<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): July 10, 1998
GAYLORD COMPANIES, INC.
----------------
(Exact name of registrant as specified in charter)
Delaware 1-13518 31-1421571
------------ ------------- --------------
(State or other (Commission File (IRS Employer ID
Jurisdiction of Number) Number)
Incorporation)
c/o Home Retail Acquisition Corp.
535 Madison Avenue, 19th Floor
New York, New York 10022
------------------------------------------------
(Address of principal executive offices)
10022
--------
(Zip Code)
(212) 508 6500
---------------------------------------------------
Registrant's telephone number, including area code:
4006 Venture Court, Columbus, Ohio 43228
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 3. BANKRUPTCY OR RECEIVERSHIP
On July 10, 1998, the United States Bankruptcy Court for the Southern
District of Ohio, Eastern Division, entered an order confirming the Amended Plan
of Reorganization of Gaylord Companies, Inc., The Cookstore, Inc. and The
Cookstore Worthington, Inc., dated June 24, 1998, a copy of which is attached to
this Form 8-K as Exhibit 2.1. A summary of the Plan is incorporated by reference
to Exhibit 2.1.
On July 15, 1998 (prior to closing under the Plan), there were 4,095,000
shares of the registrant's Common Stock issued and outstanding, and 2,408,377
shares of the registrant's Common Stock reserved for future issuance upon the
exercise of warrants. The aggregate total of shares of the registrant's Common
Stock issued and outstanding, and reserved for future issuance upon the exercise
of warrants on July 15, 1998 was 6,503,377. On July 15, 1998 (prior to
closing under the Plan), there were 60,000 shares of the registrant's
Preferred Stock issued and outstanding.
The number of shares of the registrant issued and outstanding, the number
reserved for future issuance upon the exercise of warrants, and the aggregate
total of such numbers after giving effect to the Plan is incorporated by
reference to Exhibit 2.1.
Information as to the assets and liabilities of the registrant as of June
24, 1998 is incorporated by reference to Exhibit 2.2, the Amended Disclosure
Statement for the Amended Plan of Reorganization of Gaylord Companies, Inc., The
Cookstore, Inc. and The Cookstore Worthington, Inc., dated June 24, 1998
(portions omitted).
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- --------------- --------------
<S> <C>
2.1 Amended Plan of Reorganization, dated June 24, 1998
2.2 Amended Disclosure Statement, dated June 24, 1998 (portions omitted)
2.3 Press Release dated July 27, 1998
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GAYLORD COMPANIES, INC.
Date: July 27, 1998 By: /s/ Greg E. Dukoff
----------------------------
Greg E. Dukoff
Secretary
2
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Exhibit Numbered Page
- ----------- ------- -------------
<S> <C> <C>
2.1 Amended Plan of Reorganization, dated June 24, 1998 4
2.2 Amended Disclosure Statement, dated June 24, 1998
(portions omitted) 48
2.3 Press Release dated July 27, 1998 207
</TABLE>
3
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Exhibit 2.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: :
GAYLORD COMPANIES, INC. : Case No. 97-60560
Joint Administered With:
GAYLORD BOOK COMPANY, : Case No. 97-60562
GAYLORD'S, INC., : Case No. 97-60561
SAWWORTH BOOK COMPANY, : Case No. 97-60563
GAYLORD ENTERPRISES, INC., : Case No. 97-60564
THE COOKSTORE, INC., and : Case No. 97-60565
THE COOKSTORE WORTHINGTON, INC.; : Case No. 97-60566
: Chapter 11
Debtors. : (Judge Caldwell)
AMENDED PLAN OF REORGANIZATION OF
GAYLORD COMPANIES, INC.,
THE COOKSTORE, INC., AND THE COOKSTORE
WORTHINGTON, INC., DATED JUNE 24, 1998, AS MODIFIED
Gaylord Companies, Inc. ("Gaylord Companies"), The Cookstore, Inc. ("TCI")
and The Cookstore Worthington, Inc. ("TCWI") (Gaylord Companies, TCI and TCWI
sometimes referred to collectively as "Debtors"), Debtors and
Debtors-in-Possession, hereby propose the following Plan of Reorganization
pursuant to 11 U.S.C. Section 1101 et seq.
ARTICLE I
DEFINITIONS
A. Defined Terms
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When used in this Plan, the following terms shall have the meanings set
forth below, unless the context otherwise requires. Such meanings shall apply
equally to both the singular and plural forms of the defined term. Any
capitalized term used but not otherwise defined in this Plan shall have the
meaning given to that term in the Bankruptcy Code. Unless otherwise indicated,
capitalized terms used in this Plan shall refer to the terms as defined in this
Article I.
"Administrative Expense" shall mean an actual, necessary cost or expense of
preserving the Debtors' Estates incurred after the Petition Date, which is
entitled to priority in this Case pursuant to sections 503(b) and 507(a)(1) of
the Bankruptcy Code, including fees and expenses of Professionals pursuant to
sections 330 and 331 of the Bankruptcy Code and fees, if any, due to the United
States Trustee under 28 U.S.C. Section 1930(a)(6).
"Allowed Claim" shall mean any Claim against the Debtors' Estates (but not
the Fremont Secured Claim) to the extent that
(i) proof of the Claim was filed with the Court within the Claims Bar
Date if no objection is interposed to the Claim within any permissible or
extended period of time, but only to the extent and in the amount set forth
in the proof of Claim, or
(ii) if no proof of the Claim was filed, the Claim is deemed filed
pursuant to section 1111(a) of the Bankruptcy Code (the Claim is listed in
the Schedules filed pursuant to section 521(1) of the Bankruptcy Code and is
not listed as disputed, contingent or unliquidated), but only to the extent
and in the amount set forth in the Schedules, or
(iii) a proof of the Claim was timely filed with the Court and, if an
objection to allowance of the Claim was interposed within any permissible or
extended period of time, the Claim is or has been allowed by the Plan, Final
Order of the Court, or written agreement or stipulation between Debtors and
the claimant.
"Allowed Secured Claim" shall mean that portion, if any, of an Allowed Claim
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subject to offset under section 553 of the Bankruptcy Code or fully secured by a
lien, mortgage, security interest, encumbrance or other charge against property
of the Estate which charge is valid, duly perfected and enforceable under
applicable law, to the extent of the value, determined in accordance with
section 506(a) of the Bankruptcy Code, of the Creditor's interest in the
property.
"Amelar Note" shall mean that certain demand note in the original principal
amount of $30,000, as it may be amended, payable by HRAC to Amelar Investments
L.L.C. or its designees, which note shall be assumed by the Reorganized Parent.
"Assumed HRAC Obligations" shall mean the Amelar Note, the Gem Debenture and
the CH Note.
"Assumption Order" shall mean, collectively, any and all orders entered by
the Court authorizing the Debtors' assumption of unexpired leases or executory
contracts or both.
"Available Cash" shall mean, with respect to the Reorganized Company as
determined at the end of each fiscal year based upon the Reorganized Company's
audited financial statements, an amount equal to the sum of (a) the Reorganized
Company's net income after provision for income taxes for such fiscal year (and
excluding intercompany income) plus (b) to the extent that any of the following
previously have been deducted in determining such net income: (i) depreciation,
(ii) amortization of goodwill or other intangibles, (iii) deferred compensation,
(iv) any other non-cash charges to income and (v) the positive or negative
amount, as the case may be, of the difference between consolidated working
capital on the first day of the next fiscal year less projected consolidated
working capital on the last day of the next fiscal year, less (c) the sum of (i)
actual capital expenditures, (ii) any non-cash credits which were added in
determining net income, (iii) any principal, interest or other payments made
with respect to capital leases and indebtedness for borrowed money, including,
without limitation, under the financing arrangements between Fremont and TCI and
TCWI, and (iv) any management or advisory
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fees paid by the Reorganized Company. For the avoidance of doubt, it is hereby
confirmed that the term "Available Cash" shall not include any income, losses or
other items arising out of the conduct of the business of Debtors' Affiliates or
the sale of the assets owned by or stock issued by any of Debtors' Affiliates.
"Available Cash Distributions" shall mean the payments made by Reorganized
Parent to holders of Allowed Claims in Class 6 under Article IV in a maximum
aggregate amount of $150,000.
"Avoiding Action" shall mean any action by the Debtors under sections 544,
545, 547, 548 or 550 of the Bankruptcy Code
"Ballot" shall mean the form distributed to each holder of an impaired Claim
entitled to vote on the Plan on which an acceptance or rejection of the Plan
shall be indicated.
"Bankruptcy Code" shall mean Title 11 of the United States Code as currently
in effect as well as Sections 157, 158, 1334, 1408 through 1412, and 1452 of
Title 28 of the United States Code.
"Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy Procedure as
currently in effect.
"Cambridge" shall mean Cambridge Holdings, L.L.C., a limited liability
company organized under the laws of the state of Delaware.
"CH Note" shall mean that certain demand note in the original principal
amount of up to $450,000, as it may be amended, payable by HRAC to Cambridge or
its designees in connection with certain transaction costs and expenses advanced
by Cambridge to HRAC, which CH Note shall be assumed by the Reorganized Parent.
"Case" shall mean, collectively, Case Numbers 97-60560, 97-60565 and
97-60566, commenced by voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code filed with the Court on November 13, 1997. The term "Case" does
not include Case Numbers 97-60561 through 97-60564.
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"Claim" shall have the meaning ascribed to it in section 101(5) of the
Bankruptcy Code.
"Claims Bar Date" shall mean (i) with respect to Claims by entities other
than governmental entities, March 17, 1998 and (ii) with respect to Claims by
governmental entities, May 12, 1998; each of the foregoing being the applicable
bar date by which a proof of Claim was required to have been filed in the Case
as established by Bankruptcy Rule 3003 or by Final Order of the Court.
"Class A Common Stock" shall mean the Class A Common Stock, $0.01 par value
per share, of the Reorganized Parent.
"Class B Common Stock" shall mean the Class B Restricted Common Stock, $0.01
par value per share, of Reorganized Parent, each share of which shall
automatically convert into one share of Class A Common Stock only after (i) the
Class A Common Stock has traded at in excess of $11.57 per share for a period of
no less than 20 consecutive trading days or (ii) a sale of all or substantially
all the assets of Reorganized Parent, a sale of all the equity interests of
Reorganized Parent or a merger or consolidation of Reorganized Parent with or
into another entity in which Reorganized Parent is not the surviving entity
pursuant to which the holders of Class A Common Stock would receive, on a fully
diluted basis after giving effect to the conversion of the Class B Common Stock
and any other convertible securities, consideration which exceeds $11.57 per
share, in each case subject to adjustment in the event of any stock splits or
similar events.
"Commitment Letter" shall have the meaning set forth in Section IV hereof.
"Confirmation" shall mean entry of the Confirmation Order.
"Confirmation Date" shall mean the date on which the Confirmation Order is
entered.
"Confirmation Hearing" shall mean the hearing held by the Court to consider
confirmation of the Plan pursuant to section 1129 of the Bankruptcy Code, as
such hearing may be adjourned or continued from time to time.
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"Confirmation Order" shall mean the Final Order entered by the Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
"Cookstore Debtors" shall mean TCI and TCWI.
"Court" shall mean the United States Bankruptcy Court for the Southern
District of Ohio, Eastern Division, or in the event such court ceases to
exercise jurisdiction over the Case, such court or adjunct thereof that
thereafter exercises jurisdiction over the Case, and any court having
jurisdiction to hear appeals from any such court.
"Creditor" shall have the meaning ascribed to it in section 101(10) of the
Bankruptcy Code.
"Debtors" shall mean, collectively, Gaylord Companies, TCI and TCWI in their
corporate capacities and as Debtors and Debtors-in-Possession in the Case.
"Debtors' Affiliates" shall mean, collectively, all of Debtors' affiliates,
as that term is defined in section 101(2) of the Bankruptcy Code, including,
without limitation, Gaylord Book Company, Gaylord's, Inc., Sawworth Book
Company, and Gaylord Enterprises, Inc., the estates of which are seeking to
reorganize pursuant to that certain Plan of Reorganization of United Magazine
Company with Regard to Bankruptcy Estates of Debtors Gaylord Book Company,
Sawworth Book Company, Gaylord's, Inc. and Gaylord Enterprises, Inc. Dated April
16, 1998 (May 1, 1998 Modification).
"Disclosure Statement" shall mean the Amended Disclosure Statement for the
Amended Plan of Reorganization of Gaylord Companies, Inc., The Cookstore, Inc.
and The Cookstore Worthington, Inc. Dated June 24, 1998, as may be amended or
modified from time to time.
"Disputed Claim" means a Claim against the Estate that is not an Allowed
Claim and either (a) an objection to the Claim has been filed by a party in
interest; or (b) the Claim appears on a schedule of disputed claims filed by
Debtors with the Court on or before the Effective Date.
"Effective Date", unless advanced or accelerated by HRAC in its sole
discretion,
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shall mean the later of the following dates, as calculated pursuant to
Bankruptcy Rule 9006: (a) a date no later than twenty (20) days following
Confirmation; (b) if an appeal from the Confirmation Order is timely filed, the
first business day on which implementation of the Plan has not been stayed
pending such appeal; and (c) the date on which the conditions specified in
Article VIII have been satisfied.
"Equity Interest" shall mean any equity interest in the Debtors, including
any equity security, as defined in section 101(16) of the Bankruptcy Code,
common stock, preferred stock, warrants, options, puts, calls or shares, and the
right or power to acquire or exercise rights with respect to the same, asserted
by any person or entity.
"Estate" shall mean, collectively, the estates of each of the Debtors
created pursuant to section 541 of the Bankruptcy Code upon commencement of the
Case.
"Exit Financing Facility" shall mean the post-Effective Date working capital
revolving credit financing facility for the Reorganized Company to be provided
by Fremont or other lender selected by the Reorganized Company upon terms and
pursuant to agreements in form and substance acceptable to Fremont (or such
other lender), the Debtors and the Reorganized Company.
"Final Decree" means a final decree entered by the Court pursuant to
Bankruptcy Rule 3022.
"Final Order" shall mean an order of a court of appropriate jurisdiction in
the Case as to which (a) any appeal that has been taken has been finally
determined or dismissed, or (b) the time for appeal has expired and a notice of
appeal has not been timely filed.
"Financing Order" shall mean the Final Order Authorizing The Cookstore, Inc.
and The Cookstore Worthington Inc. to Obtain Secured Post-Petition Credit
entered on May 6, 1998, as amended by subsequent orders of the Court.
"Financing Warrants" shall mean the Fremont Warrants and the Individual
Warrants.
"Fremont" shall mean Fremont Financial Corporation, a California
corporation.
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"Fremont Secured Claim" shall mean the amount of Fremont's Claim pursuant to
the Financing Order, which is both a secured and superpriority claim.
"Fremont Senior Tranche" shall mean the Fremont Secured Claim (excluding the
HRAC Junior Tranche and the Individual Junior Tranche).
"Fremont Warrants" shall mean the warrants that expire on June 30, 2003 to
purchase Class A Common Stock at a price of $.01 per share to be issued by the
Reorganized Parent to Fremont.
"Gem Debenture" shall mean that certain Debenture by HRAC to the order of
Global Strategic Holdings, Ltd. in the principal amount of up to $300,000 with a
maturity date of October 1, 1998.
"General Secured Claim" shall mean any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a lien on
collateral to the extent of the value of such collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
"Greenfield" shall mean Greenfield Commercial Credit, L.L.C.
"HRAC" shall mean Home Retail Acquisition Corp., a Delaware corporation.
