the periodic reporting
requirements of the Exchange Act. Loehmann's was and will continue to be subject
to the periodic reporting requirements of the Exchange Act. THE VIEWS OF THE SEC
ON THE MATTER HAVE NOT, HOWEVER, BEEN SOUGHT BY LOEHMANN'S AND, THEREFORE, NO
ASSURANCE CAN BE GIVEN REGARDING THE POSSIBLE CONSEQUENCES OF NONCOMPLIANCE BY
STOCKBROKERS WITH THE DISCLOSURE STATEMENT DELIVERY REQUIREMENTS OF SECTION
1145(A)(4). STOCKBROKERS ARE URGED TO CONSULT THEIR OWN COUNSEL WITH RESPECT TO
SUCH REQUIREMENTS.
B. REGISTRATION RIGHTS
Pursuant to the Plan, Loehmann's Holdings will enter into a
Registration Rights Agreement with certain entities (i.e., the Initial Holders)
providing for the registration of the New Common Stock and the New Senior Notes
under the Plan. Only entities entitled to receive distributions pursuant to the
Plan of New Common Stock representing at least 10% of the aggregate New Common
Stock issuable pursuant to the Plan (collectively, "ELIGIBLE SECURITY HOLDERS")
will be entitled to enter into the Registration Rights Agreement. The Debtor is
unable to predict how many holders of Senior Notes, if any, will be Eligible
Security Holders entitled to registration rights. Under the Registration Rights
Agreement, to be effective within 90 days after the Effective Date and ending
two years therefrom, Loehmann's Holdings will be required, subject to certain
black-out periods, to maintain for two years an effective "shelf" registration
statement covering the resale by the Eligible Security Holders under the
Securities Act of the shares of New Common Stock or New Senior Notes, as the
case may be, received by such Eligible Security Holders under the Plan.
LOEHMANN'S DOES NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR INTERPRETATIVE
REQUESTS TO THE COMMISSION WITH RESPECT TO ANY SECURITIES LAWS MATTERS DISCUSSED
HEREIN.
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XIV.
FINANCIAL INFORMATION
A. FINANCIAL STATEMENTS
The audited consolidated balance sheets of the Debtor for the fiscal
year ended January 29, 2000 and the related consolidated statements of
operations, cash flows and shareholders' equity (deficit) for the 3 years ended
January 29, 2000, are contained in "Financial Statements" in the Annual Report
on Form 10-K, a copy of which is annexed as Exhibit C to this Disclosure
Statement and the full text of which is incorporated herein by reference. This
financial information is provided to permit the holders of Claims and Equity
Interests to better understand the Debtor's historical business performance and
the impact of the Chapter 11 Case on the Debtor's business. During the Chapter
11 Case, the Debtor is required to file monthly operating reports with the
Court. Such financial information is on file with the Court and available to the
public for review.
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For a detailed discussion by management of the Debtor's financial
condition, most recent results of operations, liquidity, and capital resources,
see Item 7 -- "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report on Form 10-K and the Form 10-Q for
the quarter ended on April 29, 2000, annexed as Exhibits C and F, respectively,
to this Disclosure Statement.
C. RECENT PERFORMANCE
See the Annual Report on Form 10-K for the fiscal year ended January
29, 2000 and the Form 10-Q for the quarter ended on April 29, 2000 annexed as
Exhibits C and F, respectively, to this Disclosure Statement.
XV.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the alternatives to
the Plan include (i) liquidation of the Debtor under chapter 7 of the Bankruptcy
Code and (ii) an alternative plan of reorganization.
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A. LIQUIDATION UNDER CHAPTER 7
If no plan is confirmed, the Chapter 11 Case may be converted to a
case under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would
be elected to liquidate the Debtor's assets for distribution in accordance with
the priorities established by chapter 7. A discussion of the effects that a
chapter 7 liquidation would have on the recoveries of holders of Claims and
Equity Interests and the Debtor's liquidation analysis are set forth herein. The
Debtor believes that liquidation under chapter 7 would result in smaller
distributions being made to creditors than those provided for in the Plan
because (a) the Debtor's assets would have to be sold or otherwise disposed of
in a forced sale situation over a short period of time, (b) additional
administrative expenses would be involved in the appointment of a trustee, and
(c) additional expenses and claims, some of which would be entitled to priority,
would be generated during the liquidation and from the rejection of leases and
other executory contracts in connection with a cessation of the Debtor's
operations.
B. ALTERNATIVE PLAN OF REORGANIZATION
If the Plan is not confirmed, the Debtor (or if the Debtor's
exclusive period in which to file a plan of reorganization has expired, any
other party in interest) could attempt to formulate a different plan. Such a
plan might involve either a reorganization and continuation of the Debtor's
business or an orderly liquidation of its assets. With respect to an alternative
plan, the Debtor has explored various alternatives in connection with the
formulation and development of the Plan. The Debtor believes that the Plan, as
described herein, enables creditors to realize the most value under the
circumstances. In a liquidation under chapter 11, the Debtor's assets would be
sold in an orderly fashion over a more extended period of time than in a
liquidation under chapter 7, possibly resulting in somewhat greater (but
indeterminate) recoveries than would be obtained in chapter 7. Further, if a
trustee were not appointed, because such appointment is not required in a
chapter 11 case, the expenses for professional fees would most likely be lower
than those incurred in a chapter 7 case. Although preferable to a chapter 7
liquidation, the Debtor believes that any alternative liquidation under chapter
11 is a much less attractive alternative to creditors than the Plan because of
the greater returns provided by the Plan.
XVI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income tax
consequences of the implementation of the Plan to holders of Senior Notes and to
the Debtor. It does not address the federal income tax consequences to holders
whose secured or priority Claims are entitled to reinstatement or payment in
full in cash under the Plan.
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The following summary is based on the Internal Revenue Code of 1986,
as amended (the "TAX CODE"), Treasury regulations promulgated and proposed
thereunder, judicial decisions, and published administrative rules and
pronouncements of the IRS in effect on the date hereof. Changes in, or new
interpretations of, such rules may have retroactive effect and could
significantly affect the federal income tax consequences described below.
The federal income tax consequences of the Plan are complex and are
subject to uncertainties. The Debtor has not requested a ruling from the IRS or
an opinion of counsel with respect to any of the tax aspects of the Plan. Thus,
no assurance can be given as to the interpretation that the IRS will adopt. In
addition, this summary does not address foreign, state or local tax consequences
of the Plan, and it does not purport to address the federal income tax
consequences of the Plan to special classes of taxpayer (such as foreign
taxpayers, broker-dealers, banks, mutual funds, insurance companies, financial
institutions, small business investment companies, regulated investment
companies, tax-exempt organizations and investors in pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF A
HOLDER OF A CLAIM. EACH HOLDER OF A CLAIM IS URGED TO CONSULT ITS OWN TAX
ADVISOR FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES APPLICABLE
UNDER THE PLAN.
A. CONSEQUENCES TO CREDITORS
1 TAX SECURITIES
The federal income tax consequences of the Plan may vary depending
upon, among other things, whether a holder's Claim being exchanged constitutes a
"security" of the Debtor for federal income tax purposes (a "TAX SECURITY"). The
term "security" is not defined in the Tax Code but is generally understood to
include stock, rights to purchase stock, and debt instruments with a maturity
more than 10 years from the date of issuance, although the determination whether
a particular claim or debt constitutes a Tax Security depends upon an overall
evaluation of the nature of the claim or debt. An instrument with an original
term of as little as 5 years may qualify. Under these principles, the New Common
Stock will be characterized as Tax Securities and it is likely that the Senior
Notes and New Senior Notes will be characterized as Tax Securities. However,
each holder should consult its tax advisor regarding the tax status of its Claim
or Claims.
The Tax Security issue arises because the Tax Code's corporate
reorganization provisions generally provide that a holder recognizes no gain or
loss
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upon exchanging an issuer's Tax Securities for other Tax Securities of such
issuer (except that consideration received for a claim for accrued but unpaid
interest must be included as current income). By contrast, a holder will
recognize gain upon exchanging (i) an issuer's obligations that are not Tax
Securities for Tax Securities of such issuer, or (ii) an issuer's Tax Securities
for obligations of such issuer that are not Tax Securities. See also subsection
A.3 below ("Consequences to Creditors--Claims or Consideration Not Constituting
Tax Securities").
To the extent a Claim holder's receipt of the New Common Stock or
New Senior Notes is attributable to accrued interest, the exchanging holder will
recognize current income.
2 CLAIMS AND CONSIDERATION CONSTITUTING TAX SECURITIES
In general, each holder of a Claim that constitutes a Tax Security
will not recognize any gain or loss upon implementation of the Plan, but may
recognize gain (computed as described below in Section A.3), to the extent of
any consideration other than Tax Securities issued by the Debtor in satisfaction
of its Claim. The character of any such gain or loss would be determined in
accordance with the principles discussed below in subsection A.3. See also
Section C below ("Additional Tax Considerations for All Holders of Claims").
A holder's tax basis in New Senior Notes and New Common Stock
received in satisfaction of a Claim represented by a Tax Security of the Debtor
will be such holder's adjusted tax basis in such Claim, decreased by the sum of
the cash and the fair market value of any notes received that are not Tax
Securities, and increased by any gain recognized by such holder on the exchange.
A holder that receives Tax Securities of the Debtor and whose exchanged Claim
constitutes a Tax Security must apportion its adjusted tax basis in such Claim
(decreased by any Cash received and the fair market value of any obligations
received that are not Tax Securities, and increased by any gain recognized)
between the New Senior Notes and/or the New Common Stock it receives in
accordance with their relative fair market values.
If a holder of a Claim constituting a Tax Security receives Debtor's
obligations that are Tax Securities, such holder may have a tax basis in the new
obligations that exceeds the stated principal amount of such obligations. In
such case, the excess basis may be the subject of annual deductions to the
holder under the bond premium amortization rules of the Tax Code, or the holder
may be entitled to exclude from income all or a portion of any original issue
discount income on the obligations. See the discussion of the OID rules in
subsection A.4 below ("Consequences to Creditors -- Application of OID Rules").
A holder's holding period for New Senior Notes and New Common Stock
received in exchange for the Debtor's Tax Securities will include such holder's
holding period for the obligations so exchanged, except to the extent the New
Senior
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Notes or New Common Stock were issued in respect of such holder's Claim for
accrued interest. A holder's holding period for New Senior Notes or New Common
Stock issued in respect of its Claim for accrued interest (or in respect of
which the holder is otherwise required to recognize gain) will begin on the day
after their issuance.
3 CLAIMS OR CONSIDERATION NOT CONSTITUTING TAX SECURITIES
If any of the Senior Notes, the New Senior Notes or the New Common
Stock were not treated as Tax Securities, all or a portion of the exchange of
(i) Senior Notes for New Senior Notes, or (ii) Senior Notes for New Common
Stock, would constitute a taxable event in which a holder of Senior Notes would
generally recognize gain or loss in an amount equal to the difference between
(a) the "amount realized," I.E., the cash and/or aggregate fair market value of
all property received by the Claim holder in exchange for its Claim (other than
a Claim for interest), and (b) its adjusted basis in the exchanged debt
instruments (exclusive of any basis attributable to accrued interest).
If the Senior Notes were characterized as Tax Securities but the New
Senior Notes were not, a holder of Senior Notes would recognize gain upon
receipt of New Senior Notes equal to the lesser of (a) the fair market value of
such New Senior Notes received in exchange for its Senior Notes, and (b) the
total gain realized in the exchange, which amount would equal the difference
between the Senior Note holder's tax basis in its Senior Note and the aggregate
fair market value of the New Senior Notes and New Common Stock received in the
exchange.
The character of any gain or loss recognized as long-term or
short-term capital gain or loss or as ordinary income or loss will be determined
by a number of factors, including the tax status of the holder, whether the
claim constitutes a capital asset in the hand of the holder, whether the claim
has been held for more than twelve months, whether the claim was purchased at a
discount (in which case the market discount rules of the Tax Code may apply to
recharacterize a portion of any gain as ordinary income), and whether and to
what extent the holder has previously claimed a bad debt deduction in respect of
such Claim. Also in this regard, Tax Code section 582(c) provides that the sale
or exchange of a bond, debenture, note, certificate, or other evidence of
indebtedness by certain financial institutions will be considered the sale or
exchange of a non-capital asset. Accordingly, any gain or loss recognized by
such financial institutions as a result of the implementation of the Plan will
be ordinary gain or loss, regardless of the nature of their claims. See also
Section C below ("Additional Tax Considerations for All Holders of Claims").
A holder's tax basis in any New Senior Notes or New Common Stock
received in a taxable exchange will be the fair market value thereof included in
the holder's amount realized on the exchange. The holding period for the New
Senior Notes or New Common Stock so received will begin on the day following the
exchange.
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4 APPLICATION OF OID RULES
Under the Tax Code, a holder of a debt instrument that has original
issue discount ("OID") must include a portion of the OID in gross income in each
taxable year or portion thereof in which the holder holds the debt instrument,
even if the holder has not received a cash payment in respect of such OID. In
general, OID is equal to the excess of (i) an instrument's "stated redemption
price at maturity" over (ii) its "issue price."
The "issue price" of a debt instrument issued for property (such as
an outstanding debt instrument) depends upon the circumstances surrounding its
issuance. The issue price of a debt instrument that is publicly traded is
generally the fair market value of the debt instrument when issued. The fair
market value is generally determined from the price at which such debt
instrument trades on the first day after issuance. If the new debt instrument is
not publicly traded and is issued for property (such as an outstanding debt
instrument) that is publicly traded, then the issue price is generally
determined from the price at which such property trades on the issue date.
Although the matter is not free from doubt, the Debtor expects that the
outstanding Senior Notes will constitute publicly traded property for purposes
of applying the foregoing rules. Accordingly, the issue price of the New Senior
Notes is expected to be their fair market value, as described above. Although
the Debtor believes that such fair market value will be the face value of the
New Senior Notes, their fair market value will be determined by the actual
trading pries at the time the new Senior Notes are issued. If the New Senior
Notes are issued at a discount from face value, they would have OID of at least
the amount of such discount.
The "stated redemption price at maturity" of a debt instrument is
the sum of all payments to be made on such instrument, other than certain
interest payments based on a fixed rate payable unconditionally at fixed
periodic intervals of one year or less during the entire term of the instrument.
Under the applicable regulations, payment on the New Senior Notes will not be
treated as such qualified periodic interest payments. Accordingly, in all
events, the New Senior Notes will have OID and each holder will be required to
include a portion thereof in gross income for each taxable year even if the
holder receives no payments during that year or only receives payment in the
form of additional New Senior Notes. However, the precise amount and timing of
inclusions will depend on a number of factors, including whether the New Senior
Notes are treated as issued at a discount or at par and accordingly will not be
determinable until the New Senior Notes are issued. The Debtor will furnish
annually to the Internal Revenue Service (other than with respect to certain
exempt holders) and to holders of New Senior Notes information with respect to
the OID accruing while such New Senior Notes are held by such holders.
Treasury regulations provide that a holder acquiring a debt
instrument in a reorganization exchange may exclude all of the OID on such debt
instrument from such holder's taxable income if it is acquired at a "premium"
(i.e., if the adjusted tax basis in the acquired debt instrument exceeds the sum
of all payments due
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on the instrument after the acquisition date, less certain stated interest) and
may excluded a part of the OID on such debt instrument from such holder's
taxable income if it is acquired at an "acquisition premium" (i.e., if the
adjusted tax basis in the acquired debt instrument exceeds its adjusted issue
price).
B. CONSEQUENCES TO THE DEBTOR
The Debtor has reported for federal income tax purposes substantial
consolidated net operating loss ("NOL") carryforwards. In addition, the Debtor
has substantial tax basis in its assets. As discussed below, certain tax
attributes of the Debtor, such as NOLs and tax basis, will be subject to
reduction and limitation as a result of implementing the Plan.
1 CANCELLATION OF DEBT
In general, the Tax Code provides that a debtor in a bankruptcy case
does not include cancellation of debt ("COD") income in its gross income, but
rather must reduce its tax attributes, to the extent it has such attributes to
reduce, by the amount of COD that otherwise would have been recognized. The
amount of COD is the amount by which the indebtedness discharged exceeds the
consideration for which it is exchanged. A debtor's tax attributes are generally
reduced in the following order until COD is exhausted: NOLs, general business
credits, alternative minimum tax credits, capital losses, the tax basis of its
assets, passive activity losses, credits and foreign tax credits. Losses (and
tax credits) are reduced only after the debtor's tax liability for the current
year is determined (with, in each case, current-year losses being reduced before
any carryforwards from prior years), and tax basis is reduced as of the first
day of the succeeding year. A debtor's tax basis in its assets will not be
reduced below the amount of its liabilities (as defined) outstanding immediately
after the COD is recognized. Any COD remaining after exhausting available tax
attributes is simply forgiven.
As a result of the reduction of the Debtor's indebtedness pursuant
to the Plan, the Debtor will suffer attribute reduction. The Debtor believes it
will have significant COD. The extent of resulting attribute reduction to the
Debtor will depend, however, primarily upon the amount of its liabilities
outstanding on the Effective Date. The attribute reduction is expected to
eliminate NOL carryforwards that otherwise might be available to the Debtor and
some of the tax basis of the Debtor's long-term assets. This will reduce the
amount of tax depreciation and amortization that the Debtor will be able to
utilize on its tax returns starting in the fiscal year ending February 3, 2001,
and therefore potentially may increase taxes due in future tax periods.
2 APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
If the yield to maturity of the New Senior Notes (as determined for
U.S. federal income tax purposes) exceeds the "applicable federal rate" ("AFR")
plus
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500 basis points, the New Senior Notes will be subject to the applicable
high-yield discount obligation ("AHYDO") of the Code. The AFR will be determined
according to the month in which the New Senor Notes are issued. The yield to
maturity of the New Senior Notes is expected to exceed the appropriate AFR for
the month of issue plus 500 basis points. In such case, under the AHYDO rules
the Debtor's deductions with respect to OID will be suspended until such amounts
are actually paid, and the "disqualified portion" of such OID (defined as the
portion that is attributable to the yield on such New Senior Notes in excess of
the AFR plus 600 basis points), if any, will be permanently nondeductible. The
AHYDO rules generally do not affect the amount, timing or character of a
holder's income. However, domestic corporate holders of New Senior Notes may be
eligible for a dividends-received deduction with respect to their inclusion in
income of the "disqualified portion" if such amount, if paid with respect to
stock, would have constituted a dividend for U.S. federal income tax purposes.
The availability of a dividends-received deduction is subject to a number of
complex limitations.
3 ALTERNATIVE MINIMUM TAX
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income ("AMTI") at a 20-percent rate
to the extent such tax exceeds the corporation's regular federal income tax. For
purposes of computing AMTI, certain tax deductions and other beneficial
allowances are modified or eliminated. In particular, even though a corporation
otherwise might be able to offset all its taxable income for regular tax
purposes by available NOL carryforwards, only 90 percent of AMTI may be offset
by available NOL carryforwards (as computed for AMT purposes). Any AMT a
corporation pays will generally be allowed as a nonrefundable credit against its
regular federal income tax liability in future taxable years when the
corporation is no longer subject to AMT.
C. ADDITIONAL TAX CONSIDERATIONS FOR ALL CLAIM HOLDERS
1 DISTRIBUTIONS IN DISCHARGE OF ACCRUED INTEREST
A Claim holder that receives stock or other property in discharge of
a Claim for interest accrued during the period the holder owned such Claim and
not previously included in such holder's income will be required to recognize
ordinary income equal to the fair market value of the New Senior Notes and/or
New Common Stock received in respect of such Claim. A holder generally will
recognize a deductible loss (or, possibly, a write-off against a reserve for bad
debts) to the extent any accrued interest claimed was previously included in its
gross income and is not paid in full by the Debtor. The tax basis of any New
Senior Notes and/or New Common Stock received in exchange for Claims for accrued
interest will be the fair market value of the New Common Stock on the day of the
exchange or issue price of the New Senior Notes, as the case may be. The holding
period for such New Senior Notes and New Common Stock will begin the day after
the exchange.
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Under the Plan, distributions in respect of Allowed Claims will be
allocated first to the stated principal amount of such Claims, with any excess
allocated to interest. However, there can be no assurance that the IRS or the
courts will respect the Plan allocation for federal income tax purposes.
2 SUBSEQUENT SALE OF NEW SENIOR NOTES OR NEW
COMMON STOCK
Any gain recognized by a holder upon a subsequent taxable
disposition of New Senior Notes or New Common Stock received pursuant to the
Plan in satisfaction of a Claim (or any stock or other property received for
them in a later tax-free exchange) may be treated as ordinary income to the
extent of (i) any bad debt deductions (or additions to a bad debt reserve)
previously claimed with respect to its Claim and any ordinary loss deduction
incurred upon satisfaction of its Claim, less any income (other than interest
income) recognized by the holder upon satisfaction of its Claim, (ii) with
respect to a cash-basis holder, any amounts that would have been included in its
gross income if the holder's Claim had been satisfied in full but were not
included by reason of the cash method of accounting, and (iii) any accrued
market discount that is assigned to the New Senior Notes or New Common Stock as
discussed in subsection XVI.C.3. ("Additional Tax Considerations for All Claim
Holders--Market Discount").
3 MARKET DISCOUNT
The Treasury Department is expected to promulgate regulations that
will provide that any accrued "market discount" not treated as ordinary income
upon a tax-free exchange of market-discount bonds (generally, bonds acquired for
less than their issue price) would carry over to any nonrecognition property
received in the exchange. If such regulations are promulgated and applicable to
the Plan, any accrued but unrecognized market discount on an exchanged Claim
that constitutes a Tax Security would carry over to any New Senior Notes or New
Common Stock received pursuant to the Plan. Any gain recognized by a holder upon
a subsequent disposition of such New Senior Notes or New Common Stock also would
be treated as ordinary income to the extent of any accrued market discount not
previously included in such holder's income. Holders are urged to consult their
tax advisors as to the application of the market discount rules.
THE FOREGOING FEDERAL INCOME TAX SUMMARY HAS BEEN PROVIDED FOR
INFORMATIONAL PURPOSES ONLY. ALL CREDITORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE
PLAN.
79
<PAGE>
XVII.
CONCLUSION
The Debtor believes the Plan is in the best interests of all
Creditors and Equity Holders and urges those entitled to vote to accept the
Plan.
Dated: July 28, 2000
LOEHMANN'S, INC.
By: /s/ ROBERT GLASS
-----------------------------------------
Name: Robert Glass
Title: President, Chief Operating Officer
<PAGE>
EXHIBITS TO THE DISCLOSURE STATEMENT
A PROPOSED PLAN OF REORGANIZATION
B DISCLOSURE STATEMENT ORDER
C ANNUAL REPORT ON FORM 10-K
D FINANCIAL PROJECTIONS
E LIQUIDATION ANALYSIS
F QUARTERLY REPORT ON FORM 10-Q
G RECOVERY ANALYSIS
<PAGE>
EXHIBIT A
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOEHMANN'S, INC., ) Case No. 99-1138 (MFW)
)
Debtor. )
SECOND AMENDED PLAN OF REORGANIZATION
OF LOEHMANN'S, INC. UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE AS MODIFIED ON JULY 28, 2000
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
Alan W. Kornberg
Jeffrey D. Saferstein
Susan E. Welber
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
-and-
YOUNG CONAWAY STARGATT & TAYLOR, LLP
James L. Patton, Jr.
Pauline K. Morgan
1110 N. Market Street
P.O. Box 391
Rodney Square North, 11th Floor
Wilmington, Delaware 19801
(302) 571-6600
Attorneys for the Debtor
Dated: Wilmington, Delaware
July 28, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
I. DEFINITIONS AND CONSTRUCTION OF TERMS...............................1
A. Definitions.....................................................1
B. Interpretation, Application of Definitions and Rules of
Construction...................................................12
II. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS......................13
A. Introduction...................................................13
1.Unclassified Claims (not entitled to vote on the Plan).......13
2.Unimpaired Classes of Claims (deemed to have accepted the
Plan and, therefore, not entitled to vote on the Plan).......13
3.Impaired Class of Claims (entitled to vote on the Plan)......14
4.Impaired Class of Equity Interests (deemed to have rejected
the Plan and, therefore, not entitled to vote on the Plan)...14
III. TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND
PRIORITY TAX CLAIMS................................................14
A. Administrative Claims..........................................14
B. Professional Compensation And Reimbursement Claims.............15
C. Priority Tax Claims............................................15
IV. TREATMENT OF CLAIMS AND EQUITY INTERESTS...........................16
A. Class 1 - Other Priority Claims................................16
1.Distributions................................................16
2.Impairment and Voting........................................16
B. Class 2 - Other Secured Claims.................................16
1.Distributions................................................16
2.Impairment and Voting........................................16
C. Class 3 - DIP Financing Claims.................................17
1.Distributions................................................17
2.Impairment and Voting........................................17
D. Class 4 - Convenience Claims...................................17
1.Distributions................................................17
2.Impairment and Voting........................................17
3.Election to be Treated as a Convenience Claim................17
E. Class 5 - General Unsecured Creditors..........................18
1.Distributions................................................18
2.Impairment and Voting........................................18
F. Class 6 - Equity Interests.....................................19
1.Distributions................................................19
2.Impairment and Voting........................................19
V. PROVISIONS REGARDING CORPORATE GOVERNANCE AND
MANAGEMENT OF LOEHMANN'S HOLDINGS AND
THE REORGANIZED DEBTOR.............................................19
i
<PAGE>
Page
----
A. Formation of Holding Company...................................19
B. Directors and Officers of Loehmann's Holdings and Reorganized
Loehmann's; Amended Certificate of Incorporation and Amended
By-Laws........................................................19
1.Loehmann's Holdings..........................................19
2.Reorganized Loehmann's.......................................20
C. Securities to Be Issued Pursuant to the Plan...................20
1.New Common Stock.............................................20
2.New Senior Notes.............................................21
D. Securities Laws Matters........................................21
E. Loehmann's Holdings Equity Incentive Plan......................21
VI. MEANS OF IMPLEMENTATION, PROVISIONS REGARDING
VOTING AND DISTRIBUTIONS UNDER THE PLAN
AND TREATMENT OF DISPUTED, CONTINGENT AND
UNLIQUIDATED ADMINISTRATIVE CLAIMS AND CLAIMS......................22
A. Voting of Claims...............................................22
B. Distributions..................................................22
1.Method of Distributions Under the Plan.......................22
2.Disputed General Unsecured Claims............................26
3.Objections To And Resolution Of Administrative
Claims and Claims; Administrative, Priority and Convenience
Claims Reserve...............................................26
4.Allowance of Disputed Administrative, Priority and
Convenience Claims...........................................27
5.Release of Shares and Notes from Disputed Claims
Reserve......................................................27
6.Allocation of Consideration..................................27
7.Cancellation and Surrender of Existing Securities and
Agreements...................................................28
C. Estimation.....................................................28
D. Administrative Claims of Indenture Trustee.....................28
E. Nonconsensual Confirmation.....................................29
F. The Amended Certificate of Incorporation, the Amended
By-Laws and Other Implementation Documents.....................29
VII. EFFECT OF CONFIRMATION OF THIS PLAN................................29
A. Continued Corporate Existence..................................29
B. Vesting of Assets..............................................29
C. Discharge of the Debtor........................................30
D. Injunction.....................................................30
E. Extinguishment of Causes of Action Under the Avoiding
Power Provisions...............................................30
F. Votes Solicited in Good Faith..................................31
ii
<PAGE>
Page
----
G. Administrative Claims Incurred after the Confirmation Date.....31
H. The Debtor's Release...........................................31
I. Exculpation, Release and Injunction of Released Parties........32
1.Exculpation..................................................32
2.Injunction...................................................32
3.Limitation of Governmental Releases..........................32
J. Term of Bankruptcy Injunction or Stays.........................33
K. Preservation of Insurance......................................33
L. Officers' and Directors' Indemnification Rights and Insurance..33
VIII. RETENTION OF JURISDICTION..........................................33
IX. MISCELLANEOUS PROVISIONS...........................................34
A. Payment of Statutory Fees......................................34
B. Dissolution of Creditors Committee.............................34
C. Modification of the Plan.......................................34
D. Governing Law..................................................35
E. Filing or Execution of Additional Documents....................35
F. Withholding and Reporting Requirements.........................35
G. Exemption From Transfer Taxes..................................35
H. Section 1145 Exemption.........................................35
I. Waiver of Federal Rule of Civil Procedure 62(a)................36
J. Headings.......................................................36
K. Exhibits/Schedules.............................................36
L. Notices........................................................36
M. Plan Supplement................................................36
N. Conflict.......................................................37
O. Setoff by the United States....................................37
X. EXECUTORY CONTRACTS AND UNEXPIRED LEASES...........................37
XI. BENEFIT PLANS......................................................38
XII. EFFECTIVENESS OF THE PLAN..........................................38
A. Conditions Precedent to Effectiveness..........................38
B. Waiver of Conditions...........................................38
C. Effect of Failure of Conditions................................39
D. Vacatur of Confirmation Order..................................39
iii
<PAGE>
Exhibits to the Plan
A - Summary of Terms of New Senior Notes
B - Summary of Equity Incentive Plan
iv
<PAGE>
Loehmann's, Inc. proposes the following second amended plan of
reorganization, as modified on July 28, 2000, under section 1121(a) of the
Bankruptcy Code.
I.
DEFINITIONS AND CONSTRUCTION OF TERMS
A. DEFINITIONS. Unless otherwise defined herein, or the context
otherwise requires, the following terms shall have the respective meanings set
forth below:
ADMINISTRATIVE CLAIM means any right to payment constituting a cost
or expense of administration of the Chapter 11
Case of a kind specified under section 503(b)
of the Bankruptcy Code and entitled to
priority under section 507(a)(1), 507(b) or
1114(e)(2) of the Bankruptcy Code, including,
without limitation, any actual and necessary
costs and expenses of preserving the Debtor's
estate, any actual and necessary costs and
expenses of operating the Debtor's business,
any indebtedness or obligations incurred or
assumed by the Debtor in Possession in
connection with the conduct of its business,
including, without limitation, for the
acquisition or lease of property or an
interest in property or the rendition of
services, all compensation and reimbursement
of expenses to the extent awarded by the Court
under sections 330, 331 or 503 of the
Bankruptcy Code, and any fees or charges
assessed against the Debtor's estate under
section 1930 of chapter 123 of title 28 of the
United States Code.
ADMINISTRATIVE, PRIORITY AND has the meaning assigned to such term in
CONVENIENCE CLAIMS RESERVE Article VI.B.3(b)(i) of the Plan.
<PAGE>
ALLOWED CLAIM means, with reference to any Claim, (a) any
Claim against the Debtor which has been listed
by the Debtor in its Schedules, as such
Schedules may be amended by the Debtor from
time to time in accordance with Bankruptcy
Rule 1009, as liquidated in amount and not
disputed or contingent, and with respect to
which no contrary proof of claim has been
filed, (b) any Claim specifically allowed
under the Plan, (c) any Claim which is not
Disputed or (d) any Claim the amount or
existence of which, if Disputed, (i) has been
determined by a Final Order of a court of
competent jurisdiction other than the Court,
or (ii) has been allowed by Final Order of the
Court; PROVIDED, HOWEVER, that any Claims
allowed solely for the purpose of voting to
accept the Plan pursuant to an order of the
Court shall not be considered "Allowed Claims"
hereunder.
AMENDED BY-LAWS means the Amended and Restated By-Laws of
Reorganized Loehmann's, which shall be in
substantially the form contained in the Plan
Supplement.
AMENDED CERTIFICATE OF means the amended and restated Certificate of
INCORPORATION Incorporation of Reorganized Loehmann's,
which shall be in substantially the form
contained in the Plan Supplement.
AVAILABLE NOTES means all New Senior Notes to be distributed
to holders of Allowed General Unsecured
Claims, less the number of New Senior Notes
deposited into the Disputed Claims Reserve.
AVAILABLE SHARES means all shares of New Common Stock to be
distributed to the holders of Allowed General
Unsecured Claims, less the number of shares of
New Common Stock deposited into the Disputed
Claims Reserve.
2
<PAGE>
BALLOTS means each of the ballot forms distributed
with the Disclosure Statement to each holder
of an Impaired Claim (other than to holders
not entitled to vote on the Plan) upon which
is to be indicated, among other things,
acceptance or rejection of the Plan.
BANKRUPTCY CODE means title 11 of the United States Code, 11
U.S.C. ss.ss. 101 ET seq., as in effect on the
date hereof.
BANKRUPTCY RULES means the Federal Rules of Bankruptcy
Procedure as promulgated by the United States
Supreme Court under section 2075 of title 28
of the United States Code, and local rules of
the Court, as the context may require.
BUSINESS DAY means any day on which commercial banks are
open for business, and not authorized to
close, in the City of New York, New York,
except any day designated as a legal holiday
by Bankruptcy Rule 9006(a).
CASH means legal tender of the United States of
America.
CAUSES OF ACTION means all claims, choses in action and causes
of action (including those assertable
derivatively), liabilities, obligations,
suits, debts, sums of money, damages, demands,
judgments, whether known or unknown, now owned
or hereafter acquired by the Debtor, and the
Cash and non-Cash proceeds thereof, whether
arising under the Bankruptcy Code or other
Federal, state or foreign law, equity or
otherwise, including, without limitation, any
causes of action arising under sections 510,
544, 547, 548, 549, 550, 551 or any other
section of the Bankruptcy Code.
CHAPTER 11 CASE means the chapter 11 case commenced by the
Debtor.
CLAIM means any claim against the Debtor as such
term is defined in section 101(5) of the
Bankruptcy Code.
3
<PAGE>
CLASS means a group of Claims or Equity Interests
as classified under the Plan.
COLLATERAL means any property or interest in property of
the Debtor's estate subject to a Lien to
secure the payment or performance of a Claim,
which Lien is not subject to avoidance under
the Bankruptcy Code or otherwise invalid
under the Bankruptcy Code or applicable state
law.
CONFIRMATION DATE means the date on which the Confirmation
Order is entered by the Court.
CONFIRMATION HEARING means the hearing to consider confirmation of
the Plan pursuant to section 1128 of the
Bankruptcy Code, as it may be adjourned or
continued from time to time.
CONFIRMATION ORDER means the order entered by the Court
confirming the Plan pursuant to section 1129
of the Bankruptcy Code.
CONVENIENCE CLAIMS means and includes any Claim which would
otherwise be a General Unsecured Claim that
(i) is Allowed in an amount of $2,000 or less
and (ii) is Allowed in the amount of greater
than $2,000 but which is reduced to $2,000 by
the election of the holder thereof pursuant to
the holder's Ballot.
COURT means, (a) the United States Bankruptcy Court
for the District of Delaware, having
jurisdiction over the Chapter 11 Case; (b) to
the extent there is no reference pursuant to
section 157 of title 28 of the United States
Code, the United States District Court for the
District of Delaware; and (c) any other court
having jurisdiction over the Chapter 11 Case.
CREDITORS COMMITTEE means the Official Committee of Unsecured
Creditors appointed by the United States
Trustee in the Chapter 11 Case, as
constituted from time to time.
DEBTOR means Loehmann's, Inc.
4
<PAGE>
DEBTOR IN POSSESSION means the Debtor in its capacity as debtor in
possession in the Chapter 11 Case pursuant to
sections 1107(a) and 1108 of the Bankruptcy
Code.
DIP CREDIT FACILITY means that certain Ratification and Amendment
Agreement dated as of May 19, 1999 between
Loehmann's, Inc. and Congress Financial
Corporation, as amended from time to time.
DIP FINANCING CLAIMS means all Claims arising under or relating to
the DIP Credit Facility and all agreements and
instruments relating thereto.
DISCLOSURE STATEMENT means the written disclosure statement that
relates to this Plan, as approved by the Court
pursuant to section 1125 of the Bankruptcy
Code and Bankruptcy Rule 3017, as such
disclosure statement may be amended, modified
or supplemented from time to time.
DISPUTED CLAIM means (a) any Claim, proof of which was not
timely or properly filed and which has been or
hereafter is listed on the Schedules as
unliquidated, disputed or contingent, or is
not listed in the Schedules; (b) any Claims as
to which the Debtor, the Creditors Committee
or any other party in interest has filed an
objection or request for estimation on or
before the Effective Date or such other
applicable limitation period fixed by the
Plan, the Bankruptcy Code, the Bankruptcy
Rules or the Bankruptcy Court, except to the
extent that such objection or request for
estimation is withdrawn or determined by a
Final Order in favor of the holder of such
Claim; or (c) any Claim as to which a proof of
claim is timely and properly filed, except to
the extent that the amount asserted in such
proof of claim does not exceed the liquidated,
undisputed and noncontingent amount set forth
in the Schedules with respect to such Claim. A
Claim that is a Disputed
5
<PAGE>
Claim under subsection (b) of this definition
shall cease to be Disputed upon the
withdrawal of such objection or request for
estimation or a determination thereon by a
Final Order in favor of the holder of such
Claim.
DISPUTED CLAIMS RESERVE means any New Senior Notes and shares of New
Common Stock issued to the Transfer Agent for
distribution on Subsequent Distribution Dates
and the Final Distribution Date pursuant to
Article VI.B.1(f) of the Plan.
EFFECTIVE DATE means the first Business Day on which all of
the conditions specified in Article XII.A of
the Plan have been satisfied or waived in
accordance with Article XII.B. of the Plan;
PROVIDED, HOWEVER, that if a stay of the
Confirmation Order is in effect on such date,
the Effective Date will be the first Business
Day after such stay is no longer in effect.