"HRAC Advisory Agreement" shall mean the Advisory Agreement, as amended,
between Cambridge and the Debtors under the Term Sheet (which Advisory Agreement
has been assigned by Cambridge to HRAC) pursuant to which HRAC agreed to act as
an advisor to the Debtors and the Debtors agreed to pay to HRAC, among other
things, $30,000 per month for such services.
"HRAC Junior Tranche" shall mean the junior tranche of the Fremont Secured
Claim that HRAC purchased from Fremont pursuant to those certain Subordinated,
Last-Out Participation Agreements between Fremont and HRAC in an amount not less
than $250,000, as amended, restated, modified and supplemented.
"Individual Junior Participants" shall mean any or all of the persons (other
than
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HRAC) who are party to one or more of those certain Subordinated, Last-Out
Participation Agreements each dated as of April 28, 1998 with Fremont, as
amended, restated, modified and supplemented.
"Individual Junior Tranche" shall mean the junior tranche of the Fremont
Secured Claim in the collective amount of $250,000 which were purchased from
Fremont pursuant to those certain Subordinated, Last-Out Participation
Agreements each dated as of April 28, 1998 between each of the Individual Junior
Participants and Fremont, as amended, restated, modified and supplemented.
"Individual Warrants" shall mean the warrants, expiring June 30, 2003 to
purchase Class A Common Stock at a price of $4.00 per share to be issued by the
Reorganized Parent to the Individual Junior Participants.
"Ingram" shall mean Ingram Book Company, a division of Ingram Industries,
Inc.
"IRS" shall mean the Department of the Treasury, Internal Revenue Service.
"Merger" shall mean the merger of HRAC into Gaylord Companies pursuant to
the Merger Agreement.
"Merger Agreement" means the Merger Agreement and Plan of Recapitalization
dated June __, 1998, between HRAC and Gaylord Companies.
"New Securities" shall mean, collectively, Class A Common Stock, Class B
Common Stock, New Warrants and Financing Warrants.
"New Warrants" shall mean the warrants, expiring October 30, 1999, to
purchase Class A Common Stock at the initial exercise price of $11.57 per share
to be issued to the holders of Allowed Equity Interests in Class 9 pursuant to
Article IV hereof. The New Warrants shall be redeemable for $.05 per Warrant in
the event the Class A Common Stock has traded at $12.00 per share for a period
of no less than 20 consecutive trading days.
"Other Equity Interests" shall mean all Equity Interests in the Debtors
other than the holders of common stock of Gaylord Companies.
"Petition Date" shall mean November 13, 1997, the date Debtors commenced the
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Case.
"Plan" shall mean this Amended Plan of Reorganization of Gaylord Companies,
Inc., The Cookstore, Inc. and The Cookstore Worthington, Inc. dated June 24,
1998, proposed by Debtors, as may hereafter be amended or modified.
"Priority Claim" shall mean any Claim, other than a Claim for Administrative
Expense, entitled to priority under section 507(a) of the Bankruptcy Code.
"Priority Tax Claim" shall mean any Claim of a governmental unit of the kind
specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
"Professional" shall mean any and all attorneys, accountants, appraisers,
consultants, or other persons retained by or on behalf of Debtors pursuant to
order of the Court.
"Record Date" means the business day that is five days after the
Confirmation Date.
"Reorganized Company" shall mean, collectively, Reorganized Parent and the
Reorganized Cookstore Companies.
"Reorganized Cookstore Companies" shall mean the Cookstore Debtors as
reorganized under this Plan.
"Reorganized Parent" shall mean the surviving entity Home Retail Holdings,
Inc. (f/k/a Gaylord Companies, Inc.), the successor in interest following the
Merger.
"Schedules" shall mean the schedules filed by Debtors with the Clerk of the
Court pursuant to Bankruptcy Rule 1007, as may be modified or amended from time
to time.
"Substantial Consummation" shall have the meaning ascribed to it in 11
U.S.C. Section1101(2).
"Term Sheet" shall mean that certain Term Sheet entered into by and between
the Debtors and Cambridge dated February 26, 1998, as approved by the Court
pursuant to the Court's Order Granting Debtor's Motion for Authority to Enter
Into and Perform Term Sheet, as amended, entered in the Case on or about March
6, 1998.
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"Term Sheet Transaction" shall mean the transactions described in and
contemplated by the Term Sheet.
"Unclassified Claims" shall mean Claims described in Article II and Section
III(E) of this Plan.
"Unsecured Claim" means any Claim that is neither secured by property of the
Estate nor entitled to priority under section 507 or other applicable provision
of the Bankruptcy Code.
"Unsecured Creditor" shall mean any Creditor that is the holder of an
Unsecured Claim.
B. Undefined Terms
Unless otherwise indicated, terms used in this Plan that are defined in the
Bankruptcy Code and not in this Plan have the meanings ascribed to such terms in
the Bankruptcy Code. The rules of construction contained in this Bankruptcy Code
and Bankruptcy Rules apply to this Plan.
ARTICLE II
TREATMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
A. Administrative Expense Claims
1. In General. Except to the extent that any entity entitled to payment of
any Allowed Administrative Expense Claim agrees to a different treatment, and
except as provided in Section II(A)(2) and (3) below, each holder of an Allowed
Administrative Expense Claim shall receive cash in an amount equal to such
Allowed Administrative Expense Claim on the later of the Effective Date and the
date such Administrative Expense Claim becomes an Allowed Administrative Expense
Claim, or as soon thereafter as is
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practicable; provided, however, that (1) Allowed Administrative Expense Claims
representing liabilities or other obligations incurred in the ordinary course of
business by the Debtors shall be paid in full (and any such other obligations
shall be performed) by the Reorganized Company 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 and (2) any Claim for Administrative Expense held or asserted
by an entity against the bankruptcy estate(s) of the Debtors' Affiliates shall
not be impaired hereby, and any such claim for Administrative Expenses held or
asserted against such other estate(s) shall be reduced by the amount paid to
such entity pursuant to the terms of the Plan.
2. Professional Compensation and Administrative Expense Claims. All entities
seeking an award by the Court of compensation for services rendered or
reimbursement of expenses incurred or any other requests for payment of
Administrative Expenses, through and including the Confirmation Date under
sections 503(b)(1), 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,
or any other requests for payment of Administrative Expenses, incurred through
the Confirmation Date within 60 days after the Effective Date and (b) if granted
such an award by the Court, shall be paid in full in such amounts as are allowed
by the Court (i) on the later of the Effective Date or the date such
Administrative Expense Claim becomes an Allowed Administrative Expense Claim, or
as soon thereafter as is practicable or (ii) upon such other terms as may be
mutually agreed upon between such holder of an Allowed
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Administrative Expense Claim and the Debtors or, on and after the Effective
Date, the Reorganized Company. All professional fees for services rendered in
connection with the Case and the Plan after the Confirmation Date, including,
without limitation, those relating to the occurrence of the Effective Date and
the resolution of Disputed Claims, shall be paid by the Reorganized Company upon
receipt of an invoice or on such other terms as the Reorganized Company may
agree to, without the need for further Court authorization or entry of a Final
Order, absent an objection by the Reorganized Company. In the event the
Reorganized Company objects to such fees, the matter shall be resolved by the
Bankruptcy Court upon motion of such professional.
3. Payment of Statutory Fees. All fees payable pursuant to section 1930 of
title 28 of the United States Code shall be paid on the later of the Effective
Date or such other date as specified in invoices therefor received by the
Debtors or Reorganized Company.
B. Priority Tax Claims
Except to the extent that a holder of an Allowed Priority Tax Claim has been
paid by the Debtors prior to the Effective Date or agrees to a different
treatment, each holder of an Allowed Priority Tax Claim shall receive, at the
sole option of Reorganized Company (a) cash in an amount equal to such Allowed
Priority Tax Claim on the later of the Effective Date and the date such Priority
Tax Claim becomes an Allowed Priority Tax Claim, or as soon thereafter as is
practicable, or (b) equal annual cash payments in an aggregate amount equal to
such Allowed Priority Tax Claim, together with interest at a fixed annual rate
equal to 8%, over a period through the sixth anniversary of the date of
assessment of such Allowed Priority Tax Claim, or upon such other terms
determined by the Court to provide
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the holder of such Allowed Priority Tax Claim deferred cash payments having a
value, as of the Effective Date, equal to such Allowed Priority Tax Claim.
ARTICLE III
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
As described in Article V(D) hereof and in the Disclosure Statement,
effective on the Effective Date, HRAC shall be merged into Gaylord Companies.
Gaylord Companies shall be the sole surviving entity of the merger, and shall be
Reorganized Parent hereunder. In addition, TCI and TCWI shall be substantively
consolidated with Gaylord Companies only for purposes of distributions under the
Plan. Accordingly, Allowed Claims against and Equity Interests in any one or
more of the estates of Gaylord Companies, TCI and TCWI are classified in this
Plan as if there were a single Estate, although TCI and TCWI shall maintain
their separate existence.
All Allowed Claims are placed in the classes set forth below, or, where
applicable, are treated as Unclassified Claims as discussed in Articles II and
III(E) of this Plan. Unless expressly provided otherwise, an Allowed Claim that
is properly included in more than one class is in a class to the extent it meets
the description of such class and is in a different class to the extent it meets
the description of such different claSection
A. Secured Claims
Class 1: Fremont, as sole owner of the Fremont Senior Tranche.
Class 2: HRAC, as owner of the HRAC Junior Tranche.
Class 3: Individual Junior Participants, as owners of the Individual Junior
Tranche.
Class 4: holders of all other Allowed Secured Claims whose Claims are not
included in Classes 1, 2 or 3.
B. Priority Claims
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Class 5: the Allowed Claims of Unsecured Creditors entitled to priority
pursuant to sections 507(a)(3) or 507(a)(4) of the Bankruptcy
Code.
C. Unsecured Claims
Class 6: the unsecured Allowed Claim of any Creditor not included in any
other class, including, without limitation, the "deficiency"
portion of any Allowed Secured Claims, but not including
Unclassified Claims treated elsewhere in the Plan.
D. Equity Interests
Class 7: the Equity Interests of holders of common shares of Gaylord
Companies.
Class 8: the Equity Interests of holders of preferred shares of Gaylord
Companies.
Class 9: the Equity Interests of holders of warrants for the purchase of
common shares of Gaylord Companies.
Class 10: all other Equity Interests in the Debtors not included in
Class 7, 8 or 9.
E. Unclassified Claims
Section 1123(a)(1) of the Bankruptcy Code provides that certain Claims,
including Claims for Administrative Expenses for unpaid post-Petition Date goods
and services (Bankruptcy Code section 507(a)(1) Claims) and Claims for Allowed
Unsecured Claims of governmental units (Bankruptcy Code Section 507(a)(8)
Claims), shall not be designated into classes. The Unclassified Claims described
herein are treated in Article II of the Plan.
ARTICLE IV
TREATMENT OF CLAIMS AND EQUITY INTERESTS
Allowed Claims in the following classes shall receive the following
treatment in complete satisfaction of all such Allowed Claims.
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Class 1: Class 1 is unimpaired by the Plan. Consequently, Fremont is
conclusively presumed to have accepted the Plan and is not entitled to vote to
accept or reject the Plan.
On the Effective Date, all outstanding obligations due to Fremont under the
Financing Order shall be either (x) repaid in full in cash or (y) repaid
pursuant to the Exit Financing Facility such that Fremont shall receive from the
Reorganized Company, in complete satisfaction of the Fremont Senior Tranche, the
full amount of the Fremont Senior Tranche either (i) in cash on the Effective
Date, or (ii) as may otherwise be agreed by and between Fremont, HRAC, and the
Debtors or the Reorganized Company. In addition, Fremont shall receive in
connection with the Exit Financing Facility Fremont Warrants exercisable to
purchase 92,595 shares of Class A Common Stock at the exercise price of $.01 per
share. The Debtors acknowledge and agree that the obligation of Fremont to
extend the Exit Financing Facility is subject to the terms of the commitment
letter dated April 2, 1998 (the "Commitment Letter") to Cambridge (which
provides, among other things, that the Exit Financing Facility must close no
later than October 1, 1998) and that the terms of the Plan shall not affect or
modify the obligation of Fremont to extend the Exit Financing Facility.
Notwithstanding anything to the contrary contained in the Plan (or the
Disclosure Statement to the extent the same differs) Fremont shall retain all of
its security interests and other rights and remedies under the Financing Order
until such time as all obligations to Fremont are paid in full or Fremont agrees
otherwise in writing.
Class 2: Class 2 is impaired by the Plan. Consequently, HRAC shall be
entitled to vote to accept or reject the Plan.
On the Effective Date, HRAC shall be merged into Gaylord Companies, as more
fully described in Article V below. In consideration for the contribution of
HRAC and the merger of HRAC with Gaylord Companies, and in complete satisfaction
of the HRAC Junior Tranche and any amounts owed to HRAC prior to the
Confirmation Date on account of the HRAC Advisory Agreement, the shareholders of
HRAC shall receive on the Effective
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Date 1,383,684 shares of Class A Common Stock of Reorganized Parent which, on
the Effective Date giving effect to the exercise of the New Warrants and before
the exercise of any Financing Warrants, shall be equal to eighty percent (80%)
of the issued and outstanding shares of Class A Common Stock and Class B Common
Stock of Reorganized Parent. In addition the Reorganized Parent will assume the
liabilities of HRAC under the Assumed HRAC Obligations.
Class 3: Class 3 is unimpaired by the Plan. Consequently, each holder of an
Allowed Claim in Class 3 is conclusively presumed to have accepted the Plan and
is not entitled to vote to accept or reject the Plan.
On the Effective Date, all outstanding obligations due to the Individual
Junior Participants and the security interests granted to the holders of such
Claims shall be restructured as a subordinated loan facility (which may, if
agreed to by the holders of such Claims, Fremont and the Reorganized Parent, be
structured as a subordinated participation) in an amount equal to the
outstanding amount of the Individual Junior Tranche and such holders otherwise
will be rendered unimpaired. In partial consideration for the restructure of
such obligations, each holder of an Allowed Claim in Class 3 shall also receive
its pro rata percentage of the Individual Warrants exercisable for 29,261 shares
of Class A Common Stock of the Reorganized Parent at the exercise price of $4.00
per share.
Class 4: Class 4 is unimpaired by the Plan. Consequently, each holder of an
Allowed General Secured Claim is conclusively presumed to have accepted the Plan
and is not entitled to vote to accept or reject the Plan.
At the sole option of Reorganized Company, (i) an Allowed General Secured
Claim shall be reinstated and rendered unimpaired in accordance with section
1124(2) of the Bankruptcy Code, (ii) a holder of an Allowed General Secured
Claim shall receive cash in an amount equal to such Allowed General Secured
Claim, including any interest on such Allowed General 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 General Secured Claim becomes Allowed, or as
soon thereafter as is practicable, or (iii) a holder of an Allowed General
Secured
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Claim shall receive the collateral securing its Allowed General Secured
Claim and any interest on such Allowed General Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, in full and complete
satisfaction thereof on the later of the Effective Date and the date such
General Secured Claim becomes Allowed, or as soon thereafter as is practicable.
The legal, equitable and contractual rights of the holders of Allowed General
Secured Claims, if any exist, are not altered by the Plan.
Class 5: Class 5 is unimpaired by the Plan. Consequently, each holder of an
Allowed Claim in Class 5 is conclusively presumed to have accepted the Plan and
is not entitled to vote to accept or reject the Plan.
Each holder of an Allowed Claim in Class 5 shall receive cash in an amount
equal to such Allowed Claim on the later of the Effective Date or the date such
Allowed Claim becomes an Allowed Claim, or as soon thereafter as is practicable.
Class 6: Class 6 is impaired by the Plan. Consequently, each holder of an
Allowed Claim in Class 6 shall be entitled to vote to accept or reject the Plan.
On the Effective Date, each holder of an Allowed Claim in Class 6 shall
receive from Reorganized Parent in complete satisfaction of the Allowed Claim,
the following:
(i) An amount equal to its pro rata share, as compared to all other
holders of Allowed Claims in Class 6, of the Available Cash Distributions.
Pursuant to the Available Cash Distributions, distributions shall be made by
Reorganized Parent from Available Cash in the maximum amount of $30,000 per
year for five (5) years beginning on January 30, 1999 and continuing on each
January 30 through January 30, 2003, so long as Reorganized Parent has
Available Cash. To the extent that there is insufficient Available Cash to
pay any installment with respect to the Available Cash Distributions (such
amount, a "Shortfall Amount"), then Reorganized Parent's obligation to make
an installment payment for such Shortfall Amount for that year shall be
extinguished; provided, however, notwithstanding anything in this Plan to
the contrary, if the Reorganized Parent does not, by January 30,
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1999, complete a public or private offering of its equity securities and
offer the holders of the Allowed Claims in Class 6 the opportunity to sell
such holders' Class A Common Stock in such public or private offering of
equity securities for a price of not less than $4.00 per share, then (x) the
payment of each Shortfall Amount shall be deferred (not extinguished) until
the next scheduled installment payment date when there is sufficient
Available Cash to pay the regularly scheduled installment on the Available
Cash Distributions plus the Shortfall Amount and (y) the entire amount of
$150,000 (less any payments previously made with respect to the Available
Cash Distributions) shall be due and payable on January 30, 2003. Available
Cash Distributions shall be made by Reorganized Parent to the holders of the
Allowed Claims in Class 6; and
(ii) Shares of Class A Common Stock in Reorganized Parent in an amount
equal to such holder's pro rata share, as compared to all other holders of
Allowed Claims in Class 6, of eight percent (8%) of the issued and
outstanding Class A Common Stock and Class B Common Stock of Reorganized
Parent on the Effective Date giving effect to the exercise of the New
Warrants and before the exercise of the Financing Warrants. Such shares of
Class A Common Stock shall not be transferable until the earlier of six
months after the Effective Date or the closing date of a registered public
offering by the Reorganized Parent. Holders of such shares shall have the
right for six months after the Effective Date to register such shares for
sale in a registered public offering; provided that if any such holder
determines not to include such shares in such a registered public offering,
such holder shall be obliged to agree to any lock-up requested by any
underwriter of such public offering. If such registered public offering is
underwritten, holders who wish to register such shares must sell such shares
on the basis provided in any underwriting arrangements and execute any
documents reasonably required in connection with such underwriting
arrangements.
Class 7: Class 7 is impaired by the Plan. Consequently, each holder of an
Allowed Equity Interest in Class 7 shall be entitled to vote to accept or reject
the Plan.
Following the conversion of Other Equity Interests to common shares of
Gaylord
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Companies as provided for in Class 10 below and after the merger of HRAC with
and into the Gaylord Companies, the common shares of Gaylord Companies shall be
extinguished, and the holders of an Allowed Equity Interest in Class 7 shall
receive their pro rata share of the number of 85,777 shares of Class B Common
Stock.
Class 8: Class 8 is impaired by the Plan. Consequently, each holder of an
Allowed Equity Interest in Class 8 shall be entitled to vote to accept or reject
the Plan.
All issued and outstanding shares of preferred stock in Gaylord Companies as
of the Effective Date shall be converted to common stock of Gaylord Companies.
Following the merger of HRAC with the Gaylord Companies, such common shares of
Gaylord Companies shall be extinguished and the holders of Allowed Equity
Interests in Class 8 shall receive their pro rata share of the number of shares
of Class B Common Stock equal to four per cent (4%) of the number of the issued
and outstanding shares of Class A Common Stock and Class B Common Stock of
Reorganized Parent as of the Effective Date giving effect to the exercise of the
New Warrants and before the exercise of the Financing Warrants.
Class 9: Class 9 is impaired by the Plan. Consequently, each holder of an
Allowed Equity Interest in Class 9 shall be entitled to vote to accept or reject
the Plan.
All outstanding warrants for the purchase of common shares of Gaylord
Companies shall be deemed cancelled and become null and void (without further
act or action by any party). 52,573 New Warrants at the exercise price of $11.57
shall be distributed pro rata to the holders of Allowed Claims in Class 9. The
New Warrants shall not be exercisable or transferable until six months after the
Effective Date.
Class 10: Class 10 is impaired by the Plan. Consequently, each holder of an
Allowed Equity Interest in Class 10 shall be entitled to vote to accept or
reject the Plan.
All Equity Interests in the Debtors not treated in Class 7, 8 or 9 hereof
shall be converted, pursuant to the terms of the applicable agreement (be it a
put, or other applicable
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right, including without limitation, any right to issue new warrants), to
preferred or common shares of Gaylord Companies, as provided in such agreement
or, at the option of the holder of any Class 10 Equity Interest, extinguished.
If converted to preferred shares of Gaylord Companies, the interests of the
holder of such shares then shall be subject to the further conversion provided
for holders of Equity Interests in Class 8 hereof. If converted to common shares
of Gaylord Companies, the interests of the holder of such shares then shall be
subject to the treatment provided for holders of Equity Interests in Class 7
hereof.
ARTICLE V
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Distributions Provided for in the Plan
Payments under the Plan shall be funded from any cash or property held,
received or obtained by the Debtors and/or the Reorganized Company, from loans
made or capital contributed by, or arranged through the efforts of, Fremont
pursuant to the Exit Financing Facility, HRAC, the Individual Junior
Participants or certain other parties, or from funds generated by the
Reorganized Company's future operations, at the sole option of the Reorganized
Company. On the Effective Date, the Debtors and/or Reorganized Company will
cause to be available for distribution shares of Class A and Class B Common
Stock of Reorganized Parent.
B. Exit Financing Facility.
On the Effective Date, Reorganized Company shall enter into the Exit
Financing Facility. As partial consideration for providing the Exit Financing
Facility, Fremont or such other lender providing the Exit Financing Facility
shall receive Fremont Warrants as provided in Article IV of the Plan.
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C. Subordinated Loan Facility
On the Effective Date, the Debtors or Reorganized Company, as the case may
be, shall enter into a subordinated loan facility (which may, with the consent
of Fremont Financial, Reorganized Company and the Individual Junior
Participants, be structured as a subordinated participation in the Exit
Financing Facility) with the Individual Junior Participants or other lenders
designated by the Debtors or Reorganized Company, in the aggregate original
principal amount equal to Individual Junior Tranche. As partial consideration
for providing such subordinated loan facility, the Individual Junior
Participants shall receive Individual Warrants as provided in Article IV of the
Plan.
D. Merger of HRAC and Gaylord Companies
Effective on the Effective Date, HRAC shall be merged into Gaylord
Companies. Gaylord Companies shall be the sole surviving entity of the merger,
and shall be Reorganized Parent hereunder pursuant to the terms of the Merger
Agreement.
E. Issuance of New Securities
1. On the Effective Date, the authorized capital stock of Reorganized Parent
will consist of 20,000,000 shares of Class A Common Stock, par value $0.01 per
share, 154,951 shares of Class B Restricted Common Stock, par value $0.01 per
share and one million (1,000,000) shares of Serial Preferred Stock, par value
$0.01 per share.
2. The issuance of the following securities and notes by Reorganized Parent
is hereby authorized without further act or action under applicable law,
regulation, order or rule except to the extent expressly set forth in this Plan:
(1) 1,522,034 shares of Class A Common Stock;
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(2) 175,429 shares of Class A Common Stock to be reserved until such
time as the holders of the New Warrants, the Fremont Warrants and
the Individual Warrants exercise such Warrants;
(3) 154,951 shares of Class A Common Stock to be reserved until such
time as the Class B Common Stock converts to Class A Common Stock
pursuant to the terms of this Plan;
(4) 180,000 shares of Class A Common Stock to be reserved in
connection with any employee equity incentive plans as may be
instituted by the Reorganized Company in its discretion;
(5) 154,951 shares of Class B Common Stock;
(6) 52,573 New Warrants;
(7) 92,595 Fremont Warrants and;
(8) 29,261 Individual Warrants.
3. The shares of Class A Common Stock issued pursuant to this Plan shall be
subject to dilution (subject to the anti-dilution provision as set forth in the
Commitment Letter) arising from the issuance of shares by Reorganized Parent of
Class A Common Stock as may be authorized or required, from time to time, by
operation or exercise of the New Warrants and Financing Warrants, conversion of
the Class B Common Stock to Class A Common Stock and such other issuances of
Class A Common Stock by Reorganized Parent as may be directed by the Board of
Directors of Reorganized Parent from time to time in accordance with Reorganized
Parent's bylaws and certificate of incorporation.
4. On the Effective Date, Reorganized Parent shall (i) issue an aggregate of
1,383,684 shares of Class A Common Stock to the shareholders of HRAC and 138,350
shares of Class A Common Stock to the holders of Allowed Claims in Class 6; (ii)
issue an aggregate of 85,777 shares of Class B Common Stock to the holders of
Allowed Claims in
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Class 7 and issue an aggregate of 69,174 shares of Class B Common Stock to the
holders of Allowed Claims in Class 8; (iii) issue 52,573 New Warrants; (iv)
issue 121,856 Financing Warrants; (v) reserve for the issuance of 175,429 shares
of Class A Common Stock to effectuate the provisions of the New Warrants and
Financing Warrants; (vi) reserve for the issuance of 154,951 shares of Class A
Common Stock upon conversion of the Class B Common Stock; (vii) reserve for the
issuance of 180,000 shares of Class A Common Stock in connection with any
employee equity incentive plans as may be instituted by the Reorganized Company
in its discretion; and (viii) assume the Assumed HRAC Obligations. All shares of
Class A and Class B Common Stock to be issued pursuant to this Plan shall be,
upon issuance, fully paid and non-assessable and shall be subject to dilution
(subject to the anti-dilution provision as set forth in the Commitment Letter)
as set forth in Article IV hereof, and the holders thereof shall have no
preemptive or other rights to subscribe for additional shares.
F. Cancellation and Surrender of Existing Securities and Agreements.
1. On the Effective Date, the promissory notes, share certificates, bonds
and other instruments evidencing any Claim, except to the extent contrary to and
not consistent with the treatment of the Fremont Secured Claim, and the Allowed
General Secured Claims, pursuant to Article IV hereof, or Equity Interest, shall
be deemed cancelled without further act or action under any applicable
agreement, law, regulation, order or rule and the obligations of the Debtors
under the agreements, indentures and certificates of designations governing such
Claims and Equity Interests, as the case may be, shall be discharged.
2. Each holder of a promissory note, share certificate, bond or other
instrument
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evidencing a Claim, except to the extent contrary to and not consistent with the
treatment of the Fremont Secured Claim and the Allowed General Secured Claims
pursuant to Article IV hereof, or Equity Interest, shall surrender such
promissory note, share certificate, bond or instrument to Reorganized Parent,
unless such requirement is waived by Reorganized Parent. No distribution of
property hereunder shall be made to or on behalf of any such holders unless and
until such promissory note, share certificate, bond or instrument is received by
Reorganized Parent or the unavailability of such promissory note, share
certificate, bond or instrument is established to the reasonable satisfaction of
Reorganized Parent or such requirement is waived by Reorganized Parent. The
Reorganized Parent may require any holder that is unable to surrender or cause
to be surrendered any such promissory notes, share certificates, bonds or
instruments to deliver an affidavit of loss and indemnity and/or furnish a bond
in form and substance (including, without limitation, with respect to amount)
reasonably satisfactory to the Reorganized Parent. Any holder that fails within
the later of one year after the Effective Date and the date of Allowance of its
Claim or Equity Interest (i) if possible, to surrender or cause to be
surrendered such promissory note, share certificate, bond or instrument; (ii) if
requested, to execute and deliver an affidavit of loss and indemnity reasonably
satisfactory to the Reorganized Parent and (iii) if requested, to furnish a bond
reasonably satisfactory to the Reorganized Parent, shall be deemed to have
forfeited all rights, claims and causes of action against the Debtors and
Reorganized Parent and shall not participate in any distribution hereunder.
Notwithstanding the foregoing, the Debtors and Reorganized Parent shall be
deemed to waive the requirements of this Section V(F) as to any holder whose
Claim is expressly Allowed
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pursuant to the Confirmation Order.
G. Continuation of Bankruptcy Injunction or Stays
All injunctions or stays provided for in the Chapter 11 Cases under sections
105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the
Confirmation Date, shall remain in full force and effect until the Effective
Date.
H. Reverting of Assets.
(a) The property of the Estates shall revert to the Reorganized Company
on the Effective Date.
(b) From and after the Effective Date, the Reorganized Company may
operate the Debtors' business, shall have full authority to incur and pay
post-Petition Date and post-Confirmation Date obligations, and may use, acquire
and dispose of property, free of any restrictions imposed under the Bankruptcy
Code.
(c) As of the Effective Date, all property of the Debtors and
Reorganized Company shall be free and clear of all liens, claims and interests
of holders of Claims and Equity Interests, except as provided in the Plan.
(d) As of the Effective Date, the Reorganized Company shall have the
right to compromise Claims without further Court order.
I. General Release of Liens
Except as otherwise provided in the Plan, in the treatment of the Individual
Junior Tranche or in the Exit Financing Facility, or in any contract,
instrument, indenture or other agreement or document created in connection with
the Plan or the implementation thereof, on the Effective Date, all mortgages,
deeds of trust, liens or other security interests against
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property of the Estates are hereby released, and all the right, title and
interest of any holder of such mortgages, deeds of trust, liens or other
security interests will revert to Reorganized Company or the Debtors as
applicable, and the successors and assigns thereof.
J. Compensation and Benefit Programs
All employment and severance practices and policies, and all compensation
and benefit plans, policies and programs of the Debtors applicable to their
directors, officers or employees, including, without limitation, all savings
plans, retirement plans, health care plans, severance benefit plans, incentive
plans, workers' compensation programs and life, disability and other insurance
plans are treated either as executory contracts under the Plan pursuant to
Article VI hereof or as permitted under applicable non-bankruptcy law.
K. Retiree Benefits
Payments, if any, due to any person for the purpose of providing or
reimbursing payments for retired employees and their spouses and dependents for
medical, surgical, or hospital care benefits, or benefits in the event of
sickness, accident, disability, or death under any plan, fund or program
(through the purchase of insurance or otherwise) maintained or established in
whole or in part by the Debtors prior to the Petition Date shall be continued
for the duration of the period the Debtors have obligated themselves to provide
such benefits, subject to any and all rights of the Debtors under applicable
law. Notwithstanding the foregoing, the Debtors intend to reject the
Supplemental Executive Retirement Program of Gaylord Companies on or before the
Confirmation Date.
L. Breaches
In the event any of the Debtors or the Reorganized Company breaches any of
its
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obligations under this Plan, the Debtors and the Reorganized Company shall
have sixty (60) days from the receipt of written notice of such breach from
the holder of an Allowed Claim to sure such breach.
M. Pre-Payment of Allowed Claims
In the event the Debtors or the Reorganized Company is able to pre-pay any
Allowed Claim, the Debtors and the Reorganized Company shall have the absolute
right, in their sole discretion, to pre-pay all or a portion of any class of
Allowed Claims at any time, so long as each claimant in the class is paid the
same proportional amount. Any pre-payment shall be without penalty.