EQUITY INCENTIVE PLAN has the meaning assigned to such term in
Article V.E. of the Plan.
EQUITY INTEREST OR INTEREST means any share of preferred stock or common
stock or other instrument evidencing an
ownership interest in the Debtor, whether or
not transferable, and any option, warrant, or
right, contractual or otherwise, to acquire,
sell or subscribe for any such interest.
FINAL DISTRIBUTION DATE means the date on which Reorganized Loehmann's
makes a final distribution pursuant to Article
VI.B.1.(e) of this Plan. The Final
Distribution Date shall be a date, as
determined by Reorganized Loehmann's, in
consultation with the Creditors Committee,
after resolution of all Disputed Claims.
6
<PAGE>
FINAL ORDER means an order or judgment of the Court, or
other court of competent jurisdiction, as
entered on the docket in the Chapter 11 Case,
the operation or effect of which has not been
stayed, reversed, vacated or amended, and as
to which order or judgment (or any revision,
modification, or amendment thereof) the time
to appeal, petition for certiorari, or seek
review or rehearing has expired and as to
which no appeal, petition for certiorari, or
petition for review or rehearing was filed or,
if filed, remains pending.
GENERAL UNSECURED CLAIM means a Claim that is not a Secured Claim,
Administrative Claim, Priority Tax Claim,
Other Priority Claim or Convenience Claim, and
shall include, without limitation, (a) Claims
of trade creditors of Loehmann's, (b) Claims
of customers of Loehmann's that are not
Priority Claims, (c) Claims of employees of
Loehmann's that are not Priority Claims, (d)
Claims arising as a result of the rejection by
Loehmann's of executory contracts or unexpired
leases pursuant to section 365 of the
Bankruptcy Code, (e) Claims arising as a
result of pre-Petition Date litigation against
Loehmann's that are not subordinated under
section 510(b) of the Bankruptcy Code and (f)
Senior Note Claims.
GOVERNMENT has the meaning assigned to such term in
Article VII.I.3 of the Plan.
IMPAIRED means, when used with reference to a Claim, a
Claim that is impaired within the meaning of
section 1124 of the Bankruptcy Code.
INDENTURE TRUSTEE means, with respect to the Senior Note
Indenture, United States Trust Company of New
York, in its capacity as trustee under such
indenture.
7
<PAGE>
INDENTURE TRUSTEE EXPENSES means any reasonable fees and reasonable
documented out-of-pocket costs and expenses
incurred after the Petition Date and through
and including the Final Distribution Date by
the Indenture Trustee. Such amounts shall
include, without limitation, the reasonable
documented out-of-pocket costs and expenses
and reasonable fees of legal counsel to the
Indenture Trustee (as determined in accordance
with the Indenture).
INFORMAL NOTEHOLDERS COMMITTEE means the informal committee of certain
holders of Senior Notes that was formed
subsequent to the Petition Date.
INITIAL DISTRIBUTION DATE means the Effective Date or as soon thereafter
as practicable.
INITIAL HOLDER means (a) any person or entity who will
initially hold New Common Stock on the
Effective Date, (b) any investment fund for
which any person thereof acts as manager, (c)
any partnership or other entity for which any
person thereof acts directly or indirectly as
a general partner, managing member or
controlling stockholder, and (d) any person
otherwise affiliated with any of the foregoing
individuals or entities.
LIEN has the meaning set forth in section 101 of
the Bankruptcy Code.
LOEHMANN'S means Loehmann's, Inc.
LOEHMANN'S HOLDINGS means the holding company to be formed on the
Effective Date which shall own 100% of
Reorganized Loehmann's and which shall issue
the New Senior Notes and New Common Stock.
LOEHMANN'S HOLDINGS BY-LAWS means the By-Laws of Loehmann's Holdings,
which shall be in substantially the form
contained in the Plan Supplement.
8
<PAGE>
LOEHMANN'S HOLDINGS CERTIFICATE means the Certificate of Incorporation of
OF INCORPORATION Loehmann's Holdings, which shall be in
substantially the form contained in the Plan
Supplement.
NEW COMMON STOCK means the common stock of Loehmann's Holdings,
par value $.01 per share, to be authorized and
issued by Loehmann's Holdings on the Effective
Date pursuant to the Plan.
NEW NOTES INDENTURE has the meaning assigned to such term in
Article V.C.2 of the Plan.
NEW NOTES INDENTURE TRUSTEE means the bank or trust company that will
serve as trustee under the New Notes
Indenture.
NEW SENIOR NOTES means up to $25,000,000 in promissory notes
authorized and to be issued pursuant to the
Plan and the New Notes Indenture, on the terms
and subject to the conditions described in
Exhibit "A" hereto, and which shall be in
substantially in the form contained in the
Plan Supplement.
OLD COMMON STOCK means the common and preferred stock, par
value $.01 per share, issued by Loehmann's and
outstanding on the Petition Date.
OTHER PRIORITY CLAIM means Claims entitled to priority pursuant to
section 507(a) of the Bankruptcy Code (other
than Administrative Claims and Priority Tax
Claims), including, without limitation,
certain allowed employee compensation and
benefit claims of the Debtor's employees
incurred within ninety (90) and one hundred
eighty (180) days, respectively, prior to the
Petition Date.
OTHER SECURED CLAIMS means any Claim, other than the DIP Financing
Claims, to the extent reflected in the
Schedules or a proof of claim filed as a
Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such
Collateral, as determined in accordance with
section 506(a) of the Bankruptcy Code, or, in
the event that such Claim is subject to setoff
under section 553 of the Bankruptcy Code, to
the extent of such setoff.
9
<PAGE>
PETITION DATE means May 18, 1999, the date on which the
Debtor filed its petition for relief
commencing the Chapter 11 Case.
PLAN means this Plan, as it may be amended or
modified from time to time, together with all
addenda, exhibits, schedules or other
attachments, if any.
PLAN SUPPLEMENT means the forms of documents specified in
Article IX.M. of the Plan.
PRO RATA means, at any time, the proportion that the
amount of a Claim in a particular Class bears
to the aggregate amount of all Claims
(including Disputed Claims) in such Class,
unless in each case the Plan provides
otherwise.
PRIORITY TAX CLAIM means any unsecured Claim held by a
governmental unit entitled to a priority in
right of payment under section 507(a)(8) of
the Bankruptcy Code.
QUARTER means the period beginning on the Effective
Date and ending on the immediately succeeding
October 31, January 31, April 30 or July 31,
and each three-month period thereafter, as
the context may require.
RECORD DATE means the record date for purposes of
making distributions under the Plan on
account of Allowed Claims which date shall be
the Confirmation Date.
REGISTRATION RIGHTS AGREEMENT means a registration rights agreement by
Loehmann's Holdings in favor of certain
Initial Holders, which shall be in
substantially the form contained in the Plan
Supplement.
RELEASED PARTIES has the meaning assigned to such term in
Article VII.H. of the Plan.
REORGANIZED DEBTOR means the Debtor, or any successor thereto by
merger, consolidation, or otherwise, on and
after the Effective Date.
10
<PAGE>
REORGANIZED LOEHMANN'S means Loehmann's, or any successor thereto by
merger, consolidation, or otherwise, on and
after the Effective Date.
SCHEDULES means the schedules of assets and liabilities,
statements of financial affairs, and lists of
holders of Claims and Equity Interests filed
with the Court by the Debtor, including any
amendments or supplements thereto.
SCHEDULED means, with respect to any Claim or Equity
Interest, the status and amount, if any, of
such Claim or Equity Interest as set forth in
the Schedules.
SECURED CLAIM means a Claim that is secured by a Lien on
property or interests in property, in which
the Debtor has an interest, to the extent of
the value as of the Effective Date, or such
other date as is established by the Court, of
such interest or Lien determined by a Final
Order of the Court pursuant to Section 506 of
the Bankruptcy Code or as otherwise agreed
upon in writing by the Debtor and the holder
of such Claim.
SENIOR NOTE CLAIMS means all Claims directly or indirectly
arising from or under or related in any way to
the Senior Note Indenture, the Senior Notes,
and any of the documents, instruments and
agreements relating thereto, as amended,
supplemented or modified, except Indenture
Trustee Expenses.
SENIOR NOTE INDENTURE means that certain Indenture, dated as of May
10, 1996 between Loehmann's, as issuer, and
United States Trust Company of New York, as
Trustee, pursuant to which the 117/8% Senior
Notes were issued, together with any
amendments or supplements thereto.
SENIOR NOTEHOLDERS means the holders of the Senior Notes.
11
<PAGE>
SENIOR NOTES means the 117/8% Notes, due May 15, 2003, of
Loehmann's issued and outstanding under or
pursuant to the Senior Note Indenture.
SUBSEQUENT DISTRIBUTION means any distribution of Available Shares
made to the holders of Allowed General
Unsecured Claims on a Subsequent Distribution
Date in accordance with Section VI.B.1(d) of
the Plan.
SUBSEQUENT DISTRIBUTION DATE means any date, as determined by Reorganized
Loehmann's, in consultation with the Creditors
Committee, which is after the Effective Date
and prior to the Final Distribution Date on
which a distribution of Available Shares is
made to holders of Allowed General Unsecured
Claims in accordance with Article VI.B.1(d) of
the Plan.
TORT CLAIM means a Claim arising from or relating to (i)
the commission or alleged commission of a tort
including, without limitation, personal injury
Claims, or any indemnification Claim arising
from a tort liability, (ii) any general
liability Claim, or (iii) any Claim predicated
upon or arising under Title VII of the United
States Code.
TRANSFER AGENT means the transfer agent for the New Common
Stock.
B. INTERPRETATION, APPLICATION OF DEFINITIONS AND RULES OF
CONSTRUCTION.
Wherever from the context it appears appropriate, each term stated
in either the singular or the plural shall include both the singular and plural,
and pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, feminine and neuter, such meanings to be applicable to both the
singular and plural forms of the terms defined. Capitalized terms in the Plan
that are not defined herein shall have the same meaning assigned to such terms
by the Bankruptcy Code or Bankruptcy Rules, as the case may be. The words
"herein," "hereof," and "hereunder" and other words of similar import refer to
the Plan as a whole and not to any particular section or subsection in the Plan
unless expressly provided otherwise. All gender references shall be deemed to
refer to both genders. The words "includes" and "including" are not limiting and
mean that
12
<PAGE>
the things specifically identified are set forth for purposes of illustration,
clarity or specificity and do not in any respect qualify, characterize or limit
the generality of the class within which such things are included. Captions and
headings to articles, sections and exhibits are inserted for convenience of
reference only, are not a part of this Plan, and shall not be used to interpret
this Plan. The rules of construction set forth in section 102 of the Bankruptcy
Code shall apply to this Plan. In computing any period of time prescribed or
allowed by this Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
II.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
A. INTRODUCTION.
All Claims and Equity Interests, except Administrative Claims and
Priority Tax Claims, are placed in the Classes set forth below. In accordance
with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and
Priority Tax Claims, as described below, have not been classified.
A Claim or Equity Interest is placed in a particular Class only to
the extent that the Claim or Equity Interest falls within the description of
that Class, and is classified in other Classes to the extent that any portion of
the Claim or Equity Interest falls within the description of such other Classes.
A Claim is also placed in a particular Class for the purpose of receiving
distributions pursuant to the Plan only to the extent that such Claim is an
Allowed Claim in that Class and such Claim has not been paid, released, or
otherwise settled prior to the Effective Date.
1. UNCLASSIFIED CLAIMS (NOT ENTITLED TO VOTE ON THE
PLAN).
(a) ADMINISTRATIVE CLAIMS.
(b) PRIORITY TAX CLAIMS.
2. UNIMPAIRED CLASSES OF CLAIMS (DEEMED TO HAVE
ACCEPTED THE PLAN AND, THEREFORE, NOT ENTITLED TO VOTE
ON THE PLAN).
(a) CLASS 1: OTHER PRIORITY CLAIMS.
Class 1 consists of all Other Priority Claims.
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(b) CLASS 2: OTHER SECURED CLAIMS.
Class 2 consists of all Other Secured Claims.
(c) CLASS 3: DIP FINANCING CLAIMS.
Class 3 consists of all DIP Financing Claims.
3. IMPAIRED CLASS OF CLAIMS (ENTITLED TO VOTE ON THE
PLAN).
(a) CLASS 4: CONVENIENCE CLAIMS.
Class 4 consists of all Convenience Claims.
(b) CLASS 5: GENERAL UNSECURED CLAIMS.
Class 5 consists of all General Unsecured Claims.
4. IMPAIRED CLASS OF EQUITY INTERESTS (DEEMED TO HAVE
REJECTED THE PLAN AND, THEREFORE, NOT ENTITLED TO VOTE
ON THE PLAN).
(d) CLASS 6: EQUITY INTERESTS.
Class 6 consists of all Equity Interests.
III.
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
A. ADMINISTRATIVE CLAIMS.
Except to the extent that any entity entitled to payment of any
Allowed Administrative Claim agrees to a different treatment, each holder of an
Allowed Administrative Claim shall receive (a) Cash in an amount equal to such
Allowed Administrative Claim on the later of the Effective Date and the date
such Administrative Claim becomes an Allowed Administrative Claim, or as soon
thereafter as is practicable or (b) such other treatment as the Debtor and such
holder shall have agreed upon in writing, subject to the consent of the
Creditors Committee; PROVIDED, HOWEVER, that Allowed Administrative Claims
representing liabilities incurred in the ordinary course of business by the
Debtor in Possession or liabilities arising under loans or advances to or other
obligations incurred by the Debtor in Possession (to the extent authorized and
approved by the Court if such
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authorization and approval was required under the Bankruptcy Code) shall be paid
in full and performed by the Reorganized Debtor, as the case may be, in the
ordinary course of business in accordance with the terms and subject to the
conditions of any agreements governing, instruments evidencing, or other
documents relating to, such transactions.
B. PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS.
All entities seeking an award by the Court of compensation for
services rendered or reimbursement of expenses incurred through and including
the Confirmation Date under sections 503(b)(2), 503(b)(3), 503(b)(4) or
503(b)(5) of the Bankruptcy Code (a) shall file their respective final
applications for allowances of compensation for services rendered and
reimbursement of expenses incurred through the Effective Date by the date that
is 30 days after the Effective Date or such other date as may be fixed by the
Court and (b) if granted, such an award by the Court shall be paid in full in
such amounts as are awarded by the Court (i) on the date such Administrative
Claim becomes an Allowed Administrative Claim, or as soon thereafter as is
practicable or (ii) upon such other terms as may be mutually agreed upon between
such holder of an Administrative Claim and the Debtor in Possession or, on and
after the Effective Date, the Reorganized Debtor. The Debtor shall support an
application filed by the Informal Noteholders Committee with the Court seeking
reimbursement of the reasonable fees and expenses incurred by its counsel,
Andrews & Kurth, L.L.P., up to a maximum aggregate amount of $50,000, in
connection with the negotiation of the agreement between Loehmann's, Inc. and
certain members of the Informal Noteholders Committee, dated July 27, 2000, and
the negotiation of certain documents in connection therewith.
C. PRIORITY TAX CLAIMS.
Except to the extent that a holder of an Allowed Priority Tax Claim
agrees to a different treatment, each holder of an Allowed Priority Tax Claim
shall receive, at the sole option of the Reorganized Debtor, (a) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim,
or as soon thereafter as is practicable, or (b) equal annual Cash payments in an
aggregate amount equal to such Allowed Priority Tax Claim, together with
interest (i) with respect to federal taxes, at a fixed annual rate equal to the
federal statutory rate as provided in 26 U.S.C. ss. 6621, over a period through
the sixth anniversary of the date of assessment of such Allowed Priority Tax
Claim; and (ii) with respect to state and city taxes, at the rate applicable
under state or local law.
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IV.
TREATMENT OF CLAIMS AND
EQUITY INTERESTS
A. CLASS 1 - OTHER PRIORITY CLAIMS.
1. DISTRIBUTIONS. Except to the extent that a holder of an
Allowed Other Priority Claim shall have agreed in writing to a different
treatment, subject to the consent of the Creditors Committee, in full and final
satisfaction of such claim, each holder of an Allowed Other Priority Claim shall
receive payment in an amount equal to such Allowed Claim in full in Cash on the
later of the Effective Date and the date when such Other Priority Claim becomes
an Allowed Claim, or as soon thereafter as practicable.
2. IMPAIRMENT AND VOTING. Class 1 is unimpaired under the
Plan. Holders of Allowed Claims in Class 1 are presumed to accept the Plan and
are not entitled to vote to accept or reject the Plan.
B. CLASS 2 - OTHER SECURED CLAIMS.
1. DISTRIBUTIONS. Except to the extent that a holder of an
Allowed Secured Claim shall have agreed in writing to a different treatment
subject to the consent of the Creditors Committee at the sole option of the
Debtor, in full and final satisfaction of such claim, (i) each Allowed Other
Secured Claim shall be reinstated and rendered unimpaired in accordance with
section 1124(2) of the Bankruptcy Code, notwithstanding any contractual
provision or applicable nonbankruptcy law that entitles the holder of an Allowed
Other Secured Claim to demand or receive payment of such Allowed Other Secured
Claim prior to the stated maturity of such Allowed Other Secured Claim from and
after the occurrence of a default, (ii) each holder of an Allowed Other Secured
Claim shall receive Cash in an amount equal to such Allowed Other Secured Claim,
including any interest on such Allowed Other Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective
Date and the date such Allowed Other Secured Claim becomes an Allowed Other
Secured Claim, or as soon thereafter as is practicable, or (iii) each holder of
an Allowed Other Secured Claim shall receive the Collateral securing its Allowed
Other Secured Claim and any interest on such Allowed Other Secured Claim
required to be paid pursuant to section 506(b) of the Bankruptcy Code, in full
and complete satisfaction of such Allowed Other Secured Claim on the later of
the Effective Date and the date such Allowed Other Secured Claim becomes an
Allowed Other Secured Claim, or as soon thereafter as is practicable.
2. IMPAIRMENT AND VOTING. Class 2 is unimpaired under the
Plan. The holders of Allowed Claims in Class 2 are presumed to accept the Plan
and are not entitled to vote to accept or reject the Plan.
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C. CLASS 3 - DIP FINANCING CLAIMS.
1. DISTRIBUTIONS. On the Effective Date, or as soon thereafter
as practicable, in full and final satisfaction of such claims, each holder of a
DIP Financing Claim shall receive payment in full in Cash.
2. IMPAIRMENT AND VOTING. Class 3 shall be unimpaired under
the Plan. The holders of DIP Financing Claims are presumed to accept the Plan
and are not entitled to vote to accept or reject the Plan.
D. CLASS 4 - CONVENIENCE CLAIMS.
1. DISTRIBUTIONS. Each holder of an Allowed Convenience Claim
in Class 4 shall receive Cash in an amount equal to fifty percent (50%) of such
Allowed Convenience Claim on the later of (i) the Effective Date, or (ii) 30
days after the date on which such Claim becomes an Allowed Convenience Claim, or
as soon thereafter as is practicable. Any holder of a Claim which would
otherwise be an Allowed Convenience Claim may elect on such holder's Ballot to
have such Allowed Claim treated as an Allowed General Unsecured Claim under
Class 5, in which event the holder of such Allowed Claim shall receive
distributions under Class 5 on account of such Allowed Claim and shall forfeit
its right to distributions under Class 4 on account of such Allowed Claim.
2. IMPAIRMENT AND VOTING. Class 4 is impaired under the Plan.
The holders of Allowed Convenience Claims in Class 4 are entitled to vote to
accept or reject the Plan.
3. ELECTION TO BE TREATED AS A CONVENIENCE CLAIM. By checking
the appropriate box on a timely cast Ballot, the holder of an Allowed General
Unsecured Claim in an amount greater than $2,000 may elect to reduce the amount
of such holder's Allowed General Unsecured Claim to $2,000 and to receive a
distribution upon such Allowed Class 4 Convenience Claim in the amount of $1,000
as described above. Such an election shall constitute a waiver of the right to
collect, and a release of, the amount of the Allowed General Unsecured Claim in
excess of $2,000, and the holder of such Allowed Class 4 Convenience Claim shall
be deemed to have released the Debtor and its estate, and its property from any
and all liability for such excess amount. The holder of an Allowed General
Unsecured Claim which timely elects to reduce the amount of its Allowed Claim
shall be deemed to be the holder of an Allowed Class 4 Convenience Claim for
classification, voting and all other purposes under the Plan.
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E. CLASS 5 - GENERAL UNSECURED CREDITORS.
1. DISTRIBUTIONS. Each holder of an Allowed General Unsecured
Claim in Class 5 has the option to receive one of three distributions under the
Plan by checking the appropriate box on a timely cast Ballot.
(a) STOCK/NOTES ELECTION. A holder of an Allowed
General Unsecured Claim may elect to receive its Pro Rata share of (i) Available
Shares and (ii) Available Notes (the "STOCK/NOTES ELECTION");
(b) STOCK ONLY DISTRIBUTION. A holder of an Allowed
General Unsecured Claim may elect to receive (i) its Pro Rata share of Available
Shares and (ii) an additional 66.67 shares of New Common Stock for every $1000
in New Senior Notes it would otherwise receive under the Stock/Notes Election
(the "STOCK ONLY DISTRIBUTION"); or
(c) ADDITIONAL NOTES ELECTION. A holder of an
Allowed General Unsecured Claim may elect to receive (i) its Pro Rata share of
Available Notes; (ii) an additional $1000 in New Senior Notes for every 66.67
shares of New Common Stock it would otherwise receive as its Pro Rata share of
Available Shares under the Stock/Notes Election (to the extent New Senior Notes
are available for such conversion); and (iii) the remainder of its Pro Rata
share of Available Shares, if any (the "ADDITIONAL NOTES ELECTION").
If a holder of an Allowed General Unsecured Claim fails to indicate
its selection of the Stock/Notes Election or Additional Notes Election on a
timely cast Ballot, such claimholder will receive the Stock Only Distribution.
Each holder of a Class 5 Allowed General Unsecured Claim will receive its
distribution on the later of (i) the Effective Date, or (ii) 30 days after the
date on which such Claim becomes an Allowed General Unsecured Claim, or as soon
thereafter as is practicable. If, after the Effective Date, any further
Available Shares are available from the release of New Common Stock from the
Disputed Claims Reserve, then each holder of an Allowed General Unsecured Claim
will receive on a Subsequent Distribution Date, if any, and the Final
Distribution Date, Available Shares on account of its Allowed General Unsecured
Claim in accordance with Articles VI.B.1(d) and (e) of the Plan. Any further New
Senior Notes released from the Disputed Claims Reserve shall be canceled in
accordance with Article VI.B.5 of the Plan. Senior Note Claims will be allowed
in the aggregate amount of $100,740,217.29.
2. IMPAIRMENT AND VOTING. Class 5 is impaired under the Plan.
Each holder of an Allowed Claim in Class 5 is entitled to vote to accept or
reject the Plan. The holder of an Allowed General Unsecured Claim which timely
makes either a Stock/Notes Election or an Additional Notes Election shall
continue to be deemed the holder of an Allowed Class 5 General Unsecured Claim
for classification, voting and all other purposes under the Plan.
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F. CLASS 6 - EQUITY INTERESTS.
1. DISTRIBUTIONS. The holders of Class 6 Equity Interests
shall receive no distributions whatsoever on account of such Equity Interests.
All Equity Interests shall be canceled on the Effective Date.
2. IMPAIRMENT AND VOTING. Class 6 is impaired under the Plan.
As the holders of Equity Interests are receiving no distributions they are
conclusively presumed to have rejected the Plan and are not entitled to vote to
accept or reject the Plan.
V.
PROVISIONS REGARDING CORPORATE
GOVERNANCE AND MANAGEMENT
OF LOEHMANN'S HOLDINGS AND
THE REORGANIZED DEBTOR
A. FORMATION OF HOLDING COMPANY.
On the Effective Date, a holding company ("LOEHMANN'S
HOLDINGS") shall be formed which shall own 100% of Reorganized Loehmann's and
which shall issue the New Senior Notes and New Common Stock pursuant to Article
V.C. of the Plan.
B. DIRECTORS AND OFFICERS OF LOEHMANN'S HOLDINGS AND
REORGANIZED LOEHMANN'S; AMENDED CERTIFICATE OF
INCORPORATION AND AMENDED BY-LAWS.
1. LOEHMANN'S HOLDINGS.
(A) BOARD OF DIRECTORS. As of the Effective Date, the
board of directors of Loehmann's Holdings shall initially consist of seven (7)
members, five (5) of whom shall be jointly designated by the Creditors Committee
and Informal Noteholders Committee whose names shall be disclosed on or before
the date of the Confirmation Hearing, and two (2) of whom shall be Robert
Friedman and Robert Glass. The Board of Directors of Loehmann's Holdings will
select a Chairman of the Board of Directors of Loehmann's Holdings at its
initial meeting.
(B) OFFICERS OF LOEHMANN'S HOLDINGS. The officers of
Loehmann's immediately prior to the Effective Date shall serve as the initial
officers of Reorganized Loehmann's on and after the Effective Date. Such
officers shall serve in accordance with employment agreements to be negotiated
with Reorganized Loehmann's and applicable nonbankruptcy law.
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(C) CERTIFICATE OF INCORPORATION AND BY-LAWS. The
adoption of Loehmann's Holdings Certificate of Incorporation and Loehmann's
Holdings By-Laws will be deemed to have occurred and be effective as of the
Effective Date without any further action by the directors or stockholders of
Loehmann's Holdings. On or prior to the Effective Date, Loehmann's Holdings will
file with the Secretary of State of the State of Delaware, in accordance with
sections 103 and 303 of the Delaware General Corporation Law, the Loehmann's
Holdings Certificate of Incorporation and such certificate shall be the
certificate of incorporation for Loehmann's Holdings. The Certificate of
Incorporation and Bylaws shall be substantially in the forms contained in the
Plan Supplement.
2. REORGANIZED LOEHMANN'S.
(A) BOARD OF DIRECTORS. As of the Effective Date, the
board of directors of Reorganized Loehmann's shall initially consist of seven
(7) members, five (5) of whom shall be jointly designated by the Creditors
Committee and Informal Noteholders Committee whose names shall be disclosed on
or before the date of the Confirmation Hearing, and two (2) of whom shall be
Robert Friedman and Robert Glass. The Board of Directors of Reorganized
Loehmann's will select a Chairman of the Board of Directors of Reorganized
Loehmann's at its initial meeting.
(B) OFFICERS OF REORGANIZED LOEHMANN'S. The officers
of Loehmann's Holdings shall be disclosed prior to the Confirmation Hearing.
(C) AMENDED CERTIFICATE OF INCORPORATION AND AMENDED
LOEHMANN'S BY-LAWS. The adoption of the Amended Certificate of Incorporation and
Amended By-Laws will be deemed to have occurred and be effective as of the
Effective Date without any further action by the directors or stockholders of
the Debtor or the Reorganized Debtor. On or prior to the Effective Date,
Loehmann's will file with the Secretary of State of the State of Delaware, in
accordance with sections 103 and 303 of the Delaware General Corporation Law,
the Amended Certificate of Incorporation and such certificate shall be the
certificate of incorporation for Reorganized Loehmann's. The Amended Certificate
of Incorporation and Amended Bylaws shall be substantially in the forms
contained in the Plan Supplement.
C. SECURITIES TO BE ISSUED PURSUANT TO THE PLAN.
1. NEW COMMON STOCK. On the Effective Date, the issuance by
Loehmann's Holdings of between 3,333,333 and 5,000,000 shares of New Common
Stock (depending on how many shares are required for distribution to
claimholders pursuant to Article IV.E of the Plan), subject to increase by the
Equity Incentive Plan, is hereby authorized without further act or action under
applicable law, regulation, rule or order. Each share of New Common Stock will
entitle its holder to one vote, with no cumulative voting rights. Holders of New
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Common Stock will have the right to participate proportionately in any dividends
distributed by Reorganized Loehmann's. Reorganized Loehmann's will use its best
efforts to have the New Common Stock listed on a nationally recognized market or
exchange.
2. NEW SENIOR NOTES. The New Senior Notes will be issued by
Loehmann's Holdings pursuant to an indenture (the "NEW NOTES INDENTURE"), which
will be qualified under the Trust Indenture Act of 1939, as amended. An
indenture trustee will be selected prior to the Confirmation Hearing. A summary
of the principal terms and conditions of the New Senior Notes is attached hereto
as Exhibit "A." The New Senior Notes and the New Notes Indenture will be in
substantially the forms included in the Plan Supplement.
D. SECURITIES LAWS MATTERS.
Each Initial Holder receiving a distribution of New Common Stock
representing more than 10% of the aggregate New Common Stock issued on the
Effective Date shall be entitled to become a party to the Registration Rights
Agreement, which provides that Loehmann's Holdings will file and maintain the
effectiveness of a shelf registration right statement for such Initial Holder
for the New Common Stock and the New Senior Notes, covering the resale of all
such securities. Certificates evidencing shares of New Common Stock received by
an Initial Holder who is deemed to be an affiliate of the Debtor by reason of
its equity holdings or otherwise will bear a legend stating, in substance, that
such shares have not been registered under the Securities Act or under the
securities laws of any state or other jurisdiction and may not be sold, offered
for sale or otherwise transferred unless registered or qualified under such Act
and applicable state securities laws or unless Loehmann's Holdings receives a
certificate executed by a duly authorized officer of such Initial Holder or an
opinion of counsel, as applicable, reasonably satisfactory to the Loehmann's
Holdings that such registration or qualification is not required. The
Registration Rights Agreement will be in substantially the form included in the
Plan Supplement.
E. LOEHMANN'S HOLDINGS EQUITY INCENTIVE PLAN.
On the Effective Date, Loehmann's Holdings will adopt a stock option
plan (the "EQUITY INCENTIVE PLAN") which permits Loehmann's Holdings to grant to
its officers and directors options to acquire shares of New Common Stock. Such
stock option plan shall be on the terms described in Exhibit "B" hereto and
shall be in substantially the form contained in the Plan Supplement.
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VI.
MEANS OF IMPLEMENTATION,
PROVISIONS REGARDING VOTING
AND DISTRIBUTIONS UNDER THE PLAN
AND TREATMENT OF DISPUTED, CONTINGENT AND
UNLIQUIDATED ADMINISTRATIVE CLAIMS AND CLAIMS
A. VOTING OF CLAIMS.
Each holder of an Allowed Claim in an Impaired Class of Claims shall
be entitled to vote separately to accept or reject the Plan as provided in such
order as may be entered by the Court establishing certain procedures with
respect to the solicitation and tabulation of votes to accept or reject the
Plan, or any other order or orders of the Court.
B. DISTRIBUTIONS.
1. METHOD OF DISTRIBUTIONS UNDER THE PLAN.
(a) DATE AND DELIVERY OF DISTRIBUTIONS. Distributions
under the Plan shall be made by the Reorganized Debtor or its designee to the
holders of Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed
Other Priority Claims, Allowed DIP Financing Claims, Allowed Other Secured
Claims, Allowed Convenience Claims and Allowed General Unsecured Claims at the
addresses set forth on the Schedules, unless such addresses are superseded by
proofs of claim or transfers of claim filed pursuant to Bankruptcy Rule 3001 (or
at the last known addresses of such holders if the Debtor or the Reorganized
Debtor has been notified in writing of a change of address), except that all
distributions to the holders of Allowed Senior Note Claims shall be made in
accordance with the Senior Note Indenture. Distributions of New Senior Notes and
New Common Stock shall be made initially to the Transfer Agent who shall make
the distributions to the holders of Allowed General Unsecured Claims or, in the
case of holders of Allowed Senior Note Claims, to the Senior Note Indenture
Trustee for further distribution to individual holders of Senior Note Claims in
accordance with the Senior Note Indenture. Notwithstanding any provisions in the
Plan to the contrary, the Senior Note Indenture will continue in effect to the
extent necessary to allow the Senior Note Indenture Trustee to receive and make
distributions pursuant to the Plan on account of the Senior Note Claims. New
Senior Notes (including any interest earned thereon) and New Common Stock
(including dividends paid on account thereof) shall be held in trust by the
disbursing agent or the Reorganized Debtor, as applicable, for the benefit of
holders of Disputed Claims until such time as such shares and/or notes are
distributed to holders of Allowed Claims. Until such distribution, shares of New
Common Stock held for the benefit of Disputed Claims holders shall be treated as
treasury stock for voting purposes.
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(b) DISTRIBUTION OF CASH. Any payment of Cash by
the Reorganized Debtor pursuant to the Plan shall be made at the option and in
the sole discretion of the Reorganized Debtor by (i) a check drawn on, or (ii)
wire transfer from, a domestic bank selected by the Reorganized Debtor.
(c) EFFECTIVE DATE DISTRIBUTIONS. On the Effective
Date, or as soon thereafter as practicable, the Reorganized Debtor shall
distribute Available Notes and Available Shares to the holders of Allowed
General Unsecured Claims.
(d) DISTRIBUTIONS ON SUBSEQUENT DISTRIBUTION DATES.
Unless otherwise provided in the Plan, to the extent there are Available Shares
subsequent to the Effective Date as a result of the release of shares of New
Common Stock from the Disputed Claims Reserve in accordance with Article VI.B.4.
of the Plan or the return of unclaimed, undeliverable or time-barred
distributions to holders of Allowed General Unsecured Claims pursuant to Article
VI.B.1.(g) of the Plan, the Reorganized Debtor shall, on a Subsequent
Distribution Date, distribute (with the written consent of the Creditors
Committee or Court order on notice to the Creditors Committee) such Available
Shares to the holders of General Unsecured Claims entitled thereto that were
Allowed on the Effective Date or subsequently have become Allowed on or before
the Subsequent Distribution Date in amounts necessary to cause such holders to
have received aggregate distributions of shares of New Common Stock in respect
of such Allowed General Unsecured Claims equal to the distributions that such
holders would have received in respect of such Allowed General Unsecured Claims
on the Effective Date if (x) such Available Shares had been available for
distribution on the Effective Date, (y) such Allowed General Unsecured Claims
had been Allowed on the Effective Date in the amounts in which they are Allowed
on the Subsequent Distribution Date, and (z) Claims or portions thereof that
have become disallowed subsequent to the Effective Date and on or before the
Subsequent Distribution Date had been disallowed on the Effective Date.
(e) DISTRIBUTIONS ON THE FINAL DISTRIBUTION DATE.
Unless otherwise provided in this Plan, to the extent there are Available Shares
subsequent to the Effective Date from the release of shares of New Common Stock
from the Disputed Claims Reserve in accordance with Article VI.B.4. of the Plan,
or the return of unclaimed, undeliverable or time-barred distributions to
holders of Allowed General Unsecured Claims pursuant to Article VI.B.1.(g) of
the Plan, the Reorganized Debtor shall, on the Final Distribution Date,
distribute all such Available Shares to the holders of General Unsecured Claims
entitled thereto that were Allowed on the Effective Date, or subsequently have
become Allowed on or before the Final Distribution Date in amounts necessary to
cause such holders to have received aggregate distributions of shares of New
Common Stock in respect of such Allowed Claims equal to the distributions that
such holders would have received in respect of such Allowed General Unsecured
Claims on the Effective Date if (x) such Available Shares had been available for
distribution on the
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Effective Date, (y) such Allowed General Unsecured Claims had been Allowed on
the Effective Date in the amounts in which they are Allowed on the Final
Distribution Date, and (z) Claims or portions thereof that have become
disallowed subsequent to the Effective Date and on or before the Final
Distribution Date had been disallowed on the Effective Date; PROVIDED, HOWEVER,
that in no event shall the Reorganized Debtor be obligated to make such a
distribution if, in the discretion of the Reorganized Debtor and the Creditors
Committee, there are Available Shares to make a cost-efficient distribution,
taking into account the size of the distribution to be made and the number of
recipients of such distribution, in which event such shares of New Common Stock
shall become the property of the Reorganized Debtor.
(f) RESERVE SHARES AND NOTES FOR DISPUTED CLAIMS. On
the date on which the Reorganized Debtor makes its initial distribution to
holders of Allowed General Unsecured Claims pursuant to Article VI.B.1 of the
Plan, the Reorganized Debtor shall deposit with the Transfer Agent an aggregate
number of New Senior Notes and shares of New Common Stock sufficient to
distribute to each holder of a Disputed Claim (i) the number of New Senior Notes
and/or shares of New Common Stock that such holder would have been entitled to
receive under the Plan if such Claim had been an Allowed General Unsecured Claim
on the date of such initial distribution, or (ii) such lesser amount as the
Court may estimate pursuant to Article VI.C. of the Plan or may otherwise order.
New Senior Notes and shares of New Common Stock shall be withheld by the
Transfer Agent and reserved for distribution to holders of Disputed Claims until
such time as such notes and/or shares are distributed to holders of Allowed
Claims. Until such distribution, shares of New Common Stock held for the benefit
of Disputed Claims holders shall be treated as treasury stock for voting
purposes.
(g) UNCLAIMED DISTRIBUTIONS. Any distribution of Cash
under the Plan which is unclaimed after the later to occur of (a) two years
after distribution or (b) six months after the date on which such claimant's
Claim is Allowed shall be transferred to the Reorganized Debtor notwithstanding
state or other escheat or similar laws to the contrary. Distributions under the
Plan consisting of New Senior Notes or New Common Stock that are unclaimed for a
period of two years after distribution shall be canceled and any dividends or
interest which has been paid with respect to such securities shall be
transferred to the Reorganized Debtor and entitlement by the holder of a Claim
to such distribution shall be extinguished and forever barred.