N. Amended Bylaws and Amended Certificates of Incorporation
The respective bylaws and certificates of incorporation of the Reorganized
Company shall be amended and restated as of the Effective Date to the extent
necessary (a) to prohibit the issuance of nonvoting equity securities as
required by section 1123(a)(6) of the Bankruptcy Code, subject to further
amendment of such certificate of incorporation and bylaws as permitted by
applicable law and (b) to effectuate the provisions of the Plan, in each case
without any further action by the stockholders or directors of the Debtors or
the Reorganized Company.
O. Corporate Action
The following is hereby deemed to be authorized and approved in all
respects, without any requirement or further action by the stockholders or
directors of the Debtors or Reorganized Company, as if such actions had been
taken by unanimous action of the stockholders and directors of the Debtors or
the Reorganized Company, as applicable: (i)
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the adoption of the Reorganized Company's bylaws and certificate of
incorporation, (ii) the initial selection of directors and officers of
Reorganized Company, (iii) the distribution of cash and the issuance and
distribution of New Securities; (iv) the approval of the Merger; (v) the
ratification of the Merger Agreement and (vi) all other corporate action to be
taken or required by the Debtors or Reorganized Company, as applicable, to
effectuate the Plan and all agreements and transactions provided for or
contemplated by the Plan.
ARTICLE VI
TREATMENT OF
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumption or Rejection of Executory Contracts and Unexpired Leases
On the Effective Date, all executory contracts and unexpired leases of the
Debtors shall be rejected by the Debtors pursuant to the provisions of sections
365 and 1123 of the Bankruptcy Code, except: (i) any executory contract or
unexpired lease that is the subject of a separate motion to assume filed
pursuant to section 365 of the Bankruptcy Code by the Debtors before the entry
of the Confirmation Order, (ii) executory contracts and unexpired leases listed
on Exhibit E to the Disclosure Statement, and (iii) all executory contracts or
unexpired leases assumed under this Plan or by order of the Bankruptcy Court
entered before the Confirmation Date and not subsequently terminated pursuant to
an order of the Bankruptcy Court. The Debtors reserve the right to amend, alter
or modify Exhibit E at any time prior to the Confirmation Hearing. The Debtors
will provide notice of any amendments to Exhibit E to the parties to the
executory contracts or unexpired leases
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affected thereby.
B. Cure of Defaults
Except as may otherwise be agreed to by the parties, within 60 days after
the Effective Date, the Reorganized Company shall cure any and all undisputed
defaults under any executory contract or unexpired lease assumed pursuant to the
Plan in accordance with section 365(b)(1) of the Bankruptcy Code. All disputed
defaults that are required to be cured shall be cured either within 30 days of
the entry of a Final Order determining the amount, if any, of the Debtors' or
Reorganized Company's liability with respect thereto, or as may otherwise be
agreed to by the parties.
C. Bar Date for Filing Proofs of Claims Relating to Executory Contracts and
Unexpired Leases Rejected Pursuant to the Plan
Claims based on executory contracts or unexpired leases that were rejected
on or prior to the Claims Bar Date that were not filed by that date shall be
disallowed and forever barred. Claims arising out of the rejection of an
executory contract or unexpired lease designated for rejection under the Plan
must be filed with the Court and served upon the Debtors or Reorganized Company
or as otherwise may be provided in the Confirmation Order by no later than 30
days after the notice of entry of an order approving such rejection. Any Claims
not filed within such time will be forever barred from assertion against the
Debtors, their Estates, the Reorganized Company and their property, and the
holders thereof shall not be entitled to any distribution under this Plan or
otherwise from the Debtors or Reorganized Company. Claims required to be filed
pursuant to a Final Order entered prior to the Confirmation Date shall be
forever barred and disallowed if not filed within the time specified in such
Final Order. Unless otherwise ordered by the Court, all Claims arising
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from the rejection of executory contracts and unexpired leases shall be treated
as General Unsecured Claims under the Plan.
ARTICLE VII
SUBSTANTIVE CONSOLIDATION FOR PLAN PURPOSES
A. Substantive Consolidation for Plan Purposes
Except as expressly provided in the Plan, the Debtors and each Reorganized
Company shall continue to maintain their separate corporate existence for all
purposes other than the treatment of Claims under the Plan. This Plan shall
serve as a motion seeking entry of an order substantively consolidating the
Estates of the Debtors. Pursuant thereto, on the Effective Date, (i) all
intercompany Claims by and among the Debtors shall be eliminated; (ii) all
assets and liabilities of the Debtors shall be merged and treated as though they
were merged; (iii) all prepetition guarantees, indeminifications or similar
financial assurances of or assumptions by one Debtor of any obligation of
another Debtor shall be eliminated; (iv) any obligation of any Debtor and all
guarantees or assumptions, indemnifications or similar financial assurances
thereof by one or more of the Debtors shall be deemed to be one obligation of
the consolidated Debtors; provided, however, that where one or more of the
Debtors that is an obligor has been released of its obligations by operation of
applicable law or agreement, each Debtor shall be deemed released; (v) any
Claims filed or to be filed or scheduled respecting any such obligation shall be
deemed one Claim against the consolidated Debtors; and (vi) each and every Claim
filed in the individual chapter 11 case of any of the Debtors shall be deemed
filed against the consolidated Debtors in the consolidated Case and shall be
deemed a single obligation of all of the Debtors under the
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Plan. On the Confirmation Date, but subject to the occurrence of the Effective
Date, and in accordance with the terms of the Plan and the consolidation of the
assets and liabilities of the Debtors, all Claims based upon guarantees of
collection, payment or performance made by the Debtors as to the obligations of
another Debtor or of any other party shall be discharged, released and of no
further force and effect; provided, however, that nothing herein shall affect
the obligations of each of the Debtors under the Plan.
B. Order Granting Substantive Consolidation
Unless an objection to substantive consolidation is made in writing by any
Creditor affected by the Plan as herein provided on or before the date that is
fixed by the Court as the last date on which acceptances to this Plan may be
received, or such other date as may be fixed by the Court, the cases shall be
substantively consolidated by the Court as provided in the Confirmation Order.
In the event any such objections are timely filed, a hearing with respect
thereto shall be scheduled by the Court, which hearing may, but need not,
coincide with the hearing to consider confirmation of the Plan.
ARTICLE VIII
CONFIRMATION AND EFFECTIVE DATE
A. Conditions Precedent to Effectiveness
The Plan shall not become effective until the following conditions precedent
shall have occurred:
1. The Confirmation Order shall have been entered and shall contain the
following provisions:
(a) except with respect to an entity that is an underwriter as defined
in Bankruptcy Code section 1145(b), section 5 of the Securities Act of 1933 (15
U.S.C. Section 77(d)), or any state or local law requiring registration for the
offer or sale of a
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security or registration or licensing of an issuer of, underwriter of, or broker
or dealer in securities, does not apply to the transactions provided for in this
Plan; provided, however, that in the event the Court should refuse to enter a
Confirmation Order that is deemed to include such a finding, the Debtors shall
have the option of withdrawing the Plan or proceeding without the Bankruptcy
Code section 1145 qualification; and
(b) acceptance of the Plan has been made in good faith and in
compliance with the applicable provisions of the Bankruptcy Code as contemplated
by section 1125(e) of the Bankruptcy Code.
2. There shall be no stay in effect with respect to the Confirmation Order;
3. The Reorganized Company shall have credit available under the Exit
Financing Facility to provide the Reorganized Company with financing sufficient
to meet its cash obligations under the Plan and its business requirements as of
and after the Effective Date;
4. All actions, documents and agreements necessary to implement the Plan
shall have been effected or executed and delivered; and
5. Each of the Plan documents and the New Securities shall have been
effected or executed and delivered.
ARTICLE IX
OBJECTIONS TO CLAIMS
The Debtors and the Reorganized Company shall be entitled to file
objections to proofs of claim at any time prior to the closing of the Case.
Notwithstanding any other provision of the Plan specifying a date or time for
payment or distributions, payments and distributions in respect of any Claim
which as of such date is disputed, unliquidated, or contingent shall not be made
until such Claim becomes an Allowed Claim whereupon such
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payments and distributions shall be made promptly or as otherwise provided for
in the Plan. In the event that, at the time a payment is to be made to holders
of Claims in a specific class, a Claim that would otherwise be a Claim in that
class remains disputed, unliquidated or contingent, the Reorganized Company
shall reserve from its distribution to said class an amount estimated to be
sufficient to pay the amount of such disputed, unliquidated and contingent
Claims. The Reorganized Company shall distribute the appropriate amount to the
holder of such disputed, unliquidated and contingent Claims at such time, if
any, as those Claims become Allowed Claims.
ARTICLE X
PROVISIONS REGARDING VOTING AND
DISTRIBUTIONS UNDER THE PLAN
A. Voting of Claims
Each holder of an Allowed Claim in an impaired Class which retains or
receives property under the Plan shall be entitled to vote separately to accept
or reject the Plan and indicate such vote on a duly executed and delivered
Ballot as provided in such order as is 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. Nonconsensual Confirmation
If any impaired Class entitled to vote shall not accept the Plan by the
requisite statutory majorities provided in sections 1126(c) or 1126(d) of the
Bankruptcy Code, as applicable, the Debtors and the Reorganized Company reserve
the right (a) to undertake to have the Court confirm the Plan under section
1129(b) of the Bankruptcy Code and (b) to amend the Plan to the extent necessary
to obtain entry of the Confirmation Order.
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C. Method of Distributions Under the Plan
1. In General. Subject to Bankruptcy Rule 9010, all distributions under the
Plan shall be made by the Reorganized Company to the holder of each Allowed
Claim at the address of such holder as listed on the Schedules as of the Record
Date, unless the Debtors or Reorganized Company have been notified in writing of
a change of address, including, without limitation, by the filing of a proof of
claim or notice of transfer of claim filed by such holder that provides an
address for such holder different from the address reflected on the Schedules.
2. Distributions of Cash. Any payment of cash made by the Reorganized
Company pursuant to the Plan shall be made by check drawn on a domestic bank.
3. Timing of Distributions. Any payment or distribution required to be made
under the Plan on a day other than a business day shall be made on the next
succeeding business day.
4. Fractional Cents. Whenever any payment of a fraction of a cent would
otherwise be called for, the actual payment shall reflect a rounding of such
fraction to the nearest whole cent (rounding down in the case of .50 or less and
rounding up in the case of more than .50).
5. Fractional Shares, New Warrants, Financing Warrants. No fractional shares
of Class A Common Stock, Class B Common Stock or fractional New Warrants,
Fremont Warrants, Individual Warrants or cash in lieu thereof shall be
distributed under the Plan. When any distribution on account of an Allowed Claim
pursuant to the Plan would otherwise result in the issuance of a number of
shares of Class A Common Stock, Class B
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<PAGE>
Common Stock, Fremont Warrants, Individual Warrants or New Warrants that is not
a whole number, the actual distribution of shares of Class A Common Stock, Class
B Common Stock, Fremont Warrants, Individual Warrants or New Warrants shall be
rounded up to the nearest whole number. The total number of shares of Class A
Common Stock, Class B Common Stock, Fremont Warrants, Individual Warrants or New
Warrants to be distributed to a Class of Claims shall be adjusted as necessary
to account for the rounding provided in this Section XC5.
6. Unclaimed Distributions Any distributions under the Plan that are
unclaimed for a period of one year after distribution thereof shall be revested
in the Reorganized Company and any entitlement of any holder of any Claim or
Equity Interest to such distributions shall be extinguished and forever barred.
7. Distributions to Equity Interest Holders as of the Record Date As of the
close of business on the Record Date, the transfer ledgers (for Equity
Interests) shall be closed, and there shall be no further changes in the record
holders of any Equity Interests. Debtors and Reorganized Company shall have no
obligation to recognize any transfer of any Equity Interests occurring after the
Record Date. Debtors and Reorganized Company shall instead be entitled to
recognize and deal for all purposes under the Plan (except as to voting to
accept or reject the Plan) with only those record holders stated on the transfer
ledgers as of the close of business on the Record Date.
ARTICLE XI
PROVISIONS REGARDING
RELEASES, INJUNCTIONS AND DISCHARGE
A. Injunction
The Confirmation Order shall provide for, and shall operate as, an
injunction against
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the commencement or continuation of any action to collect, recover, or offset
from any of the Debtors or the Reorganized Company, or any property of any of
the Debtors or the Reorganized Company, any Claim or Equity Interest that is
treated in this Plan except as otherwise permitted by this Plan or by Final
Order of the Court (including, without limitation, the Financing Order). The
Court shall have jurisdiction to determine and award damages for any violation
of the injunction provided for in this Plan or the Confirmation Order,
including, without limitation, compensatory damages, professional fees, expenses
and costs, and exemplary damages for any willful violation of the injunction.
B. Discharge of Debtors
Except as otherwise expressly provided in section 1141 of the Bankruptcy
Code or the Plan, the distributions made pursuant to and in accordance with the
applicable terms and conditions of the Plan are in full and final satisfaction,
settlement, release and discharge as against the Debtors of any debt that arose
before the Effective Date and any debt of a kind specified in section 502(g),
502(h), or 502(i) of the Bankruptcy Code and all Claims and Equity Interests of
any nature, including, without limitation, any interest accrued thereon from and
after the Petition Date, whether or not (i) a proof of Claim or Equity Interest
based on such debt, obligation or equity interest is filed or deemed filed under
section 501 of the Bankruptcy Code, (ii) such Claim or Equity Interest is
Allowed under section 502 of the Bankruptcy Code or (iii) the holder of such
Claim or Equity Interest has accepted the Plan.
ARTICLE XII
MANDATORY PLAN PROVISIONS;
COMPLIANCE WITH LOCAL BANKRUPTCY RULE
A. Prohibition on Issuance of Nonvoting Equity Securities
The Debtors' charters shall, and is hereby deemed (i) to provide that
nonvoting
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equity securities in the Debtors may not be issued, and (ii) to provide, as to
the classes of security possessing voting power, for an appropriate distribution
of such power among the classes, including, in the case of any class of equity
securities having a preference over another class with respect to dividends,
adequate provisions for the election of directors representing such preferred
class in the event of default in payment of such dividends.
B. Post-Confirmation Reports
Pursuant to the terms of Local Bankruptcy Rule 3020-2, six (6) months after
entry of the Confirmation Order, or within such other time as the Court may
direct, the Reorganized Company, or such other party as the Court may designate,
shall file and serve, pursuant to Local Bankruptcy Rules 9013-3 and 3020-2, a
report setting forth the actions taken and progress made toward consummation of
the Plan until the Final Decree is entered. Thereafter any Creditor may request
information regarding disbursement under the Plan from Debtors or the
Reorganized Company in writing.
ARTICLE XIII
RETENTION OF JURISDICTION
After Confirmation and until entry of a Final Order under section 350 of the
Bankruptcy Code, the Court shall retain and have exclusive jurisdiction and
authority for all purposes as allowed under the Bankruptcy Code and other
applicable law including, without limitation, proceedings that relate to:
(a) to hear and determine any and all objections to the allowance of
any Claims or any controversies as to the classification of any Claims; provided
that only Debtors and the Reorganized Company may file objections to Claims;
(b) to hear and determine any and all applications by Professionals for
compensation
41
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and reimbursement of expenses;
(c) to hear and determine any and all pending applications for the
rejection and disaffirmance of executory contracts and unexpired leases, and fix
and allow any Claims resulting therefrom;
(d) to liquidate any Disputed Claims;
(e) to enforce the provisions of the Plan, including the injunction,
exculpation and releases provided for in the Plan;
(f) to hear and determine any and all applications, adversary
proceedings, contested matters and litigated matters;
(g) to enable the Debtors to prosecute any and all proceedings which
have been or may be brought prior to the Effective Date to set aside liens or
encumbrances and to recover any transfers, assets, properties, or damages to
which the Debtors may be entitled under applicable provisions of the Bankruptcy
Code or any federal, state, or local laws;
(h) to correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or in the Confirmation Order as may be necessary to
carry out its purpose and the intent of the Plan;
(i) to determine any Claim or liability to a governmental unit which
may be asserted as a result of the transactions contemplated herein;
(j) to hear and determine matters concerning state, local, and federal
taxes in accordance with sections 364, 505 and 1146 of the Bankruptcy Code; and
(k) to determine such other matters as may be provided for in the
Confirmation Order or
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as may be authorized under the provisions of the Bankruptcy Code.
Whether or not a Final Order closing this Case has been entered pursuant to
section 350 of the Bankruptcy Code, following Substantial Consummation the Court
shall retain concurrent jurisdiction only to correct any defect, cure any
omission, or reconcile any inconsistency in this Plan or the Confirmation Order,
as may be necessary to carry out the purposes and intent thereof. For the
avoidance of doubt, the Court shall not retain jurisdiction with respect to the
Exit Financing Facility.
ARTICLE XIV
MISCELLANEOUS
A. Provisions Applicable to All Claims
The payment, distributions and other treatments provided in respect of each
Allowed Claim pursuant to the terms of this Plan shall be in complete
satisfaction, discharge and release of each such Claim or Equity Interest,
unless otherwise specifically provided herein. B. Reservation of Debtors' Rights
Unless otherwise specifically provided in this Plan, neither the filing of
nor Confirmation of this Plan shall be interpreted or deemed to waive Debtors'
rights under the Bankruptcy Code or other applicable law to assert any cause of
action or to otherwise seek relief, including pursuant to any Avoiding Action
against any person or entity.
C. Effectuating Documents and Further Transactions
Whether before or after the Effective Date, each of the Debtors or
Reorganized Company, as the case may be, is authorized to execute, deliver, file
or record such contracts, instruments, releases, financing statements,
indentures and other agreements or documents and take such actions as may be
necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan and any notes or securities issued pursuant to the Plan.
43
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Notwithstanding the foregoing, the Fremont financing statements presently on
file shall remain in full force and effect after the Effective Date.
D. Exemption from Transfer Taxes
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer
or exchange of notes or equity securities under the Plan, the creation of any
mortgage, deed of trust or other security interest, the making or assignment of
any lease or sublease, or the making or delivery of any deed or other instrument
of transfer under, in furtherance of, or in connection with the Plan, including,
without limitation, any merger agreements or agreements of consolidation, deeds,
bills of sale or assignments executed in connection with any of the transactions
contemplated under the Plan shall not be subject to any stamp, real estate
transfer, mortgage recording or other similar tax.
E. Exculpation
None of the Debtors, the Reorganized Debtors, the Creditors' Committee,
Cambridge, HRAC nor any of their respective members, officers, directors,
employees, advisors or agents shall have or incur any liability to any holder of
a Claim or Equity Interest for any act or omission in connection with, related
to, or arising out of, the Cases, the pursuit of confirmation of the Plan, the
consummation of the Plan or the administration of the Plan or the property to be
distributed under the Plan, except for willful misconduct or gross negligence,
and, in all respects, the Debtors, the Reorganized Company, the Creditors'
Committee, Cambridge, HRAC and each of their respective members, officers,
directors, employees, advisors and agents shall be entitled to rely upon the
advice of counsel with respect to their duties and responsibilities under the
Plan.
F. Amendment or Modification of the Plan
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Alterations, amendments or modifications of the Plan may be proposed in
writing by the Debtors at any time prior to the Confirmation Date, provided that
the Plan, as altered, amended or modified, satisfies the conditions of sections
1122 and 1123 of the Bankruptcy Code, and the Debtors shall have complied with
section 1125 of the Bankruptcy Code. The Plan may be altered, amended or
modified at any time after the Confirmation Date and before substantial
consummation, provided that the Plan, as altered, amended or modified, satisfies
the requirements of sections 1122 and 1123 of the Bankruptcy Code and the Court,
after notice and a hearing, confirms the Plan, as altered, amended or modified,
under section 1129 of the Bankruptcy Code. A holder of a Claim or Equity
Interest that has accepted the Plan shall be deemed to have accepted the Plan,
as altered, amended or modified, if the proposed alteration, amendment or
modification does not materially and adversely change the treatment of the Claim
or Equity Interest of such holder. The Debtors may, without notice to holders of
Claims or Equity Interests insofar as it does not materially and adversely
affect the interests of any such holders, correct any defect or omission in this
Plan and any exhibit hereto, in the Disclosure Statement and any exhibit thereto
or in any other document in connection with this Plan or the Disclosure
Statement.
G. Severability
In the event that the Bankruptcy Court determines, prior to the Confirmation
Date, that any provision in the Plan is invalid, void or unenforceable, such
provision shall be invalid, void or unenforceable with respect to the holder or
holders of such Claims or Equity Interests as to which the provision is
determined to be invalid, void or unenforceable. The invalidity, voidness or
unenforceability of any such provision shall in no way limit or affect
45
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the enforceability and operative effect of any other provision hereof.
H. Revocation or Withdrawal of the Plan
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors revoke or withdraw the Plan prior to the
Confirmation Date, then the Plan shall be deemed null and void. In such event,
nothing contained herein shall constitute or be deemed a waiver or release of
any claims by or against the Debtors or any other party or to prejudice in any
manner the rights of the Debtors or any party in any further proceedings
involving the Debtors.
I. Binding Effect
The provisions of this Plan shall bind the Debtors, the Reorganized Company,
the Creditors, and any successor or assign including a Chapter 7 or Chapter 11
trustee, and shall bind any person or entity asserting a Claim against any of
the Debtors or the Estate, and any person or entity asserting an Equity Interest
in any of the Debtors, whether or not the Claim or Equity Interest is impaired
under this Plan, and whether or not such person or entity has accepted the Plan.
To the extent this Plan and the Disclosure Statement are in conflict, the terms
of this Plan shall control.
46
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Columbus, Ohio
Dated: June 24, 1998
Gaylord Companies, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
The Cookstore, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
The Cookstore Worthington, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
47
<PAGE>
Exhibit 2.2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: :
GAYLORD COMPANIES, INC. : Case No. 97-60560
Joint Administered With:
GAYLORD BOOK COMPANY, : Case No. 97-60562
GAYLORD'S, INC., : Case No. 97-60561
SAWWORTH BOOK COMPANY, : Case No. 97-60563
GAYLORD ENTERPRISES, INC., : Case No. 97-60564
THE COOKSTORE, INC., and : Case No. 97-60565
THE COOKSTORE WORTHINGTON, INC.; : Case No. 97-60566
: Chapter 11
Debtors. : (Judge Caldwell)
AMENDED DISCLOSURE STATEMENT FOR AMENDED
PLAN OF REORGANIZATION OF GAYLORD
COMPANIES, INC., THE COOKSTORE, INC. AND
THE COOKSTORE WORTHINGTON, INC., DATED JUNE 24, 1998
Daniel R. Swetnam (0011022)
E. James Hopple (0019298)
Victoria E. Powers (0054589)
Susan K. Cliffel (0046915)
Daniel M. Anderson (0067041)
Schottenstein, Zox & Dunn Co., LPA
41 South High Street, Suite 2600
Columbus, Ohio 43215
(614) 221-3211
Case Attorneys for Debtors
THE BANKRUPTCY COURT HAS EXPEDITED THE CONFIRMATION PROCESS. BALLOTS WITH
RESPECT TO THE PLAN MUST BE COMPLETED AND FILED WITH (i) THE CLERK OF THE
UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF OHIO, EASTERN
DIVISION, 170 NORTH HIGH STREET, COLUMBUS, OHIO 43215 BY 4:00 P.M. ON JULY
8, 1998 AND SERVED ON (ii)
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<PAGE>
SCHOTTENSTEIN, ZOX & DUNN CO., LPA, 41 SOUTH HIGH STREET, SUITE 2600,
COLUMBUS, OHIO 43215, ATTENTION: VICTORIA E. POWERS SO THAT THE BALLOT IS
RECEIVED BY COUNSEL FOR DEBTORS BY 5:00 P.M. ON JULY 8, 1998.
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. INTRODUCTION...........................................................................53
II. THE DEBTORS............................................................................58
A. History...........................................................................58
B. Directors and Officers............................................................60
C. Events Leading to the Filing of the Petition......................................61
D. Current Operations................................................................63
1. Financial Results............................................................63
2. Significant Chapter 11 Events................................................63
a. Professionals............................................................64
b. Joint Administration.....................................................66
c. Pre-Petition Date Wages..................................................66
d. Authorization to Enter Into the Term Sheet and Advisory Agreement........67
e. Use of Cash Collateral and take out of Greenfield........................68
f. Fremont Financing and Amendment of Advisory Agreement....................68
g. Bar Date.................................................................69
h. Bookstores...............................................................69
i. Leases...................................................................69
E. Business Plan.....................................................................70
1. Sponsor and Management.......................................................70
2. Competition..................................................................71
3. Business Strategy............................................................72
4. Store Location Strategy......................................................72
5. Potential Acquisition Strategy...............................................72
6. Internal Growth Strategy.....................................................73
7. Background of Members of the Sponsor and Management of Reorganized Company...73
III. THE ESTATE............................................................................76
A. Assets............................................................................76
1. Cookstore Debtors.............................................................77
2. Gaylord Companies.............................................................77
B. Liabilities.......................................................................78
1. Administrative Expense.......................................................78
2. Secured Claims...............................................................78
3. Priority Claims other than Administrative Expenses...........................79
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4. General Unsecured Claims.....................................................79
IV. SUMMARY OF THE PLAN....................................................................80
A. Classification of Claims and Equity Interests.....................................81
A. Secured Claims....................................................................81
B. Priority Claims...................................................................82
C. Unsecured Claims..................................................................82
D. Equity Interests..................................................................82
E. Unclassified Claims...............................................................82
B. Treatment of Claims and Equity Interests..........................................82
1. Secured Claims...............................................................82
2. Priority Claims..............................................................85
3. Unsecured Claims.............................................................86
4. Equity Interests.............................................................88
C. Description and Treatment of Unclassified Claims..................................90
1. Description of Unclassified Claims...........................................90
2. Filing Unclassified Claims...................................................93
D. Means for Implementation of the Plan..............................................94
1. Conditions Precedent to Effectiveness of Plan................................94
2. Objections to Claims.........................................................95
3. Voting of Claims.............................................................96
4. Nonconsensual Confirmation...................................................96
5. Method of Distributions Under the Plan.......................................96
a. In General...............................................................96
b. Distributions of Cash....................................................97
c. Timing of Distributions..................................................97
d. Fractional Cents.........................................................97
e. Fractional Shares, New Warrants, Fremont Warrants, Individual
Warrants................................................................97
f. Unclaimed Distributions..................................................98
g. Distributions to Equity Interest Holders as of the Record Date...........98
h. Injunction...............................................................98
i. Discharge of Debtors.....................................................99
6. Source of Funds..............................................................99
7. Financing....................................................................99
8. Merger of HRAC and Gaylord Companies........................................100
9. Issuance of New Securities and Cancellation of Existing Securities and
Agreements.................................................................100
10. Operation of Business.......................................................102
11. The Reorganized Company....................................................103
12. Breaches....................................................................103
13. Pre-Payment of Allowed Claims...............................................103
14. Continuation of Bankruptcy Injunction or Stays..............................103
15. Reverting of Assets.........................................................104
16. General Release of Liens....................................................104
</TABLE>
50
<PAGE>
<TABLE>
<S> <C>
17. Compensation and Benefit Programs...........................................104
18. Retiree Benefits............................................................105
19. Amended Bylaws and Amended Certificates of Incorporation....................105
V. DISCLOSURES REQUIRED BY 11 U.S.C. 1129(a)(4) AND (5)..................................105
ARTICLE VI. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES........................107
VII. FEASIBILITY..................................................................108
VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN....................109
A. Sale of Individual Stores....................................................109
B. Chapter 11 Liquidation.......................................................110
C. Conversion to Chapter 7......................................................110
D. Dismissal Alternative........................................................110
IX. LIQUIDATION ANALYSIS.................................................................111
X. PENDING AND ANTICIPATED LITIGATION....................................................112
XI. SECURITIES LAWS MATTERS...............................................................113
A. Bankruptcy Code Exemptions From Registration Requirements....................113
B. Initial Offer and Sale of Plan Securities....................................113
C. Subsequent Transfers of Plan Securities......................................114
XII. FEDERAL TAX CONSEQUENCES...........................................................118
XIII. CONFIRMATION.......................................................................119
A. Confirmation Procedure.......................................................119
B. Effect of Confirmation.......................................................122
XIV. RISK FACTORS.......................................................................122
XV. DESCRIPTION OF CAPITAL STOCK.......................................................132
XVI. MERGER.............................................................................136
XVII. EQUITY INCENTIVE PLAN..............................................................136
XVIII. CONCLUSION.........................................................................138
</TABLE>
51
<PAGE>
EXHIBITS
Exhibit A Gaylord Companies, Inc.'s and Cookstore Debtors' Amended Plan of
Reorganization dated June 24, 1998 [Included as Exhibit 2.1]
Exhibit B Form 10-KSB of Gaylord Companies, Inc. for the period ending
December 31, 1996 [Omitted]
Exhibit C Financial Report of Cookstore Debtors for 1997
Exhibit D Term Sheet, Advisory Agreement and Related Documents
Exhibit E Schedule of Treatment of Executory Contracts and Unexpired Leases
Exhibit F Projected Financial Operations of Reorganized Company [Omitted]
Exhibit G Liquidation Analysis [Omitted]
Exhibit H Merger Agreement
Exhibit I 1998 Equity Incentive Plan
52
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I. INTRODUCTION
Pursuant to section 1125 of the Bankruptcy Code, Debtors Gaylord Companies,
Inc. ("Gaylord Companies"), The Cookstore, Inc. ("TCI") and The Cookstore
Worthington, Inc. ("TCWI") (sometimes referred to collectively as "Debtors")
furnish this Amended Disclosure Statement for Amended Plan of Reorganization of
Gaylord Companies, Inc., The Cookstore, Inc. and The Cookstore Worthington,
Inc., Dated June 24, 1998 (the "Disclosure Statement") to each known Creditor
and Equity Interest holder of Debtors for purposes of (1) providing those
entities with adequate information regarding Amended Plan of Reorganization of
Gaylord Companies, Inc., The Cookstore, Inc. and The Cookstore Worthington,
Inc., Dated June 24, 1998 (the "Plan") to make an informed judgment concerning
acceptance or rejection of the Plan, and (2) soliciting acceptances of the Plan.
A copy of the Plan is appended hereto as Exhibit A.
ALL HOLDERS OF CLAIMS AND/OR EQUITY INTERESTS WITH RESPECT TO DEBTORS ARE
ENCOURAGED TO REVIEW THE FULL TEXT OF THE PLAN AND TO READ CAREFULLY THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING ALL EXHIBITS. PARTICULAR ATTENTION SHOULD BE
GIVEN TO THOSE PROVISIONS OF THE PLAN IMPAIRING THE RIGHTS OF CREDITORS AND
EQUITY INTEREST HOLDERS.
DEBTORS BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF CREDITORS. ALL
CREDITORS ENTITLED TO VOTE ON THE PLAN ARE URGED
- ----------
1 Any capitalized term used but not otherwise defined in this Disclosure
Statement shall have the meaning given to that term in the Plan or
Bankruptcy Code.