(h) SATURDAYS, SUNDAYS, OR LEGAL HOLIDAYS. If any
payment or act under the Plan is required to be made or performed on a date that
is not a Business Day, then the making of such payment or the performance of
such act may be completed on the next succeeding Business Day, and shall be
deemed to have been completed as of the required date.
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(i) FRACTIONAL NOTES AND FRACTIONAL SHARES.
(i) FRACTIONAL NOTES. Notwithstanding any other
provision in the Plan to the contrary, no fractional denominations of New
Senior Notes shall be issued pursuant to the Plan. Whenever the issuance
of any New Senior Note would otherwise call for the issuance in an amount
for a fraction of a New Senior Note (issued in $100 denominations), the
actual issuance of such New Senior Note shall reflect a rounding of such
fraction to the nearest whole New Senior Note denomination (up or down),
with half denominations being rounded down.
(ii) FRACTIONAL SHARES. Notwithstanding any
other provision in the Plan to the contrary, no fractional shares of New
Common Stock shall be issued pursuant to the Plan. Whenever any payment of
a fraction of a share of New Common Stock would otherwise be required
under the Plan, the actual distribution made shall reflect a rounding of
such faction to the nearest whole share (up or down), with half shares or
less being rounded down and fractions in excess of a half of a share being
rounded up. If two or more holders are entitled to equal fractional
entitlements and the number of holders so entitled exceeds the number of
whole shares, as the case may be, which remain to be allocated, the
Transfer Agent shall allocate the remaining whole shares to such holders
by random lot or such other impartial method as the Transfer Agent deems
fair, in the Transfer Agent's sole discretion. Upon the allocation of all
of the whole shares authorized under the Plan, all remaining fractional
portions of the entitlements shall be canceled and shall be of no further
force and effect.
(j) DISTRIBUTIONS TO HOLDERS AS OF THE RECORD DATE. As
at the close of business on the Record Date, the claims register shall be
closed, and there shall be no further changes in the record holders of any
Claims. Further, at the close of business on the Record Date, the Senior Note
Indenture Trustee shall close the register for the Senior Notes. The Debtor, the
Reorganized Debtor and the Senior Note Indenture Trustee shall have no
obligation to recognize any transfer of any Claims (including Senior Note
Claims) occurring after the Record Date. The Debtor, the Reorganized Debtor and
the Senior Note Indenture Trustee shall instead be entitled to recognize and
deal for purposes under the Plan (except as to voting to accept or reject the
Plan pursuant to Article VI.A) with only those record holders stated on the
claims register and the register for the Senior Notes as of the close of
business on the Record Date.
(k) SENIOR NOTE INDENTURE TRUSTEE'S FEES AND EXPENSES.
The Senior Note Indenture Trustee shall be entitled to payment from Reorganized
Loehmann's of Indenture Trustee Expenses incurred in connection with such
Trustee's making distributions under the Plan without further Bankruptcy Court
approval. These payments will be made on terms agreed to with Reorganized
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Loehmann's and will not be deducted from distributions to be made pursuant to
the Plan to holders of Allowed Senior Note Claims.
2. DISPUTED GENERAL UNSECURED CLAIMS. The holder of a Disputed
General Unsecured Claim that becomes an Allowed Claim subsequent to the Initial
Distribution Date shall receive a distribution of New Senior Notes and/or New
Common Stock as soon thereafter as is practicable. Such distributions shall be
made in accordance with the Plan based on the distributions that would have been
made to such holder under the Plan if the Disputed General Unsecured Claim had
been an Allowed Claim on or prior to the Effective Date.
3. OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE
CLAIMS AND CLAIMS; ADMINISTRATIVE, PRIORITY AND
CONVENIENCE CLAIMS RESERVE.
(a) OBJECTIONS TO AND RESOLUTION OF ADMINISTRATIVE
CLAIMS AND CLAIMS. The Debtor, the Reorganized Debtor and the Creditors
Committee shall have the exclusive right to make and file objections to
Administrative Claims and Claims subsequent to the Confirmation Date. All
objections shall be litigated to a Final Order. Unless otherwise ordered by the
Court, the Debtor, the Reorganized Debtor and the Creditors Committee shall file
all objections to Administrative Claims and Claims that are the subject of
proofs of claim or requests for payment filed with the Court (other than
applications for allowances of compensation and reimbursement of expenses) and
serve such objections upon the holders of the Administrative Claim or Claim as
to which the objection is made as soon as is practicable, but in no event later
than 60 days after the Effective Date or such later date as may be approved by
the Court.
(b) ADMINISTRATIVE, PRIORITY AND CONVENIENCE CLAIMS
RESERVE.
(i) ESTABLISHMENT OF ADMINISTRATIVE, PRIORITY
AND CONVENIENCE CLAIMS RESERVE. On the Effective Date, the Reorganized
Debtor shall place into reserve an amount of Cash equal to (i) the sum of
the aggregate amount of all Disputed Administrative Claims, Disputed
Priority Tax Claims, Disputed Other Priority Claims and Disputed
Convenience Claims, plus (ii) an amount to be determined by the Court to
be reserved for any Disputed Administrative Claims, Disputed Priority Tax
Claims and Disputed Other Priority Claims that are unliquidated (the
"ADMINISTRATIVE, PRIORITY AND CONVENIENCE CLAIMS RESERVE").
(ii) CASH HELD IN ADMINISTRATIVE, PRIORITY AND
CONVENIENCE CLAIMS RESERVE. Cash held in the Administrative, Priority and
Convenience Claims Reserve shall be deposited in a segregated bank account
or accounts in the name of the Reorganized Debtor and designated as held
in trust for the benefit of holders of Allowed Administrative Claims,
Allowed
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Priority Tax Claims, Allowed Other Priority Claims and Allowed Convenience
Claims. Cash held in the Administrative, Priority and Convenience Claims
Reserve shall not constitute property of the Reorganized Debtor. The
Reorganized Debtor shall invest the Cash held in the Administrative,
Priority and Convenience Claims Reserve in a manner consistent with
investment guidelines to be included in the Plan Supplement. The
Reorganized Debtor shall pay, or cause to be paid, out of the funds held
in the Administrative, Priority and Convenience Claims Reserve, any tax
imposed on the Administrative, Priority and Convenience Claims Reserve by
any governmental unit with respect to income generated by Cash held in the
Administrative, Priority and Convenience Claims Reserve. Any Cash held in
the Administrative, Priority and Convenience Claims Reserve after all
Administrative, Priority and Convenience Claims have been Allowed or
disallowed shall be transferred to and become the property of the
Reorganized Debtor.
4. ALLOWANCE OF DISPUTED ADMINISTRATIVE, PRIORITY AND
CONVENIENCE CLAIMS. If, on or after the Effective
Date, any Disputed Administrative, Priority or Convenience Claim becomes an
Allowed Claim, the Reorganized Debtor shall, 30 days after the date on which
such Claim becomes an Allowed Claim, or as soon thereafter as is practicable,
distribute from the Administrative, Priority and Convenience Claims Reserve to
the holder of such Allowed Administrative, Priority or Convenience Claim Cash
equal to the amount that such holder would have been entitled to had such Claim
been Allowed on the Effective Date.
5. RELEASE OF SHARES AND NOTES FROM DISPUTED CLAIMS
RESERVE. If at any time or from time to time after the
Effective Date, there shall be New Senior Notes and/or shares of New Common
Stock in the Disputed Claims Reserve in an amount in excess of the amount which
the Reorganized Debtor is required at such time to reserve on account of
Disputed Claims under the Plan or pursuant to any Order of the Court, (i) such
excess shares of New Common Stock shall become available for distribution in
accordance with the Plan, and (ii) such excess New Senior Notes shall be
canceled.
6. ALLOCATION OF CONSIDERATION. The aggregate consideration to
be distributed to the holders of Allowed Claims in each Class under the Plan
(other than the Claims, if any, of the Internal Revenue Service) shall be
treated as first satisfying an amount equal to the stated principal amount of
the Allowed Claim for such holders and any remaining consideration as satisfying
accrued, but unpaid, interest and costs, if any, and attorneys' fees where
applicable.
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7. CANCELLATION AND SURRENDER OF EXISTING SECURITIES AND
AGREEMENTS. On the Effective Date, the Senior Notes
and Equity Interests shall be deemed canceled and such agreements and
securities, including the Senior Note Indenture (except as provided in Article
VI.B.1.(a)), together with all instruments issued pursuant thereto, shall have
no further legal effect other than as evidence of any right to receive
distributions, fees and expenses under the Plan. In addition, the Indenture
Trustee's obligations shall be discharged (except as contemplated in Article
VI.B.).
Notwithstanding any other provision of the Plan, as a
condition precedent to receiving any distribution under the Plan, each holder of
a promissory note, share certificate, or other instrument or security evidencing
a Claim must tender such promissory note or other instrument or security to the
Reorganized Debtor or its designee or must execute and deliver an affidavit of
loss and furnish an indemnity or bond in substance and amount reasonably
satisfactory to the Reorganized Debtor and the Indenture Trustee.
Any holder of a Claim that fails to surrender such instrument
or to provide the affidavit and indemnity or bond before the later to occur of
(i) the second anniversary of the Effective Date and (ii) six months following
the date such holder's Claim becomes an Allowed Claim shall be deemed to have
forfeited all rights and/or Claims and may not receive or participate in any
distribution under the Plan.
C. ESTIMATION.
The Debtor, the Reorganized Debtor or the Creditors Committee may,
at any time, request that the Court estimate any Disputed Claim pursuant to
section 502(c) of the Bankruptcy Code regardless of whether the Debtor, the
Reorganized Debtor or the Creditors Committee have previously objected to such
Claim. The Court will retain jurisdiction to estimate any Claim at any time,
including during litigation concerning any objection to such Claim. In the event
that the Court estimates any Disputed Claim, that estimated amount may
constitute either the Allowed amount of such Claim, the amount on which a
reserve is to be calculated for purposes of the Disputed Claims Reserve, or a
maximum limitation on such Claim, as determined by the Court. If the estimated
amount constitutes a maximum limitation on such Claim, the Debtor, the
Reorganized Debtor or the Creditors Committee may elect to pursue any
supplemental proceedings to object to any ultimate payment of such Claim. All of
the aforementioned Claims objection, estimation and resolution procedures are
cumulative and not necessarily exclusive of one another.
D. ADMINISTRATIVE CLAIMS OF INDENTURE TRUSTEE.
In addition to any other Administrative Claim that may be filed by
the Indenture Trustee pursuant to the provisions set forth herein, the Indenture
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Trustee shall have an Allowed Administrative Claim in an amount equal to the
reasonable and necessary fees and expenses incurred by the Indenture Trustee and
its legal counsel in accordance with and to the extent provided for in the
Senior Note Indenture for the period covering the Petition Date through and
including the Effective Date.
E. NONCONSENSUAL CONFIRMATION.
As the holders of Equity Interests in Class 6 are deemed to reject
the Plan, the Debtor will seek to have the Court confirm the Plan under section
1129(b) of the Bankruptcy Code.
F. THE AMENDED CERTIFICATE OF INCORPORATION, THE AMENDED
BY-LAWS AND OTHER IMPLEMENTATION DOCUMENTS.
On or before the Effective Date, the Reorganized Debtor and
Loehmann's Holdings will execute the Amended Certificate of Incorporation, the
Amended By-Laws, the Loehmann's Holdings Certificate of Incorporation,
Loehmann's Holdings By-Laws, the Equity Incentive Plan, the Registration Rights
Agreement and all other documents required and necessary to implement the Plan,
without the requirement of any further corporate action.
VII.
EFFECT OF CONFIRMATION OF THIS PLAN
A. CONTINUED CORPORATE EXISTENCE.
The Debtor, as Reorganized Debtor, shall continue to exist after the
Effective Date with all powers of a corporation under the laws of its state of
incorporation and without prejudice to any right to alter or terminate such
existence (whether by merger or otherwise) under such applicable state law; and
the Reorganized Debtor may operate its business free of any restrictions imposed
by the Bankruptcy Code, the Bankruptcy Rules or by the Court, subject only to
the terms and conditions of the Plan.
B. VESTING OF ASSETS.
Except as otherwise expressly provided in the Plan, on the Effective
Date, or as soon as practicable thereafter, the Reorganized Debtor shall form
two (2) subsidiaries. Such subsidiaries shall be vested with all of the property
of the Debtor's estate free and clear of all Claims, Liens, encumbrances,
charges and other interests of creditors and equity security holders. Tangible
assets shall be transferred to one subsidiary and intangible assets shall be
transferred to the other.
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C. DISCHARGE OF THE DEBTOR.
The rights afforded herein and the treatment of all Claims and
Equity Interests herein shall be in exchange for and in complete satisfaction,
discharge, and release of all Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Petition Date, against the Debtor, the Debtor in Possession, the Reorganized
Debtor or any of its assets or properties, arising prior to the Effective Date.
Except as otherwise expressly specified in the Plan, the Confirmation Order
shall act as of the Effective Date as a discharge of all debts of, Claims
against, Liens on, and Equity Interests in the Debtor, its assets and
properties, arising at any time before the entry of the Confirmation Order,
regardless of whether a proof of Claim or Equity Interest with respect thereto
was filed, whether the Claim or Equity Interest is Allowed, or whether the
holder thereof votes to accept the Plan or is entitled to receive a distribution
hereunder. Except as otherwise expressly specified in the Plan, after the
Effective Date, any holder of such discharged Claim or Equity Interest shall be
precluded from asserting against the Debtor, the Reorganized Debtor, or any of
its assets or properties, any other or further Claim or Equity Interest based on
any document, instrument, act, omission, transaction, or other activity of any
kind or nature that occurred before the entry of the Confirmation Order.
D. INJUNCTION.
Except as otherwise expressly provided in the Plan, the Confirmation
Order, or a separate order of the Court, all entities who have held, hold, or
may hold Claims against or Equity Interests in the Debtor which arose before or
were held as of the Effective Date, are permanently enjoined, on and after the
Effective Date, from (a) commencing or continuing in any manner any action or
other proceeding of any kind against the Debtor, with respect to any such Claim
or Equity Interest, (b) the enforcement, attachment, collection, or recovery by
any manner or means of any judgment, award, decree, or order against the Debtor
on account of any such Claim or Equity Interest, (c) creating, perfecting, or
enforcing any encumbrance of any kind against the Debtor or against the property
or interests in property of the Debtor on account of any such Claim or Equity
Interest and (d) asserting any right of setoff, subrogation, or recoupment of
any kind against any obligation due from the Debtor or against the property or
interests in property of the Debtor on account of any such Claim or Equity
Interest. Such injunction shall extend to successors of the Debtor (including,
without limitation, the Reorganized Debtor) and its properties and interests in
property.
E. EXTINGUISHMENT OF CAUSES OF ACTION UNDER THE AVOIDING
POWER PROVISIONS.
On the Effective Date, all rights, claims, causes of action,
avoiding powers, suits and proceedings arising under sections 544, 545, 547,
548, 549 and 553 of the Bankruptcy Code shall be extinguished whether or not
then pending.
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The Reorganized Debtor shall have, retain, reserve and be entitled to assert all
other Claims, Causes of Action, rights of setoff and other legal or equitable
defenses which the Debtor had immediately prior to the Petition Date as fully as
if the Chapter 11 Case had not been commenced; and all of the Reorganized
Debtor's legal and equitable rights respecting any such Claim which is not
specifically waived, extinguished or relinquished by the Plan may be asserted
after the Effective Date to the same extent as if the Chapter 11 Case had not
been commenced.
F. VOTES SOLICITED IN GOOD FAITH.
The Debtor, the Creditors Committee and the Informal Noteholders
Committee have, and upon confirmation of the Plan shall be deemed to have,
solicited acceptances of the Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code. The Debtor and the Creditors
Committee (and each of their respective affiliates, agents, directors, officers,
members, employees, advisors, and attorneys) have participated in good faith and
in compliance with the applicable provisions of the Bankruptcy Code in the
offer, issuance, sale, and purchase of the securities offered and sold under the
Plan and therefore have not, and on account of such offer, issuance, sale,
solicitation, and/or purchase will not be, liable at any time for the violation
of any applicable law, rule, or regulation governing the solicitation of
acceptances or rejections of the Plan or the offer, issuance, sale, or purchase
of the securities offered and sold under the Plan.
G. ADMINISTRATIVE CLAIMS INCURRED AFTER THE CONFIRMATION DATE.
Administrative Claims incurred by the Reorganized Debtor after the
date and time of the entry of the Confirmation Order, including (without
limitation) Claims for professionals' fees and expenses incurred after such
date, including, without limitation, fees and expenses by the Reorganized
Debtor, the Creditors Committee and Senior Note Indenture Trustee, shall not be
subject to application and may be paid by the Reorganized Debtor in the ordinary
course of business and without application for or Court approval.
H. THE DEBTOR'S RELEASE.
On the Effective Date, the Debtor and the Reorganized Debtor, on
behalf of themselves and their estates, shall be deemed to release
unconditionally all of their respective officers, directors, employees,
advisors, attorneys, financial advisors, accountants, and other professionals,
the Creditors Committee members, counsel to the Creditors Committee, financial
advisors to the Creditors Committee, the Informal Noteholders Committee members,
counsel to the Informal Noteholders Committee, the Senior Note Indenture Trustee
and each of their representatives and agents (including any professionals
retained by such persons or entities) (the "RELEASED PARTIES") from any and all
claims, obligations, suits, judgments, damages, rights, Causes of Action and
liabilities whatsoever, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or
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otherwise, based in whole or in part upon actions taken in their respective
capacities described above or any omission, transaction, event or other
occurrence taking place on or prior to the Effective Date in any way relating to
the Debtor, the Chapter 11 Case or the Plan, except that (i) no individual shall
be released from any act or omission that constitutes gross negligence or
willful misconduct, and (ii) the Reorganized Debtor shall not relinquish or
waive the right to assert any of the foregoing as a legal or equitable defense
or right of set-off or recoupment against any Claims of any such persons
asserted against the Debtor.
I. EXCULPATION, RELEASE AND INJUNCTION OF RELEASED PARTIES.
1. EXCULPATION. The Debtor, the Reorganized Debtor, members of
the Creditors Committee, members of the Informal Noteholders Committee, the
Senior Note Indenture Trustee and the other Released Parties (i) shall have no
liability whatsoever to any holder or purported holder of an Administrative
Claim, Claim, or Equity Interest for any act or omission in connection with, or
arising out of, the Plan, the Disclosure Statement, the negotiation of the Plan,
the negotiation of the other documents included in the Plan Supplement, the
pursuit of approval of the Disclosure Statement or the solicitation of votes for
confirmation of the Plan, the Chapter 11 Case, the consummation of the Plan, the
administration of the Plan or the property to be distributed under the Plan, or
any transaction contemplated by the Plan or Disclosure Statement or in
furtherance thereof (including, without limitation, the Equity Plan, employment
contracts, programs and arrangements adopted in connection with the Plan or the
Chapter 11 Case), except for willful misconduct or gross negligence as
determined by a Final Order, and (ii) in all respects, shall be entitled to rely
upon the advice of counsel with respect to their duties and responsibilities
under the Plan. This exculpation shall be in addition to, and not in limitation
of, all other releases, indemnities, exculpations and any other applicable law
or rules protecting such Released Parties from liability.
2. INJUNCTION. Pursuant to section 105 of the Bankruptcy Code,
no holder or purported holder of an Administrative Claim, Claim or Equity
Interest shall be permitted to commence or continue any action, employment of
process, or any act to collect, offset, or recover any claim against a Released
Party that accrued on or prior to the Effective Date and has been released or
waived pursuant to Article VII.I.1.
3. LIMITATION OF GOVERNMENTAL RELEASES. Notwithstanding
Articles VII.I.1 and 2. of the Plan, the Plan shall not release, discharge, or
exculpate any non-debtor party from any debt owed to the United States
Government and/or its agencies, including the Pension Benefit Guaranty
Corporation (the "GOVERNMENT"), or from any liability arising under the Internal
Revenue Code, the Employee Retirement Income Security Act of 1974, as amended,
or the environmental laws, securities laws or criminal laws of the United
States. In addition, notwithstanding Articles VII.I.1. and 2. of the Plan, the
Plan
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shall not enjoin or prevent the Government from collecting any such liability
from any such non-debtor party.
J. TERM OF BANKRUPTCY INJUNCTION OR STAYS.
All injunctions or stays provided for in the Chapter 11 Case under
sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, shall remain in full force and effect until the Effective
Date.
K. PRESERVATION OF INSURANCE.
The Debtor's discharge and release from all Claims as provided
herein, except as necessary to be consistent with this Plan, shall not diminish
or impair the enforceability of any insurance policy that may cover Claims
against the Debtor, the Reorganized Debtor (including, without limitation, its
officers and directors) or any other person or entity.
L. OFFICERS' AND DIRECTORS' INDEMNIFICATION RIGHTS AND
INSURANCE.
Notwithstanding any other provisions of the Plan, the obligations of
the Debtor to indemnify its present directors, officers, and employees against
any obligations, liabilities, costs or expenses pursuant to the articles of
incorporation or by-laws of the Debtor, applicable state law, specific
agreement, or any combination of the foregoing, shall survive the Effective
Date.
VIII.
RETENTION OF JURISDICTION
The Court shall have exclusive jurisdiction of all matters arising
out of, and related to, the Chapter 11 Case and the Plan pursuant to, and for
the purposes of, section 105(a) and section 1142 of the Bankruptcy Code and for,
among other things, the following purposes: (1) to hear and determine
applications for the assumption or rejection of executory contracts or unexpired
leases pending on the Confirmation Date, and the allowance of Claims resulting
therefrom; (2) to determine any other applications, adversary proceedings, and
contested matters pending on the Effective Date; (3) to ensure that
distributions to holders of Allowed Claims and Allowed Equity Interests are
accomplished as provided herein; (4) to resolve disputes as to the ownership of
any Claim or Equity Interest; (5) to hear and determine timely objections to
Administrative Claims, Claims and Equity Interests; (6) to enter and implement
such orders as may be appropriate in the event the Confirmation Order is for any
reason stayed, revoked, modified or vacated; (7) to issue such orders in aid of
execution of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code; (8) to consider any modifications of the Plan,
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to cure any defect or omission, or to reconcile any inconsistency in any order
of the Court, including, without limitation, the Confirmation Order; (9) to hear
and determine all applications for compensation and reimbursement of expenses of
professionals under sections 330, 331 and 503(b) of the Bankruptcy Code; (10) to
hear and determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan; (11) to hear and determine any issue
for which the Plan requires a Final Order of the Court; (12) to hear and
determine matters concerning state, local, and federal taxes in accordance with
sections 346, 505 and 1146 of the Bankruptcy Code; (13) to hear any other matter
not inconsistent with the Bankruptcy Code; (14) to hear and determine disputes
arising in connection with compensation and reimbursement of expenses of
professionals for services rendered during the period commencing on the
Confirmation Date through and including the Effective Date; and (15) to enter a
final decree closing the Chapter 11 Case.
IX.
MISCELLANEOUS PROVISIONS
A. PAYMENT OF STATUTORY FEES.
All fees payable on or before the Effective Date (i) pursuant to
section 1930 of title 28 of the United States Code, as determined by the Court
at the Confirmation Hearing, and (ii) to the United States Trustee, shall be
paid by the Debtor on or before the Effective Date and all such fees payable
after the Effective Date shall be paid by the Reorganized Debtor.
B. DISSOLUTION OF CREDITORS COMMITTEE.
The appointment of the Creditors Committee shall terminate on the
Final Distribution Date.
C. MODIFICATION OF THE PLAN.
The Debtor reserves the right, in accordance with the Bankruptcy
Code, to amend or to modify the Plan prior to the entry of the Confirmation
Order with the prior consent of the Creditors Committee and Informal Noteholders
Committee. After entry of the Confirmation Order, the Reorganized Debtor or the
Debtor may amend or modify the Plan, or remedy any defect or omission or
reconcile any inconsistency in the Plan in such a manner as may be necessary to
carry out the purpose and intent of the Plan.
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D. GOVERNING LAW.
Unless a rule of law or procedure is supplied by Federal law
(including the Bankruptcy Code and Bankruptcy Rules) or the Delaware General
Corporation Law, the laws of the State of New York (without reference to the
conflicts of laws provisions thereof) shall govern the construction and
implementation of the Plan and any agreements, documents, and instruments
executed in connection with the Plan.
E. FILING OR EXECUTION OF ADDITIONAL DOCUMENTS.
On or before the Effective Date, the Debtor or the Reorganized
Debtor, shall file with the Court or execute, as appropriate, such agreements
and other documents as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan.
F. WITHHOLDING AND REPORTING REQUIREMENTS.
In connection with the Plan and all instruments issued in connection
therewith and distributions thereon, the Reorganized Debtor shall comply with
all withholding and reporting requirements imposed by any federal, state, local
or foreign taxing authority and all distributions hereunder shall be subject to
any such withholding and reporting requirements.
G. EXEMPTION FROM TRANSFER TAXES.
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer or exchange of the New Senior Notes or New Common Stock under the Plan,
the making or assignment of any lease or sublease or the making or delivery of
any other instrument whatsoever, in furtherance of or in connection with the
Plan shall not be subject to any stamp, real estate transfer, recording or other
similar tax.
H. SECTION 1145 EXEMPTION.
Pursuant to, in accordance with, and solely to the extent provided
under section 1145 of the Bankruptcy Code, the issuance of New Senior Notes and
New Common Stock to the Debtor's creditors under the Plan is exempt from the
registration requirements of Section 5 of the Securities Act, as amended, and
any State or local law requiring registration for offer or sale of a security or
registration or licensing of an issuer of, underwriter of, or broker or dealer
in such New Senior Notes and New Common Stock and is deemed to be a public
offering of New Senior Notes and New Common Stock.
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I. WAIVER OF FEDERAL RULE OF CIVIL PROCEDURE 62(A).
The Debtor may request that the Confirmation Order include (a) a
finding that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order and
(b) authorization for the Debtor to consummate the Plan immediately after entry
of the Confirmation Order.
J. HEADINGS.
Headings used in the Plan are for convenience of reference only and
shall not constitute a part of the Plan for any purpose.
K. EXHIBITS/SCHEDULES.
All Exhibits and Schedules to the Plan are incorporated into and
constitute a part of the Plan as if set forth herein.
L. NOTICES.
All notices, requests, and demands hereunder to be effective shall
be in writing and unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when actually delivered or, in the case of notice
by facsimile transmission, when received and telephonically confirmed, addressed
as follows:
TO THE DEBTOR: Loehmann's, Inc., 2500 Halsey Street, Bronx, New
York 10461, Attention: Robert N. Friedman, with a copy to Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019-6064, attention: Alan W. Kornberg, Tel.: (212) 373-3000/Fax:
(212) 757-3990.
TO THE CREDITORS COMMITTEE: Kronish Lieb Weiner & Hellman,
LLP, 1114 Avenue of the Americas, New York, New York 10036-7798, attention:
Lawrence C. Gottlieb, Tel.: (212) 479-6140/Fax: (212) 479-6275.
TO THE INFORMAL NOTEHOLDERS COMMITTEE: Andrews & Kurth, L.L.P.,
805 Third Ave., New York, New York 10022, attention: Paul N. Silverstein, Tel.:
(212) 850-2800/Fax: (212) 850-2929.
M. PLAN SUPPLEMENT.
Forms of the documents relating to the Amended Certificate of
Incorporation, the Amended By-Laws, the Loehmann's Holdings Certificate of
Incorporation, the Loehmann's Holdings By-Laws, the New Notes Indenture, the New
Senior Notes, the Registration Rights Agreement, the investment guidelines
referred to in Article V.B.3(b)(ii) and the Equity Incentive Plan shall be
contained
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in the Plan Supplement which will be filed with the Clerk of the Court prior to
the Confirmation Hearing. The Plan Supplement may be inspected in the office of
the Clerk of the Court during normal court hours. Holders of Claims or Equity
Interests may obtain a copy of the Plan Supplement upon written request to the
Debtor in accordance with Article IX.L. of the Plan.
N. CONFLICT.
The terms of this Plan shall govern in the event of any
inconsistency with the summaries of the Plan set forth in the Disclosure
Statement.
O. SETOFF BY THE UNITED STATES.
The valid setoff rights, if any, of the United States of America
will be unaffected by this Plan or confirmation thereof.
X.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Other than (i) executory contacts or unexpired leases which (x) are
the subject of a motion to reject pending on the Confirmation Date, (y) were
previously assumed or rejected by the Debtor, or (z) have expired or terminated
pursuant to their own terms during the pendency of the Chapter 11 Case, and (ii)
employment agreements, if any, terminated prior to or in connection with the
Plan, all of the executory contracts, unexpired leases and employment agreements
that exist between the Debtor and any person are specifically assumed as of the
Effective Date pursuant to the Plan. All Claims for damages arising from the
rejection of executory contracts or unexpired leases must be filed with the
Court in accordance with the terms of the order authorizing such rejection. Any
Claims not filed within such time will be forever barred from assertion against
the Debtor, its estate and the Reorganized Debtor. All Allowed Claims arising
from the rejection of executory contracts or unexpired leases shall be treated
as Class 5 Claims. The Reorganized Debtor, except as otherwise agreed by the
parties, will cure any and all undisputed defaults within 60 days of the
Effective Date under any executory contract, unexpired lease or employment
agreement assumed pursuant to the Plan in accordance with section 365 of the
Bankruptcy Code. All disputed defaults that are required to be cured shall be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of the Debtor or the Reorganized Debtor's liability with respect
thereto, or as may otherwise be agreed to by the parties.
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XI.
BENEFIT PLANS
All employment and severance agreements and policies, and all
employee compensation and benefit plans, policies, and programs of the Debtor
applicable generally to its employees, including agreements and programs subject
to section 1114 of the Bankruptcy Code, as in effect on the Effective Date,
including, without limitation, all savings plans, retirement plans, health care
plans, disability plans, severance benefit plans, incentive plans, and life,
accidental death, and dismemberment insurance plans, shall be deemed to be, and
shall be treated as though they are, executory contracts that are assumed under
the Plan, and the Debtor's obligations under such agreements and programs shall
survive the Effective Date of the Plan, without prejudice to the Reorganized
Debtor's rights under applicable non-bankruptcy law to modify, amend, or
terminate the foregoing arrangements, except for (i) such executory contracts or
plans specifically rejected pursuant to the Plan (to the extent such rejection
does not violate section 1114 of the Bankruptcy Code) and (ii) such executory
contracts or plans as have previously been terminated, or rejected, pursuant to
a Final Order, or specifically waived by the beneficiaries of such plans,
contracts, or programs.
XII.
EFFECTIVENESS OF THE PLAN
A. CONDITIONS PRECEDENT TO EFFECTIVENESS.
The Plan shall not become effective unless and until it has
been confirmed and the following conditions have been satisfied in full or
waived pursuant to Article XII.B.: (1) the Confirmation Order in a form
satisfactory to the Debtor, the Creditors Committee and the Informal Noteholders
Committee shall have become a Final Order; (2) the Amended Certificate of
Incorporation shall have been properly filed with the Secretary of State of the
State of Delaware; (3) the Loehmann's Holdings Certificate of Incorporation
shall have been properly filed with the Secretary of State of the State of
Delaware all authorizations, consents and regulatory approvals required (if any)
for the Plan's effectiveness shall have been obtained; and (4) on the Effective
Date, the Reorganized Debtor has entered into a senior secured credit facility,
on terms acceptable to the Creditors Committee and the Informal Noteholders
Committee.
B. WAIVER OF CONDITIONS.
The Debtor may waive any or all of the conditions set forth in
Article XII.A. above at any time, with the prior consent of the Creditors
Committee and the Informal Noteholders Committee, without leave of or order of
the Court and without any formal action.
38
<PAGE>
C. EFFECT OF FAILURE OF CONDITIONS.
In the event that the Effective Date does not occur on or
before one hundred and twenty (120) days after the Confirmation Date, upon
notification submitted by the Debtor to the Court: (a) the Confirmation Order
shall be vacated, (b) no distributions under the Plan shall be made, (c) the
Debtor and all holders of Claims and Equity Interests shall be restored to the
STATUS QUO ANTE as of the day immediately preceding the Confirmation Date as
though the Confirmation Date had never occurred, and (d) the Debtor's
obligations with respect to the Claims and Equity Interests shall remain
unchanged and nothing contained in the Plan shall constitute or be deemed a
waiver or release of any Claims or Equity Interests by or against the Debtor or
any other person or to prejudice in any manner the rights of the Debtor or any
person in any further proceedings involving the Debtor.
D. VACATUR OF CONFIRMATION ORDER.
If an order denying confirmation of the Plan is entered, then
the Plan shall be null and void in all respects, and nothing contained in the
Plan shall (a) constitute a waiver or release of any Claims against or Equity
Interests in the Debtor; (b) prejudice in any manner the rights of the holder of
any Claim against, or Equity Interest in, the Debtor; (c) prejudice in any
manner any right, remedy or claim of the Debtor; or (d) be deemed an admission
against interest by the Debtor.
Dated: July __, 2000
LOEHMANN'S, INC.
By: /s/ Robert Glass
-----------------------------------------
Name: Robert Glass
Title: President, Chief Operating Officer
<PAGE>
EXHIBIT A
<PAGE>
LOEHMANN'S HOLDINGS (THE "COMPANY")
11% SENIOR NOTES DUE FIVE (5) YEARS
AND ONE MONTH FROM THE EFFECTIVE DATE
SUMMARY OF TERMS
Notes Offered: 11% Senior Notes due five (5) years and one month
from the Effective Date (the "NOTES").
Maturity Date: five (5) years and one month from the Effective Date
Amount: up to $25,000,000 to be issued on the Effective Date.
Denomination: Notes will be issued in $100 denominations; no
fractional denominations will be issued. An issuance
of Notes otherwise calling for the issuance of
fractional denominations shall reflect a rounding of
such fraction to the nearest whole Note denomination
(up or down), with half denominations being rounded
down.
Interest: Interest will accrue at a rate of 11% per annum and be
payable semi-annually (each April 30 and October 30)
(i) for the period from the earlier of the Effective
Date and November 1, 2000 through April 30, 2001 by
the issuance of additional Notes, and (ii) for
subsequent periods (a) in cash, if the "Free Cash Flow
Test" is met, or (b) otherwise, by the issuance of
additional Notes. If interest is to be payable by the
issuance of additional Notes and such issuance would
result in the issuance of a fraction of a Note to a
particular noteholder, such interest shall be recorded
in book-entry form only and will not be payable until
interest aggregating a whole Note denomination or a
multiple thereof has accrued.
<PAGE>
1. FREE CASH FLOW TEST: Reorganized
Loehmann's must have, on a pro forma basis,
at least $0 of Free Cash Flow, assuming that
interest on the Notes and any required
matching early amortization payments (the
"MATCHING AMORTIZATION") on Reorganized
Loehmann's Senior Secured Credit facility (the
"EXIT FACILITY") were paid in cash for the prior
twelve months ending on the January 31 or
July 31 preceding the interest payment date.
If Reorganized Loehmann's has minimum
excess availability of $25 million under the
Exit Facility on the date of the Free Cash
Flow Test, Matching Amortization is not
required to be paid, and is not deducted in the
calculation of Free Cash Flow.
(a) "FREE CASH FLOW" is defined as EBITDA
(i) less Capital Expenditures, (ii)
plus/less Changes in Working Capital, (iii)
less senior secured interest expense, (iv)
less senior secured required debt
amortization, (v) less pro forma Notes
interest expense, (vi) less pro forma
Matching Amortization, and (vii) less pro
forma cash taxes.
(b) "MATCHING AMORTIZATION" is defined as an
amortization payment on the Exit Facility
term borrowing base component equal to the
Notes cash interest payment. Matching
Amortization is a permanent reduction in the
term borrowing base component of the Exit
Facility.
2. Reorganized Loehmann's will be permitted to
upstream to Loehmann's Holdings dividends or
intercompany advances of cash sufficient to
make allowed cash interest payments on the
Notes.
Ranking: The Notes will be unsecured senior obligations of the
Company and will rank PARI PASSU to all existing and
future senior indebtedness of the Company and senior
to all future subordinated indebtedness. There will be
no guarantees of the Notes by any subsidiaries.
ii
<PAGE>
Restrictive Covenants: 1. LIMITATION ON INDEBTEDNESS.
2. OTHER COVENANTS. To be set forth in the New
Notes Indenture.
Events of Default: Customary events of default will be provided for in
the New Notes Indenture.
THE NEW NOTES INDENTURE AND NEW SENIOR NOTES WILL BE IN SUBSTANTIALLY THE FORMS
INCLUDED IN THE PLAN SUPPLEMENT TO BE FILED WITH THE CLERK OF THE COURT PRIOR TO
THE CONFIRMATION HEARING.
iii
<PAGE>
EXHIBIT B
<PAGE>
SUMMARY OF EQUITY INCENTIVE PLAN
The following are the key terms of Loehmann's Holdings' Equity
Incentive Plan:
Shares Available: The number of options that will be available for grant
pursuant to the Equity Incentive Plan will be equal to
425,000 shares of New Common Stock.
Eligible Participants: All members of the Reorganized Loehmann's Board of
Directors and certain key senior management executives
of Reorganized Loehmann's will be eligible to
participate in the Equity Incentive Plan.
Effective Date Grants: On the Effective Date, Robert Friedman
and Robert Glass will each receive options to acquire
131,250 shares of the New Common Stock for a total of
262,500 shares.
Strike Price: The strike price shall be $15.
Vesting: Options granted under the Equity Incentive Plan will
vest in four (4) equal tranches on each of the
Effective Date and the first three (3) anniversaries
thereafter.
Duration of Options: Options must be exercised on or before the fifth (5th)
anniversary of the grant date.
Change of Control: In the event a sale of Reorganized Loehmann's or
Loehmann's Holdings (whether stock or substantially
all of the assets) occurs, all options that have not
vested as of such date shall automatically vest in
full.
Termination of Option If an option holder is terminated from employment by
Holder Reorganized Loehmann's or removed as a director of
Reorganized Loehmann's (in each case other than for
"cause"), such option holder's options that are vested
as of such date shall be exercisable for a period of
60 days following such date of termination or removal
and all unvested options will on such date be
forfeited.
THE EQUITY INCENTIVE PLAN WILL BE IN SUBSTANTIALLY THE SAME FORM INCLUDED IN THE
PLAN SUPPLEMENT TO BE FILED WITH THE CLERK OF THE COURT PRIOR TO THE
CONFIRMATION HEARING.
<PAGE>
EXHIBIT B
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOEHMANN'S, INC. ) Case No. 99-1138 (MFW)
)
Debtor, )
ORDER (i) APPROVING
DEBTOR'S SECOND AMENDED DISCLOSURE
STATEMENT AS MODIFIED ON JULY 28, 2000,
(ii) ESTABLISHING SOLICITATION, VOTING AND TABULATION
PROCEDURES AND DEADLINES, (iii) SCHEDULING HEARING TO
CONSIDER CONFIRMATION OF PLAN, (iv) ESTABLISHING
DEADLINES AND PROCEDURES FOR FILING OBJECTIONS TO
CONFIRMATION OF PLAN, AND (v) APPROVING FORM AND MANNER
OF NOTICE OF CONFIRMATION HEARING
Upon the motion (the "Motion") of Loehmann's, Inc. ("Loehmann's),
the above-captioned debtor and debtor in possession, pursuant to sections
1125, 1126(b) and 1128(a) of title 11 of the United States Code. 11 U.S.C.
Sections 101 ET SEQ. (the "Bankruptcy Code") and Rules 2002, 3017, 3018, 3020
and 9005 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy
Rules") seeking entry of an order (i) approving the Debtor's second amended
disclosure statement dated July 12, 2000 (as modified on July 28, 2000, the
"Disclosure Statement") in connection with the Debtor's proposed second
amended plan of reorganization dated July 12, 2000 (as modified on July 28,
2000, the "Plan"), (ii) establishing solicitation, voting and tabulation
procedures and deadlines, (iii) scheduling a hearing to consider confirmation
of the Plan, (iv) establishing deadlines and procedures for filing objections
to confirmation of the Plan, (v) approving the form and manner of
<PAGE>
notice of the confirmation hearing; and the Court being satisfied that the
granting of relief sought in the Motion is in the best interests of the
Debtor, its estate and its creditors; and notice of the Motion having been
given to the Office of the United States Trustee for the District of
Delaware, counsel for the official committee of unsecured creditors (the
"Creditors Committee"), counsel for Congress Financial Corporation
("Congress") and all parties requesting notice pursuant to Rule 2002 of the
Bankruptcy Rules; and it appearing that no other or further notice need be
given; and the Court having held a hearing on the adequacy of the Disclosure
Statement (the "Disclosure Statement Hearing") on July 28, 2000; and upon the
record of the Disclosure Statement Hearing; and after due deliberation and
sufficient cause appearing therefor; it is hereby
ORDERED, the the Motion is GRANTED and APPROVED in all respects; and
it is further
ORDERED, that the Disclosure Statement is approved pursuant to
section 1125(a) of the Bankruptcy code as containing adequate information;
and it is further
ORDERED, that this Court shall hold a hearing (the "Confirmation
Hearing") to consider confirmation of the Plan on September 6, 2000 at
10:30 a.m., Wilmington, Delaware time; and it is further
ORDERED, that all objections to confirmation of the Plan must be in
writing and filed with the Clerk of the United States Bankruptcy Court for
the District of Delaware (including a copy for Chambers) and served upon (1)
Young Conaway Stargatt and Taylor, LLP, 11th Floor, Rodney Square North, P.O.
Box 391,
2
<PAGE>
Wilmington, Delaware 19899-0391, Attn: Pauline K. Morgan, Esq. and Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
New York 10019-6064. Attn: Alan W. Kornberg, Esq., counsel for the Debtor;
(2) Kronish Lieb Weier & Hellman LLP, 1114 Avenue of the Americas, New York,
New York 10036-7798. Attn: Lawrence C. Gottlieb, Esq., and Morris, Nichols,
Arsht & Tunnell, 1201 N. Market Street, P.O. Box 1347, Wilmington, Delaware
19899-1347. Attn: Robert Dehney, Esq., counsel for the Creditors Committee;
and (3) Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New
York, New York 10169. Attn: Johnathan Helfat, Esq., counsel for Congress; (4)
Andrews & Kurth, L.L.P., 805 Third Ave., New York, New York 10022, Attn: Paul
N. Silverstein, Esq., counsel for the Informal Noteholders Committee; and (5)
the Office of the United States Trustee, 601 Walnut Street, Room 950W,
Philadelphia, Pennsylvania 19106. Attn: Patricia Striano, in each case so as
to be actually filed and received no later than August 30, 2000 at 4:00 p.m.,
Wilmington, Delaware time (the "Confirmation Objection Deadline"); and it is
further
ORDERED, that the Debtor shall cause a copy of the notice of the
Confirmation Hearing, substantially in the form attached as Exhibit A to the
Motion (the "Confirmation Hearing Notice"), the form of which is hereby
approved, to be (i) mailed by first class United States mail, postage
prepaid, in all of their known creditors, indenture trustees and equity
security holders, the office of the United States Trustee for this District,
the District Director of Internal Revenue for the District of Delaware and
the Securities and Exchange Commission, no later than nine (9) days after the
entry of this Order approving the Disclosure Statement as containing
3
<PAGE>
adequate information and (ii) published once in the national editions of each
of THE NEW YORK TIMES and THE WALL STREET JOURNAL, no later than twenty (20)
days before the Confirmation Objection Deadline; and it is further
ORDERED, that no further notice will be given to holders of claims
against, or interests in, the Debtor of any adjournment of the Confirmation
Hearing or extensions of the Confirmation Objection Deadline, except as
announced in open court at the Confirmation Hearing or at any subsequent
Confirmation Hearing so announced; and it is further
ORDERED, that the Debtor's compliance with the terms of this Order,
by mailing or causing to be mailed the form of notice of the Confirmation
Hearing provided for herein on the dates set forth herein, shall constitute
good and sufficient notice and no further notice need be given; and it is
further
ORDERED, that notwithstanding anything to the contrary in Bankruptcy
Rules 3017(d) and 3018(a), July 27, 2000 shall be the record date (the
"Record Date") for purposes of determining the identity of (a) creditors and
equity security holders entitled to receive information and solicitation
packages or other materials (as discussed further below) and (b) creditors
entitled to vote or accept or reject the Plan; and it is further
ORDERED, that except as provided below with respect to publicly held
securities, within the time set forth in this Order, the Debtor shall
transmit, or cause to be transmitted, by first class mail to all of their
known creditors and equity security holders as of the Record Date, and all
other entities required to be served under Bankruptcy Rules 2002 and 3017, an
information and solicitation package (the
4
<PAGE>
"Solicitation Package") containing a copy or conformed printed version of (a)
the Disclosure Statement; (b) the Plan (which shall be furnished in the
Solicitation Package as an exhibit to the Disclosure Statement); (c) this
Order approving the Disclosure Statement; (d) the Confirmation Hearing
Notice; (e) a recommendation letter written by the Creditors Committee, in
substantially the form of the letter submitted to the Court prior to the
Disclosure Hearing, which form of letter is hereby approved; and (f) except
as provided below, if such creditor holds an allowed claim in a class
entitled to vote on the Plan, one or more ballots (and a pre-addressed,
postage-paid return envelope) appropriate for the specific creditor, in
substantially the forms of the ballots collectively annexed to the Motion as
Exhibit B (as such ballots may be modified for particular classes and with
instructions attached thereto), which forms of ballots are hereby approved;
and it is further
ORDERED, that transmittal of Solicitation Packages described above
to holders of the Debtor's publicly held notes (the "Public Debt Securities")
and the Debtor's equity securities (the "Public Equity Securities") shall be
made as follows: Within the time directed by this Order, the Solicitation
Package shall be mailed to (a) each holder of record of the Debtor's Public
Debt Securities and Public Equity Securities as of the Record Date and (b)
each bank or brokerage firm (or the agent therefor) identified by the
Debtor's voting agent as an entity through which beneficial owners hold the
Public Debt Securities and Public Equity Securities; and it is further
ORDERED, that United States Trust Company of New York (as the
indenture trustee under the indenture pursuant to which the Public Debt
Securities were issued) and American Stock Transfer & Trust Company (as
registrar for the
5
<PAGE>
Public Equity Securities) shall, within two (2) business days after the
Record Date, provide Logan & Company, Inc. ("Logan & Co."), the Debtor's
voting, tabulation, and noticing agent (the "Information Agent") with one set
of magnetic tapes and a written list containing the names, addresses and
holdings of the respective holders of record of the Public Debt Securities
and the Public Equity Securities, respectively, as of the Record Date and the
names, addresses and holdings of all Depository Trust Company participants
that hold the Public Debt Securities and Public Equity Securities,
respectively, as of the Record Date; and it is further
ORDERED, that the banks and brokerage firms (or their agents)
through which beneficial owners hold Public Debt Securities or Public Equity
Securities shall promptly distribute, with the assistance of the Information
Agent, Solicitation Packages to the beneficial owners for which they hold
such securities, and such banks and brokerage firms (or their agents) shall
cooperate with the Information Agent to accomplish such distribution, and in
any event, shall do so no later than August 12, 2000; and it is further
ORDERED, that the banks and brokerage firms (or their agents)
through which beneficial owners hold Public Debt Securities shall obtain the
votes of the beneficial owners of the Public Debt Securities by forwarding
the Solicitation Package to each beneficial owner of the Public Debt
Securities for voting, and shall include a postage-paid return envelope
provided by and addressed to the bank, brokerage firm, or agent, so that the
beneficial owner may return the completed beneficial owner ballot to that
entity. Each bank, brokerage firm, or agent shall summarize the individual
votes of its respective beneficial owners from their
6
<PAGE>
beneficial owner ballot on an appropriate master ballot, in substantially the
form of the master ballot (and instructions attached thereto) annexed to the
Motion as Exhibit C (the "Master Ballot"), which form of Master Ballot is
hereby approved, and then return the Master Ballot to the Information Agent
by the Voting Deadline; and it is further
ORDERED, that the Debtor shall serve or cause to be served a copy of
this Order, once it is entered, upon each transfer agent and each bank and
brokerage firm (or their agents) identified by the Information Agent as an
entity through which beneficial owners hold Public Debt Securities and Public
Equity Securities. In addition, the Debtor shall, upon written request,
reimburse such entities for their reasonable, accrual, and necessary
out-of-pocket expenses incurred in performing the tasks described above. The
Court shall retain jurisdiction to resolve any disputes regarding the payment
of such expenses; and it is further
ORDERED, that notwithstanding any provision of this Order to the
contrary, no notice or service of any kind shall be required to be made upon
any person to whom the Debtor or its agent mailed a notice of the meeting of
creditors under section 341 of the Bankruptcy Code or a notice of final date
to file proofs of claim and received either of such notices returned by the
United States Postal Service marked "undeliverable as addressed," "moved --
left no forwarding address," "forwarding order expired," or similar marking,
unless the Debtor has been informed in writing by such person of that
person's correct address; and it is further
ORDERED, that except as it may relate to the procedures discussed
with respect to the Master Ballots, creditors who vote may not split their
vote and
7
<PAGE>
must vote all of their claims within a particular class either to accept or
reject the Plan; and it is further
ORDERED, that to be counted, ballots for accepting or rejecting the
Plan must be RECEIVED by 4:00 p.m., New York time, on August 30, 2000 (the
"Voting Deadline") by the Debtor's Information Agent, Logan & Co., at the
following address:
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
Attn: Loehmann's, Inc.
Ballot Tabulation
Ballots may NOT be cast by facsimile transmission; and it is further
ORDERED, that any ballot timely received, properly executed,
containing sufficient information to permit the identification of the
claimant, and cast as an acceptance or rejection of the Plan shall be counted
and shall be deemed to be cast as an acceptance or rejection of the Plan, as
the case may be; and it is further
ORDERED, that any ballot timely received, properly executed,
containing sufficient information to permit the identification of the
claimant, and which indicates that the claimant has chosen one of the
election alternatives presented on the ballot, but which does not indicate
whether the claimant accepts or rejects the Plan, shall be deemed to be cast
as an acceptance of the Plan; and it is further
ORDERED, that each Claim (as defined in the Motion) within a Class
of Claims entitled to vote to accept or reject the Plan be temporarily
allowed in an amount equal to the amount of such Claim as set forth in a
timely filed proof of claim, or, if no proof of claim was filed, the amount
of such Claim set forth in the
8
<PAGE>
Debtor's schedules; PROVIDED, HOWEVER, that such allowance shall not be
solely for the purpose of voting to accept or reject the Plan and not for the
purpose of allowance of, or distribution on account of, such Claim and
without prejudice to the rights of the Debtor in any other context; and it is
further
ORDERED, that (a) if a Claim is deemed allowed in accordance with
the Plan, such Claim is allowed for voting purposes in the deemed allowed
amount set forth in the Plan; (b) if a Claim for which a proof of claim has
been timely filed is marked as contingent or unliquidated, the Debtor
proposes that such Claim be temporarily allowed for voting purposes only, and
not for purposes of allowance or distribution, at $1.00; (c) if a Claim has
been estimated or otherwise allowed for voting purposes by order of the
Court, such Claim is temporarily allowed in the amount so estimated or
allowed by the Court for voting purposes only, and not for purposes of
allowance or distribution; (d) if a Claim is listed in the schedules as
contingent, unliquidated or disputed and a proof of claim was not (i) filed
by the bar date or (ii) deemed timely filed by an order of the Bankruptcy
Code prior to the Voting Deadline, the Debtor proposes that such Claim be
disallowed for voting purposes and for purposes of allowance and distribution
pursuant to Bankruptcy Rule 3003(c); and (e) if the Debtor has served and
filed an objection to a Claim at least ten (10) days before the Voting
Deadline, the Debtor proposes that such Claim be temporarily disallowed for
voting purposes only and not for the purposes of the allowance or
distribution, except to the extent and in the manner as may be set forth in
the objection; and it is further
9
<PAGE>
ORDERED, that any creditor seeking to challenge the allowance of its
Claim for voting purposes shall serve on the Debtor and file with the Court a
motion for an order pursuant to Bankruptcy Rule 3018(a) temporarily allowing
such Claim in a different amount for purposes of voting to accept or reject
the Plan (a "Rule 3018(a) Motion") on the later of the tenth (10th) day after
the date of (a) service of the Confirmation Hearing Notice and (b) service of
notice of an objection, if any, to such Claim (the "Rule 3018(a) Motion
Deadline"); and it is further
ORDERED, that the ballot of any creditor filing a Rule 3018(a)
Motion should not be counted unless temporarily allowed by the Court for
voting purposes, after notice and a hearing; and it is further
ORDERED, that unless otherwise ordered by the Court after notice and
a hearing, the following ballots shall NOT be counted or considered for any
purpose in determining whether the Plan has been accepted or rejected:
(a) Any ballot received after the Voting Deadline;
(b) Any ballot that is sent by facsimile transmission, is illegible,
or contains insufficient information to permit the
identification of the claimant or interest holder;
(c) Any ballot cast by a person (1) whose claim is scheduled by the
Debtor as disputed, contingent or unliquidated and that has not
filed a proof of claim or (2) who has filed a proof of claim
which is subject to any objection by the Debtor; or
(d) Any unsigned ballot;
and it is further
ORDERED, that whenever two or more ballots are cast voting the same
claim prior to the Voting Deadline, the last ballot received prior to the
Voting Deadline shall be deemed to reflect the voter's intent and thus to
supersede any prior
10
<PAGE>
ballots; PROVIDED, HOWEVER, that nothing herein shall affect the Debtor's
right to object to the validity of the second ballot on any basis permitted
by law, including under Bankruptcy Rule 3018(a), and, if such objection is
sustained, the first ballot shall then be counted; and it is further
ORDERED, that all banks and brokerage firms (or their agents)
through which beneficial owners hold Public Debt Securities shall receive and
summarize on a Master Ballot all beneficial owner ballots cast by the
beneficial owners for which they serve and then return the Master Ballot to
the Information Agent; and it is further
ORDERED, that all banks and brokerage firms (or their agents) shall
retain for inspection by the Court the ballots case by beneficial owners for
one year following the Record Date; and it is further
ORDERED, that all creditors submitting a ballot shall state on such
ballot either their tax identification number or, in the case of an
individual, their social security number; and it is further
ORDERED, that votes cast by beneficial owners holding Public Debt
Securities through a bank or brokerage firm (or their agents) and transmitted
by means of a Master Ballot shall be applied against the positions held by
such banks or brokerage firms in the applicable Public Debt Security, as
evidenced by the record list of holders of the applicable Public Debt
Security, or through participation in a securities depository. Votes
submitted by a bank or brokerage firm (or their agents) on a Master Ballot
shall not be counted in excess of the position maintained by the respective
bank or brokerage firm on the Record Date in the applicable security. In
11
<PAGE>
summarizing the votes of beneficial owners on a Master Ballot, each bank,
brokerage firm or agent shall record the tax identification or social
security number of each beneficial owner casting a vote; and it is further
ORDERED, that to the extent that conflicting votes or over-votes are
submitted on a Master Ballot, the Information Agent shall attempt to resolve
the conflict or over-vote prior to the Voting Deadline in order to ensure
that as many Public Debt Security votes as possible are accurately tabulated;
and it is further
ORDERED, that to the extent that over-votes on a Master Ballot are
not reconcilable prior to the Voting Deadline, the Information Agent shall
count votes in respect of such Master Ballot in the same proportion as the
votes to accept and reject the Plan submitted on the Master Ballot that
contained the over-vote, but only to the extent of the applicable bank's or
brokerage firm's position on the Record Date in the applicable Public Debt
Security; and it is further
ORDERED, that banks and brokerage firms (or their agents therefor)
are authorized to complete multiple Master Ballots, and the votes reflected
by such multiple Master Ballots shall be counted, except to the extent that
they are duplicative of other Master Ballots. If two or more Master Ballots
submitted are inconsistent in whole or in part, the latest Master Ballot
received prior to the Voting Deadline shall, to the extent of such
inconsistency, supersede and revoke any prior Master Ballot; PROVIDED,
HOWEVER, that nothing herein shall affect the Debtor's right to object to the
validity of the second Master Ballot on any basis permitted by law, including
under Bankruptcy Rule 3018(a), and, if such objection is sustained, the first
Master Ballot shall then be counted; and it is further
12
<PAGE>
ORDERED, that each record holder or beneficial owner of a Public
Debt Security shall be deemed to have voted the full principal amount of its
claim relating to such Public Debt Security, notwithstanding anything to the
contrary on any ballot; and it is further
ORDERED, that service of all notices and documents described herein
in the time and manner as set forth herein shall constitute due, adequate,
and sufficient notice, and no other or further notice shall be necessary; and
it is further
ORDERED, that the Debtor be, and hereby is, authorized and empowered
to take such steps and perform such acts as may be necessary to implement and
effectuate the terms of this Order.
Dated: July 28, 2000
Wilmington, Delaware
/s/ MARY F. WALRATH
-----------------------------------
MARY F. WALRATH
UNITED STATES BANKRUPTCY JUDGE
Movant to send copies to all
parties and file certificate
of service with the court.
cc: Morgan & UST 7/31/00
13
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EXHIBIT C
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
Commission File
Number 0-28410
LOEHMANN'S, INC.
----------------
(Exact name of registration as specified in its charter)
Delaware 22-2341356
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street, Bronx, New York 10461
----------------------------------- -----
(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Rights to Purchase Series B Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of
registrant as of April 20, 2000 was $932,449.
The Company had 9,053,967 shares of Common Stock and 26,087 shares of
Class B Common Stock outstanding as of April 20, 2000.
<PAGE>
PART I.
ITEM 1. BUSINESS
The Company
Loehmann's, Inc. ("Loehmann's" or the "Company"), founded in 1921 as
the "Original Designer Outlet," is a leading national specialty retailer of well
known designer and brand name women's fashion apparel, men's furnishings,
accessories, and shoes offered at prices that are typically 30% to 65% below
department store prices. The Company believes it is one of the largest national
upscale off-price specialty retailers in the industry. The Company has a strong
brand name, loyal customer base and long-standing relationships with leading
designers and vendors of quality merchandise. The Company's target customers are
relatively affluent women between the ages of 30 and 55 who are attracted to
designer and other name brand merchandise offered at exceptional values. As of
April 20, 2000, the Company operated 44 stores in major metropolitan markets
located in 17 states.
Chapter 11 Filing
On May 18, 1999 (the "Petition Date"), Loehmann's filed a petition for
relief under chapter 11 of the United States Code (the "Bankruptcy Code") with
the United States Bankruptcy Court for the District of Delaware. Since the
Petition Date, the Company has continued to operate its business and manage its
properties as a debtor-in-possession.
On March 24, 2000, the Company filed a Disclosure Statement (the
"Disclosure Statement) and a Plan of Reorganization (the "Plan Of
Reorganization") with the Bankruptcy Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Company's chapter 11 case and the anticipated organization,
operation and financing of reorganized Loehmann's ("Reorganized Loehmann's").
The Disclosure Statement also describes the Plan of Reorganization, certain
effects of Plan confirmation, certain risk factors associated with securities to
be issued under the Plan, and the manner in which distributions will be made to
the Company's creditors under the Plan of Reorganization for all amounts that
were owed to such parties on the Petition Date. In addition, the Disclosure
Statement discusses the confirmation process and the voting procedures that
holders of claims in impaired classes must follow for their votes to be counted.
The Plan of Reorganization divides the Company's creditors into six
classes: Other Priority Claims (Class 1); Other Secured Claims (Class 2); DIP
Financing Claims (Class 3); Convenience Claims (Class 4); General Unsecured
Claims (Class 5) and Equity Interest (Class 6). Administrative Claims and
Priority Tax Claims against the Company have not been classified as provided in
the Bankruptcy Code. The definitions for each class of claims is set forth in
the Plan of Reorganization and creditors are urged to consult the Plan of
Reorganization.
In general, the Plan of Reorganization provides that holders of
Administrative Claims, Priority Tax Claims, Other Priority Claims, and DIP
Financing Claims will either receive payment in full in cash on account of their
claims or such other treatment as set forth in the Plan of Reorganization.
Holders of General Unsecured Claims against the Company will receive their pro
rata share of 5,000,000 shares of new common stock of Reorganized Loehmann's.
Unsecured creditors holding claims of $2,000 or less will receive cash equal to
50% of the allowed amount of such claim. Holders of claims in excess of $2,000
will be permitted to reduce their claims to $2,000 to receive such treatment.
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Finally, holders of Loehmann's Common Stock (and other instruments
evidencing ownership in Loehmann's) will receive no distributions under the Plan
of Reorganization and such instruments will be canceled.
The Plan of Reorganization also sets forth certain information, means
for implementation of the Plan of Reorganization, the effect of rejection of the
Plan of Reorganization by one or more classes of claims or interests, provisions
for how distributions will be made to the Company's creditors, the treatment of
executory contracts and leases and conditions precedent to confirmation of the
Plan and the occurrence of the effective date of the Plan.
On April 24, 2000, an order was approved by the Bankruptcy Court (i)
approving the disclosure statement, (ii) establishing solicitation, voting, and
tabulation procedures and deadlines, and (iii) scheduling a hearing to consider
confirmation of the Plan of Reorganization, (iv) establishing deadlines and
procedures for filing objections to confirmation of the Plan of Reorganization
and (v) approving form and manner of notice of confirmation hearing.
Although the Plan of Reorganization provides for the Company's
emergence from bankruptcy, there can be no assurances given that the Plan will
be confirmed by the Bankruptcy Court, or that such Plan will be consummated. At
this time, it is not possible to predict the outcome of the Company's chapter 11
case or its effect on the Company's business.
Corporate Structure
Loehmann's is a Delaware corporation with no subsidiaries. As of
January 29, 2000, the Company had authorized 25,000,000 shares of common stock,
par value $0.01 per share (the "Common Stock") and 469,237 shares of Class B
common stock, par value $0.01 per share (the "Class B Common Stock"), of which
9,053,967 shares of Common Stock and 26,087 shares of Class B Common Stock were
issued and outstanding.
In anticipation of the Company's initial public offering on May 7,
1996, in order to effect a reincorporation from Maryland to Delaware, Loehmann's
Holdings, Inc. ("Holdings"), the Company's predecessor, was merged into the
Company (the "Merger"). As a result of the Merger, each share of Holdings common
stock and Class B common stock was converted into approximately 0.22 shares of
the Company's Common Stock and Class B Common Stock, respectively, and the
authorized number of shares of Common Stock was increased to 25,000,000.
On May 10, 1996, the Company issued and sold 3,572,000 shares of Common
Stock in its initial public offering and issued and sold $100 million principal
amount of the Notes in a concurrent debt offering, resulting in net proceeds of
approximately $155 million to the Company. The proceeds received from these
offerings were used to redeem indebtedness and all the issued and outstanding
shares of the Company's Series A Preferred Stock.
The Plan of Reorganization as filed with the Bankruptcy Court on March
24, 2000 provides that all stockholders and option holders of the Company shall
not be entitled to, and shall not, receive any property or interest in property
on account of their shares of Common Stock and options to purchase Common Stock.
If the Plan of Reorganization is approved, the Company's unsecured creditors
will receive all of the Company's Common Stock. As discussed above, the Plan of
Reorganization has not yet been approved by the Company's creditors or confirmed
by the Bankruptcy Court. No assurance can be given that such approvals will be
obtained.
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In September 1998, the Company adopted a stockholder rights plan (the
"Plan") designed to protect the long-term value of the Company for its
stockholders during any future unsolicited acquisition attempt. In connection
with the Plan, the Board of Directors declared a dividend of one preferred share
purchase right (a "Right") for each share of the Company's Common Stock
outstanding on October 5, 1998 (the "Record Date"). The Rights will expire on
October 5, 2008.
The Rights will be exercisable only if a person or group acquires 15%
or more of the Company's Common Stock or announces a tender offer upon the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's Common Stock. Each Right will entitle stockholders to buy
one one-hundredth of a share of a new series of preferred stock at an exercise
price of $15.00.
If Loehmann's is acquired in a merger or other business combination
transaction after a person has acquired 15% or more of the Company's outstanding
Common Stock, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common shares
having a market value of twice such price. In addition, if a person or group
acquires 15% or more of the Company's outstanding Common Stock, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current exercise price, a number of the shares of
Common Stock having market value of twice such price.
Under certain circumstances, the Board of Directors may exchange the
Rights, in whole or in part, at an exchange ratio of one share of Common Stock
(or one-hundredth of a share of the new series of preferred stock) per Right.
Prior to the acquisition by a person or group of beneficial ownership
of 15% or more of the Company's Common Stock, the Rights are redeemable for one
cent per Right at the option of the Board of Directors. Prior to such time, the
terms of the Rights may be amended by the Board of Directors.
Industry Overview
Women's Apparel
According to published reports, total retail sales of women's apparel
and accessories in the United States were in excess of $96.0 billion in 1999.
The womenswear industry is served by a variety of distribution channels
including department stores, specialty stores and off-price retailers.
The women's apparel industry is categorized into five product
classifications: designer, bridge, better, moderate and budget. Designer
merchandise is the most expensive product classification and is characterized by
high fashion styling. Designer brands include Donna Karan, Calvin Klein, Ralph
Lauren and Anne Klein. Bridge products are typically brand name merchandise
which may carry designer labels but are less expensive than the designer
classification and allow customers to purchase designer-like merchandise at
below designer prices. Bridge brands include DKNY, Anne Klein II, CK/Calvin
Klein, Emanuel and Tahari. Apparel in the better classification carries brand
name labels but is less expensive than bridge apparel. Better brands include
BCBG, Jones New York, Kasper, Polo and Harve Benard. Merchandise in the moderate
classification is also generally brand name but is a less expensive product
category. Moderate brands include Leslie Fay. Budget merchandise is the least
expensive product classification.
Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Lord & Taylor, Nordstrom and Saks Fifth Avenue.
Because manufacturers of designer
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and bridge merchandise are very concerned about maintaining the upscale image of
their trademarks, they are typically selective about which retailers carry their
products.
Other Products
The men's apparel industry includes tailored apparel (suits,
formalwear, slacks, sportcoats and outer wear), sportswear (casual pants,
sportshirts, sweaters and jackets) and furnishings (dress shirts, ties, belts,
suspenders, underwear, socks, scarves and gloves). Loehmann's offers primarily
men's furnishings to its customers.
The men's furnishings industry is served by a variety of distribution
channels including department stores, specialty menswear stores, off-price
retailers and catalog retailers. The Company offers primarily designer and name
brand men's furnishings, which are generally sold in finer department stores and
specialty stores such as Bloomingdale's, Lord & Taylor, Nordstrom, Saks Fifth
Avenue and Brooks Brothers.
Business Strategy
The Company's strategy is to deliver value to its customers by offering
at substantial discounts a wide selection of high quality in-season merchandise.
The Company believes that it differentiates itself from finer department stores
by offering similar merchandise at significantly lower prices and from other
off-price apparel retailers by offering a broader range of designer, bridge and
better merchandise. The principal elements of the Company's business strategy
are as follows:
Emphasis on In-Season High Quality Merchandise
The Company offers a wide selection of in-season, high-quality, name
brand merchandise. The Company, like finer department stores, is known for
carrying name brand merchandise, including Donna Karan, Calvin Klein, Ralph
Lauren, Tahari, Dana Buchman, and Emanuel.
Value Pricing
The Company provides its customers with exceptional value by offering
its merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to prices charged
by other off-price retailers.
Capitalize on Long-Standing Vendor Relationships
Loehmann's believes that it is a popular choice for well known
designers who believe that their prestige will be preserved by having their
merchandise offered by Loehmann's because of its high quality image and affluent
customer base. Loehmann's long-standing vendor relationships and its ability to
sell large quantities of goods have provided the Company with ready access to a
wide selection of merchandise.
Broader Merchandise Categories
The Company has broadened its appeal over the past several years by
expanding its merchandise mix to include men's, gifts, shoes, young
contemporary, fragrances and a broader range of accessories and intimate
apparel. These items, which typically generate higher gross margins than the
Company's traditional apparel categories, accounted for approximately 33% of the
Company's net sales in fiscal 1999, an increase from 21% in fiscal 1995.
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No-Frills Store Format
In order to provide its customers with exceptional value while
maximizing profitability and cash flow, the Company is focused on maintaining an
efficient, low-cost operating structure. Key elements of this focus include the
Company's no-frills, self-service store format. All stores are low maintenance,
simple, and functional facilities designed to maximize selling space and contain
overhead costs.
Flexible Purchasing Strategy
The Company relies on a flexible purchasing strategy under which it
enters any given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.
Merchandising
Selection
The Company offers a wide selection of women's sportswear, dresses,
suits, outerwear, coats, accessories, intimate apparel and shoes, as well as a
selection of gifts and men's furnishings. The Company does not offer budget
merchandise in its stores. Most of the Company's merchandise is in-season and
is, therefore, generally available at Loehmann's during the same selling season
as it is available in department stores. The Company offers name-brand
merchandise from designers such as Anne Klein, Calvin Klein, Donna Karan and
Ralph Lauren.
The following table shows the percentages of the Company's net sales
attributable to its various product categories for fiscal 1995 through fiscal
1999:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sportswear ....................... 47.6% 48.1% 47.8% 47.0% 45.8%
Dresses and suits ................ 26.0 24.6 22.9 17.3 16.6
Coats and outerwear .............. 5.1 5.0 4.7 4.4 4.2
Accessories/intimate apparel ..... 14.5 14.6 13.6 13.0 12.6
Shoes ............................ 5.5 5.8 6.5 6.1 5.9
Men's ............................ - - 2.5 7.6 10.1
Gifts............................. - .3 .6 1.7 2.3
Other ............................ 1.3 1.6 1.4 2.9 2.5
Total ............................ 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
All Loehmann's stores carry items from each of its merchandise
categories. However, the allocation of merchandise among the stores varies based
upon factors relating to the demographics and geographic location of each store
as well as the size of the store and its ability to display adequately the
merchandise.
Pricing
The Company seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 30% to 65% below prices
charged by department stores for the same items and
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that are comparable to or lower than prices charged by other off-price
retailers. The Company's central buying staff adheres to a disciplined approach
of acquiring merchandise that enables the Company to consistently offer its
merchandise at favorable prices. Each item of merchandise offered by the Company
carries a price tag displaying the Company's price as well as the typical
department store's initial price for the same item.
The Company has historically used a cyclical permanent markdown policy
to reduce prices automatically as goods age. Over the past several years, this
policy was modified in response to a more promotional competitive environment.
As department stores increased their promotional pricing, Loehmann's included
promotional coupons in its customer mailings. These coupons generally allow
customers to receive a discount on any merchandise in the store. The popularity
of these coupons had resulted in an increase in point-of-sale markdowns, which
the Company had partially offset by decreasing permanent markdowns. The Company
has returned to a cyclical permanent markdown policy.
Vendor Relationships and Purchasing
Many of the Company's most active suppliers have been selling
merchandise to the Company for at least 10 years. Because of these long-standing
vendor relationships and its ability to sell large quantities of goods, the
Company has ready access to a wide selection of merchandise.
The Company does not engage in significant forward purchasing and a
large portion of its purchasing requirements in any given month intentionally
remains unfulfilled at the beginning of the month. This strategy enables the
Company to react to fashion trends and changing customer preferences while
enhancing the Company's ability to negotiate with its vendors and take advantage
of market inefficiencies and opportunities as they may arise. Although the
Company has always been able to fulfill its inventory needs, its opportunistic
purchasing strategy does not always permit Loehmann's to purchase specific types
of goods. For example, certain types of popular merchandise may be unavailable
in certain sizes or colors depending on market conditions.
The Company purchases a majority of its inventory during the
manufacturer's selling season, enabling the Company to offer merchandise during
the same selling season as it is available in department stores. The Company
also purchases a portion of its inventory at the end of the season, when the
Company is prepared to purchase a manufacturer's remaining items at an even
steeper discount. Vendors who sell to the Company do not need to build into
their price structure any anticipation of returns, markdown allowances or
advertising allowances, all of which are typical in the department store
industry.
The Company purchases its inventory from over 400 suppliers, which in
many cases include separate divisions of a single manufacturer or designer.
These suppliers include a substantial majority of the designer and name brand
apparel manufacturers in the United States. Some purchases are also made in the
European market, primarily Italy. The Company does not have any long-term supply
contracts with its suppliers.
The Company maintains its own central buying staff, comprised of 16
experienced off-price buyers, many of who also have extensive experience with
traditional department stores. Historically, the Company has had very low
turnover within its buying group, enabling Loehmann's to capitalize on an
experienced, respected group of buyers capable of enhancing the Company's
already strong vendor relationships.
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Store Layout
The Company's store format and merchandise presentation are designed to
project the image of deep discount and exceptional value, as well as to
emphasize the Company's niche as the off-price equivalent of an upscale
specialty store. The Company's stores are divided into two shopping areas: a
large, open selling area with wall-to-wall merchandise and a smaller, separate,
and more intimate area called The Back Room. All stores are low maintenance,
simple and functional facilities designed to maximize selling space and contain
overhead costs. Store layouts are flexible in that product groupings can be
easily moved or expanded. All stores have two or more communal fitting rooms.
However, in response to customer preferences, private fitting rooms have been
added in most stores. Because Loehmann's is committed to maintaining virtually
all of its in-store inventory on the selling floor, its stores do not require
significant space devoted to inventory storage.
Loehmann's presents moderate and better sportswear, dresses and suits,
as well as all outerwear, men's, accessories, intimate apparel and shoes on the
main selling floor. Designer, bridge and import merchandise, including evening
dresses and suits, are displayed in The Back Room. The Back Room provides a key
point of differentiation to the consumer, as it projects the image of designer
goods sold in a no-frills environment and, therefore, at exceptional values.
Although Loehmann's estimates that The Back Room generally accounts for only
approximately 10% to 15% of a typical store's selling space, The Back Room has
historically generated approximately 27% of the company's apparel revenues.
Distribution
The Company operates two distribution facilities: a 126,000 square foot
centralized distribution center located at the Company's Bronx's headquarters
and a 272,000 square foot facility in Rutherford, New Jersey. The Company began
leasing the Rutherford facility in May 1999. That facility replaces a 150,000
square foot warehouse facility in Secaucus, New Jersey and a 32,000 square foot
satellite facility the Company formerly maintained in the Bronx.