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<PAGE>
TO VOTE IN FAVOR OF THE PLAN. CREDITORS ENTITLED TO VOTE ON THE PLAN SHOULD HAVE
RECEIVED A BALLOT IN THE SOLICITATION PACKAGE CONTAINING THIS DISCLOSURE
STATEMENT. EACH SUCH CREDITOR WHO WISHES TO VOTE ON THE PLAN SHOULD (1) COMPLETE
THE BALLOT, AND (2) MAIL THE ORIGINAL TO:
CLERK OF THE UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION
170 NORTH HIGH STREET
COLUMBUS, OHIO 43215
AND A COPY TO:
SCHOTTENSTEIN, ZOX & DUNN
41 SOUTH HIGH STREET
COLUMBUS, OHIO 43215
ATTENTION: VICTORIA E. POWERS, ESQ.
IN ORDER FOR A BALLOT TO BE COUNTED, IT MUST BE RECEIVED BY THE CLERK ON OR
BEFORE JULY 8, 1998. BALLOTS RECEIVED AFTER THAT DATE WILL NOT BE COUNTED. ONLY
BALLOTS RECEIVED BY HAND OR MAIL DELIVERY WILL BE COUNTED. BALLOTS RECEIVED BY
FACSIMILIE WILL NOT BE COUNTED. A CREDITOR NEED NOT CAST A BALLOT TO RECEIVE A
DISTRIBUTION UNDER THE PLAN.
ANY BALLOT THAT IS NOT EXECUTED WILL BE CONSIDERED NULL AND VOID AND WILL
NOT BE COUNTED. ANY EXECUTED BALLOT IN WHICH BOTH THE ACCEPTANCE AND REJECTION
BOXES ARE CHECKED SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE PLAN. ANY
EXECUTED BALLOT THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION
54
<PAGE>
OF THE PLAN SHALL ALSO BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE PLAN.
THE STATEMENTS IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF
UNLESS ANOTHER TIME IS EXPRESSLY SPECIFIED HEREIN. THIS DISCLOSURE STATEMENT MAY
NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO DETERMINE WHETHER TO ACCEPT OR
REJECT THE PLAN. NOTHING CONTAINED IN THIS DISCLOSURE STATEMENT SHALL
CONSTITUTE, OR BE DEEMED TO CONSTITUTE, ADVICE ON THE TAX OR OTHER LEGAL EFFECTS
OF ANY REORGANIZATION ON CREDITORS OR EQUITY INTEREST HOLDERS IN CONNECTION WITH
SUCH REORGANIZATION.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS INCLUDED FOR THE PURPOSE OF
SOLICITING ACCEPTANCE OF THE PLAN. IT IS NOT TO BE CONSTRUED AS ADMISSIONS OR
STIPULATIONS, BUT RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS. THE
INFORMATION WAS PROVIDED BY DEBTORS. UNLESS OTHERWISE STATED HEREIN, THE ASSET
VALUES CONTAINED IN THIS DISCLOSURE STATEMENT WERE CALCULATED BY DEBTORS'
PRESIDENT OR DEBTORS' CHIEF FINANCIAL OFFICER. REPRESENTATIVES OF HRAC HAVE
PREPARED THE ATTACHED FINANCIAL FORECASTS BASED UPON HRAC'S OBJECTIVES FOR THE
REORGANIZED COMPANY AND HRAC'S ESTIMATES OF ITS FUTURE BUSINESS. DEBTORS'
COUNSEL IS UNAWARE OF ANY ERRORS OR OMISSIONS WITH RESPECT TO THE CALCULATIONS
OR FORECASTS.
55
<PAGE>
HOWEVER, DEBTORS' COUNSEL HAS NOT UNDERTAKEN ANY SEPARATE ANALYSIS OF DEBTORS'
PRESENT OR FUTURE FINANCIAL POSITION OR OTHERWISE VERIFIED THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT.
This Disclosure Statement was conditionally approved by order of the Court
entered June 24, 1998. The Court will consider final approval of this Disclosure
Statement at the Confirmation Hearing. Approval of this Disclosure Statement
does not, however, constitute a determination by the Court as to the fairness or
merits of the Plan.
This Disclosure Statement and the ballot are the only documents authorized
by the Court to be used in connection with the solicitation of acceptances or
rejections of the Plan. Except as included in this Disclosure Statement, no
representations about Debtors or the Reorganized Company, including without
limitation, the value of property, Creditor Claims, or future business
operations, are authorized by the Court. This Disclosure Statement and the Plan
are operative only as to the Debtors. The Debtors' Affiliates are proceeding
pursuant to that certain Plan of Reorganization of United Magazine Company with
regard to the Debtor's Affiliates dated April 16, 1998 (May 1, 1998
Modification).
IF THE PLAN IS CONFIRMED, IT WILL BE BINDING ON ALL CREDITORS AND EQUITY
INTEREST HOLDERS OF DEBTORS, REGARDLESS OF WHETHER THE CREDITOR OR EQUITY
INTEREST HOLDER HAS VOTED FOR OR AGAINST THE PLAN OR FILED A PROOF OF CLAIM OR
EQUITY INTEREST.
THE COURT HAS SCHEDULED A HEARING ON CONFIRMATION OF THE PLAN FOR 10:00 A.M.
ON JULY 10, 1998 BEFORE THE HONORABLE
56
<PAGE>
CHARLES M. CALDWELL, UNITED STATES BANKRUPTCY JUDGE, UNITED STATES BANKRUPTCY
COURT, AT 170 NORTH HIGH STREET, COLUMBUS, OHIO. A NOTICE SETTING FORTH THE TIME
AND DATE OF THE CONFIRMATION HEARING HAS BEEN DISTRIBUTED WITH THIS DISCLOSURE
STATEMENT. 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 OF THE PLAN 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 SIZE AND TYPE OF EQUITY INTEREST IN
GAYLORD COMPANIES HELD BY THE OBJECTOR. ANY SUCH OBJECTION MUST BE FILED WITH
THE CLERK OF THE COURT AND SERVED SO THAT IT IS RECEIVED BY THE FOLLOWING
PARTIES ON OR BEFORE JULY 8, 1998 AT 4:00 P..M.:
Schottenstein, Zox & Dunn, Co. LPA
Attorneys for Debtor
41 South High Street
Columbus, Ohio 43215-6106
Attn: Daniel R. Swetnam, Esq.
Arter & Hadden
Attorneys for Creditors' Committee
One Columbus
10 W. Broad Street
Columbus, Ohio 43215-3422
Attn: Nick V. Cavalieri, Esq.
Hahn & Hessen LLP
Attorneys for HRAC
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350 Fifth Avenue
New York, New York 10118
Attn: Jeffrey L. Schwartz, Esq.
Office of the United States Trustee
170 North High Street, 2nd Floor
Columbus, Ohio 43215
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<PAGE>
II. THE DEBTORS
A. History
TCI and TCWI (the "Cookstore Debtors") are wholly owned subsidiaries of
Gaylord Companies. The Cookstore Debtors are specialty retailers of quality
cookware and serving equipment, cooking accessories and certain select food
products as well as cookbooks and food-related publications (the "Cookstores").
On the Petition Date the Cookstores were located in six regional retail
malls in Ohio, Indiana and Kentucky*. The Cookstores are each approximately
3,300 square feet in size, with each offering approximately 5,000 different
types of products, including products from over 200 vendors. The Cookstores
offer product lines in twelve distinct categories, including accessories,
bakeware, books, cookware, cutlery, electronics, food, furniture, gadgets,
gifts, tableware and textiles.
- ----------
* Two stores are to be closed by August 5,1998, see infra.
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<PAGE>
The following table sets forth information relating to each of the Cookstore
Debtors:
<TABLE>
<CAPTION>
Date of
Debtor Incorpor- Store Location Store Opening
ation
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Cookstore, 1981 Lane Avenue October 1981
Inc. Shopping Center,
Columbus, Ohio
Summit Mall December 1994
Akron, Ohio
*Castleton Square December 1996
Mall
Indianapolis, IN
*Florence Mall December 1996
Florence, KY
The Cookstore 1993 Worthington Mall, December 1993
Worthington, Inc. Worthington, Ohio
The Mall at November, 1994
Fairfield Common,
Beavercreek, OH
</TABLE>
In the Cookstores, the Debtors present merchandise in what the Debtors
believe is an upscale and fashionable setting. A full range of product is
displayed and stocked on the retail floor. Merchandise is arranged by category
for shopping convenience and every item is tagged with its current retail price.
Feature displays are arranged throughout the store
- ----------
*To be closed by August 5, 1998.
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<PAGE>
emphasizing seasonal products or particular themes.
As noted above, the Cookstore Debtors are wholly owned subsidiaries of
Gaylord Companies. Gaylord Companies' stock became publicly traded stock on
November 7, 1995. Until late 1997, Gaylord Companies filed periodic reports and
statements with the Securities and Exchange Commission. Attached hereto as
Exhibit B is a copy of Gaylord Companies, Inc.'s Form 10-KSB for the period
ending December 31, 1996. This Form 10-KSB contains additional information about
the Cookstore Debtors and Gaylord Companies. Other reports filed by Gaylord
Companies are also available for public inspection. There have been material
changes to Gaylord Companies' business since Exhibit B was filed with the
Securities and Exchange Commission, including but not limited to those changes
described in this Disclosure Statement.
B. Directors and Officers
On the Petition Date, the Debtors' Boards of Directors in each case
consisted of George Gaylord, John Gaylord and John D. Critser. In addition,
Martin Licht was a Director of Gaylord Companies. John Gaylord served as
Chairman of each of the Debtors. George Gaylord served as Senior Chairman. At
present, each of the Debtors has three Directors: David E. Danovitch, John D.
Critser and Greg E. Dukoff.
David E. Danovitch is a Director of Gaylord Companies, TCI and TCWI. He
became a Director as of May 1, 1998, upon the termination of John Gaylord as an
officer of the Debtors and the resignation of John Gaylord as a Director of the
Debtors. He is a Director of HRAC and a principal of Cambridge. Mr. Danovitch is
serving as interim Chief Financial Officer until a permanent Chief Financial
Officer of the Debtors is selected.
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<PAGE>
John D. Critser is President, Vice President, Treasurer and a Director of
Gaylord Companies, TCI and TCWI. He served as President of Gaylord Companies,
TCI and TCWI from November 1993 through May 1998. Mr. Critser is a first cousin
of John Gaylord. Mr. Critser is presently subject to an employment agreement
with Gaylord Companies which will be rejected prior to or at the Confirmation
Date. Mr. Critser has agreed to serve in a transitional capacity after the
Confirmation Date, at which time the need for his services will be evaluated
consistent with the needs and means of the Reorganized Company.
Greg E. Dukoff is Secretary and a Director of Gaylord Companies, TCI and
TCWI. He became a Director as of May 1, 1998 upon the termination of John
Gaylord as an officer of the Debtors and upon the resignation of John Gaylord as
a Director of the Debtors. Mr. Dukoff is being compensated by the Debtors at a
rate of $8,333 per month for financial and administrative services rendered as
an independent consultant. It is anticipated that such consultancy will continue
after the Confirmation Date consistent with the needs of the Reorganized
Company. Mr. Dukoff is President and a Director of HRAC.
Mr. Critser and Mr. Dukoff are presently shareholders of Gaylord Companies.
Their Equity Interests are more fully described below.
It is anticipated that the composition of the Board of Directors will change
on the Effective Date as more fully described below.
C. Events Leading to the Filing of the Petition
The specialty retail kitchenware and cookware business is highly
competitive. The Cookstore Debtors compete against a wide variety of stores,
including department and speciality stores, as well as mail order catalogs. The
Debtors' primary national competitors
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for specialized kitchen products are Williams-Sonoma, Inc. and Lechters, Inc. In
addition, the Debtors compete with other well-known stores such as Linens &
Things, Bed Bath & Beyond, and Bath and Bodyworks. Many of these competitors
have greater financial, distribution, advertising and marketing resources than
do the Debtors.
The following chart compares certain performance levels at the Cookstores
over the last two years:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Sales $3,497,940 $3,724,157
Cost of Goods Sold, including store occupancy and 1,835,709 2,018,684
delivery costs
Gross Profit 1,662,231 1,705,473
Store Operating Expense 1,065,545 1,614,166
Store Level Income $ 596,686 $ 91,307
</TABLE>
This chart does not include costs for Equity Interest, administrative
overhead or depreciation and amortization. When such items are included, the
Debtors incurred substantial losses in each of these years. Attached as Exhibit
C is a statement reflecting financial performance of the Cookstore Debtors in
1997. More detailed information about the Cookstore Debtors' operations in 1996
and 1997 is set forth in Exhibits B and C.
In April, 1997, Gaylord Companies entered into a Loan and Security Agreement
(as amended, the "Greenfield Loan Agreement") with Greenfield. Under the
Greenfield Loan Agreement, Greenfield advanced the sum of $350,000 pursuant to a
Term Loan Note and agreed to advance up to an additional $1,000,000 pursuant to
a Revolving Credit Note. The Greenfield Loan Agreement was guaranteed by each of
the Cookstore Debtors, by Debtors'
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<PAGE>
Affiliates Gaylord Book Company, Gaylord's, Inc., Sawworth Book Company and
Gaylord Enterprises, Inc. (collectively, the "Bookstore Debtors"), as well as
by John Gaylord personally. The financing with Greenfield matured by its own
terms on October 20, 1997.
Throughout the summer and fall of 1997 Gaylord Companies had hoped to raise
additional funds through one or more placements of securities. At the same time,
several suppliers had stopped shipping merchandise, and the Cookstore Debtors
were in arrears on most of their leases. Several landlords had commenced actions
to recover possession of the leased premises. Unfortunately, Gaylord Companies
was not able to raise additional funds. On November 3, 1997, Greenfield
commenced an action in the Franklin County Court of Common Pleas seeking, inter,
alia, the appointment of a receiver for Gaylord Companies, the Debtors and the
Bookstore Debtors. Attempts to resolve matters with Greenfield were
unsuccessful. Accordingly, Gaylord Companies and each of its subsidiaries
commenced their Chapter 11 cases on November 13, 1997.
D. Current Operations
1. Financial Results
Since the Petition Date, the Cookstore Debtors have continued to operate the
Cookstores.
In a normal year, approximately 30% of the Cookstore Debtors' annual sales
will occur in November and December. However, because certain suppliers had
already stopped shipments, and because the Cookstore Debtors did not have cash
on hand, as of the Petition Date the inventory levels were not at the desired
levels. Christmas 1997 sales suffered accordingly.
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<PAGE>
Since January, 1998, the Cookstore Debtors' sales have continued to suffer
from a lack of inventory. The Cookstore Debtors project that assuming
confirmation of the Plan, same store sales in 1998 will be slightly below 1997
levels.
2. Significant Chapter 11 Events
a. Professionals
The Debtors engaged the law firm Schottenstein, Zox & Dunn ("SZD") as their
counsel in these cases. By Order Approving Application for Appointment of
Counsel to Debtors and Debtors-In-Possession entered January 16, 1998, the Court
approved the retention of SZD. SZD had no prior connection with the Debtors.
Under the Order Authorizing Retention of SZD, the Debtors and the Bookstore
Debtors have made payments to be held as a retainer, and SZD is authorized to
apply 85% of fees and 100% of expenses on a monthly basis. As of March 31, 1998,
SZD had accrued time and expenses totalling $206,599.87, and had received the
total sum of $195,950.10 from the Debtors and Bookstore Debtors. From April 1,
1998 forward, SZD has kept a separate record of time and expenses for the
Debtors and the Bookstore Debtors. SZD anticipates that its time and expenses,
for April 1, 1998 until the Confirmation Date in the Debtors Case will be
approximately $80,000. SZD has received the sum of $10,000 as an additional
retainer.