As merchandise arrives at the distribution center, it is priced,
ticketed, assigned to individual stores by the Company's merchandising systems,
packaged for delivery and transported to the stores.
Marketing and Advertising
Over the years, Loehmann's has principally relied on word-of-mouth
advertising. In the last three fiscal years, Loehmann's has significantly
increased its advertising expenditures, predominantly for direct mail and, to a
lesser extent, for newspaper advertising.
A significant portion of Loehmann's advertising efforts involve direct
mail announcements to members of The Insider Club, a free membership program.
Members receive notification of special events throughout the year and a 15%
discount on their birthdays. The list of members now includes approximately one
million active customers (those who have shopped at Loehmann's within the past
12 months). Loehmann's has developed a database of customer information from
Insider Club members. This database allows Loehmann's to track purchase activity
of current customers. These customers accounted for approximately 75% of total
company sales in fiscal 1999.
Store Operations
The Company's stores are organized into several geographic districts,
each with a regional manager. Regional managers monitor the financial
performance of the stores in their respective geographic
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districts and frequently visit stores to ensure adherence to the Company's
merchandising, operations and personnel standards. The typical staff for a
Loehmann's store consists of a store manager, a number of associate and
department managers, sales specialists and additional full and part-time hourly
associates depending upon the store's needs.
Senior management meets with the regional managers on a periodic basis
to maintain a clear line of communication. In addition, mystery shoppers shop
the stores to help ensure that sales associates are friendly, helpful and
maintain all of the company's merchandising, customer service and loss
prevention standards. New store management personnel currently complete a
training program at a designated training store before assuming management
responsibility. Sales specialists receive product and customer service training
at the store level.
Management Information Systems
Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card
approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.
The Company's management information and control systems enable the
Company's corporate headquarters to promptly identify sales trends, identify
merchandise to be marked down and monitor merchandise mix and inventory levels
at individual stores.
The Company has outside service contracts to maintain its computer
software programs and all modifications and conversions in respect with Year
2000 issues were completed on a timely basis. The total dollar amount that the
Company spent to address the year 2000 issue did not have a material financial
impact.
Employees
As of April 20, 2000, the Company had 2,185 employees, of whom 1,629
were store sales and clerical employees, 158 performed store managerial
functions, and 398 were corporate and warehouse personnel. Except for managerial
employees, professional support staff and the Company's buyers, all employees
are paid on an hourly basis. None of the Company's employees are represented by
a labor union. The Company believes that its employee relations are good.
Trademark and Service Mark
Loehmann's name is registered as a trademark and a service mark with
the United States Patent and Trademark Office. Loehmann's believes its trademark
and service mark have received broad recognition and their continued existence
is important to the Company's business.
Competition
The off-price fashion apparel business is highly competitive. The
Company competes primarily with finer department stores by offering a wide
selection of comparable quality merchandise at significantly lower prices. Many
department stores have increased their promotional efforts, although such
promotions are typically focused on moderate merchandise. Should finer
department stores continue to price more
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aggressively, the Company's margins may be adversely affected. Most of the
department stores and some of the off-price and discount retailers with which
the Company competes have access to substantially greater financial and
marketing resources than those available to the Company.
The Company also faces competition from factory outlet malls and a
variety of off-price and discount retailers, some of which are relatively new
companies, but many of which are established retail chains or divisions thereof.
Such competitors include Marshall's, Saks Off 5th, Syms, Burlington Coat Factory
and T.J. Maxx.
Restructuring Activities
Since the Petition Date, management of the Company and its advisors in
the bankruptcy proceedings have conducted an extensive analysis of business
operations with the objective of making the changes necessary to improve
operating performance. The Company has devised a comprehensive strategy to
define, manage and operate the business going forward including the following:
The Back Room
The Back Room is a separate area of each Loehmann's store that is
smaller and more intimate than the large, open selling area. The Back Room
offers a large assortment of bridge and designer apparel and provides a key
point of differentiation for the Company in the women's apparel market. The
Company has expanded the Back Room inventory to re-establish its unique niche
and use this more exclusive, high-end merchandise to attract customers and
increase sales.
Consistent Value
The Company derives its competitive advantage from its ability to
consistently offer merchandise at prices 30% to 65% below department stores
prices. In order to promote its positioning as offering the best everyday low
prices, the Company has modified its promotional strategies. The Company
believes that it can offer a more consistent and distinguishable value
proposition if merchandise is priced using permanent markdowns as opposed to
promotional events and point-of-sale markdowns. By taking timely permanent
markdowns, the Company will also be able to better control inventory and gross
margins.
Cost Reductions
The Company has restructured its corporate management and as a result
has reduced corporate expenses by approximately $4.0 million on a annual basis.
These reductions were made in July 1999 and in January 2000. In addition, as a
result of the chapter 11 filing the Company has the opportunity to renegotiate
leases with landlords to achieve rent reductions. The Company expects these
negotiations will be concluded shortly.
Risk Factors
An investment in the Company is subject to certain risks. These risks
are associated with the Company's chapter 11 case, its history of losses, the
ongoing competitive pressures in the apparel industry, changes in the level of
consumer spending or preferences in apparel, potential disruptions in the
relationships established with certain vendors and the Company's reliance on key
personnel. Future economic and industry trends that could potentially impact
revenue and profitability are difficult to predict. See "Special Note Regarding
Forward-looking Statements."
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History of Losses
The Company has incurred net losses in each fiscal year since fiscal
1995. There can be no assurance that such losses will not continue in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
All aspects of the women's apparel industry, including the off-price
retail segment, are highly competitive. The Company competes primarily with
department stores, other off-price retailers, specialty stores, discount stores
and mass merchandisers, many of which have substantially greater financial and
marketing resources than the Company. Finer department stores, which constitute
the Company's principal competitors, offer a broader selection of merchandise
and higher quality service. In addition, many department stores have become more
promotional and have reduced their price points, and certain finer department
stores and certain of the Company's vendors have opened outlet stores which
offer off-price merchandise in competition with the Company. Accordingly, the
Company may face periods of intense competition in the future which could have
an adverse effect on its financial results. See "Competition."
Adequate Sources of Merchandise Supply
The Company's business is dependent to a significant degree upon its
ability to purchase quality merchandise at substantially below normal wholesale
prices. The Company does not have any long-term supply contracts with its
suppliers. The loss of certain key vendors or the failure to establish and
maintain relationships with popular vendors could have a material adverse effect
on the Company's business. The Company believes it currently has adequate
sources of quality merchandise; however, there can be no assurance that the
Company will be able to acquire sufficient quantities and an appropriate mix of
such merchandise at acceptable prices.
The Company is also dependent upon financing from its trade creditors.
If any such financing were to become unavailable for any reason, there could be
a material adverse effect on the Company.
Merchandise Trends
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer preferences in a timely
manner. Accordingly, any failure by the Company to anticipate, identify and
respond to changing fashion trends could adversely affect consumer acceptance of
the merchandise in the Company's stores, which in turn could adversely affect
the Company's business and its image with its customers. If the Company
miscalculates either the market for its merchandise or its customers' purchasing
habits, it may be required to sell a significant amount of unsold inventory at
below average markups over the Company's cost, or below cost, which would have
an adverse effect on the Company's financial condition and results of
operations.
Impact of Economic Conditions on Industry Results
The Company's business is sensitive to customers' spending patterns,
which in turn are subject to prevailing economic conditions. There can be no
assurance that consumer spending will not be affected by economic conditions,
thereby impacting the Company's growth, net sales and profitability. A decline
in economic conditions in one or more of the markets in which the Company's
stores are concentrated, mainly California and the Northeast, could have an
adverse effect on the Company's financial condition and results of operations.
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Dependence on Key Personnel
The Company's success depends to a significant extent upon the
performance of its senior management team, particularly Robert N. Friedman,
Chairman and Chief Executive Officer and Robert Glass, President and Chief
Operating Officer. The loss of services of any of the Company's executive
officers could have a material adverse impact on the Company. The Company's
success will depend on its ability to motivate and retain its key employees and
to attract and retain qualified personnel in the future.
Special Note Regarding Forward-looking Statements
Certain statements under the captions "Business," "Management's
Discussions and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K or incorporated by reference herein, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; brand awareness; the existence or adherence
to development schedules; the existence or absence of adverse publicity;
availability and terms of trade credit and other financing; availability,
locations and terms of sites for store development; changes in business strategy
or development plans; quality of management; availability, terms and deployment
of capital; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; changes in, or the
failure to comply with, government regulations; construction costs; the timing
of and success in obtaining approvals for the Plan of Reorganization; the
successful implementation of restructuring activities and initiatives; and other
factors referenced in this report.
ITEM 2. PROPERTIES
As of April 20, 2000, the Company operated 44 stores in 17 states. The
Company does not own any of its stores and has no manufacturing facilities.
Indicated below is a listing of the regions in which the Company
operates its stores:
Percent of
Region Number of Fiscal Year 1999
Stores Sales (1)
---------------------------------------------------------
California ........... 12 30.4%
New York ............ 7 23.5
New Jersey ........... 5 11.0
Other Mid-Atlantic ... 4 9.0
Florida .............. 4 8.8
Midwest .............. 3 4.4
Texas ................ 3 4.2
Other West ........... 3 3.6
Other Southeast ...... 2 3.0
New England .......... 1 2.1
--- ------
44 100.0%
=== ======
12
<PAGE>
(1) These percentages exclude sales from the Company's fourteen
stores closed in fiscal 1999 and the eleven stores closed in
March 2000.
Leases
The Company follows the general industry practice of leasing all of its
stores. The Company's stores range in size from 9,000 to 60,000 square feet and
are held under leases expiring from 2000 to 2021, excluding option periods. The
leases for the company's stores typically provide for a 15- to 20-year term with
three five-year renewals that are automatic unless the Company elects to
terminate the lease. The rental rate is a fixed amount rather than a contingent
payment based on a store's gross sales. The leases typically contain tax
escalation clauses and require the Company to pay insurance, utilities, repair
and maintenance expenses. Increases in the fixed rent payable during the renewal
terms are generally less than 10% to 15% of the base rent (although this
percentage may increase for new stores). The leases have initial or renewal
terms expiring as follows: 1999-2000 (6 stores); 2001-2003 (13 stores);
2004-2006 (8 stores); and 2007 and later (17 stores).
The six leases that expire by year-end fiscal 2000 have renewal
options. The Company has generally been successful in renewing its store leases
as they expire.
The Company leases the land for its 153,000 square foot facility
located in the Bronx, New York, which serves as its corporate headquarters and
as the site of its central warehousing and distribution operations (the "Bronx
Facility"). This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. The Bronx Facility is subject to a mortgage with the
City of New York, "Industrial Development Bonds," which the Company believes
will be paid off by the Confirmation Hearing. Loehmann's' lease for the
Rutherford, New Jersey facility provides for annual rental payments of
$1,251,000.
ITEM 3. LEGAL PROCEEDINGS
On May 18, 1999 (the "Petition Date"), the Company filed a petition for
relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Since the Petition Date, the Company has
continued to operate as a debtor-in-possession under the Bankruptcy Code. As a
result of the filing of the chapter 11 case, all pending litigation against the
Company became automatically stayed as provided in the Bankruptcy Code.
Forty Three Apparel, Inc. v. Loehmann's Department Stores, Inc., The
Bigio Group, LLC, Debbie Friedman and Robert Friedman (Bankr. Ct. S.D.N.Y.). On
December 10, 1998, a complaint was filed by Forty Three Apparel, Inc. against
the Company in the United States Bankruptcy Court for the Southern District of
New York. The complaint also named, as co-defendants, Robert Friedman (the Chief
Executive Officer of the Company), his wife, Debbie Friedman and the Bigio
Group, LLC, a company affiliated with Ms. Friedman.
The action alleges that the Company breached its contractual
obligations to Forty Three Apparel, a vendor with whom it did business, by
allegedly canceling certain orders from Forty Three Apparel and taking certain
allegedly unauthorized credits and/or deductions with respect to Forty Three
Apparel's account. Forty Three Apparel claims $700,000 in compensatory damages
from the Company. Forty Three Apparel alleges that Mr. Friedman induced this
alleged breach of contract and claims as against Mr. Friedman, $700,000 in
compensatory damages and $10,000,000 in punitive damages on that claim.
Management believes that the Company has substantial and meritorious defenses to
these claims. Mr.
13
<PAGE>
Friedman and his counsel have advised the Company that Mr. Friedman also
believes he has substantial and meritorious defenses to these claims.
The action further alleges claims of unfair competition, unjust
enrichment, misappropriation and inducement of Ms. Friedman's alleged breach of
fiduciary duty to Forty Three Apparel against the Company and others, all
apparently arising from the alleged use of confidential information obtained by
Ms. Friedman while an employee of Forty Three Apparel and from the Company's and
Mr. Friedman's alleged participation in this conduct. On these claims, Forty
Three Apparel is seeking $20,000,000 in compensatory damages and $10,000,000 in
punitive damages from the Company and Mr. Friedman. Management believes that the
Company has substantial and meritorious defenses to these claims. Mr. Friedman
and his counsel have advised the Company that Mr. Friedman also believes he has
substantial and meritorious defenses to these claims.
The Company has submitted an Answer to the Complaint, generally denying
the material allegations of the Complaint as against the Company, and has
asserted counterclaims against Forty Three Apparel alleging breach of
contractual obligations and fraud. The Company seeks compensatory damages in an
amount to be determined at trial but not less than $1,000,000 on the breach of
contract claim and fraud claim respectively, and punitive damages on the fraud
claim in an amount to be determined at trial but not less than $2,000,000. In
the event that Forty Three Apparel is successful under any of its claims against
the Company, should the Company's Plan of Reorganization be approved and
confirmed, Forty Three Apparel will be treated as a general unsecured creditor
of the Company with respect to such claims.
The Forty Three Apparel lawsuit has been stayed with respect to the
Company pursuant to the Company's chapter 11 filing. The action is still
proceeding against the other named defendants. The litigation stay imposed on
Forty Three Apparel's alleged claims against the Company by virtue of the
Company's reorganization proceeding was partially lifted to allow for limited
discovery of the Company's documents and depositions of certain of the Company's
employees, all of which discovery has now taken place. Otherwise, the Forty
Three Apparel litigation remains stayed as against the Company.
The Company's charter and by-laws require the Company, to the extent
permitted by law, to indemnify its officers and directors against suits brought
against them in connection with their positions as officers and directors of the
Company. As a result, the Company may in the future advance or reimburse certain
litigation-related amounts to Mr. Friedman.
In addition, the Company may be a party to various other legal
proceedings, many of which involve claims for coverage encountered in the
ordinary course of business. Based on information presently available, the final
outcome of all such proceedings should not have a material adverse effect upon
the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the fourth quarter of fiscal 1999.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock had been traded on the NASDAQ National
Market System since
14
<PAGE>
May 7, 1996 under the symbol LOEH. On May 27, 1999 the Company's Common Stock
was delisted from the NASDAQ National Market System for failure to meet
continued listing standards. Since that date the Company's Common Stock has been
quoted on the OTC Bulletin Board under the symbol LOEHQ. As of March 29, 2000,
there were approximately 100 shareholders of record of the Company's common
stock. The following table shows the high and low sales price for the Company's
common stock for each quarterly period from May 2, 1998 through January 29,
2000.
Fiscal Quarter Ended High Low
-------------------- ---- ---
May 2, 1998.................................. $ 6.13 $ 3.13
August 1, 1998 .............................. $ 6.94 $ 3.81
October 31, 1998 ............................ $ 5.38 $ 2.00
January 30, 1999 ............................ $ 3.69 $ 1.03
May 1, 1999.................................. $ 2.69 $ 1.06
July 31, 1999 ............................... $ 1.75 $ 0.06
October 30, 1999 ............................ $ 0.27 $ 0.06
January 29, 2000 ............................ $ 0.34 $ 0.05
On January 29, 2000, the closing market price of the Company's common
stock was $0.22. The Company has not paid dividends on its common stock or its
Class B Common stock since inception and does not anticipate paying a cash
dividend in the foreseeable future. The Plan of Reorganization provides that all
stockholders and option holders of the Company shall not be entitled to, and
shall not, receive any property or interest in property or on account of their
shares of Common Stock and options to purchase Common Stock. If the Plan of
Reorganization is approved, the Company's unsecured creditors will receive all
of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Sales $ 386,030 $ 432,017 $ 443,310 $ 417,758 $ 386,090
Net loss applicable to common stock $ 33,468 $ 5,148 $ 15,672 $ 1,216 $ 17,019
Diluted net loss per share applicable to common $ 3.69 $ 0.57 $ 1.75 $ 0.14 $ 3.12
stock
Total Assets $ 147,073 $ 188,693 $ 189,226 $ 176,200 $ 163,611
Long-Term obligations $ - $ 139,403 $ 131,360 $ 107,850 $ 131,733
Redeemable Series A preferred stock $ - $ - $ - $ - $ 15,279
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The table below sets forth certain financial data of the Company
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year (1)
1999 1998 1997
<S> <C> <C> <C>
Net sales .......................................... 100.0% 100.0% 100.0%
Gross margin........................................ 30.9 31.7 28.4
Selling, general and administrative expenses........
Occupancy costs................................ 7.9 7.1 6.2
Other selling, general and administrative...... 21.9 19.8 18.9
Total selling, general and administrative expenses.. 29.8 26.9 25.1
Depreciation and amortization ...................... 3.1 2.8 2.6
Charge for store closings and impairment of assets . - (0.3) 1.3
Operating (loss) income ............................ (2.0) 2.3 (0.6)
Interest expense, net .............................. 1.5 3.4 2.9
Loss before income taxes ........................... (3.5)% (1.0)% (3.5)%
</TABLE>
--------------
(1) Numbers may not total due to rounding.
The following table sets forth certain financial and operating
statistics of the Company:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Inventory .......................................... $46,674,000 $69,605,000 $67,521,000
Capital expenditures................................ 4,454,000 9,938,000 16,687,000
Working capital..................................... 22,698,000 31,480,000 27,092,000
DIP credit agreement................................ 9,120,000 - -
Outstanding line of credit.......................... - 41,880,000 33,771,000
Long-term debt...................................... - 139,403,000 131,360,000
Stockholder's (deficit) equity...................... (28,848,000) 4,618,000 9,706,000
Number of stores (1)................................ 55 69 76
Total square footage................................ 1,165,000 1,452,000 1,492,000
Average Square feet per store....................... 21,200 21,000 19,600
</TABLE>
--------------
(1) Eleven stores were closed after year end 1999.
As previously noted, the Company is currently operating its business as
a debtor-in-possession under chapter 11 of the Bankruptcy Code. Continuation of
the Company as a going concern is contingent
16
<PAGE>
upon, among other things, confirmation by the Bankruptcy Court and the Company's
creditors of a reorganization plan and the Company's ability to return to
profitability and generate sufficient cash from operations.
Fiscal 1999 Compared to Fiscal 1998
Net sales were $386.0 million for fiscal 1999, a decrease of
approximately $46.0 million, or 10.6%, compared to $432.0 million during fiscal
1998. Comparable store sales (sales at stores that were in operation for both
periods) decreased by 5.3% during fiscal 1999 as compared to fiscal 1998. The
Company opened no new stores in fiscal 1999 and 3 new stores in fiscal 1998, and
closed 14 stores in fiscal 1999 and 10 stores in fiscal 1998. The decrease in
reported net sales for fiscal 1999 is the result of (i) the stores closed during
the year, partially offset by increased sales at the new stores opened in 1998
and (ii) the decrease in comparable store sales due, in part, to the business
interruption following the bankruptcy filing of the Company.
Gross profit from operations, before markdowns related to closed
stores, decreased by approximately $13.0 million to $125.3 million during fiscal
1999 as compared to $138.3 million for fiscal 1998. Gross margin as a percentage
of net sales, before markdowns related to closed stores, increased to 32.5% for
fiscal 1999 from 32.0% in the prior fiscal year. Gross profit, including
markdowns related to closed stores in fiscal 1999 and 1998 of $6.1 million and
$1.2 million respectively, decreased by approximately $17.9 million during
fiscal 1999 to $119.2 million as compared to $137.1 million in fiscal 1998.
Gross margin as a percentage of net sales, after markdowns related to closed
stores, decreased to 30.9% in fiscal 1999 from 31.7% in the prior year.
The decrease in gross margin of (0.8) percentage points from 31.7% to
30.9 % is primarily the result of: (i) a one time charge in fiscal 1999 for the
liquidation of inventory in fourteen stores closed in 1999 which represents
(1.2) percentage points, offset by a (ii) decrease in markdowns and a change in
merchandise mix toward higher margin categories which represents 0.4 percentage
points.
Selling, general and administrative expenses decreased by approximately
$1.2 million to $114.9 million in fiscal 1999 as compared to $116.1 million in
fiscal 1998. As a percentage of net sales, selling, general and administrative
expense increased to 29.8% in fiscal 1999 from 26.9% in the prior fiscal year.
The dollar decrease in selling, general and administrative expenses was
primarily related to a reduction in payroll and advertising related to the
closing of 14 stores.
Depreciation and amortization for fiscal 1999 decreased by
approximately $0.2 million to $12.0 million as compared to $12.2 million for the
prior fiscal year. The decrease in depreciation and amortization is attributable
to: (i) a decrease in depreciation related to the closing of the fourteen stores
in 1999 and, a decrease in depreciation associated with the natural retirement
of certain assets, offset by (ii) a increase in depreciation associated with
$4.5 million of capital expenditures for 1999.
As a result of the items explained above, operating income decreased by
$17.7 million to a loss of $(7.7) million, or (2.0)% of sales, in fiscal 1999 as
compared to an operating income of $10.0 million, or 2.3% of sales, in fiscal
1998.
Interest expense decreased by $8.7 million to $5.8 million for fiscal
1999 as compared to $14.5 million for fiscal 1998 due to the reclassification of
the 11 7/8 % Senior Notes to "Liabilities subject to compromise". No interest on
the Senior Notes has been accrued or paid since the Petition Date. As a result,
interest expense on the Senior Notes was $3.3 million in fiscal 1999 compared to
$11.3 million in 1998. See Note 4 of the Financial Statements.
17
<PAGE>
Reorganization costs for fiscal year 1999 were $19.9 million and
included $10.1 million for the write-off of assets at closed stores, $5.7
million for professional fees, $2.3 million for lease rejection claims and $1.8
million for other expenses. The amount of $2.3 million for leases rejection
claims is net of proceeds from the sale of leases of $2.4.
Fiscal 1998 Compared to Fiscal 1997
Net sales were $432.0 million for fiscal 1998, a decrease of
approximately $11.3 million, or 2.5%, compared to $443.3 million during fiscal
1997. Comparable store sales (sales at stores that were in operation for both
periods) decreased by 1.6% during fiscal 1998 as compared to fiscal 1997. The
Company opened three new stores in fiscal 1998 and seven new stores in fiscal
1997, and closed ten stores in fiscal 1998 and four stores in fiscal 1997. The
decrease in reported net sales for fiscal 1998 is the result of (i) the stores
closed during the year, partially offset by increased sales at the new stores
opened in 1998 and 1997 and (ii) the decrease in comparable store sales.
Gross profit from operations, before markdowns related to closed
stores, increased by approximately $8.9 million to $138.3 million during fiscal
1998 as compared to $129.4 million for fiscal 1997. Gross margin as a percentage
of net sales, before markdowns related to closed stores, increased to 32.0% for
fiscal 1998 from 29.2% in the prior fiscal year. Gross profit, including
markdowns for closed stores in fiscal 1998 and 1997 of $1.2 million and $3.6
million respectively, increased by approximately $11.3 million during fiscal
1998 to $137.1 million as compared to $125.8 million in fiscal 1997. Gross
margin as a percentage of net sales, after markdowns related to closed stores,
increased to 31.7% in fiscal 1998 from 28.4% in the prior year.
The increase in gross margin of 3.3 percentage points is primarily the
result of: (i) a decrease in markdowns which represents 2.1 percentage points ,
(ii) change in merchandise mix toward higher margin categories which represents
.5 percentage points, and (iii) the one time charge in fiscal 1997 for the
liquidation of inventory in ten stores closed in 1998 which represents 0.8
percentage points of fiscal 1997 sales.
Selling, general and administrative expenses increased by approximately
$4.7 million to $116.1 million during fiscal 1998 as compared to $111.4 million
for fiscal 1997. As a percentage of net sales, selling, general and
administrative expense increased to 26.9% in fiscal 1998 from 25.1% in the prior
year. The dollar increase in selling, general and administrative expenses was
primarily related to: (i) $8.0 million in store operating expenses related to
1998 new stores and recently expanded stores including store payroll, occupancy
and advertising costs, partially offset by (ii) $5.2 million in cost savings
related to closed stores. The increase in selling, general and administrative
expense as a percentage of sales is primarily the result of higher relative
occupancy costs as a percentage of sales for new stores and the recent store
expansions.
Depreciation and amortization for fiscal 1998 increased by
approximately $0.8 million to $12.2 million as compared to $11.4 million for the
prior fiscal year. The increase in depreciation and amortization is attributable
to: (i) an increase in depreciation related to the opening of the three new
stores and the expansion and renovation of eight stores in fiscal 1997, offset
by (ii) a decrease in depreciation associated with the natural retirement of
certain assets.
Operating income increased by $12.7 million to $10.0 million, or 2.3%
of sales, in fiscal 1998 as compared to an operating loss of $(2.7) million, or
(0.6)% of sales, in fiscal 1997. The increase in operating income as a
percentage of sales from (0.6)% to 2.3% in fiscal 1998 primarily consists of the
following: (i) 3.3% related to an increase in gross margin resulting from lower
markdowns and higher
18
<PAGE>
average initial mark-ups, offset by (ii) (1.5)% related to selling, general, and
administrative expenses primarily resulting from higher occupancy costs as a
percentage of sales associated with new and expanded stores. Operating income
also includes a credit of $1.2 million for lease termination costs at closed
stores. These costs were included in the store closing reserve for fiscal year
1997 and the costs actually incurred were less than originally expected.
Interest expense increased by $1.7 million to $14.5 million for fiscal
1998 as compared to $12.8 million for fiscal 1997. The increase in net interest
expense was due to higher average borrowings on the company's revolving line of
credit primarily resulting from investing activities in 1997 and 1998. See Note
4 of the Financial Statements.
Quarterly Results and Seasonality
While the Company's net sales do not show significant seasonal
variation, the Company's operating income has traditionally been significantly
higher in its first and third fiscal quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts. As a result, the Company does not experience
increases in net sales during the Christmas shopping season. Results of
operations during the second and fourth quarters are traditionally impacted by
end of season clearance events. In addition, fourth quarter results of
operations can be affected by employee performance bonuses, because although
bonuses are accrued throughout the fiscal year and are estimated on a quarterly
basis, bonus amounts are not definitively known until year-end goals are
achieved.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 29, 2000. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
19
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
----------- -----------
-----------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------
(In thousands, except per share data) unaudited
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $110,227 $97,058 $112,005 $112,727 $108,231 $89,984 $ 93,962 $93,853
Gross profit 37,045 31,319 37,924 30,834 34,552 23,186 33,451 28,045
Selling, general and
Administrative expenses 28,604 26,229 30,450 30,813 31,543 29,611 26,956 26,776
Depreciation and amortization 3,135 2,914 3,001 3,151 3,190 3,175 2,736 2,918
Non-recurring credit - - - (1,216) - - - -
Operating income (loss) 5,306 2,176 4,473 (1,914) (181) (9,600) 3,759 (1,649)
Interest expense 3,540 3,731 3,610 3,633 3,660 1,177 525 442
Income (loss)before
reorganization costs
extraordinary item 1,742 (1,619) 830 (5,541) (3,879) (10,777) 3,234 (2,123)
Reorganization costs - - - - - 21,064 (2,833) 1,650
Extraordinary loss on early
extinguishment of debt - 560 - - - - - -
Net income (loss) 1,742 (2,179) 830 (5,541) (3,879) (31,869) 6,053 (3,773)
Earnings per share:
Basic and Diluted
Income (loss) before
extraordinary item $ 0.19 $ (0.18) $ 0.09 $ (0.61) $ (0.43) $ (3.51) $ 0.67 $ (0.41)
Extraordinary item - (0.06) - - - - - -
Net Income (loss) $ 0.19 $ (0.24) $ 0.09 $ (0.61) $ (0.43) $ (3.51) $ 0.67 $ (0.41)
</TABLE>
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows from
operations, trade credit and borrowings under the DIP Facility. The DIP Facility
provides for a revolving line of credit and a letter of credit facility
aggregating $75.0 million. The DIP Facility expires on the earlier of (a) the
second anniversary of the DIP Facility, (b) the effective date of a plan of
reorganization for the Company, or (c) acceleration following the occurrence of
an event of default. The availability of the revolving line of credit and
letters of credit under the DIP Facility is subject to certain inventory-related
borrowing base requirements. The indebtedness under the DIP Facility bears
interest at variable rates based on LIBOR plus 2.25% or the prime rate plus
0.5%. The DIP Facility contains certain customary covenants (including
limitations on indebtedness, liens and restricted payments) but does not contain
any financial covenants. The DIP Facility is secured by substantially all of the
Company's assets.
During fiscal 1999, cash flow used in operations before changes in
operating assets and liabilities was $11.3 million. This was favorably offset by
the change in cash provided by the change in operating assets and liabilities.
Cash flows provided by changes in operating assets and liabilities was $50.8
million. Changes in operating assets and liabilities were favorably impacted by
a decrease in inventory of $22.9 million and an increase in accounts payable and
accrued expenses of $13.0 million and $10.3 million, respectively. The reduction
in inventory is due primarily to the closing of 14 stores in July 1999.
Cash flows used in investing activities were $4.5 million for fiscal
year 1999. This represents
20
<PAGE>
capital expenditures and is a decrease from $9.9 million in fiscal 1998 and
$16.7 million in fiscal 1997. During fiscal years 1997 and 1998 the Company
opened 10 new stores and expanded 9 existing stores, consistent with its new
store format strategy of larger store size to accommodate its broadened
merchandising strategy. In this three year period, the Company expended
approximately $31.1 million on capital expenditures. Capital expenditures for
fiscal 1999 include $1.3 million for store operations, $0.8 million for
warehouse improvements and $2.1 million for computer software and hardware. The
Company's projected year 2000 capital expenditures are approximately $9.0
million.
Cash used in financing activities was $35.1 million for fiscal 1999
compared to cash provided by financing activities of $7.7 million and $23.6
million in fiscal 1998 and 1997, respectively. In fiscal 1999, the Company
repaid borrowings under the Company's prior credit facility of $41.9 million.
This was the result of operating as a debtor-in-possession as well as reduced
inventory purchases due to store closings.
The Company had borrowings of $9.1 million and letters of credit of
$0.9 million outstanding under the DIP Facility, with $22.4 million of remaining
availability for borrowings under the DIP Facility as of January 29, 2000. The
Company intends to use the DIP Facility during the pendency of the chapter 11
case to finance its working capital and capital expenditure requirements. The
Company is currently seeking exit financing which is needed for the Company's
emergence from bankruptcy.
The Company's 11 7/8 % Senior Notes for $95.0 million were reclassified
as "Liabilities subject to compromise" as of the Petition Date. No interest has
been accrued or paid on the Senior Notes since that date.
The Company believes that cash generated from operations together with
funds available under the DIP Facility and through trade credit financing will
be sufficient to satisfy its cash requirements in fiscal 2000. Although the
Company fully anticipates that it will be able to continue meeting its
obligations as they come due beyond fiscal 1999, the Company's ability to do so
will depend on its ability to successfully implement its business plans, general
economic and business conditions, and the other factors noted in "Special Note
Regarding Forward Looking Statements."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Loehmann's Inc.
(Debtor-in-possession)
Contents
Report of Independent Auditors............................................ 2
Balance Sheets at January 29, 2000 and January 30, 1999................... 3
Statements of Operations for the fiscal years ended
January 29, 2000, January 30, 1999 and January 31, 1998................. 4
Statements of Changes in Common Stockholders'
Deficit for the fiscal years ended January 29, 2000,
January 30, 1999 and January 31, 1998................................... 5
Statements of Cash Flows for the fiscal years ended
January 29, 2000, January 30, 1999 and January 31, 1998................. 6
Notes to Financial Statements............................................. 7
22
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Loehmann's Inc. (Debtor-in-possession)
We have audited the accompanying balance sheets of Loehmann's Inc. (the
"Company") as of January 29, 2000, and January 30, 1999, and the related
statements of operations, changes in common stockholder's equity (deficit) and
cash flows for each of the three years in the period ended January 29, 2000. Our
audits also include the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Loehmann's Inc. at
January 29, 2000, and January 30, 1999, and the results of its operations and
cash flows for each of the three years in the period ended January 29, 2000, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule when considered
in relation to the basic financial statements as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 1, on May 18, 1999, the Company filed a voluntary
petition for relief under chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court. The Company formulated a Plan of Reorganization
which was included in the Disclosure Statement approved by the Bankruptcy Court
on April 24, 2000. Although the Company is currently continuing business
operations as a debtor-in-possession under the jurisdiction of the Bankruptcy
Court, the Company's ability to operate as a going concern is contingent upon,
among other things, the approval by the Company's creditors of the Plan of
Reorganization referred to above. The uncertainty of the approval by the
Company's creditors of the Plan of Reorganization, coupled with the recurring
losses from operations and shareholder's deficit, raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements have been prepared assuming that the Company will continue as a going
concern and do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Plan of Reorganization could
materially change the amounts and classifications of assets and liabilities
reported in the accompanying financial statements. The financial statements do
not include any adjustments to the carrying value of the assets or amounts of
liabilities that might be necessary as a consequence of the Plan of
Reorganization.
/s/ Ernst & Young
-----------------
New York, New York
March 15, 2000, except for
Note 1, as to which the
date is April 24, 2000
23
<PAGE>
Loehmann's Inc.
(Debtor-in-possession)
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
January January
29, 2000 30, 1999
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,229 $ 1,325
Accounts receivable and other assets 3,388 4,883
Merchandise inventory 46,674 69,605
-------------------------------
Total current assets 51,291 75,813
Property, equipment and leaseholds, net 56,019 71,462
Deferred debt issuance costs and other assets, net 1,021 3,195
Purchase price in excess of net assets acquired, net 36,923 38,223
-------------------------------
Total assets $ 145,254 $ 188,693
===============================
Liabilities and common stockholders' (deficit) equity
Current liabilities:
DIP credit agreement $ 9,120 $ -
Accounts payable 6,530 25,544
Accrued expenses 12,495 16,031
Accrued interest 57 2,688
Current portion of long-term debt 391 70
-------------------------------
Total current liabilities 28,593 44,333
Long-term debt:
Revolving line of credit - 41,880
11 7/8% senior notes due May 2003 - 95,000
Revenue bonds and notes - 2,523
-------------------------------
Total long-term debt - 139,403
Liabilities subject to compromise 141,733 -
Other noncurrent liabilities 3,776 339
Common stockholders' (deficit) equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
9,053,967 and 9,052,607 shares issued and outstanding at January 29,
2000, and January 30, 1999, respectively. 90 90
Class B convertible common stock, 469,237 shares authorized; 26,087
shares issued and outstanding at January 29, 2000, and January 30, 1999 142 142
Additional paid-in capital 81,760 81,758
Accumulated deficit (110,840) (77,372)
-------------------------------
Total common stockholders' (deficit) equity (28,848) 4,618
-------------------------------
Total liabilities and common stockholders' (deficit) equity $ 145,254 $ 188,693
===============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
Loehmann's Inc.
(Debtor-in-possession)
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal year ended
January January January
29, 2000 30, 1999 31, 1998
------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 386,030 $ 432,017 $ 443,310
Cost of sales 266,796 294,895 317,548
------------------------------------------------------
Gross profit 119,234 137,122 125,762
Selling, general, and administrative expenses 114,886 116,096 111,370
Depreciation and amortization 12,019 12,201 11,433
(Credit) charge for store closings and impairment of
assets 0 (1,216) 5,660
------------------------------------------------------
Operating (loss) income (7,671) 10,041 (2,701)
Interest expense, net 5,804 14,514 12,845
------------------------------------------------------
Loss before reorganization items and income taxes (13,475) (4,473) (15,546)
Reorganization costs 19,881 - -
------------------------------------------------------
Loss before income taxes (33,356) (4,473) (15,546)
Provision for income taxes 112 115 126
------------------------------------------------------
Loss before extraordinary item (33,468) (4,588) (15,672)
Extraordinary loss on early extinguishment of debt - 560 -
------------------------------------------------------
Net loss applicable to common stock $ (33,468) $ (5,148) $ (15,672)
======================================================
Earnings per share:
Basic and Diluted
Loss before extraordinary item $ (3.69) $ (0.51) $ (1.75)
Extraordinary item - (0.06) -
------------------------------------------------------
Net loss $ (3.69) $ (0.57) $ (1.75)
======================================================
Weighted average number of common shares outstanding
9,080 9,063 8,961
======================================================
Weighted average number of common shares and
common share equivalents outstanding 9,080 9,063 8,961
======================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Loehmann's Inc.
(Debtor-in-possession)
Statements of Changes in Common Stockholders' Equity (Deficit)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Class B Common Stock
------------------ ---------------------
Number of Number of
Shares Amount Shares Amount
------------------------------------------
<S> <C> <C> <C> <C>
Balances as of February 1, 1997 ................... 8,756,739 $ 87 142,277 $ 713
Exercise of stock options ......................... 126,347 1 - -
Conversion of Class B common stock ................ 93,846 1 (93,846) (469)
Net loss for the fiscal year ended January 31, 1998 - - - -
-------------------------------------------
Balances as of January 31, 1998 ................... 8,976,932 $ 89 48,431 $ 244
-------------------------------------------
Exercise of stock options ......................... 53,331 1 - -
Conversion of Class B common stock ................ 22,344 0 (22,344) (102)
Net loss for the fiscal year ended January 30, 1999 - - - -
-------------------------------------------
Balances as of January 30, 1999 ................... 9,052,607 $ 90 26,087 $ 142
-------------------------------------------
Exercise of stock options ......................... 1,360 - - -
Net loss for the fiscal year ended January 29, 2000 - - - -
-------------------------------------------
Balances as of January 29, 2000 ................... 9,053,967 $ 90 26,087 $ 142
==========================================
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Totals
-----------------------------------
<S> <C> <C> <C>
Balances as of February 1, 1997 ................... $ 80,995 $ (56,552) $ 25,243
Exercise of stock options ......................... 134 - 135
Conversion of Class B common stock ................ 468 - -
Net loss for the fiscal year ended January 31, 1998 - (15,672) (15,672)
-----------------------------------
Balances as of January 31, 1998 ................... $ 81,597 $ (72,224) $ 9,706
-----------------------------------
Exercise of stock options ......................... 59 - 60
Conversion of Class B common stock ................ 102 - -
Net loss for the fiscal year ended January 30, 1999 - (5,148) (5,148)
-----------------------------------
Balances as of January 30, 1999 ................... $ 81,758 $ (77,372) $ 4,618
-----------------------------------
Exercise of stock options ......................... 2 - 2
Net loss for the fiscal year ended January 29, 2000 - (33,468) (33,468)
-----------------------------------
Balances as of January 29, 2000 ................... $ 81,760 $(110,840) $ (28,848)
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
Loehmann's Inc.
(Debtor-in-possession)
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Fiscal year ended
January January January
29, 2000 30, 1999 31, 1998
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (33,468) $ (5,148) $(15,672)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 12,019 12,201 11,433
Reorganization items 10,118 - -
Write-off of deferred financing fees on early
extinguishment of debt - 60 -
Charges for store closings, impairment of assets
and other - - 2,110
Changes in assets and liabilities:
Accounts receivable and other assets 1,495 692 (1,175)
Merchandise inventory 22,931 (2,084) (9,217)
Accounts payable 12,991 3,974 1,936
Accrued expenses 10,324 (7,601) 3,148
Accrued interest 3,041 192 (34)
------------------------------------------
Net change in current assets and liabilities 50,782 (4,827) (5,342)
Net change in other noncurrent assets and liabilities 11 (443) (15)
------------------------------------------
Total adjustments 72,930 6,991 8,186
------------------------------------------
Net cash provided by (used in) operations 39,462 1,843 (7,486)
Cash flows from investing activities
Capital expenditures (4,454) (9,938) (16,687)
------------------------------------------
Net cash used in investing activities (4,454) (9,938) (16,687)
------------------------------------------
Cash flows from financing activities
Borrowings on DIP credit agreement 9,120 - -
(Payments) borrowings on revolving credit facilities (41,880) 8,109 23,583
Repayments on revenue bonds and notes (2,250) - -
Financing fees for new credit facility (144) (432) -
Sale of common stock 2 57 135
Other financing activities, net 48 (81) (70)
------------------------------------------
Net cash (used in) provided by financing activities (35,104) 7,653 23,648
------------------------------------------
Net decrease in cash and cash equivalents (96) (442) (525)
Cash and cash equivalents at beginning of period 1,325 1,767 2,292
------------------------------------------
Cash and cash equivalents at end of period $ 1,229 $ 1,325 1,767
==========================================
Supplemental disclosure of cash flow information
Cash paid during the fiscal year for interest $ 2,547 $ 14,527 $ 13,212
==========================================
Cash paid during the fiscal year for income taxes $ 112 $ 104 $ 233
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
1. Basis of Presentation
Chapter 11 Case and Basis of Presentation
The Company is a leading upscale off-price specialty retailer of well
known designer and brand name women's fashion apparel, men's furnishings,
accessories and shoes.
On May 18, 1999 (the "Petition Date") the Company filed a petition for
relief under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). Since the Petition Date, the Company has continued to operate as a
debtor-in-possession under the Bankruptcy Code.
On March 24, 2000, with the support of the Creditor's Committee, the
Company filed a Disclosure Statement (the "Disclosure Statement") and a Plan of
Reorganization (the "Plan of Reorganization") with the Bankruptcy Court. On
April 24, 2000, the Bankruptcy Court approved the Disclosure Statement related
to the Plan of Reorganization and scheduled a plan confirmation hearing for June
27, 2000. The Company has until May 24, 2000 to send out the plan solicitation
package to creditors and other related parties.
As discussed in the Report of Independent Auditors, although the Plan
of Reorganization provides for the Company's emergence from bankruptcy, there
can be no assurances given that the Plan of Reorganization will be confirmed by
the Court, or that such Plan of Reorganization will be consummated. At this
time, therefore, it is not possible to predict the outcome of the Company's
bankruptcy case or its effect on the Company's business.
The Disclosure Statement sets forth certain information regarding,
among other things, significant events that have occurred during the Company's
chapter 11 case and the anticipated organization, operation and financing of
Reorganized Loehmann's. The Disclosure Statement also describes the Plan of
Reorganization, certain effects of Plan confirmation, certain risk factors
associated with securities to be issued under the Plan of Reorganization, and
the manner in which distributions will be made to the Company's creditors under
the Plan of Reorganization for all amounts that were owed to such parties on the
Petition Date. In addition, the Disclosure Statement discusses the confirmation
process and the voting procedures that holders of claims in impaired classes
must follow for their votes to be counted.
The Plan of Reorganization divides the Company's creditors into six
classes: Other Priority Claims (Class 1); Other Secured Claims (Class 2); DIP
Financing Claims (Class 3); Convenience Claims (Class 4); General Unsecured
Claims (Class 5) and Equity Interest (Class 6). Administrative Claims and
Priority Tax Claims against the Company have not been classified as provided in
the Bankruptcy Code. The definitions for each class of claims is set forth in
the Plan of Reorganization and creditors are urged to consult the Plan of
Reorganization.
In general, the Plan of Reorganization provides that holders of
Administrative Claims, Priority Tax Claims, Other Priority Claims, and DIP
Financing Claims will either receive payment in full in cash on account of their
claims or such other treatment as set forth in the Plan of
28
<PAGE>
Reorganization. Holders of General Unsecured Claims against the Company will
receive their pro rata share of 5,000,000 shares of new common stock of
Reorganized Loehmann's. Unsecured creditors holding claims of $2,000 or less
will receive cash equal to 50% of the allowed amount of such claim. Holders of
claims in excess of $2,000 will be permitted to reduce their claims of $2,000 to
receive such treatment.
Finally, holders of Loehmann's Common Stock (and other instruments
evidencing ownership in Loehmann's) will receive no distributions under the Plan
of Reorganization and such instruments will be canceled.
The financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the ordinary course of business. As a
result of the chapter 11 case and circumstances relating to this event,
including the uncertainty of the approval by the Company's creditors of the Plan
of Reorganization, the Company's debt structure and its recurring losses, such
realization of assets and liquidation of liabilities are subject to uncertainty
and as such raises substantial doubt about the Company's ability to continue as
a going concern. While under the protection of chapter 11, the Company may sell
or otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the financial statements. Additionally, the
amounts reported on the balance sheet could materially change because of changes
in business strategies and the effect of any proposed plan of reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the Company's
debtor-in-possession financing and the ability to generate sufficient cash from
operations and financing arrangements to meet obligations.
In the chapter 11 case, substantially all liabilities as of the
Petition Date are subject to compromise or other treatment under a plan of
reorganization. For financial reporting purposes, those liabilities and
obligations whose disposition is dependent on the outcome of the chapter 11 case
have been segregated and classified as liabilities subject to compromise in the
balance sheets. Generally, actions to enforce or otherwise effect repayment of
all pre-chapter 11 liabilities as well as all pending litigation against the
Company are stayed while the Company continues its business operations as a
debtor-in-possession. Schedules have been filed by the Company with the
Bankruptcy Court setting forth the assets and liabilities of the Company as of
the Petition Date as reflected in the Company's accounting records. Differences
between amounts reflected in such schedules and claims filed by creditors are
currently being investigated and either amicably resolved or adjudicated. The
ultimate amount of and settlement terms for such are not presently determinable.
Fiscal Year
The Company follows the standard fiscal year of the retail industry,
which is a 52 or 53-week period ending on the Saturday closest to January 31.
Fiscal years ended January 29, 2000, January 30, 1999 and January 31, 1998 had
52 weeks.
29
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents.
Merchandise Inventory
Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method. However, certain warehoused inventory
that is not immediately available for sale is valued on a specific cost basis.
The merchandise inventory valued on a specific cost basis at January 29, 2000
and January 30, 1999 was $11.1 million and $16.9 million, respectively.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs were
$16.3 million, $17.1 million, and $15.4 million during fiscal years 1999, 1998,
and 1997, respectively.
Depreciation and Amortization
Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were
acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life.
Pre-opening Costs
Expenses incurred in connection with the opening of new stores are
expensed in the fiscal quarter in which the store opens. Pre-opening costs of
$0, $0.6 million and $1.3 million were incurred in fiscal 1999, 1998 and 1997,
respectively.
Purchase Price in Excess of Net Assets Acquired, Net
The purchase price in excess of identifiable net assets acquired is
being amortized on a straight-line basis over 40 years. Amortization expense for
fiscal years 1999, 1998 and 1997 amounted to $1.3 million
30
<PAGE>
annually. Accumulated amortization at January 29, 2000 and January 30, 1999 was
$14.9 million and $13.6 million, respectively.
Class B Common Stock
Each share of Class B Common Stock will be convertible into one share
of Common Stock, subject to adjustment at any time. During fiscal years 1999 and
1998, 0 and 22,344 shares, respectively, of Class B Common Stock were converted.
Subject to restrictions in the Company's various credit agreements, the Company
is required to offer to purchase the Class B Common Stock at its independently
appraised value. The Company's various credit agreements prohibit or restrict
any such repurchase.
Capitalized Interest
Interest on borrowed funds is capitalized during construction of
property and is amortized by charges to earnings over the depreciable lives of
the related assets. Interest of $0, $263,000 and $397,000 was capitalized during
fiscal years 1999, 1998 and 1997, respectively.
Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized over the terms of the
related debt agreement. Deferred debt issuance costs were $0.8 million at
January 29, 2000 and $4.6 million at January 30, 1999. Amortization expense for
fiscal years 2000, 1999, and 1998 amounted to $0.9 million, $0.8 million and
$0.6 million, respectively. Total accumulated amortization at January 29, 2000
and January 30, 1999 amounted to $0.4 million and $1.6 million, respectively.
Income Taxes
Income taxes are provided using the liability method.
Revenue Recognition
The Company recognizes revenue when goods are sold, at retail, to
customers in its stores.
Net Loss Per Share of Common Stock
Basic earnings per share ("EPS") is determined by dividing net
income/loss by the weighted average number of shares of Common Stock and Class B
Common Stock outstanding during the period. Diluted EPS is determined by
dividing net income/loss by the weighted average number of shares of Common
Stock, Class B Common Stock and Common Stock equivalents outstanding during the
period. Outstanding options to purchase Common Stock were not considered in the
calculation of Diluted EPS for fiscal 1999, 1998 and 1997, as their effects were
antidilutive.
Other Comments
31
<PAGE>
Certain items in fiscal 1998 and fiscal 1997 have been reclassified to
present them on a basis consistent with fiscal 1999.
3. Income Taxes
The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes.
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
January January
29, 2000 30, 1999
---------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 31,213 $ 18,215
Excess tax depreciation and amortization 3,131 2,775
Store closing reserve - 817
Capitalization of inventory expenses 632 778
Other, net 877 1,026
---------------------------------
Total deferred tax assets 35,853 23,611
---------------------------------
Deferred tax liabilities $ (272) $ (272)
Net deferred tax assets 35,581 23,339
Less valuation allowance (35,581) (23,339)
---------------------------------
$ - $ -
=================================
</TABLE>
Following is a reconciliation of the statutory Federal income tax rate
and the effective income tax rate application to earnings before income taxes:
<TABLE>
<CAPTION>
January January January
29, 2000 30, 1999 31, 1998
----------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Tax effect of extraordinary item - - -
Utilization of net operating loss carry forward - - -
Valuation allowance adjustment (33.9) (27.9) (32.4)
Goodwill (1.4) (9.0) (3.0)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
January January January
29, 2000 30, 1999 31, 1998
----------------------------------------------
<S> <C> <C> <C>
Other, net - (0.4) (0.4)
----------------------------------------------
Effective tax rate (0.3)% (2.3)% (0.8)%
==============================================
</TABLE>
At January 29, 2000, the Company had a net operating loss carryforward
of approximately $75.0 million for regular tax purposes. Net operating losses
begin to expire in 2003 and future years.
33
<PAGE>
4. Debt
The Company's long-term debt consists of:
<TABLE>
<CAPTION>
January January
29, 2000 30, 1999
---------------------------------------
(In thousands)
<S> <C> <C>
Revolving line of Credit (a) - $ 34,030
Term loan (a) - 7,850
11 7/8% senior notes, due 2003 (b) - 95,000
9 1/2% New York City Industrial Development
Agency revenue bonds, due 2004 (c) - 2,250
51/2% City of New York note due in varying
installments to 2004 (c) 391 343
---------------------------------------
391 139,473
Less current maturities 391 70
---------------------------------------
Debt $ 0 $ 139,403
=======================================
</TABLE>
(a) On June 7, 1999, the Bankruptcy Court entered a final order approving a $75
million debtor-in-possession financing (the "DIP Facility") with Congress
Financial Corporation. The DIP Facility provides for a revolving line of
credit and a letter of credit facility aggregating $75 million. The DIP
Facility expires on the earlier of (a) the second anniversary of the DIP
Facility, (b) the effective date of a plan of reorganization for the
Company, or (c) acceleration following the occurrence of an event of
default. The availability of the revolving line of credit and letters of
credit under the DIP Facility is subject to certain inventory-related
borrowing base requirements. The indebtedness under the DIP Facility bears
interest at variable rates based on LIBOR plus 2.25% or the prime rate plus
0.5%. The DIP Facility contains certain customary covenants (including
limitations on indebtedness, liens and restricted payments) but does not
contain any financial covenants. The DIP Facility is secured by
substantially all of the Company's assets. The Company intends to use the
DIP Facility during pendency of the chapter 11 case to finance its working
capital expenditure requirements. The DIP Facility is classified as short
term borrowings and was $9.1 million at January 29, 2000. This new
agreement replaces the long term revolving credit agreement and Term Loan,
which were paid off.
(b) The Company is currently in default of the senior notes, which are
unsecured and have been classified as liabilities subject to compromise.
(c) The Industrial Development Agency Bonds were paid off in fiscal 1999. The
existing note payable to the City of New York will be paid off in 2000.
5. Liabilities Subject to Compromise and Reorganization Items
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified below. The
amounts in total will be subject to future adjustment depending on court action,
further developments with respect to potential disputed claims, determination
34
<PAGE>
as to the value of any collateral securing claims, or other events. Additional
claims may arise from the rejection of additional real estate leases and
executory contracts by the Company. Liabilities subject to compromise consist of
the following:
January
29, 2000
---------------------
(in thousands)
Senior Notes $ 95,000
Accounts payable - Trade 32,005
Accrued interest on senior notes 5,672
Reserve for lease rejection claims 4,690
Other liabilities 4,366
---------------------
Total liabilities subject to compromise $ 141,733
=====================
Reorganization items included in the statements of operations include
the following:
January
29, 2000
---------------------
(in thousands)
Write off of assets at closed stores $ 10,118
Professional fees 5,656
Reserve for lease rejection claims 4,690
Proceeds from sale of leases (2,365)
Other 1,782
---------------------
Total reorganization costs $ 19,881
=====================
6. Property, Equipment and Leaseholds, Net
Property, equipment and leaseholds are recorded at cost less
accumulated depreciation and amortization. The components of property, equipment
and leaseholds are as follows:
<TABLE>
<CAPTION>
Useful January January
Lives 29, 2000 30, 1999
------------------------------------------------
(In years) (In thousands)
<S> <C> <C> <C>
Building 20 $ 9,031 $ 9,031
Furniture, fixtures and equipment 3-8 49,714 51,505
Leasehold interests 5-29 39,277 46,781
Leasehold improvements 5-29 35,896 40,224
------------------------------
Total property, equipment and leaseholds 133,918 147,541
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Useful January January
Lives 29, 2000 30, 1999
------------------------------------------------
(In years) (In thousands)
<S> <C> <C>
Accumulated depreciation and amortization (77,899) (76,079)
------------------------------
Property, equipment and leaseholds, net $ 56,019 $ 71,462
==============================
</TABLE>
36
<PAGE>
7. Earnings Per Share
The following table sets forth the computation of basic and diluted
loss per share:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Numerator
Net operating loss $(33,468) $ (4,588) $ (15,672)
-----------------------------------------
Numerator for basic and diluted loss per share before
extraordinary item
(33,468) (4,588) (15,672)
Extraordinary item - 560 -
-----------------------------------------
Numerator for basic and diluted loss per share after
extraordinary item $(33,468) $ (5,148) $ (15,672)
=========================================
Denominator
Denominator for basic loss per share--weighted average shares 9,080 9,063 8,961
Effect of dilutive securities:
Employee stock options - - -
Dilutive potential common shares - - -
-----------------------------------------
Denominator for diluted per share--adjusted weighted average
shares and assumed conversions 9,080 9,063 8,961
=========================================
Basic & diluted loss per share before extraordinary item $ (3.69) $ (0.51) $ (1.75)
Extraordinary item - (0.06) -
-----------------------------------------
Basic & diluted loss per share after extraordinary item $ (3.69) $ (0.57) $ (1.75)
=========================================
</TABLE>
Options to purchase 660,344, 985,574 and 858,179 shares of Common Stock
at an average price of $3.42, $3.63 and $7.63 per share were outstanding at
January 29, 2000, January 30, 1999 and January 31, 1998 respectively but were
not included in the computation of diluted loss per share because the effect
would have been antidilutive.
8. Stockholders' Equity
The Plan of Reorganization as filed with the Bankruptcy Court on March
24, 2000, and as amended on April 24, 2000, provides that holders of Common
Stock and holders of options to purchase Common Stock shall not be entitled to,
and shall not, receive any property or interest in property on account of their
shares of Common Stock and options to purchase Common Stock. If the Plan of
Reorganization is approved, the Company's unsecured creditors will receive all
of the Company's Common Stock.
37
<PAGE>
9. Stock Option Plans
The following information pertains to the Company's stock option plans:
<TABLE>
<CAPTION>
Fiscal year ended January 29, 2000 January 30, 1999 January 31, 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, beginning
of year 985 $ 3.63 858 $ 7.63 875 $ 7.00
Granted 16 1.29 362 3.40 147 8.58
Canceled (339) 5.46 (182) 16.58 (38) 14.86
Exercised (2) 1.07 (53) 1.07 (126) 1.18
--------------------------------------------------------------------------------
Outstanding options, end of
year 660 $ 3.42 985 $ 3.63 858 $ 7.63
================================================================================
Options exercisable, end of
year 451 $ 4.50 476 $ 4.99 474 $ 4.59
================================================================================
Options available for future
grant 559 N/A 230 N/A 423 N/A
================================================================================
</TABLE>
Compensation expense is recorded in the period that options are earned.
The 660,344 options outstanding at January 29, 2000, vest over a range
of two to five years from the date of grant provided the individuals remain in
the employ of the Company. Options are exercisable at a price ranging from $1.07
to $8.95. Options issued under the 1988 Stock Option Plan generally must be
exercised within five years from the date they are earned. Options issued under
the New Stock Option Plan and Director's Stock Option Plan must be exercised
prior to the tenth anniversary of the grant date.
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net loss and diluted net loss per share would have increased by
$0.3 million or $0.03 per share for fiscal 1999, $1.0 million or $0.11 per share
for fiscal 1998, and $0.9 million or $0.10 per share for fiscal 1997.
The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
fiscal 1999, 1998, and 1997: risk-free interest rate of 6.3%, an expected life
of 3 to 7 years and a dividend yield of zero. For fiscal 1999, 1998, and 1997,
volatility was 182.6%, 96.7% and 85.8%, respectively. Any options granted in the
future will be subject to the fair value pro forma calculation. The pro forma
adjustments for 1999, 1998, and 1997 may not be indicative of future years.
38
<PAGE>
10. Commitments and Contingencies
The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. All leases are
subject to assumption or rejection as part of the chapter 11case. Rent expense
related to these leases amounted to $18.0 million, $18.4 million and $15.4
million for the fiscal years ended January 29, 2000, January 30, 1999, and
January 31, 1998, respectively.
Future minimum payments under the now cancelable or negotiable
operating leases consisted of the following at January 29, 2000:
(In thousands)
2000 $ 14,846
2001 14,161
2002 13,051
2003 12,533
2004 11,948
Thereafter 106,850
--------------------
Total $ 173,389
====================
The Company is involved in litigation arising in the normal course of
business. In the opinion of management the expected outcome of litigation will
not have a material adverse effect on the Company's financial position.
11. Charge for Store Closings
During the second quarter of fiscal 1999, the Company implemented a
plan to close 14 underperforming stores. These closures were intended to improve
the Company's future profitability and liquidity. During the year ended January
29, 2000, certain of the leases of the closed stores were sold at a Bankruptcy
Court authorized auction. The net proceeds from the sales were $2.4 million. The
charge for store closings for the year ended January 29, 2000 consisted of :
(In thousands)
Write-offs of property, plant and equipment $10,118
Lease rejection claims 4,690
Proceeds from the sale of leases (2,365)
Other expenses 466
-----------------
Charge for store closings $12,909
=================
During the fourth quarter of fiscal 1997, the Company implemented a
plan to close ten underperforming stores and, as a result, recorded a $5.7
million charge to continuing operations.
39
<PAGE>
These closures were intended to improve the Company's liquidity and future
operating profitability. Net sales and store operating income (loss), including
certain specifically allocated charges, for these stores were $21.3 million and
$(0.8) million, respectively, in fiscal 1997.
The charge for store closings consisted of write-offs of property,
plant and equipment, costs associated with net lease obligations and other
expenses of $2.1 million, $3.0 million and $0.6 million, respectively.
Nine of the store closures were materially completed by the end of
March 1998. The tenth store closure was completed in the fourth quarter of
fiscal year 1998. For fiscal 1998, there was a charge to gross margin of $1.2
million for additional markdowns taken on the inventory at the closed stores. In
addition, the lease termination costs for the closed stores were less than
originally expected and this resulted in a credit for store closings of $1.2
million.
12. Employee Benefit Plans
In October 1996, the Company established a defined contribution
retirement savings plan (401 (k)) covering all eligible employees. The plan
allows participants to defer a portion of their annual compensation and receive
a matching employer contribution on a portion of that deferral. During fiscal
1999, 1998 and 1997, the Company recorded contributions of $199,000, $254,000
and $209,000, respectively, to the 401(k) plan.
13. Subsequent Events
In March 2000, the Company decided to close an additional eleven
underperforming stores, reducing the number of existing stores to 44. These
store closures are intended to improve the Company's liquidity and future
profitability. It is expected that the store closings will be completed by May
2000. No provision is included in the financial statements as the plan to close
the stores was approved after the balance sheet date. The charge to the gross
margin associated with the store closing, separate from the closing expenses, is
approximately $1.3 million. The expected store closing expenses are $7.2
million, consisting of (i) $4.0 million for the write-off of property, plant and
equipment, (ii) $2.7 million for costs associated with net lease obligations and
(iii) other expenses of $0.5 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions with the Company of
Director and Executive Officers of the Company as of date hereof. Upon
confirmation of the Plan of Reorganization, the Board of Directors of
Reorganized Loehmann's will initially consist of seven (7) members, five (5) of
whom shall
40
<PAGE>
be designated by the Creditor's Committee and whose names shall be disclosed on
or before the date of the confirmation hearing; and two (2) of whom shall be
Robert Friedman and Robert Glass, who currently serve as Loehmann's Chairman and
Chief Executive Officer and President and Chief Operating Officer, respectively.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert N. Friedman (1)................ 59 Chairman, Chief Executive Officer and Director
Robert Glass (1)...................... 53 President, Secretary, Chief Operating Officer, Chief Financial Officer
and Director
Jan Heppe............................. 48 Senior Vice President and Director of Stores
Linda Nash-Merker..................... 43 Senior Vice President Human Resources
Philip Kaplan......................... 69 Director
Christina A. Mohr (3)................. 44 Director
Arthur E. Reiner (2).................. 59 Director
Lorrence T. Kellar (3)................ 62 Director
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Robert N. Friedman has been Chairman, Chief Executive Officer and a
Director of the Company since November 1995 and was President, Chief Executive
Officer and a Director of the Company from April 1992 to November 1995. Mr.
Friedman was President and Chief Executive Officer of Loehmann's Holdings, Inc.
a predecessor of the Company ("Holdings") from April 1992 until May 1996. Prior
to joining the Company, Mr. Friedman was employed by R.H. Macy Co., Inc. for 28
years in various capacities, including President and Vice Chairman,
Merchandising, at Macy's East from 1990-1992, Chairman and C.E.O. of Macy's
Bamberger Division and Chairman and C.E.O. of Macy's South/Bullocks. He serves
as a member of the Educational Foundation of The Fashion Institute of
Technology.
Robert Glass has been a Director of the Company since February 1998 and
has served as President, Chief Operating Officer and Secretary since April 1998.
From September 1994 to March 1998, Mr. Glass served as Senior Vice President,
Chief Financial Officer, Treasurer and Assistant Secretary of the Company. From
1992 to 1994, Mr. Glass served as a retail consultant. Prior to that time, he
held a number of senior retail management positions, including Chief Financial
Officer and later President of Gold Circle Stores, a division of Federated
Department Stores, Inc., and Executive Vice President of Thrifty Drug from 1990
to 1992.
41
<PAGE>
Jan Heppe resigned from the company as of February 1, 2000. She was the
Senior Vice President and Director of Stores of the Company since September
1995. Prior to that time, she held a number of senior retail management
positions at John Wanamaker Department Store in Philadelphia, Pennsylvania and a
senior management retail position at Henri Bendel in 1991.
Linda Nash-Merker resigned from the Company on May 1, 2000. She was
Senior Vice President of Human Resources from May 1998 to April 2000. From 1994
to 1998, she was Vice President of Human Resources. Prior to joining Loehmann's,
Linda spent eleven years at Macy's East where she held various human resources
positions including Vice President of Merchant Recruitment and Development and
Vice President - Human Resources Director for Herald Square.
Philip Kaplan has been a Director of the Company since September 1988
and served as President, Chief Operating Officer, and Secretary of the Company
from November 1995 to March 1998. He was Chairman and Chief Operating Officer of
the Company from September to November 1995 and served as Chairman, Chief
Operating Officer, Secretary and Treasurer from September 1988 to September
1995. Mr. Kaplan was Vice Chairman, Treasurer and a Director Holdings, Inc. from
February 1987 until May 1996. Mr. Kaplan was president of Verdi International, a
manufacturer of luggage, from 1983 to 1987, Senior Vice President of Abraham and
Strauss, a division of Federated Department Stores, Inc., from 1979 until 1983
and Executive Vice President-Chief Financial Officer of E.J. Korvette's from
1971 until 1979.
Lorrence T. Kellar has been a Director of the Company since September
1997. Mr. Kellar has been Vice President of Real Estate for the Kmart
Corporation since April 1996. Prior to that, Mr. Kellar had been Vice President
of Real Estate and Finance of The Kroger Co., a supermarket retailer, from 1988
to April 1996. He is a Director of Frisch's Restaurants, Multi-Color Corporation
and a Trustee of The Capital Trust, a mutual fund group.
Christina A. Mohr has been a Director of the Company since September
1995 and was a director of Holdings from January 1994 until May 1996. Ms. Mohr
has been Managing Director at Salomon Smith Barney (formerly Salomon Brothers,
Inc.), an investment banking firm, since February 1997. Prior to that, Ms. Mohr
had been Managing Director, Banking Group of Lazard Freres & Co. LLC, an
investment banking firm, from 1990 to February 1997. She was a Vice President,
Banking Group, from 1984 to 1990. She is a Director of United Retail Group,
Inc., a retail chain.
Arthur E. Reiner has been a Director of the Company since August 1996.
Mr. Reiner became Chairman of Finlay Enterprises, Inc. ("Enterprises") effective
February 1, 1999 and, from January 1995 to such date, served as Vice Chairman of
that company. Mr. Reiner has also served as President and Chief Executive
Officer of Enterprises since January 30, 1996 and as Chairman of the Board and
Chief Executive Officer of Finlay Fine Jewelry Corporation, Enterprise's wholly
owned subsidiary since January 3, 1995. Prior to joining Finlay, Mr. Reiner had
spent over 30 years with the Macy's organization. From February 1992 to October
1994, Mr. Reiner was Chairman and Chief Executive Officer of Macy's East, a
subsidiary of Macy's. From 1988 to 1992, Mr. Reiner was Chairman and Chief
Executive Officer of Macy's Northeast, which was combined with Macy's Atlanta
division to form Macy's East in 1992. Mr. Reiner was Chairman of the Educational
Foundation for the Fashion Institute of Technology from 1985 to 1995 and
currently is Vice Chairman.
42
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Awards
Other Annual Securities All Other
Fiscal Compensation Underlying Compensation ($)
Name and Principal Position Year Salary($) Bonus($) ($) Options (#) (1)
-----------------------------------------------------------------------------------------------------------------------
Annual Compensation
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman................... 1999 628,400 -- (2) -- 2,500
Chairman and Chief 1998 624,000 -- (2) -- 2,500
Executive Officer 1997 575,000 550,000 (2) -- 2,406
Robert Glass......................... 1999 324,800 -- (2) -- 2,500
President, Chief Operating Officer, 1998 312,337 -- (2) 100,000 2,500
Chief Financial Officer and Secretary 1997 257,500 56,870 (2) -- 2,388
Jan Heppe (3)........................ 1999 260,600 10,000 (2) -- 2,500
Senior Vice President and 1998 258,000 15,000 (2) -- 2,500
Director of Stores 1997 240,000 50,000 (2) -- 2,400
Linda Nash-Merker (4)................ 1999 230,000 70,000 (2) -- 2,500
Senior Vice President, 1998 190,500 15,000 (2) -- 2,500
Human Resources 1997 162,550 42,888 (2) -- 2,065
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of (i) Company contributions in fiscal 1999 under the Loehmann's
Inc. 401(k) Savings and Investment Plan of $2,500 for Mr. Friedman, $2,500
for Mr. Glass, $2,500 for Ms. Heppe, $2,500 for Mrs. Nash-Merker; (ii)
Company contributions in fiscal 1998 under the Loehmann's Inc. 401(k)
Savings and Investment Plan of $2,500 for Mr. Friedman, $2,500 for Mr.
Glass, $2,500 for Ms. Heppe, $2,500 for Mrs. Nash-Merker; (iii) Company
contributions in fiscal 1997 under the Loehmann's 401(k) Savings and
Investment Plan of $2,406 for Mr. Friedman, $2,388 for Mr. Glass, $2,400
for Ms. Heppe, $2,065 for Mrs. Nash-Merker.
(2) For each named executive officer, the aggregate amount of other annual
compensation is less than the lesser of 10% of such officer's total salary
and bonus for such year or $50,000.
(3) Ms. Heppe resigned her position with the Company effective February 1,
2000.
(4) Linda Nash-Merker became an executive officer of the Company in May 1998.
Mrs. Nash-Merker resigned her position with the Company effective May 1,
2000.
The following table sets forth information concerning the value of
unexercised options as of January 29, 2000 held by the executives named in the
Summary Compensation Table above.
43
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options
On Exercise Realized at Fiscal Year End (#) at Fiscal year End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman --- --- 306,227 --- --- ---
Robert Glass --- --- 42,875 79,469 --- ---
Jan Heppe --- --- 6,703 24,469 --- ---
Linda Nash-Merker --- --- 2,680 11,788 --- ---
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a stock price at January 29, 2000 of $0.22
Employment and Severance Agreements
Mr. Friedman
Mr. Friedman's employment agreement, as amended (the "Friedman
Agreement"), provides that he will serve as Chairman and Chief Executive Officer
of the Company from February 1, 1999 through January 31, 2001, subject to
automatic successive one-year extensions unless either party provides the other
party with at least 30 days prior written notice that it does not wish to extend
the Period of Employment (as defined in the Friedman Agreement), provided that
the Period of Employment shall continue in effect at least until the later of
(x) January 31, 2001 and (y) 12 months following notice by the Company of its
election not to extend the Period of Employment, for an annual base salary of
not less than $550,000 for fiscal 1996, $575,000 for fiscal 1997 and $600,000
for fiscal 1998, fiscal 1999 and fiscal 2000. Mr. Friedman is also eligible to
receive an annual bonus equal to 100% of his base salary in effect for each of
fiscal 1996 and fiscal 1997 and 60% of his base salary in effect for fiscal
1998, fiscal 1999, and fiscal 2000 if, for each such fiscal year, the Company
attains its targeted financial goals (as defined by the Compensation Committee).
The Friedman Agreement also provides for certain insurance and other benefits to
be maintained and paid by the Company.
The Friedman Agreement provides that if Mr. Friedman's employment is
terminated by the Company without Cause or by Mr. Friedman with Good Reason (as
such terms are defined in the Friedman Agreement), the Company will be required
to pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Friedman will also
be entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr.
Friedman's employment is terminated, either by the Company or by Mr. Friedman
for Good Reason, coincident with or within one-year after a Change of Control
(as defined in the Friedman Agreement), the Company will be required to pay Mr.
Friedman a lump sum, in cash, equal to two times his base salary then in effect
and all unvested options will vest in full. If Mr. Friedman's
44
<PAGE>
employment is terminated by the Company without Cause, Mr. Friedman for Good
Reason or as a result of a Change of Control, the Company also, with certain
exceptions, will be required to continue to maintain life insurance for Mr.
Friedman for the remainder of his life or until he attains the age of 70 with a
death benefit equal to his base salary at the date of termination and medical
insurance for Mr. Friedman and his spouse until their respective deaths. The
Company also will be required to maintain life insurance for Mr. Friedman and
medical insurance for Mr. Friedman and his spouse, as described in the foregoing
sentence, upon Mr. Friedman's retirement or voluntary termination from the
Company after the period of employment provided for in the Friedman Agreement.
The Friedman Agreement provides that the Company has certain rights to
purchase shares of the Common Stock and/or vested options held by Mr. Friedman
upon termination of his employment. Finally, the Friedman Agreement provides
that Mr. Friedman will not, with certain exceptions, "engage or be engaged in a
competing business" (as defined in the Friedman Agreement) for a period of two
years following termination of his employment (unless he is terminated without
Cause or he resigns with Good Reason).
Mr. Glass
Mr. Glass's employment agreement (the "Glass Agreement") provides that
he will serve as President and Chief Operating Officer of the Company from April
1, 1998 through March 31, 2000. In accordance with its terms, the Glass
Agreement has been automatically renewed for a one year term at an annual base
salary of $320,000. The annual base salary shall be reviewed each April 1 except
that no such review shall result in any reduction of the annual base salary then
in effect. Mr. Glass also is eligible to receive an annual bonus equal to 60% of
his annual base salary in effect, if, for each such fiscal year, the Company
attains its targeted financial goals (as defined by the Compensation Committee).
In addition, the bonus percentage can increase if the Company exceeds
achievement of certain financial goals (as defined by the Compensation
Committee). The Glass Agreement also provides for certain insurance and other
benefits to be maintained and paid by the Company.
45
<PAGE>
The Glass Agreement provides that if Mr. Glass's employment is
terminated by the Company without cause or by Mr. Glass with Good Reason (as
such terms are defined in the Glass Agreement), the Company will be required to
pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Glass will also be
entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr. Glass's
employment is terminated, either by the Company or by Mr. Glass for Good Reason,
coincident with or within one-year after a Change of Control, the Company will
be required to pay Mr. Glass a lump sum, in cash, equal to two times his base
salary then in effect and all unvested options will vest in full. If Mr. Glass's
employment is terminated by the Company without Cause, Mr. Glass for Good Reason
or as a result of a Change of Control, the Company also, with certain
exceptions, will be required to continue to maintain life insurance for Mr.
Glass for the remainder of his life or until he attains the age of 70 with a
death benefit equal to his base salary at the date of termination and medical
insurance for Mr. Glass and his spouse until their respective deaths. The
Company will also be required to maintain life insurance for Mr. Glass and
medical insurance for Mr. Glass and his spouse, as described in the foregoing
sentence, upon Mr. Glass's retirement or voluntary termination from the Company
after the period of employment provided for in the Glass Agreement.
The Glass Agreement provides that if Mr. Glass's employment is
terminated for any reason, Mr. Glass will not for a period of two years
following termination of his employment directly or indirectly (i) solicit or
encourage any member of senior management to leave the employment of the Company
or (ii) hire any member of senior management who was an employee of the Company
during Mr. Glass's employment under the Glass Agreement or the two year period
after Mr. Glass's employment is terminated.