The Debtors also engaged the accounting firm Longanbach, Giusti, Kuck &
Hornberger ("LGKH") to perform certain limited services. The retention was
approved by Order Approving Application of Debtors for Authority to Employ
Longanbach, Giusti, Kuck & Hornberger as Accountants entered January 16, 1998.
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<PAGE>
In December, 1997, an Official Committee of Unsecured Creditors (the
"Committee") was appointed. At the outset, the Committee, which includes
creditors of the Bookstore Debtors, was comprised of the following entities:
Ralph C. Liebert Family Trust #2, FBD Michelle M. Liebert; Glimcher Properties,
Limited Partnership; United Magazine Company; Gator Forest Partners; Random
House; Villaware Mfg. Co.; Portmeirion USA and The Map Store, Inc. As of the
date of this Disclosure Statement, the Committee consists of Glimcher
Properties, Limited Partnership; Gator Forest Partners and Villaware
Manufacturing Co. The Committee engaged the law firm of Arter & Hadden as its
counsel. The retention was approved by Order Granting Application for
Appointment of Counsel for The Official Unsecured Creditors' Committee of
Debtors and Debtors-In-Possession entered January 16, 1998.
The Debtors and the Bookstore Debtors have made payments to A&H to be held
as a retainer, and A&H is authorized to apply 85% of fees and 100% of expenses
on a monthly basis. As of March 31, 1998, A&H had accrued time and expenses
totalling $65,190.94 and had received the total sum of $30,000.00 from the
Debtors and the Bookstore Debtors. From April 1, 1998 forward, A&H has kept a
separate record of time and expenses for the Debtors and the Bookstore Debtors.
A&H anticipates that its time and expenses, for April 1, 1998 until the
Confirmation Date for the Debtors will be approximately $12,000.00. A&H has
received the sum of $4,500.00 as an additional retainer since April 1, 1998.
Below is a summary of the professionals that have been retained by
order of the Court, the amount of any retainers paid to these professionals to
date, the fees and expenses incurred through March 31, 1998, and an estimate of
the amount of fees and expenses that
66
<PAGE>
will be incurred by these professionals from April 1, 1998 through the
Confirmation Date. The estimated fees and expenses represent these
professionals' best estimate and the actual fees and expenses incurred by these
professionals may be higher or lower.
67
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Name Retained Description Fees and Retainer Estimated Retainer
by of Services Expenses Paid Fees and Paid Since
Incurred Through Expenses April 1,
Through March 31, Incurred 1998
March 31, 1998 from
1998 April 1,
1998
Through the
Confirmation
Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Schottenstein, Zox Debtors Bankruptcy $206,599.87 $195,950.10 $80,000.00 $10,000.00
& Dunn Co., LPA Counsel
- ----------------------------------------------------------------------------------------------------------------
Longanbach, Giusti Debtors Accounting $ 9,613.85 $ 7,500.00 $ 2,500.00 $ 0
Kuck & Hornberger
- ----------------------------------------------------------------------------------------------------------------
Arter & Hadden Creditors' Bankruptcy $ 65,190.94 $ 30,000.00 $12,000.00 $ 4,500.00
Committee Counsel
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
a. Joint Administration
On November 14, 1997, the Debtors obtained an order of the Court authorizing
their separate chapter 11 cases to be jointly administered as the Case for
procedural purposes only.
c. Pre-Petition Date Wages
On November 14, 1997, the Court entered an Order Authorizing Debtor to Pay
Pre-Petition Employee Compensation, Related Taxes and Benefits, to Reimburse
Pre-Petition Employee Business Expenses and to Maintain Payroll Account and
Payroll Services. As a result, employees were paid (or reimbursed expenses) up
to $4,000 per employee for pre-petition services, which services were rendered
generally within the two week period prior to the filing date. The total amount
paid by Debtors was approximately $25,000.
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<PAGE>
d. Authorization to Enter Into the Term Sheet and Advisory Agreement
On February 26, 1998, the Debtors filed a Motion to Enter Into and Perform a
Term Sheet with Cambridge. Following a hearing on March 5, 1998, the Court
entered an Order granting the Motion. The Term Sheet was negotiated by and among
Cambridge and the Debtors and the Committee and provided the foundation for the
Plan. In general terms, the Term Sheet provides for the sale of the Debtors as
going concerns to Cambridge or its designee. Pursuant to the terms of the Term
Sheet, if certain conditions in the Term Sheet are not satisfied, then Cambridge
may, at its option, terminate all of its obligations under and in connection
with the Term Sheet.
The Term Sheet originally envisioned that Greenfield would remain a lender
to the Debtors through the Effective Date and that Cambridge and/or its designee
or affiliate would provide advisory services to the Debtors pursuant to an
Advisory Agreement. However, it became apparent to the Debtors and to Cambridge
that it was in the best interests of the Debtors' Estates for Greenfield to be
paid out of its loan facility with respect to the Debtors prior to the Effective
Date and for HRAC, an affiliate of Cambridge, to assume a more active advisory
role in the business of the Debtors and perform in place of Cambridge under the
Advisory Agreement. As a result, HRAC arranged for Fremont to provide a loan
facility, the proceeds of which were used to repay the Greenfield Allowed
Secured Claim and induce Greenfield to enter into a termination and waiver of
all claims
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<PAGE>
against the Debtors. The Advisory Agreement was amended pursuant to a
Stipulation and Order entered by the Court on April 27, 1998. In order to insure
that the Fremont Financing was sufficient in amount to (i) take out Greenfield
and (ii) provide the Cookstore Debtors with sufficient working capital, the
Court authorized Cambridge or its designees to purchase participation interests
in the Fremont Financing of not less than $500,000 or more than $1,000,000.
These participants now comprise the Class 2 and Class 3 claimants under the
Plan, whose treatment is more particularly described below.
A copy of the Term Sheet, the Advisory Agreement as amended, and related
documents are attached hereto collectively as Exhibit D.
e. Use of Cash Collateral and Release by Greenfield
Through a series of Motions and Orders, at the inception of the cases
the Debtors were authorized to continue their use of cash collateral (as defined
at Section 363(a) of the Bankruptcy Code) in which both the Debtors and
Greenfield claimed an interest. As the cases proceeded, it became clear that the
Debtors would be unable to survive utilizing cash collateral alone. Accordingly,
as noted above, after executing the Term Sheet Agreement, representatives of
Cambridge sought and obtained Chapter 11 Financing for the Debtors through
Fremont, an asset-based lender. As part of such Chapter 11 Financing, the
Debtors' obligations to Greenfield were satisfied and Greenfield released its
claims and liens against the Debtors. The Fremont Financing is more particularly
described below.
f. Fremont Financing and Amendment of Advisory Agreement
On April 8, 1998, the Cookstore Debtors moved for authority to enter into
and perform a commitment letter for DIP Financing with Fremont. An Interim Order
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authorizing the Cookstore Debtors to obtain such financing was entered by the
Court on April 16, 1998. Final authority was granted by order dated May 6, 1998.
Under the terms of the financing, Fremont and the Cookstore Debtors entered into
an asset-based revolving credit facility secured by all property of the Debtors.
Greenfield's claims against those entities were satisfied under the Fremont
Financing and its claims released. As the amount necessary to satisfy Greenfield
and provide the Cookstore Debtors with sufficient working capital was greater
than Fremont was willing to lend on the available collateral, HRAC and the
Individual Junior Participants purchased junior participations in the Fremont
Financing. Under the Proposed Plan, Fremont is treated as a Class 1 claimant;
HRAC and the Individual Junior Participants are treated as Class 2 and 3
claimants, respectively.
g. Bar Date
By order dated December 1, 1997, the Court entered an Order fixing March 17,
1998 as the last day for filing proofs of claim or interest with respect to
Unsecured Claims. The bar date for governmental entities to file proofs of Claim
was May 12, 1998.
h. Bookstores
As reflected in the Term Sheet, Cambridge had no interest in the Bookstore
Debtors; as a result, the creditors of the Bookstore Debtors negotiated a
separate plan of reorganization for those entities. However, as a function of
the Debtors' operations, certain intercompany claims, both pre-and-post
petition, have arisen in the ordinary course of business. As a result the
Cookstore Debtors and the Bookstore Debtors entered into a Stipulation and Order
approved by the Court on May 4, 1998. Under the Stipulation, the
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<PAGE>
parties waived any pre-petition intercompany claims and reserved their
respective rights as to administrative claims, which they agreed to resolve in
good faith. In any event, the Debtors believe the amount of such intercompany
claims is not substantial.
i. Leases
After Court approval of the Term Sheet and Advisory Agreement, HRAC and the
Debtors sought to renegotiate certain provisions of the Debtors' Leases.
Negotiations regarding two locations, Florence, Kentucky and Indianapolis,
Indiana were unsuccessful and those leases were rejected by Order of the Court
dated May 6, 1998 and a Modified Agreed Order dated June 11, 1998. In addition,
it is anticipated that the lease relating to the Debtors' headquarters location
will be rejected prior to the Confirmation Date.
E. Business Plan
1. Sponsor and Management
Cambridge Holdings, L.L.C. ("Cambridge" or the "Sponsor") has agreed to
sponsor the Debtors' plan. Through the acquisition and integration of various
retail companies and related businesses in markets throughout the United States,
Cambridge hopes that the Reorganized Company will have a substantial position in
the high-end cookware and related markets.
Cambridge is a merchant banking firm headquartered in New York City. It
specializes in working with companies in misunderstood or neglected industries
and misunderstood or improperly financed asset classes. For example, during
1996-1997, Cambridge raised approximately $1.5 billion to acquire assets and
operating entities in the shipping (primarily gas and oil transport) industry.
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<PAGE>
These acquisitions were financed through operating companies and structures
similar to those contemplated in this transaction.
In addition to capital, Cambridge provides services to entities in which it
or its principals have an interest, such as management of the acquisition
process, balance-sheet management (e.g. securitization, access to capital
markets - debt and equity) and management of the public offering process. In
addition to Mr. Danovitch, who will continue as a Director, on the Effective
Date several principals of Cambridge will assume board positions of the
Reorganized Company and will maintain an active role in its strategic,
financial, and related planning activities.
Cambridge anticipates the following principals will be involved in the
Reorganized Company in the respective capacities described in paragraph 7 below:
David E. Danovitch; Donald Jackson, Cambridge's President and Chief Operating
Officer with overall responsibility for its investment banking activities; and
George Lucaci, Vice Chairman of Cambridge, in charge of all capital
markets-related activities. Gerald Czarnecki, a veteran general manager and
corporate turnaround specialist, will serve as Chairman of the Reorganized
Company. Thomas Tuttle, the President of Global Strategic Holdings, Ltd., an
investment fund that has invested in previous Cambridge-sponsored transactions
(and that is the holder of the GEM Debenture) will serve as a Director of the
Reorganized Company.
Cambridge will have an advisory contract in substance comparable to the
existing HRAC Advisory Agreement (the precise terms of which are still to be
determined), with the Reorganized Company for a minimum period of the lesser of
three years or until the Reorganized Company has sustained a market
capitalization of at least $150 million for at
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<PAGE>
least three months. It is anticipated that under the advisory contract Cambridge
will receive $20,000 per month, with payments to accrue until such time as the
Reorganized Company raises $4 million in a public or private equity offering,
after which all amounts that have accrued shall be paid and future payments
shall be made monthly.
2. Competition
Current competitors in the target market segment include discount stores,
department stores, other gourmet specialty store chains and franchised specialty
stores, as well as mail order and internet sales. There are significant
competitors, many of whom will be better capitalized than the Reorganized
Company.
3. Business Strategy
The Reorganized Company's goal is to become a specialty chain operation
selling kitchenware to the retail consumer throughout the United States. The
concept is that of a store that sells tools for serious cooks. The Reorganized
Company will endeavor to provide the consumer with a wide assortment of products
while focusing on better quality items. It will endeavor to achieve the status
of a national chain through a combination of acquisitions and internal growth
through the opening of new store locations and franchising.
4. Store Location Strategy
To reach target customers and an evolving customer base, the Reorganized
Company will seek to locate its stores in major shopping areas that offer an
abundance of customer traffic. To date, the Sponsor believes that the best
locations have been in regional malls with major store anchors, surrounded by
single family homes, preferably in high income areas. The Reorganized Company's
internal growth expansion plans are to enter markets
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<PAGE>
where there is no direct, specialty store competitor so in most cases the
Reorganized Company opens the first store of its kind in the market.
5. Potential Acquisition Strategy
Initially, the Reorganized Company expects to grow through acquisition of
other chains of retail cookstores. Although they have commenced preliminary
negotiations with some potential acquisition candidates, and HRAC has executed a
non-binding term sheet with an entity which owns and/or franchises in excess of
forty stores, at this time the Debtors have no binding agreements with any such
candidates, and there can be no assurance they will complete any proposed
acquisitions.
6. Internal Growth Strategy
Although it is anticipated that the early phase growth will be primarily
effected through acquisition of existing chains, the Reorganized Company also
plans to open an additional 10-15 stores in the year 1999. The stores will be
opened either in existing markets or new markets with no category competition.
In addition, the Sponsor intends to actively assist the Reorganized Company to
pursue franchising of additional locations.
7. Background of Members of the Sponsor and Management of Reorganized
Company as of the Effective Date.
David E. Danovitch, Managing Director, Cambridge Holdings. As described
earlier, Mr. Danovitch is currently serving as Director and interim Chief
Financial Officer of the Debtors. On the Effective Date, he will continue to
serve as a Director and interim Chief Financial Officer until a permanent CFO is
selected. Mr. Danovitch is responsible for Cambridge's principal-based and
leveraged finance activities outside of the shipping and
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<PAGE>
liquid assets areas. Prior to joining Cambridge, he was a principal of Snowden
Capital, Inc., a New York City-based investment banking and direct investment
firm. From 1993-1994, he was a member of the new senior management team at IBM,
serving as the chief of staff to the IBM Senior Vice President responsible for
implementing the company's worldwide downsizing, refocusing, and re-engineering.
Between 1990 and 1993, Mr. Danovitch was with the law firm of Jones, Day, Reavis
& Pogue. From 1988 to 1990, he was an executive officer of the National Council
of Savings Institutions. From 1986 to 1988, he was at the First National Bank of
Boston. Members of Mr. Danovitch's family are partners in a partnership that
will be a shareholder of the Reorganized Parent.
Donald J. Jackson, President & Chief Operating Officer, Cambridge Holdings.
Mr. Jackson will serve as a Director of the Reorganized Company. Mr. Jackson has
over thirteen years of experience in the financial markets and is Cambridge's
chief operating officer. Prior to joining Cambridge, he was a founder and the
former President of RiverBank Securities, a small broker-dealer based in New
York City. Mr. Jackson's financial background is in institutional fixed income
sales and distribution and fixed income arbitrage. Prior to forming RiverBank in
1995, Mr. Jackson was a private investor. He started his career at Salomon
Brothers in 1984 where he developed his expertise in fixed income markets. Mr.
Jackson has also held managerial positions at Prudential Securities Inc., Union
Bank of Switzerland, and Nomura Securities International.
George P. Lucaci, Vice Chairman, Cambridge Holdings. Mr. Lucaci will serve
as a Director of the Reorganized Company. Mr. Lucaci is the former Chief
Executive Officer of RiverBank Securities, LLC, and has been in the global fixed
income markets for over 18
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<PAGE>
years in trading, sales, and finance. He has held management and line positions
at Citibank, Merrill Lynch, and Nomura Securities as a foreign exchange and
arbitrage trader, mortgage product manager and head of U.S. fixed income sales.