Compensation of Members of the Board of Directors
For serving as a director of the Company, each non-employee director
receives, $15,000 per year, $1,000 per Board of Directors meeting attended in
person, $500 per Board of Directors meeting attended by telephone, and $500 per
Board of Directors committee meeting attended. Certain directors who are not
employees of the Company will be entitled to receive benefits under the
directors stock option plan (the "Directors Stock Option Plan") and all
directors of the Company will be entitled to receive benefits under the
Directors Deferred Compensation Plan. Under the terms of the Directors Stock
Option Plan, each person, who is not an employee of the Company, and who is
first elected, appointed or otherwise first becomes a director (an "Eligible
Director") will be granted an option to purchase 6,000 shares of Common Stock as
of the date on which such person first becomes an Eligible Director (an "Initial
Option"). Each person who was an Eligible Director as of the effective date of
the plan was granted an option to purchase 6,000 shares of Common Stock (the
"Special Option"). Each person who is an Eligible Director on February 1st of
each year will receive an option to purchase 3,000 shares of Common Stock (an
"Annual Option"). The Directors Stock Option Plan also provides that the Board
of Directors shall have discretionary authority to award options to acquire up
to an aggregate of 100,000 shares of Common Stock to one or more Eligible
Directors ("Discretionary Options"). All options granted under the Directors
Stock Option Plan are "nonqualified" stock options subject to the provisions of
Section 83 of the Internal Revenue Code of 1986, as amended.
Each Initial Option and Special Option vests and becomes exercisable in
1/3 increments on each of the first, second and third anniversaries of the date
of grant; provided that the Eligible Director is in the service of the Company
as a director on such date. Each Annual Option vests and becomes exercisable in
full on the one year anniversary of the date of grant, provided that the
Eligible Director is in the service of the Company as a director on such date.
In the event of the termination of the Eligible Director's service as a director
prior to the time all or any portion or an Initial Option, a Special Option, or
an Annual Option vests, such option, to the extent not yet vested, terminates.
Discretionary Options are subject to vesting conditions established by the Board
of Directors and provided in a separate award agreement evidencing the award of
such Discretionary Option. Any unexercised portion of an option automatically
becomes null and void at the time of the earliest to occur of (i) the expiration
of 10 years from the grant date and (ii) the expiration of one year from the
date the Eligible Director's service terminates. The Directors Stock Option Plan
provides that the option exercise price for the options shall be the "fair
market value" (as defined in the Directors Stock Option Plan) of the Common
Stock on the date of grant.
Holders of Loehmann's Stock Options (and other instruments evidencing
ownership in Loehmann's) will receive no distributions under the Plan of
Reorganization and such instruments will be canceled.
46
<PAGE>
In addition, the Company has a consulting agreement with Mr. Kaplan.
Mr. Kaplan will act as a director and consultant to the Company. Under the
agreement, he is paid a retainer of $75,000 per year and is entitled to a
$15,000 per year auto allowance. This consulting agreement became effective in
April 1998 and extends for a five-year period.
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, Mr. Reiner served as the member of the Compensation
Committee of the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 20, 2000
with respect to beneficial ownership of shares of the Common Stock by (i) all
stockholders known by the Company to be beneficial owners of more than 5% of
such class, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. Unless otherwise indicated in the notes below, the address of each
beneficial owner is in care of Loehmann's, Inc., 2500 Halsey Street, Bronx, New
York 10461.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Shares of Common Stock Percentage
------------------------------------ ---------------------- ----------
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sprout Capital V(1).................................................. 200,779 2.2%
Sprout Growth, L.P.(1)............................................... 242,769 2.7%
Sprout Growth, Ltd.(1)............................................... 27,025 *
DLJ Venture Capital Fund II, L.P.(1)................................. 12,065 *
Donaldson, Lufkin & Jenrette Securities Corporation(1)............... 126,161 1.4%
Rosenberg (U.S.)(1).................................................. 326,000 3.6%
J&W Seligman & Co. Incorporated(2)................................... 1,288,160 14.2%
Robert Friedman(3)................................................... 306,227 3.3%
Robert Glass(4)...................................................... 42,875 *
Jan Heppe(5)......................................................... 6,703 *
Linda Nash-Merker(6)................................................. 2,680 *
Philip Kaplan(7)..................................................... 112,174 1.2%
Lorrence T. Kellar(8)................................................ 13,000 *
Christina A. Mohr(9)................................................. 10,000 *
Arthur E. Reiner(9).................................................. 10,000 *
All directors and executive officers as a group (9 persons)(10)...... 480,659 5.1%
------------------------------------------------------------------------------------------------------------------
</TABLE>
*Less than 1%
47
<PAGE>
(1) Based in part upon information provided in a Schedule 13G filed with the
Commission. Sprout Capital V, Sprout Growth, L.P., Sprout Growth, Ltd., DLJ
Venture Capital II, L.P., Rosenberg, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ" and, collectively with the other entities
named above, the "Sprout Group") are all affiliates. The business address
of all such Sprout Group entities is 277 Park Avenue, New York, New York
10172. Because of their direct and indirect ownership of a majority of the
capital stock of DLJ, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie
Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie
Mutuelle, AXA Courtage Assurance Mutuelle, AXA Alliance Capital Management
L.P. and The Equitable Companies Incorporated may be deemed to beneficially
own all of the shares of Common Stock beneficially owned by the Sprout
Group. The business address of Alpha Assurances I.A.R.D. Mutuelle and Alpha
Assurances Vie Mutuelle is 100-101 Terrasse Boieldien, 92042 Paris La
Defense France. The business address of AXA Assurances I.A.R.D. Mutuelle
and AXA Assurances Vie Mutuelle is 21, rue de Chateaudun, 75009 Paris
France. The business address of AXA Courtage Assurance Mutuelle is 26, rue
Louis le Grand, 75002 Paris France. The business address of AXA is 23,
avenue Matignon, 75008 Paris France. The business address of The Equitable
Companies Incorporated is 787 Seventh Avenue, New York, New York 10019. The
business address of Alliance Capital Management L.P. is 1345 Avenue of the
Americas, New York, New York 10105.
(2) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of J.&W. Seligman & Co. Incorporated ("JWS")
include all shares of Common Stock beneficially owned by Seligman Value
Fund Series, Inc. - Seligman Small-Cap Value Fund (the "Fund"). JWS, as
investment adviser for the Fund, may be deemed to beneficially own the
shares of the Fund. Accordingly, the shares owned by JWS include those
shares owned by the Fund. In addition, William C. Morris, as the owner of a
majority of the outstanding voting securities of JWS, may be deemed to
beneficially own the shares reported herein by JWS. The business address of
JWS, the Fund and William C. Morris is 100 Park Avenue, New York, NY 10017.
(3) Includes options to purchase 306,227 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof.
(4) Includes options to purchase 42,875 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 79,469 shares of Common Stock which are not exercisable
in sixty (60) days of the date hereof.
(5) Includes options to purchase 6,703 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 24,469 shares of Common Stock which are not exercisable
in sixty (60) days of the date hereof.
(6) Includes options to purchase 2,680 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 11,788 shares of Common Stock which are not exercisable
in sixty (60) days of the date hereof.
(7) Includes options to purchase 52,041 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Include 60,133
shares owned.
(8) Includes options to purchase 10,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Include 3,000 shares
owned. Does not include options to purchase 2,000 shares of Common Stock
which are not exercisable in sixty (60) days of the date hereof.
(9) Includes options to purchase 10,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 2,000 shares of Common Stock which are not exercisable
in sixty (60) days of the date hereof.
(10) Includes options to purchase 417,526 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 159,726 shares of Common Stock which are not
exercisable in sixty (60) days of the date hereof. Includes 63,133 shares
owned.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Agreements Between the Company and Bigio Group, LLC
During the 1999 fiscal year, the Company purchased $519,000 of
merchandise for resale from the Bigio Group, LLC ("Bigio"). Robert N. Friedman,
who is Chairman and Chief Executive Officer and a director of the Company, is
married to Deborah Friedman who is the owner and a principal of Bigio. Mr.
Friedman has an interest in these transactions as a result of his relationship
with Deborah Friedman.
PART IV.
48
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report.
(1) List of Financial Statements
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Changes in Common Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) List of Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts Other schedules are
omitted because they are either not applicable or the required
information is shown in the financial statements or notes thereto.
(3) List of Exhibits
2.1 Plan of Reorganization of Loehmann's Inc. (Previously
filed).
2.2 Disclosure Statement of Loehmann's Inc. regarding its Plan
of Reorganization (Previously filed).
3.1 Amended and Restated Certificate of Incorporation of
Loehmann's, Inc., filed as Exhibit 3.1 to Loehmann's, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated hereby by reference.
3.2 By-Laws of Loehmann's, Inc., filed as Exhibit 3.2 to
Loehmann's, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.
4.1 11 7/8% Senior Note Indenture, dated as of May 10, 1996,
between Loehmann's, Inc. and United States Trust Company of
New York, as Trustee, filed as Exhibit 4.1 to Loehmann's,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended May 4, 1996 (Comm. File No. 0-28410), and
incorporated herein by reference.
4.2 A letter from Loehmann's, Inc. to the Securities and
Exchange Commission agreeing to furnish copies of certain
debt instruments.*
4.3 Agreement between Loehmann's Inc. and Congress Financial
Corporation, dated as of May 12, 1998, filed as Exhibit 4.1
to Loehmann's Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended May 2, 1998 (Comm. File No. 0-28410),
and incorporated herein by reference.
49
<PAGE>
4.4 Agreement between Loehmann's Inc. and Fleet Bank, N.A.,
dated as of May 12, 1998, filed as Exhibit 4.2 to Loehmann's
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended May 2, 1998 (Comm. File No. 0-28410), and
incorporated herein by reference.
10.1 Lease Agreement between the New York City Industrial
Development Agency and Loehmann's, Inc. dated as of December
1, 1983, filed as Exhibit 10.3 to Loehmann's Holdings,
Inc.'s Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.
10.2 Agreement among Loehmann's Holdings, Inc., Loehmann's, Inc.
and Robert N. Friedman dated as of November 1, 1995, filed
as Exhibit 10.11 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-97100) and
incorporated herein by reference.
10.3 Amendment No. 1 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Robert N. Friedman
dated as of April 5, 1996, filed as Exhibit 10.12 to
Loehmann's Holdings, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-97100) and incorporated herein by
reference.
10.4 Compensation/Consultation Agreement between Loehmann's
Holdings, Inc. and Norman Matthews, filed as Exhibit 10.8 to
Loehmann's Holdings, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-25718) and incorporated herein by
reference.
10.5 Loehmann's, Inc. Amended and Restated Deferred Profit
Sharing Plan, effective January 31, 1993, filed as Exhibit
10.15 to Loehmann's Holdings, Inc.'s Registration Statement
on Form S-1 (Registration No. 33-97100) and incorporated
herein by reference.
10.6 Loehmann's Holdings, Inc. 1988 Stock Option Plan, filed as
Exhibit 10.10 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-25718) and
incorporated herein by reference.
10.7 Non-Qualified Stock Option Agreement dated September 30,
1988 between Loehmann's Holdings, Inc. and Philip Kaplan,
filed as Exhibit 10.11 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.
50
<PAGE>
10.8 Loehmann's, Inc. New Stock Incentive Plan, filed as Exhibit
10.18 to Loehmann's, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-97100) and incorporated herein by
reference.
10.9 Executive Incentive Compensation Plan, filed as Exhibit
10.13 to Loehmann's Holdings, Inc.'s Registration Statement
on Form S-1 (Registration No. 33-25718) and incorporated
herein by reference.
10.10 Non-Qualified Stock Option Agreement dated as of December
10, 1993 between Loehmann's Holdings, Inc. and Norman S.
Matthews, filed as Exhibit 10.15 to Loehmann's Holdings,
Inc.'s Registration Statement on Form S-4 (Registration No.
33-71922) and incorporated herein by reference.
10.11 Employment Agreement between Loehmann's, Inc. and Robert
Glass, dated as of February 27, 1998, filed as Exhibit 10.14
to Loehmann's, Inc.'s Annual Report on Form 10-K for the
year ended January 31, 1998 (Comm. File NO. 0-24810), and
incorporated herein by reference.
10.12 Consulting Agreement between Loehmann's, Inc. and Philip
Kaplan, dated as of April 3, 1998, filed as Exhibit 10.15 to
Loehmann's, Inc.'s Annual Report on Form 10-K for the year
ended January 31, 1998 (Comm. File NO. 0-24810), and
incorporated herein by reference.
10.13 Severance Agreement between Loehmann's, Inc. and Bonnie
Dexter-Wolterstorff, dated January 9, 1998, filed as Exhibit
10.17 to Loehmann's, Inc.'s Annual Report on Form 10-K for
the year ended January 31, 1998 (Comm. File NO. 0-24810),
and incorporated herein by reference.
10.14 Form of Agency Agreement between Loehmann's, Inc. and a
joint venture of Gordon Brothers Retail Partners, LLC and
The Ozer Group, LLC, dated February 27, 1998 filed as
Exhibit 10.17 to Loehmann's, Inc.'s Annual Report on Form
10-K for the year ended January 31, 1998 (Comm. File NO.
0-24810), and incorporated herein by reference.
10.15 Ratification and Amendment Agreement, dated as of May 19,
1999, by and between Loehmann's, Inc. as Debtor and
Debtor-In-Possession in a case pending under chapter 11 of
the Bankruptcy Code, and Congress Financial Corporation,
filed as Exhibit 10.1 to Loehmann's Inc.'s Quarterly Report
on Form 10-Q for the quarter ended May 1, 1999 (Comm. File
NO. 0-24810), and incorporated herein by reference.
10.16 Lease Agreement, dated October 6, 1998, by And between
Maurice M. Weill, Trustee for Rutherford Property and
Loehmann's, Inc. (Previously filed).
51
<PAGE>
23 Consent of Independent Auditors.*
24 Powers of Attorney (included on signature page of this
10-K) (Previously filed).
27 Financial Data Schedule (Previously filed).
(b) Reports on Form 8-K
None filed in the fourth quarter.
--------------
* Filed herewith
52
<PAGE>
SCHEDULE II
LOEHMANN'S, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Balance at Charged to Charged to Balance at
Beginning Cost and Other end of
Description of Period Expense Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended January 29, 2000
---------------------------
Reserve for Store Closings $307 $1,237 $0 $1,544(a) $0
==== ====== == ====== ==
Year ended January 30, 1999
---------------------------
Reserve for Store Closings $7,130 0 0 $6,823(a) $307
====== = = ====== ====
Year ended January 31, 1998
---------------------------
Reserve for Store Closings $10 $7,190 $0 $70(a) $7,130
=== ====== == === ======
--------------------------------------------------------------------------------------------------------
</TABLE>
(a) Payments for leasehold obligation expenses and other store closing
expenses.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned
thereunto duly authorized.
LOEHMANN'S, INC.
Dated: May 19, 2000 By: /s/ Robert Glass
---------------------------------------
Robert Glass, President, Chief
Operating Officer, Chief Financial
Officer, Secretary and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert N. Friedman and Robert Glass, such
person's true and lawful attorney-in-fact and agents, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this report filed pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and to
file the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amendment to the report has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman, Chief Executive Officer and Director May 19, 2000
-----------------------
Robert N. Friedman
* President, Chief Operating Officer, Chief May 19, 2000
----------------------- Financial Officer and Director
Robert Glass
* Director May 19, 2000
-----------------------
Philip Kaplan
* Director May 19, 2000
-----------------------
Lorrence T. Kellar
* Director May 19, 2000
-----------------------
Christina A. Mohr
54
<PAGE>
* Director May 19, 2000
-----------------------
Arthur E. Reiner
</TABLE>
* By: /s/ Robert Glass
----------------
Name: Robert Glass
Title: Attorney-in-fact
55
<PAGE>
EXHIBIT D
<PAGE>
PROJECTIONS
i) RESPONSIBILITY FOR AND PURPOSE OF THE PROJECTIONS
As a condition to confirmation of a plan, the Bankruptcy Code requires, among
other things, that the Bankruptcy Court determine that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of the debtor. In connection with the development of the Plan,
and for purposes of determining whether the Plan satisfies this feasibility
standard, Loehmann's management has, through the development of financial
projections (the "Projections"), analyzed the ability of Loehmann's to meet its
obligations under the Plan to maintain sufficient liquidity and capital
resources to conduct its business. The Projections were also prepared to assist
each holder of a Claim in Class 5 in determining whether to accept or reject the
plan.
The Projections should be read in conjunction with the assumptions,
qualifications and footnotes to tables containing the Projections set forth
herein, the historical consolidated financial information (including the notes
and schedules thereto) and the other information set forth in Loehmann's Annual
Report on Form 10-K for the fiscal year ended January 29, 2000 and Loehmann's
Quarterly Report on Form 10-Q for the period ended April 29, 2000 annexed hereto
as Exhibits C and F, respectively, the full texts of which are incorporated
herein by reference. The Projections were prepared in good faith based upon
assumptions believed to be reasonable and applied in a manner consistent with
past practice. The Projections, which were prepared in June 2000, were based, in
part, on economic, competitive, and general business conditions prevailing at
the time. While as of the date of this Disclosure Statement such conditions have
not materially changed, any future changes in these conditions may materially
impact the ability of Loehmann's to achieve the Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. LOEHMANN'S INDEPENDENT ACCOUNTANT,
ERNST & YOUNG, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY,
HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT HERETO.
LOEHMANN'S DOES NOT, AS A MATTER OF COURSE, PUBLISH PROJECTIONS OF ITS
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, LOEHMANN'S DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A)
FURNISH UPDATED PROJECTIONS TO HOLDERS OF CLAIMS OR EQUITY INTERESTS PRIOR TO
THE EFFECTIVE DATE OR TO HOLDERS OF NEW COMMON STOCK OR ANY OTHER PARTY AFTER
THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS THAT
MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE MAKE SUCH UPDATED
INFORMATION PUBLICLY AVAILABLE.
<PAGE>
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE BEEN PREPARED
EXCLUSIVELY BY LOEHMANN'S MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE
REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND LOEHMANN'S
CONTROL. LOEHMANN'S CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS TO THE
ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO REORGANIZED LOEHMANN'S ABILITY TO
ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE.
FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH
THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED OR,
ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE
EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER.
THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER
ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
FINALLY, THE FOLLOWING PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE ENTERPRISE
VALUE OF REORGANIZED LOEHMANN'S, THE FAIR VALUE OF ITS ASSETS AND ITS ACTUAL
LIABILITIES AS OF THE EFFECTIVE DATE. REORGANIZED LOEHMANN'S WILL BE REQUIRED TO
MAKE SUCH ESTIMATION AS OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED
UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER
THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES.
ii) SUMMARY OF SIGNIFICANT ASSUMPTIONS
Loehmann's has developed the Projections (summarized below) to assist creditors
in their evaluation of the Plan and to analyze its feasibility. THE PROJECTIONS
ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS DESCRIBED BELOW. ACTUAL
OPERATING RESULTS AND VALUES MAY AND WILL VARY FROM THOSE PROJECTED.
A. FISCAL YEARS. Loehmann's fiscal year ends on the Saturday closest to January
31 of each year. Any reference to a specific fiscal year means the 52 or 53 week
period ending on the Saturday closest to January 31 of the next calendar year.
The fiscal year ending February 3, 2001 (Fiscal 2000) will be a 53-week year.
B. PLAN TERMS AND CONSUMMATION. The Projections assume an Effective Date of
October 1, 2000 with Allowed Claims and Equity Interests treated in accordance
with the treatment provided in the Plan with respect to such Allowed Claims and
Equity Interests.
C. STORE RATIONALIZATION PROGRAM. Loehmann's closed 14 stores in July 1999, and
closed an additional 11 stores in March 2000. After these store closings,
Loehmann's operates 44 stores. No further store closings are assumed in the
Projections.
2
<PAGE>
D. GENERAL ECONOMIC CONDITIONS. The Projections were prepared assuming that
economic conditions in the markets served by Loehmann's do not differ
significantly over the next five years from current economic conditions.
Inflation in revenues and costs are assumed to remain relatively low.
E. REVENUES. On a comp store basis, sales are projected to increase 1.1% in
2000. Thereafter, comp store sales are projected to increase 1.9%, 2.7%, 2.6%,
and 1.9% for the years 2001-2004, respectively. In addition to its projected
comp store sale growth, the Company plans to open two stores per year beginning
in 2001, for a total of 8 new stores opened during the projection period. In
each year, one store is projected to open in the spring season and one in the
fall. These new stores are assumed to be fill-in locations within the Company's
existing markets. Sales have also been projected by product category. While
sales increases are projected in most product categories, the highest rate of
growth is projected in bridge sportswear, which is the key category in the
Company's Back Room expansion strategy.
F. GROSS MARGINS. Total Company gross margin is projected to increase from
30.9%(1) in 1999 to 34.5% in 2004. This increase in gross margin is based upon:
(i) an increase in initial markup resulting from an increase in opportunistic
buying at steep discounts, especially in the better sportswear and Back Room
sportswear businesses, and from increased penetration of certain high-margin
product categories including accessories and men's; (ii) a reduction in shrink,
particularly in the men's business; (iii) a decrease in promotional markdowns,
which is partially offset by an increase in permanent markdowns.
G. SELLING AND ADMINISTRATIVE EXPENSES. SG&A expense is projected to decrease
from 29.8% of sales in 1999 to 28.7% of sales in 2000. Thereafter, the
Projections assume that SG&A will gradually decrease to 26.8% of sales by 2004.
The anticipated savings will result from a variety of cost initiatives explained
below.
Store expenses are generally projected to increase at a 2.0% rate of inflation.
In addition, store expense includes incremental expense in each year from 2001
forward because of the addition of new stores. Expected savings as a result of
lease re-negotiations which are currently underway have been factored into store
occupancy expense.
Advertising expense is projected to decrease from 4.2% of sales in 1999 ($16.3
million) to 3.0% in 2000 ($10.4 million). 1999 expense was abnormally high due
to a customer reactivation effort in the spring season, which was not repeated.
From 2001 forward, advertising expense is projected at approximately 3.6% of
sales, reflecting more normalized levels of advertising spending.
The Projections assume that Corporate Expenses will decrease as a percent of
sales from 4.6% in 1999 ($17.9 million) to 3.9% in 2004 ($16.7 million). This
reflects headcount reductions which took place in July 1999 and February 2000.
The reductions in total are expected to save approximately $4.7 million per
year.
The Company expects to realize net cash flow savings of approximately $1.0
million per year from warehouse cost reductions. Warehouse expense also includes
additional payroll expense related to the additions of new stores.
----------
(1) This margin includes a $6.1 million loss on the sale of inventory in GOBs.
3
<PAGE>
H. INCOME TAXES. As of January 30, 1999, the Company had net operating losses of
approximately $46 million. As a result of the Restructuring, the Company may
recognize cancellation of indebtedness income and/or a change of control as
defined by Section 382 of the Internal Revenue Code, each of which may limit or
reduce the amount of NOLs that the Company can utilize. As a result, the
Projections assume that the Company cannot offset taxable income with existing
NOLs. The Projections therefore assume a 40% tax rate.
i. CAPITAL EXPENDITURES. Major projected capital expenditures are as follows:
o The Company will invest $1.75 million in warehouse facilities improvements
in 2000.
o In order to decrease transaction times and keep pace with competition, the
Company plans to invest $2.0 million in both 2000 and 2001 in order to
purchase technologically up-to-date cash registers.
o The Company will invest approximately $2.0 million in 2001 in a system
("Comtec") that will allow more efficient processing of markdowns.
o The Company is investing approximately $500,000 in 2000 on a loss
prevention tagging system in order to consolidate the current two systems
into one.
o The Company will invest $1.5 million in new warehouse software and
hardware systems in 2001 to enhance efficiency.
o The Company plans to invest approximately $250,000 in 2001 on an
up-to-date accounts payable system.
o The Company will incur capital expenditures of $750,000 per new store.
Store maintenance capital expenditures are expected to be approximately
$4.0 million per year.
o Corporate MIS and warehouse maintenance expenses are each expected to be
$500,000 per year.
J. EBITDA. EBITDA is defined for purposes of the Projections as earnings before
interest expense, income tax provision, depreciation and amortization, and
reorganization expense.
K. NEW SECURED CREDIT FACILITY. Reorganized Loehmann's is assumed to enter into
a new revolving credit and term loan facility (the "New Secured Credit
Facility"). The Projections make certain assumptions regarding the terms of the
credit facility including, among other things, the interest rates and
amortization requirements thereunder. While these assumptions may be different
from the terms of the final agreement, any differences will not have a material
impact on the overall liquidity of Reorganized Loehmann's.
L. NEW SENIOR NOTES. Loehmann's Holdings is assumed to issue $25 million in 11%
senior unsecured New Senior Notes (the "New Senior Notes") to Class 5 creditors
as of the Effective Date in accordance with the Plan. The New Senior Notes will
be an obligation of the holding company and will therefore be subordinated to
the obligations of the operating company, including the New Secured Credit
Facility and accounts payable. The semi-annual coupon will be paid either in
cash or in kind, depending on whether the operating company is able to make a
cash dividend payment to the holding company.
4
<PAGE>
L. FRESH START ACCOUNTING. The Projections have been prepared using the basic
principles of "fresh start" accounting for periods after October 1, 2000. These
principles are contained in the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." Under "fresh start" accounting
principles, Loehmann's will determine the reorganization value of the
reorganized company at the Effective Date. This value will be allocated, based
on estimated fair market values, to specific tangible or identifiable intangible
assets, and Loehmann's will record an intangible asset equal to the
reorganization value in excess of amounts allocable to identifiable assets. The
Projections assume that the reorganization value in excess of amounts allocable
to identifiable assets will be amortized over the twenty-five years following
the Effective Date. For the purposes of this presentation, book values have been
assumed to equal fair values except for specific items in which quantifiable
data is currently available. Loehmann's is in the process of evaluating further
how the reorganization value will be allocated to its various assets. It is
likely that the final allocation, and therefore the amount of reorganization
value in excess of book, the amortization of reorganization value in excess of
book as well as depreciation and amortization expense, will differ from the
amounts presented herein.
M. REORGANIZATION VALUE. For purposes of this Disclosure Statement and in order
to prepare the Projections, management has estimated the reorganization value of
Reorganized Loehmann's as of October 1, 2000 to be approximately $105 million,
which represents the mid-point of the valuation range. See above, entitled
"Valuation."
N. WORKING CAPITAL. Accounts receivable are primarily third party credit card
sales, which are assumed to be received approximately 2 days after the
customer's purchase, consistent with current experience.
Inventory turns are projected to increase from 4.0 times in 1999 to 4.5 times
from 2000 forward. This increase in turn is based on implementation of the
Company's initiative to better manage inventory flows throughout the season.
This will result in part from negotiating more timely receipt of goods from
vendors and in part from managing the sell-through of merchandise with a
disciplined markdown schedule.
In addition, the Company plans to maintain its reserve inventory below
historical levels, but to increase opportunistic buying throughout the selling
season.
Accounts payable are projected to gradually return to pre-petition levels of 30
days' receipts outstanding after the Company's assumed emergence from
bankruptcy. After filing, payables fell to approximately 14 days' receipts
outstanding. Payables are expected to increase over the course of fiscal 2001,
and then remain at 30 days' receipts outstanding after January 2002.
Accrued expenses are projected to remain in the range of approximately $11-12
million throughout the projection period, based on the level of historical
accrued expenses as a percent of SG&A.
III) SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information, statements contained in this Disclosure
Statement and incorporated by reference, including the projections in this
section, may be considered "forward-looking statements" within the meaning of
federal securities law. Such forward-looking
5
<PAGE>
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, general economic and business conditions, the
competitive environment in which Loehmann's operates and will operate, the
success or failure of Loehmann's in implementing its current business and
operational strategies, the level of vendor trade support, the availability,
location and terms of sites for store development, labor relations and labor
costs, the ability of Loehmann's to maintain and improve its revenues and
margins, the liquidity of Loehmann's on a cash flow basis (including the ability
to comply with the financial covenants of its credit arrangements and to fund
Loehmann's capital expenditure program). For additional information about
Loehmann's and relevant risk factors, see Section X, Certain Risk Factors To Be
Considered.
IV) FINANCIAL PROJECTIONS
The financial projections prepared by management are summarized in the following
tables. Specifically, the attached tables include:
a. Pro-forma Reorganized Loehmann's balance sheet at October 1, 2000,
including all reorganization and fresh-start adjustments.
b. Projected balance sheets for fiscal years 2000, 2001, 2002, 2003 and
2004.
c. Projected income statements for fiscal years 2000, 2001, 2002, 2003
and 2004.
d. Projected statements of cash flow for fiscal years 2000, 2001, 2002,
2003 and 2004.
All captions in the attached projections do not correspond exactly to Loehmann's
historical external reporting; some captions have been combined for presentation
purposes.
6
<PAGE>
LOEHMANN'S
PRO-FORMA REORGANIZED BALANCE SHEET
OCTOBER 1, 2000
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ESTIMATED POR/ FRESH START RESTATED
ASSETS OCTOBER 1, 2000 ADJUSTMENTS OCTOBER 1, 2000
--------------- ---------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash $1,546 $1,546
Accounts receivable 2,982 2,982
Inventories 57,893 57,893
Prepaid expenses and other current assets 2,516 2,516
-------- --------
64,936 64,936
Property, Plant & Equipment 50,721 50,721
Deferred Financing Fees 35 1,091 1,125
Reorganization value in excess of book, net - 12,479 12,479
Goodwill, net 36,049 (36,049) -
Other Assets 591 591
-------- -------- --------
Total Assets $152,331 $(22,480) $129,851
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade Accounts Payable $12,767 $12,767
Accrued Expenses 11,735 (2,474) 9,262
Accrued Interest Expense 128 (128) -
Current Portion of LT Debt - -
Total Current Liabilities 24,631 (2,604) 22,029
Noncurrent liabilities:
DIP Facility 17,596 (17,596) -
New Secured Credit Facility - 28,414 (a) 28,414
New Senior Notes - 25,000 25,000
Liabilities subject to compromise 146,125 (146,125)(b) -
Deferred Rent 4,409 4,409
Total Liabilities 192,761 (112,910) 79,851
Common stock 232 49,768 (c) 50,000
Additional Paid in Capital 81,761 (81,761) -
Retained earnings (deficit) (122,423) 122,423 -
-------- -------- --------
Total Stockholders Equity (deficit) (40,430) 90,430 50,000
-------- -------- --------
Total Liabilities and Stockholders' Equity $152,331 $(22,480) $129,851
======== ======== ========
</TABLE>
7
<PAGE>
NOTES TO PRO-FORMA REORGANIZED BALANCE SHEET
(a) Anticipated borrowings under the New Secured Credit Facility needed
to pay certain administrative claims and prepetition liabilities
consistent with the treatment of these liabilities in the Plan.
(b) The Plan provides for, among other things, a deleveraging of
Loehmann's through an exchange of all of the general unsecured
claims for $25 million in New Senior Notes and 3,333,333 shares of
New Common Stock. This amount represents primarily the forgiveness
of such obligations.
(c) Loehmann's proposes to account for the reorganization and the
related transactions using the principles of "fresh start"
accounting as required by Statement of Position 90-7 ("SOP 90-7")
issued by the American Institute of Certified Public Accountants
(the "AICPA"). The company has estimated a range of reorganization
value, between $90 million and $120 million. For purposes of
determining reorganization value, Loehmann's used the midpoint of
that range, $105 million, $50 million of which value is attributable
to shareholders' equity. In accordance with SOP 90-7, the
reorganization value has been allocated to specific tangible and
identifiable intangible assets and liabilities. The unallocated
portion of the reorganization value is classified as Reorganization
Value in Excess of Book and is amortized over twenty-five years. For
the purposes of this presentation, book values have been assumed to
equal fair values except for specific items in which quantifiable
data is currently available. Loehmann's is currently performing
independent appraisals of various assets, including certain of its
fixed assets and leased facilities, which is expected to lead to
additional pro forma adjustments to book values and result in a
different Reorganization Value in Excess of Book as of the Effective
Date. The amount of shareholders' equity in the fresh start balance
sheet is not an estimate of the trading value of the New Common
Stock after confirmation of the Plan, which value is subject to many
uncertainties and cannot be reasonably estimated at this time.
Loehmann's does not make any representation as to the trading value
of shares to be issued pursuant to the Plan.
8
<PAGE>
REORGANIZED LOEHMANN'S
PROJECTED BALANCE SHEETS
FISCAL YEARS 2000 THROUGH 2004
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL PROJECTED AS OF FISCAL YEAR ENDING
------------ ----------------------------------------------------------------------
ASSETS JANUARY 2000 JANUARY 2001 JANUARY 2002 JANUARY 2003 JANUARY 2004 JANUARY 2005
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash $1,229 $1,987 $12,445 $19,436 $28,693 $39,485
Accounts Receivable 2,020 2,054 2,204 2,353 2,505 2,643
Inventory 46,674 45,745 46,562 50,014 53,124 56,007
Prepaid expenses and other 1,368 2,679 2,260 2,378 2,505 2,627
-------- -------- -------- -------- -------- --------
Total Current Assets 51,291 52,465 63,471 74,182 86,826 100,763
Property, Plant & Equipment 56,019 52,540 54,992 50,837 47,034 43,271
Reorganization value, net - 12,312 11,813 11,314 10,815 10,316
Goodwill, net 36,924 - - - - -
Deferred Financing Fees 415 1,052 828 604 380 156
Other Assets 607 567 504 445 397 349
-------- -------- -------- -------- -------- --------
Total Assets $145,256 $118,936 $131,608 $137,382 $145,452 $154,854
======== ======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade Accounts Payable 6,530 9,457 17,890 19,033 20,192 21,217
Accrued Expenses 12,502 11,507 10,614 11,317 12,070 12,760
Accrued Interest Expense 57 924 779 779 779 779
Current Portion of LT Debt 391 3,000 3,000 3,000 3,000 30,067
-------- -------- -------- -------- -------- --------
Total Current Liabilities 19,480 24,888 32,283 34,129 36,041 64,824
======== ======== ======== ======== ======== ========
Noncurrent liabilities:
DIP Facility 9,120 - - - - -
New Secured Credit Facility - 11,000 8,000 5,000 2,000 -
New Senior Notes - 25,000 28,067 28,067 28,067 -
Liabilities Subject to Compromise 141,733 - - - - -
Deferred Rent & Other 3,776 4,669 5,269 5,689 5,989 5,989
-------- -------- -------- -------- -------- --------
Total Liabilities 174,109 65,557 73,619 72,885 72,097 70,813
Common stock 232 50,000 50,000 50,000 50,000 50,000
Additional Paid in Capital 81,761 - - - - -
Retained earnings (deficit) (110,846) 3,379 7,989 14,497 23,355 34,041
-------- -------- -------- -------- -------- --------
Total Stockholders Equity (deficit) (28,853) 53,379 57,989 64,497 73,355 84,041
-------- -------- -------- -------- -------- --------
Total Liabilities and Stockholders' Equity $145,256 $118,936 $131,608 $137,382 $145,452 $154,854
======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE>
REORGANIZED LOEHMANN'S
PROJECTED INCOME STATEMENTS
FISCAL YEARS 2000 THROUGH 2004
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-------------------------------------------------------------------------
JANUARY 2001 JANUARY 2002 JANUARY 2003 JANUARY 2004 JANUARY 2005
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $346,830 $356,000 $380,100 $404,600 $427,000
COST AND OPERATING EXPENSES
Cost of sales 229,228 234,079 249,396 265,192 279,598
Selling and administrative expenses 99,598 98,724 103,861 109,333 114,609
Depreciation and Amortization 10,201 10,521 11,378 11,027 10,986
-------- -------- -------- -------- --------
OPERATING (LOSS) INCOME 7,803 12,675 15,465 19,048 21,806
Reorganization Expense 51,437 - - - -
Interest expense 2,609 4,659 4,286 3,952 3,663
-------- -------- -------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES (46,244) 8,016 11,179 15,096 18,143
Provision for income taxes 103 3,406 4,671 6,238 7,457
-------- -------- -------- -------- --------
Net (Loss) Income (46,347) 4,610 6,508 8,858 10,686
======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
EBITDA 18,004 23,196 26,843 30,075 32,792
</TABLE>
10
<PAGE>
REORGANIZED LOEHMANN'S
STATEMENT OF CASH FLOWS
FISCAL YEARS 2000 THROUGH 2004
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
--------------------------------------------------------------------------------
JANUARY 2001 JANUARY 2002 JANUARY 2003 JANUARY 2004 JANUARY 2005
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(46,347) $4,610 $6,508 $8,858 $10,686
Adjustments to reconcile net (loss) income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 10,201 10,521 11,378 11,027 10,986
Change in working capital
accounts 1,516 6,991 (1,874) (1,476) (1,428)
Non-cash reorganization expenses 40,071 - - - -
PIK Interest Payments - 3,067 - - -
Other 1,800 518 479 348 48
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,241 25,707 16,491 18,757 20,292
INVESTING ACTIVITIES
Capital expenditures (9,249) (12,250) (6,500) (6,500) (6,500)
NET CASH USED IN INVESTING
ACTIVITES (9,249) (12,250) (6,500) (6,500) (6,500)
FINANCING ACTIVITIES
Change in DIP Facility (9,120) - - - -
Change in New Secured Credit Facility 14,000 (3,000) (3,000) (3,000) (3,000)
Other (2,114) - - - -
------------ ------------ ------------ ------------ ------------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES 2,766 (3,000) (3,000) (3,000) (3,000)
CHANGE IN CASH AND CASH EQUIVALENTS 758 10,458 6,991 9,257 10,792
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,229 1,987 12,445 19,436 28,693
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $1,987 $12,445 $19,436 $28,693 $39,485
============ ============ ============ ============ ============
</TABLE>
11
<PAGE>
EXHIBIT E
<PAGE>
LIQUIDATION ANALYSIS
The Bankruptcy Code requires that each holder of an impaired Claim or Equity
Interest either (a) accept the Plan or (b) receive or retain under the Plan
property of a value, as of the Effective Date, that is not less than the value
such holder would receive or retain if Loehmann's were liquidated under chapter
7 of the Bankruptcy Code on the Effective Date. The first step in meeting this
test is to determine the dollar amount that would be generated from the
liquidation of Loehmann's assets and properties in the context of a chapter 7
liquidation case. The gross amount of cash available would be the sum of the
proceeds from the disposition of Loehmann's assets and the cash held by
Loehmann's at the time of the commencement of the chapter 7 case. Such amount is
reduced by the amount of any Claims secured by such assets, the costs and
expenses of the liquidation, and such additional administrative expenses that
may result from the termination of Loehmann's business and the use of chapter 7
for the purposes of liquidation. Any remaining net cash would be allocated to
creditors and shareholders in strict priority in accordance with section 726 of
the Bankruptcy Code.
A general summary of the assumptions used by management in preparing the
liquidation analysis follows. The more specific assumptions are discussed below.
ESTIMATE OF NET PROCEEDS
Estimates were made of the cash proceeds which might be realized from the
liquidation of Loehmann's assets. The chapter 7 liquidation period is assumed to
commence on October 1, 2000 and to average six months following the appointment
of a chapter 7 trustee. While some assets may be liquidated in less than six
months, other assets may be more difficult to collect or sell, requiring a
liquidation period substantially longer than six months; this time would allow
for the collection of receivables, sale of assets and wind down of daily
operations. For certain assets, such as certain real property, estimates of the
liquidation proceeds were made for each asset individually. For other assets,
such as fixtures and equipment, liquidation values were assessed for general
classes of assets by estimating the percentage recoveries which Loehmann's might
achieve through their disposition.
ESTIMATE OF COSTS
Loehmann's costs of liquidation under chapter 7 would include the fees payable
to a chapter 7 trustee, as well as those which might be payable to attorneys and
other professionals that such a trustee may engage. Further, costs of
liquidation would include any obligations and unpaid expenses incurred by
Loehmann's during the chapter 11 case and allowed in the chapter 7 case, such as
trade obligations, compensation for attorneys, financial advisors, appraisers,
accountants and other professionals, and costs and expenses of members of any
statutory committee of unsecured creditors appointed by the United States
Trustee pursuant to section 1102 of the Bankruptcy Code and any other committee
so appointed. Moreover, additional claims would arise by reason of the breach or
rejection of obligations incurred and executory contracts or leases entered into
by Loehmann's both prior to, and during the pendency of, the chapter 11 case.
<PAGE>
DISTRIBUTION OF NET PROCEEDS UNDER ABSOLUTE PRIORITY
The foregoing types of claims, costs, expenses, fees and such other claims that
may arise in a liquidation case would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
pre-chapter 11 priority and unsecured claims. Under the absolute priority rule,
no junior creditor would receive any distribution until all senior creditors are
paid in full, and no equity holder would receive any distribution until all
creditors are paid in full. Loehmann's believes that in a Chapter 7 case,
holders of old common stock interests would receive no distributions of
property.
After consideration of the effects that a chapter 7 liquidation would have on
the ultimate proceeds available for distribution to creditors, including (i) the
increased costs and expenses of a liquidation under chapter 7 arising from fees
payable to a trustee in bankruptcy and professional advisors to such trustee,
(ii) the erosion in value of assets in a chapter 7 case in the context of the
expeditious liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail, and (iii) substantial increases in claims which
would be satisfied on a priority basis, LOEHMANN'S HAS DETERMINED, AS SUMMARIZED
ON THE FOLLOWING CHART, THAT CONFIRMATION OF THE PLAN WILL PROVIDE EACH CREDITOR
AND EQUITY HOLDER WITH A RECOVERY THAT IS NOT LESS THAN IT WOULD RECEIVE
PURSUANT TO A LIQUIDATION OF LOEHMANN'S UNDER CHAPTER 7 OF THE BANKRUPTCY CODE.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
SUMMARY OF RECOVERIES
---------------------
DESCRIPTION CLASS NO. UNDER THE PLAN CHAPTER 7
------------------------------------------- ---------------------- -------------- ----------------
<S> <C> <C> <C>
Secured Claims Classes 2 and 3 100% 100%
Convenience Claims Class 4 50% 10%
General Unsecured Claims Class 5 53% 10%
Equity Interests Class 6 0% 0%
----------------------------------------------------------------------------------------------------------------
</TABLE>
Moreover, Loehmann's believes that the value of any distributions from the
liquidation proceeds to each class of Allowed Claims in a chapter 7 case would
be the same or less than the value of distributions under the Plan because such
distributions in a chapter 7 case may not occur for a substantial period of
time. In this regard, it is possible that distribution of the proceeds of the
liquidation could be delayed for a year or more after the completion of such
liquidation in order to resolve the Claims and prepare for distributions. In the
event litigation were necessary to resolve Claims asserted in the chapter 7
case, the delay could be further prolonged and administrative expenses further
increased. The effects of this delay on the value of distributions under the
hypothetical liquidation has not been considered.
LOEHMANN'S LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT MAY BE
GENERATED AS A RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE ASSETS OF
LOEHMANN'S. Underlying the liquidation analysis are a number of estimates and
assumptions that are inherently subject to significant economic, competitive and
operational uncertainties and contingencies beyond the control of Loehmann's
2
<PAGE>
or a chapter 7 trustee. Additionally, various liquidation decisions upon which
certain assumptions are based are subject to change. Therefore, there can be no
assurance that the assumptions and estimates employed in determining the
liquidation values of Loehmann's assets will result in an accurate estimate of
the proceeds which would be realized were Loehmann's to undergo an actual
liquidation. The actual amounts of claims against the estate could vary
significantly from Loehmann's estimate, depending on the claims asserted during
the pendency of the chapter 7 case. This liquidation analysis does not include
liabilities that may arise as a result of litigation, certain new tax
assessments or other potential claims. This analysis also does not include
potential recoveries from avoidance actions. No value was assigned to additional
proceeds which might result from the sale of certain items with intangible
value. Therefore, the actual liquidation value of Loehmann's could vary
materially from the estimates provided herein.
The liquidation analysis set forth below was based on the estimated values of
Loehmann's assets immediately prior to the Effective Date. To the extent
operations through such date are different than estimated, the asset values may
change. These values have not been subject to any review, compilation or audit
by any independent accounting firm.
3
<PAGE>
LOEHMANN'S
LIQUIDATION ANALYSIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCT. 1, 2000
ESTIMATED
BALANCE ESTIMATED
(before fresh ESTIMATED LIQUIDATION
PROCEEDS FROM LIQUIDATION start) RECOVERY PROCEEDS
----------- ---------- -----------
<S> <C> <C> <C>
Cash & Equivalents $1,546 100% $1,546
Accounts receivable 2,982 95% 2,833
Merchandise Inventory 57,893 85% 49,209
LC Inventory 531 85% 452
Prepaid Expenses 2,516 0% -
Property, Plant & Equipment 50,721 41% 21,064
Other noncurrent assets
Deferred debt issuance costs 35 0% -
Deposits 591 75% 443
Goodwill 36,049 0% -
----------- ---------- -----------
Proceeds available for distribution $152,864 49% $75,547
=========== ========== ===========
<CAPTION>
ESTIMATED ESTIMATED %
ALLOCATIONS OF PROCEEDS CLAIM RECOVERY RECOVERY
----------- ---------- -----------
<S> <C> <C> <C>
SECURED CLAIMS
DIP Borrowings $17,724 $17,724 100%
Letters of credit 625 625 100%
Other secured debt - - -
----------- ---------- -----------
TOTAL SECURED CLAIMS 18,349 18,349 100%
=========== ========== ===========
Proceeds available for payment of administrative claims 57,198
ADMINISTRATIVE AND PRIORITY CLAIMS
Post-petition Trade Payables 12,767 12,767 100%
Post-petition Accrued Liabilities and Expenses 11,735 11,735 100%
Tax Claims 300 300 100%
Reclamation Claims 3,376 3,376 100%
Trustee & Professional Fees 4,266 4,266 100%
Ongoing G&A Expenses 5,000 5,000 100%
Severance 3,372 3,372 100%
Other Administrative and Priority Claims 500 500 100%
----------- ---------- -----------
Total Administrative and Priority Claims 41,317 41,317 100%
=========== ========== ===========
Proceeds available for payment of general unsecured claims 15,881
GENERAL UNSECURED CLAIMS
Senior notes & Accrued Interest 100,740 9,840 10%
Accounts Payable & Accrued Expenses 31,417 3,069 10%
Lease rejection claims 25,544 2,495 10%
Other / Misc 4,888 477 10%
----------- ---------- -----------
TOTAL GENERAL UNSECURED CLAIMS 162,590 15,881 10%
=========== ========== ===========
Proceeds available for distribution to equity $0
==========
</TABLE>
4
<PAGE>
FOOTNOTES TO LIQUIDATION ANALYSIS
CASH AND CASH EQUIVALENTS
Cash consists of all cash in banks or operating accounts, cash held at stores,
and liquid investments with maturities of three months or less and is assumed to
be fully recoverable.
ACCOUNTS AND NOTES RECEIVABLE
Accounts receivable primarily consist of credit card receivables.
INVENTORIES
Inventories are comprised of general merchandise, and inventories at stores and
warehouses. The overall inventory recovery considers, among other things,
reference to advance rates under Loehmann's postpetition financing facility, and
is net of costs incurred to liquidate the inventories. LC inventory is inventory
related to projected letters of credit outstanding as of 10/1/00, excluding
associated freight costs.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of miscellaneous
prepaid expenses such as rent, insurance, taxes, and deposits. Prepaid expenses
are assumed to have no estimated liquidation value.
PROPERTY PLANT AND EQUIPMENT
Property, Plant and Equipment includes owned land, buildings, fixtures and
equipment, and leasehold improvements.
|X| LAND AND BUILDINGS: The value of Land and Buildings was based upon
management's assessment of the value of each property considering both
recent appraisals and the effects of the chapter 7 environment.
|X| FIXTURES AND EQUIPMENT: Fixtures and Equipment include warehouse
equipment, office fixtures, and store equipment. The value of fixtures and
equipment was based upon management's review of these assets, and after
considering both results achieved in prior liquidations of Loehmann's
Stores and recent appraisals.
|X| LEASEHOLD IMPROVEMENTS: No separate value has been ascribed in
liquidation to leasehold improvements as the value of these improvements
will either revert to the purchaser or lessor upon the sale or rejection
of the leases.
PROPERTY HELD UNDER LEASE
To determine the estimated recovery from the liquidation of property held under
lease, management relied upon recent appraisals. For the purpose of the
liquidation analysis, both base term (excluding common area maintenance and
taxes) and lease options, if appropriate, were included in the calculation of
the beneficial lease value.
5
<PAGE>
OTHER NON-CURRENT ASSETS
Other non-current assets consists of Deferred Financing Fees, Goodwill, and
Deposits. Deferred Financing Fees and Goodwill are assumed to have no value in a
liquidation.
CREDIT AGREEMENT
The facility evidenced by the DIP Financing Agreement is secured by
substantially all of the assets of Loehmann's.
BANK LETTERS OF CREDIT
For the purposes of this analysis, management has assumed that all trade letters
of credit are fully drawn by the holders of the letters of credit. The
corresponding inventory has been included as an asset of the company in the
liquidation analysis.
TRUSTEE AND PROFESSIONAL FEES
Based on management's review of the nature of these costs and the outcomes of
similar liquidations, fees were estimated at $4.3 million. This figure is
comprised of $2.3 million in trustee fees (3.0% of gross liquidation proceeds)
and $2.0 million in professional fees.
ONGOING G&A EXPENSES
Ongoing G&A expenses consist of corporate overhead to be incurred during the
chapter 7 liquidation period plus occupancy costs to be incurred subsequent to
the liquidation of the stores. Management assumes that the liquidation would
occur over a six-month period and that such expenses, costs and overhead would
decrease over time.
SEVERANCE
Severance is estimated based on the Company's existing severance programs.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts Payable and Accrued Expenses primarily represents trade credit provided
by Loehmann's trade vendors during the chapter 11 period pursuant to an order of
the Bankruptcy Court, plus various other expense payables.
LEASE REJECTION CLAIMS
Lease rejection claims comprise claims resulting from Loehmann's rejection of
unexpired leases. In accordance with section 502(b)(6) of the Bankruptcy Code,
each lease rejection claim was calculated as the greater of one year, or 15%,
not to exceed three years, of the remaining term of each lease. The total
includes additional claims arising out of the rejection of estimated unexpired
leases in an asset liquidation.
6
<PAGE>
EXHIBIT F
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 29, 2000
Commission File Number 0-28410
LOEHMANN'S, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
--------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 409-2000
--------------
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of Registrant's Common Stock and Class B Common
Stock, as of June 1, 2000; 9,053,967 and 26,087, respectively.
<PAGE>
Loehmann's, Inc.
Contents
Part I--Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets--April 29, 2000 and January 29, 2000........................... 1
Statements of Operations--Three months ended
April 29, 2000 and May 1, 1999.............................................. 2
Statements of Cash Flows--Three months ended
April 29, 2000 and May 1, 1999.............................................. 3
Notes to Financial Statements................................................. 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................. 6
Part II--Other Information
Item 3. Defaults Upon Senior Securities....................................... 9
Item 5. Other Information..................................................... 9
Item 6. Exhibits and Reports on Form 8-K...................................... 9
Signature.....................................................................10
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Balance Sheets
<TABLE>
<CAPTION>
April 29, January 29,
2000 2000
---------------------------------
Unaudited
(In thousands, except
share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,958 $ 1,229
Accounts receivable and other assets 4,728 3,388
Merchandise inventory 52,472 46,674
---------------------------------
Total current assets 59,158 51,291
Property, equipment and leaseholds,net 50,086 56,019
Deferred debt issuance costs and other assets, net 956 1,021
Purchase price in excess of net assets acquired, net 36,599 36,923
---------------------------------
Total assets $ 146,799 $ 145,254
=================================
Liabilities and common stockholders' deficit
Current liabilities:
DIP credit agreement $ 12,765 $ 9,120
Accounts payable 8,692 6,530
Accrued expenses 13,978 12,495
Accrued interest 18 57
Current portion of long-term debt 381 391
---------------------------------
Total current liabilities 35,834 28,593
Liabilities subject to compromise 146,011 141,733
Other noncurrent liabilities 3,384 3,776
Common stockholders' deficit:
Common stock, $0.01 par value, 25,000,000 shares authorized; 9,053,967 shares
issued and outstanding at April 29, 2000 and January 29, 2000 90 90
Class B convertible common stock, 469,237 shares authorized; 26,087 shares
issued and outstanding at April 29, 2000 and January 29, 2000 142 142
Additional paid-in capital 81,760 81,760
Accumulated deficit (120,422) (110,840)
---------------------------------
Total common stockholders' deficit (38,430) (28,848)
---------------------------------
Total liabilities and common stockholders' deficit $ 146,799 $ 145,254
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
April 29, May 1,
2000 1999
----------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net sales $ 92,221 $ 108,231
Cost of sales 62,665 73,679
----------------------------------------------------------
Gross profit 29,556 34,552
Selling, general and administrative expenses 27,180 31,543
Depreciation and amortization 2,673 3,190
----------------------------------------------------------
Operating loss (297) (181)
Interest expense, net 423 3,660
----------------------------------------------------------
Loss before reorganization costs and
income taxes (720) (3,841)
Reorganization costs 8,812 -
----------------------------------------------------------
Loss before income taxes (9,532) (3,841)
Provision for income taxes 50 38
----------------------------------------------------------
Net loss applicable to common stock $ (9,582) (3,879)
==========================================================
Loss per share: Basic and diluted: $ (1.06) $ (0.43)
==========================================================
Weighted average number of common shares outstanding 9,079 9,079
Weighted average number of common shares and common share
equivalents outstanding 9,079 9,079
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
April 29, May 1,
2000 1999
----------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows (used in) provided by operating activities
Net loss $ (9,582) $ (3,879)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Reorganization expenses 8,204 -
Depreciation and amortization 2,673 3,190
Changes in current assets and liabilities:
Accounts receivable and other assets (1,340) (2,034)
Merchandise inventory (5,798) (14,127)
Accounts payable 2,024 14,663
Accrued expenses 1,569 1,772
Accrued interest (49) 2,827
----------------------------------------------------------
Net changes in current assets and liabilities: (3,594) 3,101
Net change in other noncurrent assets and liabilities (392) 65
----------------------------------------------------------
Total adjustments, net 6,891 6,356
----------------------------------------------------------
Net cash (used in) provided by operating activities (2,691) 2,477
----------------------------------------------------------
Cash flows used in investing activities
Capital expenditures (225) (1,628)
----------------------------------------------------------
Net cash used in investing activities (225) (1,628)
----------------------------------------------------------
Cash flows provided by (used in) financing activities
Borrowings (repayments) under credit facility, net 3,645 (85)
Other financing activities, net - (7)
----------------------------------------------------------
Net cash provided by (used in) financing activities 3,645 (92)
----------------------------------------------------------
Net increase in cash and cash equivalents 729 757
Cash and cash equivalents at beginning of period 1,229 1,325
----------------------------------------------------------
Cash and cash equivalents at end of period $ 1,958 $ 2,082
==========================================================
Supplemental disclosure of cash flow information
Cash interest paid during period $ 423 $ 796
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
On May 18, 1999 (the "Petition Date") the Company filed a petition for relief
under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Since the Petition Date, the Company has continued to operate as a
debtor-in-possession under the Bankruptcy Code.
On March 24, 2000, with the support of the Creditor's Committee, the Company
filed a Disclosure Statement (the "Disclosure Statement") and a Plan of
Reorganization (the "Plan of Reorganization") with the Bankruptcy Court. On
April 24, 2000, the Bankruptcy Court approved the Disclosure Statement related
to the Plan of Reorganization and scheduled a plan confirmation hearing for June
27, 2000. On May 24, 2000 solicitation packages were mailed to creditors and
other related parties.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. As a result
of the chapter 11 proceedings and circumstances relating to this event,
including the Company's debt structure and its recurring losses, such
realization of assets and liquidation of liabilities are subject to uncertainty.
In the chapter 11 proceedings, substantially all liabilities as of the Petition
Date are subject to compromise or other treatment under a plan of
reorganization. For financial reporting purposes, those liabilities and
obligations whose disposition is dependent on the outcome of the chapter 11
proceedings have been segregated and classified as liabilities subject to
compromise in the balance sheets. Generally, actions to enforce or otherwise
effect repayment of all pre-chapter 11 liabilities as well as all pending
litigation against the Company are stayed while the Company continues its
business operations as a debtor-in-possession. Schedules have been filed by the
Company with the Court setting forth the assets and liabilities of the Company
as of the Petition Date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims filed by
creditors are currently being investigated and either amicably resolved or
adjudicated. The ultimate amount of and settlement terms for such are not
presently determinable.
Financial accounting and reporting during a chapter 11 case is prescribed in
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly,
pre-petition liabilities, which may be subject to settlement, have been
classified as liabilities subject to compromise in the accompanying balance
sheet at April 29, 2000. SOP 90-7 also requires that the Company record all
transactions incurred as a result of the chapter 11 filing separately as
reorganization items on the statement of operations for the three month period
ended April 29, 2000.
The Company is operating its business during the reorganization process and has
a $75 million debtor-in-possession financing facility (the "DIP Facility"). The
Company believes that the DIP Facility will allow it to meet its merchandise
inventory and normal operating expense needs, as well as presently anticipated
capital expenditure requirements, for the remainder of the fiscal year.
4
<PAGE>
The accompanying financial statements do not reflect any adjustment to the
carrying value of assets or liabilities that may result from the Plan of
Reorganization as discussed above.
The balance sheet at April 29, 2000 and the statements of operations and cash
flows for the quarter ended April 29, 2000 include, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain information and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter ended April 29, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ended February 3, 2001. It is suggested that these unaudited financial
statements be read in conjunction with the financial statements and notes for
the fiscal year ended January 29, 2000 included in the Company's Annual Report
on Form 10-K for such year.
2. Liabilities Subject to Compromise and Reorganization Items
Liabilities subject to compromise in the accompanying balance sheet includes the
following amounts at April 29, 2000:
11 7/8% senior notes $ 95,000
Accounts payable 31,867
Accrued lease rejection claims 8,872
Accrued interest on senior notes 5,672
Other liabilities 4,600
----------
Total liabilities subject to compromise $ 146,011
==========
SOP 90-7 requires that the Company record all transactions incurred as a result
of the chapter 11 filing separately as reorganization items. Accordingly,
reorganization items included in the statements of operations include the
following for the three month period ended April 29, 2000:
Asset write offs at closed stores $ 4,022
Accrued lease rejection claims 4,182
Proceeds from sales of leases (1,200)
Professional fees 900
Other liabilities 908
----------
Total reorganization costs $ 8,812
==========
5
<PAGE>
3. Charge for Store Closings
During the first quarter of fiscal 2000, the Company implemented a plan to close
eleven underperforming stores and, as a result, recorded a $7.2 million charge.
These closures are intended to improve the Company's future profitability and
liquidity.
The store closures were completed by the end of May 2000. Net sales and
operating income (loss), including certain specifically allocated charges, for
these stores were $3.8 million and $(0.5) million for the three months ended
April 29, 2000 and $8.2 million and $0.3 million for the same period in the
prior year.
The charge for store closings consisted of write-offs of property, plant and
equipment, costs associated with net lease rejection claims and other expenses
of $4.0 million, $3.0 million and $0.2 million, respectively.
4. Income Taxes
The provision for income taxes primarily represents alternative minimum tax and
state and local taxes for states that do not allow net operating loss
carryforwards.
5. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts could differ
from the estimates.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reorganization
On May 18, 1999 the Company filed a petition for relief under chapter 11 of the
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). Since the Petition Date,
the Company has continued to operate as a debtor-in-possession under the
Bankruptcy Code.
The Company's management has developed a reorganization plan and evaluated its
operations. On March 24, 2000, with the support of the Creditor's Committee, the
Company filed a Disclosure Statement (the "Disclosure Statement") and a Plan of
Reorganization (the "Plan of Reorganization") with the Bankruptcy Court. On
April 24, 2000, the Bankruptcy Court approved the Disclosure Statement related
to the Plan of Reorganization and scheduled a plan confirmation hearing for June
27, 2000. On May 24, 2000 solicitation packages were mailed to creditors and
other related parties. Until a
6
<PAGE>
reorganization plan is confirmed by the Bankruptcy Court, payments of
pre-petition liabilities are limited to those approved by the Bankruptcy Court.
The Plan of Reorganization as filed with the Bankruptcy Court on March 24, 2000,
and as amended on April 24, 2000 provides that holders of Common Stock and
holders of options to purchase Common Stock shall not be entitled to, and shall
not, receive any property or interest in property on account of their shares of
Common Stock and options to purchase Common Stock. If the Plan of Reorganization
is approved, the Company's unsecured creditors will receive all of the Company's
Common Stock.
As a result of the chapter 11 filing, the Company has defaulted on certain
indebtedness. See "Part II - Item 3 - Defaults Upon Senior Securities."
In its chapter 11 case, the Company may sell assets and settle liabilities for
amounts other than those reflected in the financial statements. The
administrative and reorganization expense resulting from the chapter 11 filing
will unfavorably affect results. Moreover, future results may be adversely
affected by other claims and factors resulting from the chapter 11 filing.
Results of Operations - Comparison of the Quarters Ended April 29, 2000 and May
1, 1999
Net sales for the thirteen week period ended April 29, 2000, were $92.2 million
as compared to $108.2 million for the comparable period in the prior year, a
decrease of approximately $16.0 million or 14.8%. Comparable store sales (sales
at stores that were in operation for both periods) increased by 1.0%. The
overall sales decline is attributable to the impact of the fourteen stores
closed in July 1999 which generated $11 million, and the eleven stores closed in
March 2000 which generated an additional $5.0 million for the quarter ended May
1, 1999.
Gross profit for the thirteen week period ended April 29, 2000, was $29.6
million as compared to $34.6 million for the same period in the prior year.
Gross margin percentage increased to 32.0% from 31.9% in the prior year period.
The gross profit margin was impacted by an accrual of $1.3 million for the
planned liquidation of inventory at the eleven closed stores. Gross profit from
ongoing operations was $30.9 million or 33.5% as a percentage of net sales. The
increase in gross margin percentage from ongoing operations was due primarily to
an increase in the initial markup.
Selling, general and administrative expenses for the thirteen week period ended
April 29, 2000, were $27.2 million as compared to $31.5 million during the same
period in the prior year, a decrease of $4.3 million, or 13.7%. The decrease was
due primarily to the closing of fourteen stores in July 1999 and the eleven
stores closed in March of 2000.
Depreciation and amortization expense for the thirteen week period ended April
29, 2000, was $2.7 million as compared to $3.2 million for the same period in
the prior year.
The Company has provided for a charge in the amount of $7.2 million for the
closing of eleven stores. This charge consists of the write-off of property,
plant and equipment, closing expenses and costs associated with lease rejection
claims of $4.0 million, $0.2 million and $4.2 million, respectively.
7
<PAGE>
These charges were offset by the estimated proceeds from the sales of leases of
$1.2 million. The Company also incurred $1.6 million of other reorganization
costs including $0.9 million for professional fees and $0.7 million for
severance costs.
Net interest expense for the thirteen week period ended April 29, 2000 was $0.4
million as compared to $3.7 million for the same period in the prior year, a
decrease of approximately $3.3 million or 89.2%. Interest expense has not been
accrued on the 11 7/8% senior notes since the chapter 11 filing on May 18, 1999.
(see "Liquidity and Capital Resources"). In the quarter ended May 1, 1999,
interest expense for the 11 7/8% notes was $2.8 million.
Liquidity and Capital Resources
As previously mentioned, the Company has a DIP Facility which provides for a
revolving line of credit and a letter of credit facility aggregating $75.0
million. The DIP Facility expires on the earlier of (a) the second anniversary
of the DIP Facility, (b) the effective date of a plan of reorganization for the
Company, or (c) acceleration following the occurrence of an event of default.
The availability of the revolving line of credit and letters of credit under the
DIP Facility is subject to certain inventory-related borrowing base
requirements. The indebtedness under the DIP Facility bears interest at variable
rates based on LIBOR plus 2.25% or the prime rate plus 0.5%. The DIP Facility
contains certain customary covenants (including limitations on indebtedness,
liens and restricted payments) but does not contain any financial covenants. The
DIP Facility is secured by substantially all of the Company's assets. As of May
27, 2000, the Company had borrowings of $4.9 million and letters of credit of
$2.5 million outstanding under the DIP Facility, with $28.0 million of remaining
availability for borrowings under the DIP Facility. The Company intends to use
the DIP Facility during the pendency of the chapter 11 case to finance its
working capital and capital expenditure requirements.
Cash used in operations for the three months ended April 29, 2000, was $2.7
million. Borrowings under the DIP Facility were $3.6 million.
As previously noted, the Company is currently operating its business as a
debtor-in-possession under chapter 11 of the Bankruptcy Code. Continuation of
the Company as a going concern is contingent upon, among other things,
confirmation by the Bankruptcy Court of a reorganization plan, the Company's
ability to return to profitability and generate sufficient cash from operations.
The Company believes that cash generated from operations and funds available
under the DIP Facility will be sufficient to satisfy its cash requirements
through fiscal 2000.
8
<PAGE>
Part II. Other Information
Item 3. Defaults Upon Senior Securities.
As previously disclosed, as a result of the chapter 11 filing, the Company did
not make the interest payment on its 11-7/8% Senior Notes due 2003, which
payment was due on May 17, 1999. As of the Petition Date, $100.6 million in
unpaid principal and interest of such notes was outstanding. Since the notes are
an unsecured obligation, the Company is not required to pay interest during its
chapter 11 case.
Item 5. Other Information
Other Information
This Quarterly Report on Form 10-Q and, in particular, Management's Discussion
and Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the Securities Exchange Act of 1934. The
Company's actual results of operations and future financial condition may differ
materially from those expressed or implied in any such forward-looking
statements as a result of many factors, including factors that may be beyond the
Company's control. The Company is currently operating its business as
debtor-in-possession under chapter 11 of the Bankruptcy Code. Continuation of
the Company as a going concern is contingent upon its ability to comply with its
debtor-in-possession financing facility, the Company's ability to generate
sufficient cash from operations and its ability to obtain financing sources to
meet its future obligations. Other factors that may cause actual results of
operations and future financial condition to differ from those expressed or
implied in any forward-looking statements contained herein include adverse
changes in relationships with key factors and vendors, changes in consumer
preferences, competition from existing and potential competitors and general
economic conditions.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements contained herein or that may be made from time to time by or on
behalf of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended April 29, 2000.
9
<PAGE>
Loehmann's, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 13, 2000
Loehmann's, Inc.
By: /s/ Robert Glass
----------------
Robert Glass
President, Chief Operating Officer and Director
10
<PAGE>
EXHIBIT G
<PAGE>
RECOVERY ANALYSIS
The recovery calculations detailed below assume, among other things,
that distributions to the holders of Claims are as detailed in the Plan.
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION
VALUES AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC
OR PRIVATE MARKETS. SUCH TRADING VALUES COULD BE MATERIALLY DIFFERENT FROM THE
VALUES ASSOCIATED WITH THIS RECOVERY ANALYSIS.
<TABLE>
<CAPTION>
Derivation of New Common Stock
(IN THOUSANDS; EXCEPT PER SHARE VALUES)
<S> <C>
Midpoint Enterprise Value................. $105,000
Less: Long-Term Indebtedness.............. $30,000
New Senior Notes.................... $25,000
Midpoint Equity Value..................... $50,000
Shares of New Common Stock................ 3,333 shares
Price per Share of New Common Stock....... $15.00
Recovery to Class 5 General Unsecured Claims
(IN THOUSANDS; EXCEPT PER SHARE VALUES)
New Common Stock Distributed to Class 5.... 3,333 shares
Price per Share of New Common Stock........ $15.00
Value of New Common Stock Distributed to Class 5 $50,000
New Senior Notes Distributed to Class 5.... $25,000
Total Value of Distribution to Class 5..... $75,000
Estimated Claims in Class 5................ $140,900
Estimated Recovery Rate to Class 5......... 53%
</TABLE>
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOEHMANN'S INC. ) Case No.l 99-1138 (MFW)
)
Debtor, )
NOTICE OF HEARING TO CONSIDER
CONFIRMATION OF DEBTOR'S SECOND AMENDED
PLAN OF REORGANIZATION AS MODIFIED ON JULY 28, 2000
---------------------------------------------------
NOTICE IS HEREBY GIVEN as follows:
On May 18, 1999 (the "Petition Date"), Loehmann's, Inc., with a mailing
address of 2500 Halsey Street, Bronx, New York 10461, the above-captioned
debtor and debtor in possession (the "Debtor"), filed a voluntary petition
for relief under chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the District of Delaware. On July 12, 2000 the Debtor
filed a motion requesting entry of an order (i) approving the Debtor's second
amended disclosure statement (as modified on July 28, 2000, the "Disclosure
Statement") in connection with the Debtor's second amended plan of
reorganization (as modified on July 28, 2000, the "Disclosure Statement") in
connection with the Debtor's second amended plan of reorganization (as
modified on July 28, 2000, the "Plan"), (ii) establishing solicitation,
voting and tabulation procedures and deadlines, (iii) scheduling a hearing to
consider confirmation of the Plan, (iv) establishing deadlines and procedures
for filing objections to confirmation of the Plan, and (v) approving the form
and manner of notice of the confirmation hearing.
Hearing On
Confirmation of the Plan
------------------------
1. A hearing to consider confirmation of the Plan and any objections
thereto (the "Confirmation Hearing"), has been set by the United States
Bankruptcy Court for the District of Delaware for 10:30 a.m., Wilmington,
Delaware time, on September 6, 2000 at the United States Bankruptcy Court for
the District of Delaware, Marine Midland Plaza, 824 Market Street, Wilmington,
Delaware 19801 (the "Court") before the Honorable Mary F. Walrath, at which time
any party in interest who has not waived its right to object may appear and
state its objections, if any, to confirmation of the Plan. No further notice
shall be provided to creditors or interest holders of any adjournment of the
Confirmation Hearing announced in open court at the Confirmation Hearing or at
any subsequent Confirmation Hearing.
2. Any objection to confirmation of the Plan must (a) be in writing, (b)
comply with the Federal Rules of Bankruptcy Procedure and General Orders of the
Court, (c) set forth the name of the objector, and the nature and amount of any
claim or interest asserted by the objector against the estate or properties of
the Debtor, (d) state with particularity the legal and factual basis for such
objection, and (e) be filed with the Clerk of the United States Bankruptcy Court
for the District of Delaware (including a copy for Chambers of the Honorable
Mary F. Walrath), together with proof of service thereof, and served upon (1)
Young Conaway Stargatt and Taylor, LLP, 11th Floor, Rodney Square North, P.O.
Box 391, Wilmington, Delaware 19899-0391, Attn: Pauline K. Morgan, Esq., and
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
New York 10019-6064, Attn: Alan W. Kornberg, Esq., counsel for the Debtor; (2)
Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New
York 10036-7798, Attn: Lawrence C. Gottlieb, Esq., and Morris, Nichols, Arsht &
Tunnell, 1201 N. Market Street, P.O. Box 1347, Wilmington, Delaware 19899-1347,
Attn: Robert Dehney, Esq., Counsel for the official committee of
<PAGE>
unsecured creditors; (3) Andrews & Kurth, L.L.P., 805 Third Ave., New York,
New York 10022, Attn: Paul N. Silverstein, Esq., counsel for the informal
noteholders committee; and (4) the Office of the United States Trustee, 601
Walnut Street, Room 950W, Philadelphia, Pennsylvania 19106, Attn: Patricia
Staiano, Esq., in each case so as to be actually filed and received no later
than August 30, 2000 at 4:00 p.m., Wilmington, Delaware time.
UNLESS AN OBJECTION IS TIMELY SERVED AND FILED
IN ACCORDANCE WITH THIS NOTICE IT WILL
NOT BE CONSIDERED BY THE COURT
Dated: July 28, 2000
YOUNG CONAWAY STARGATT & TAYLOR, LLP
James L. Patton, Jr. (No. 2202)
Pauline Morgan (No, 3650)
Eleventh Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
-and-
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
Alan W. Kornberg
Jeffrey D. Saferstein
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
Attorneys for Loehmann's, Inc., debtor and
debtor in possession
2
<PAGE>
OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF
LOEHMANN'S, INC.
c/o Kronish Lieb Weiner & Hellman LLP
114 Avenue of the Americas
New York, New York 10036
212-479-6000
August 1, 2000
To the Creditors of Loehmann's, Inc.
Bronx, New York
Dear Creditor:
Loehmann's, Inc. ("Loehmann's") filed its chapter 11 petition in the United
States Bankruptcy Court for the District of Delaware on May 18, 1999.
Thereafter, the United States Trustee appointed the Official Committee of
Unsecured Creditors (the "Committee") whose members are listed below. The
Committee selected as its counsel, Kronish Lieb Weiner & Hellman LLP and Morris,
Nichols, Arsht & Tunnell as local counsel and as its financial advisors, Mahoney
Cohen & Company, CPA, P.C.
Throughout the case, the Committee has been active and has reviewed
Loehmann's financial and legal history. It has also carefully monitored
Loehmann's operations during the chapter 11 proceedings.
For quite some time, the Committee and Loehmann's have jointly explored the
appropriate manner for a successful exit from chapter 11. After extensive
negotiations and analysis, the Committee, the Informal Noteholders Committee and
Loehmann's have reached an agreement on a Plan of Reorganization, a copy of
which is enclosed along with a Disclosure Statement and ballot. The Committee
urges you to review the Plan of Disclosure Statement carefully.
It is the Committee's view that the Plan of Reorganization is the best
available means at this time to maximize value for Loehmann's and the unsecured
creditors. Accordingly, the Committee urges all unsecured creditors to vote in
favor of the Plan by completing the ballot and forwarding it as so indicated on
the enclosed documents.
If you have any questions, feel free to contact any of the undersigned.
Very truly yours,
KRONISH LIEB WEINER & HELLMAN LLP
By: /s/ Lawrence C. Gottlieb
----------------------------------------------
Lawrence C. Gottlieb, Counsel to the Committee
COMMITTEE MEMBERS:
Cynthia DiPietrantonio, representing Jones Apparel Group
Patrick J. Rohan, representing CIT Group Commercial Serv.
Gerard F. Ganey, representing U.S. Trust Company of New York
Anthony Faresi, representing The Donna Karan Company
Cedric G. Williams, representing BNY Financial Corporation
Greg Gallo, representing Republic Business Credit Corp.
William Tanner, representing Polo Ralph Lauren