He directs all of Cambridge's capital market activities. At Merrill Lynch, he
was responsible for the distribution of all generic and derivative mortgage
products for 16 offices nationwide.
Gerald M. Czarnecki, Chairman - The Deltennium Group, Inc., Mr. Czarnecki
will serve as Chairman of the Board of the Reorganized Company. From September
1994-November 1995, Mr. Czarnecki was President & COO of UNC Incorporated, a
diverse aviation manufacturing and services concern. Between April 1993-May
1994, he was IBM Senior Vice President in charge of the reorganization,
reengineering, and right-sizing of the diversified computer company. Between
October 1988-April 1993, he was part of an investor group headed by former
Treasury Secretary William E. Simon, with specific responsibility for overseeing
the affairs of HonFed Bank, a $3 billion bank located in Hawaii.
Thomas Tuttle, President -Gem Investment Advisors, Inc. Mr. Tuttle will
serve as Director of the Reorganized Company. He is currently the President of
GEM Investment Advisors, Inc., a New York based investment advisory firm, which
iteself and through its affiliates maintains substantial investment stakes in a
number of public and private companies including; Sun Cut Floral Network, Inc.,
Home Retail Acquisition Corp., Austin Computer Systems, Welder-Heyer Energy I
and 2d Interactive. Prior to forming GEM Investment Advisors, Mr. Tuttle worked
for Morgan Stanley, ultimately resigning as the Indonesian Country Manager. He
received his undergraduate degree from Princeton
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University and graduated as a Baker Scholar and recipient of the Henry Ford II
and Thomas and Edna Wolfe Award from the Harvard Business School.
Greg E. Dukoff, Principal - CH Equity Partners, L.P., a private equity
partnership in the process of formation. Mr. Dukoff will continue to serve as
Secretary of Gaylord Companies, TCI and TCWI. He has formerly held senior
management positions with ABN AMRO Bank and Prudential Securities. Mr. Dukoff is
an officer of HRAC, is an existing shareholder of Gaylord Companies and will be
a shareholder in Reorganized Parent. In addition, members of Mr. Dukoff's family
are partners in a partnership that will be a shareholder of Reorganized Parent.
Mr. Dukoff will not be a Director of the Reorganized Company on and after the
Effective Date.
John D. Critser, President - Gaylord Companies, Inc. Mr. Critser has been
President of Gaylord Companies since its inception in July 1994 and has been
President of each of its subsidiaries since November 1993. Prior to joining the
Debtors in July 1993, Mr. Critser was Vice President of Store Operations for
Eckerd Vision Group, a division of the Eckerd Corporation. Mr. Critser joined
Eckerd Corporaiton in 1983 as an operations manager and served as a Vice
President of the Eckerd Vision Group since February 1991. Mr. Critser is
presently subject to an employment agreement with Gaylord Companies which will
be rejected prior to or at the Confirmation Date. Mr. Critser has agreed to
serve in a transitional capacity after the Confirmation Date, at which time the
need for his services will be evaluated consistent with the needs and means of
the Reorganized Company. Mr. Critser will not be a Director of the Reorganized
Company on and after the Effective Date.
HRAC and each of the Directors, with the exception of Mr. Dukoff, is an
affiliate of
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Cambridge. After Confirmation, the Reorganized Company's board of directors will
be divided into three classes, with each class of directors to serve three-year
staggered terms (after their initial terms). Mr. Jackson will be elected as a
Class I director for an initial one-year term expiring in 1999. Messrs. Lucaci
and Danovitch will be elected as Class II directors for an initial two-year term
expiring in 2000. Messrs. Tuttle and Czarnecki will be elected as Class III
directors for an initial three-year term expiring in 2001.
III. THE ESTATE
A. Assets
1. Cookstore Debtors
The Cookstore Debtors' Schedules state that the inventory held by the
Cookstore Debtors, as of the Petition Date, had an aggregate value of
approximately $1,024,500. Excluding supplies and "RTV" inventory, the Cookstore
Debtors' Schedules showed other assets as of the Petition Date aggregating
approximately $332,000 (for computer equipment, furniture and fixtures, and
leasehold improvements). Except with respect to ongoing operations, however,
these assets are of little or no value. Other assets as of the Petition Date
include a registered trademark for "The Cookstore" as well as possible proceeds
of Avoiding Actions. The value of the registered trademark is unknown. The
Debtors have not yet completed an analysis of possible Avoiding Actions, and are
unaware of any significant possible preference actions pursuant to section 547
of the Bankruptcy Code. The Debtors have made no determination at this time as
to whether they will assert Avoiding Actions against any party.
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The Cookstore Debtors own no real estate. All locations are operated under
leases with varying maturity dates. The leases do not have economic value in and
of themselves.
2. Gaylord Companies
As the parent company, Gaylord Companies held no inventory as of the
Petition Date. The schedules list Gaylord Companies' total assets as about
$283,000. On the Petition Date, Gaylord Companies had close to $143,000 in cash,
accounts receivable of just over $4,000, approximately $26,000 in computer
equipment, and approximately $90,000 in prepaid consulting, legal and financial
expenses. The balance of Gaylord Companies' assets was comprised of supplies
($2,600), furniture and fixtures ($1,300), the cash value of insurance policies
($11,000), and a lease deposit ($2,900). In addition, the Gaylord Companies was
the owner of each of the subsidiaries and was party to a license agreement with
Little Professor Book Company, which is now an asset of the Bookstore Debtors.
These items were of an unknown value.
B. Liabilities
The following is an estimate of the Debtors' liabilities. Except for
Administrative Expenses, the liabilities are stated as of the Petition Date.
1. Administrative Expense
The bankruptcy proceedings of Gaylord Companies and each of its six
subsidiaries have been jointly administered. As a result, professional fees are
not separated by case. Further, as of the present date, detailed applications
for allowance of professional fees have not been filed. However, the Debtors
estimate their administrative expenses with respect to professional fees as set
forth in Section IID2a of this Disclosure Statement.
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In addition, under its Stipulation with the Bookstore Debtors, the Debtors
could have liability, but they believe that any such liability will not be
substantial.
As of June 10, 1998, the Sponsor believes the Debtors were current, or by
the Effective Date would be current, with all material items which could give
rise to an administrative expense claim.
2. Secured Claims
Substantially all of the Debtors' assets are subject to a blanket lien and
security interest in favor of Fremont. The Fremont Allowed Secured claim, as of
June 10, 1998, was approximately $1,071,000, of which $571,000 is the Fremont
Senior Tranche and the balance of $500,000 the HRAC Junior Tranche and the
Individual Junior Tranche. It is anticipated that these amounts will increase by
the Confirmation Date as a result of the Debtors' business requirements. This
claim is secured by assets of the Cookstores Debtors. The Debtors are unaware
of, nor do their schedules reflect, any other valid and perfected secured claims
(other than equipment leases that will either be assumed or rejected by the
Debtors).
3. Priority Claims other than Administrative Expenses
The Debtors paid pre-petition wages of up to $4,000 per person. The Debtors
do not anticipate any priority claims for wages.
The Debtors' priority claims consist of certain sales taxes and personal
property taxes. The Debtors owe sales taxes for sales occurring in the month of
October, 1997 and the first thirteen days of November, 1997. The Debtors
estimate that the principal amount of the sales tax liability will be
approximately $17,000. In addition, the relevant taxing
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authorities may seek to assert claims for penalties and interest, as Unsecured
Claims, in the amount of approximately $8,500.
The Debtors also owe personal property taxes for certain pre-petition
periods. The Debtors estimate that the amount which will be due for personal
property taxes will be approximately $62,000.
4. General Unsecured Claims
The bar date for filing proofs of Claim (other than Claims of governmental
entities) was March 17, 1998. The bar date for filing proofs of Claim for
governmental entities was May 12, 1998. The Debtors have not yet reviewed all of
the claims filed, and accordingly, the following is the Debtors' estimate of
general unsecured claims. The Debtors estimate general unsecured claims in the
amount of approximately $1,545,500, of which approximately $607,250 constitutes
Claims against Gaylord Companies and $938,250 constitutes Claims against the
Cookstore Debtors.
The above estimate includes approximately $175,000 in pre-petition lease
arrearages. The above amount does not include any amount for rejection claims
that would arise upon the rejection of leases and executory contracts.
The Cookstore Debtors have initiated negotiations with their landlords,
seeking agreements with the landlords to obtain concessions on both pre-petition
arrearages or future rent. As of the date of this Disclosure Statement, letters
reflecting agreement in principle have been received from four of the six
landlords of the Cookstore Debtors, and the Debtors have rejected the other two
store leases (with respect to the Florence, Kentucky and Indianapolis, Indiana
locations of the Cookstore Debtors). In addition, the Debtors intend to
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reject the lease for their headquarters location.
5. Retirement Plans, etc.
Other than the Supplemental Executive Retirement Plan effective August 1,
1996 of the Gaylord Companies, Inc. and employment agreements with John Gaylord,
John Critser and George Gaylord, the Debtors are not party to any retirement or
employment agreements. The Debtors intend to reject the foregoing Supplemental
Executive Retirement Plan and employment agreements.
IV. SUMMARY OF THE PLAN
The following is a brief description of significant provisions of the Plan.
This summary only highlights certain provisions of the Plan and is not a
substitute for a full and complete reading of the Plan. A copy of the Plan is
appended hereto as Exhibit A. Creditors and parties-in-interest are referred to
the Plan for a more thorough discussion of the provisions of the Plan. In the
case of any discrepancy between the terms of the Plan and the discussion of the
Plan in this Disclosure Statement, the terms of the Plan shall govern.
A. Classification of Claims and Equity Interests.
As more fully described below, the Debtors are seeking in connection with
the Plan the substantive consolidation of the estates of the Debtors for Plan
purposes only. As a result thereof, for Plan purposes the Debtors will be
treated as if they were a single corporate and economic entity and the Creditors
of each Debtor will be treated as a Creditor of the substantively consolidated
group of Debtors. At the same time, there will be no merger, as a matter of law,
between Gaylord Companies or either of the Cookstore Debtors,
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which shall maintain their separate legal existence.
The Plan places all allowed Claims and Equity Interests in the classes set
forth below, or, where applicable, treats allowed Claims as Unclassified Claims,
as discussed in Article II and Section III(E) of the Plan. Unless expressly
provided otherwise, an Allowed Claim that is properly included in more than one
class is in a class to the extent it meets the description of such class and is
in a different class to the extent it meets the description of such different
class.
A. Secured Claims
Class 1: Fremont, as sole owner of the Fremont Senior Tranche.
Class 2: HRAC, as owner of the HRAC Junior Tranche.
Class 3: Individual Junior Participants, as owners of the Individual Junior
Tranche.
Class 4: holders of all other Allowed Secured Claims whose Claims are not
included in Classes 1, 2 or 3.
B. Priority Claims
Class 5: the Allowed Claims of Unsecured Creditors entitled to priority
pursuant to sections 507(a)(3) or 507(a)(4) of the Bankruptcy
Code.
C. Unsecured Claims
Class 6: the unsecured Allowed Claim of any Creditor not included in any
other class, including, without limitation, the "deficiency"
portion of any Allowed Secured Claims, but not including
Unclassified Claims treated elsewhere in the Plan.
D. Equity Interests
Class 7: the Equity Interests of holders of common shares of Gaylord
Companies.
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Class 8: the Equity Interests of holders of preferred shares of Gaylord
Companies.
Class 9: the Equity Interests of holders of warrants for the purchase of
common shares of Gaylord Companies.
Class 10: all other Equity Interests in the Debtors not included in Class 7,
8 or 9.
E. Unclassified Claims
Section 1123(a)(1) of the Bankruptcy Code provides that certain Claims,
including Claims for Administrative Expenses for unpaid post-Petition Date goods
and services (Bankruptcy Code Section 507(a)(1) Claims and Claims for Allowed
Unsecured Claims of governmental units (Bankruptcy Code Section 507(a)(8)
Claims), shall not be designated into classes. The Unclassified Claims treated
in the Plan are described below.
B. Treatment of Claims and Equity Interests
The Plan provides that Allowed Claims in the following classes shall receive
the treatment set forth below in complete satisfaction of all such Allowed
Claims.
1. Secured Claims
Class 1: Class 1 is not impaired. Fremont is the holder of the Fremont
Senior Tranche, which is the senior tranche of certain funding provided to the
Cookstore Debtors by Fremont pursuant to the Financing Order. As of the
Effective Date, the Debtors estimate that the Allowed Amount of the Fremont
Senior Tranche will be $671,000.
Pursuant to the Plan, on the Effective Date, all outstanding obligations due
to Fremont under the Financing Order shall be either (x) repaid in full in cash
or (y) repaid pursuant to the Exit Financing Facility such that Fremont shall
receive, in complete satisfaction of the Fremont Senior Tranche, the full amount
of the Fremont Senior Tranche
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either (i) in cash on the Effective Date, or (ii) as may otherwise be agreed by
and among Fremont, Cambridge, and the Debtors or the Reorganized Company. In
addition, Fremont shall receive in connection with the Exit Financing Facility
Fremont Warrants exercisable to purchase 92,595 shares of Class A Common Stock
at an exercise price of $.01 per share.
Class 2: Class 2 is impaired. HRAC is the holder of the HRAC Junior Tranche,
which is currently a $280,000 junior tranche of the funding provided to the
Cookstore Debtors by Fremont pursuant to the Financing Order, but may be
increased by the Effective Date.
The HRAC Junior Tranche will be satisfied as part of the total treatment of
HRAC under the Plan.
Pursuant to the Plan, on the Effective Date, HRAC shall be merged into
Gaylord Companies. In consideration for the contribution of HRAC and the merger
of HRAC with Gaylord Companies, and in complete satisfaction of the HRAC Junior
Tranche and any amounts owed to HRAC prior to the Confirmation Date on account
of the HRAC Advisory Agreement, the shareholders of HRAC shall receive on the
Effective Date 1,383,684 shares of Class A Common Stock of Reorganized Parent
which, on the Effective Date giving effect to the exercise of the New Warrants
and before the exercise of any Financing Warrants, shall be equal to eighty
percent (80%) of the issued and outstanding shares of Class A Common Stock and
Class B Common Stock of Reorganized Parent. In addition, the Reorganized Parent
will assume the Assumed HRAC Obligations.
Class 3: Class 3 is not impaired. The Individual Junior Participants are
holders of the Individual Junior Tranche, which represents certain junior
tranches of the
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funding provided to the Cookstore Debtors by Fremont pursuant to the Financing
Order.
Pursuant to the Plan, on the Effective Date, all outstanding obligations due
and security interests granted to the Individual Junior Participants shall be
restructured as a subordinated loan facility (which may, if agreed to by the
holders of such Claims, Fremont and the Reorganized Parent, be structured as a
subordinated participation) in an amount equal to the outstanding amount of the
Individual Junior Tranche and such holders otherwise will be rendered
unimpaired. In partial consideration for the restructure of such obligations,
each holder of an Allowed Claim in Class 3 shall also receive its pro rata
percentage of the 29,261 Individual Warrants exercisable for 29,261 shares of
Class A Common Stock of the Reorganized Parent at the exercise price of $4.00
per share.
Class 4: Class 4 is not impaired. The Allowed General Secured Claims in this
class consist of all Allowed Secured Claims other than the Fremont Senior
Tranche, the HRAC Junior Tranche and the Individual Junior Tranche. Based upon
the Debtors' Schedules and the proofs of claim filed in the Case, the Debtors
are unaware of any Allowed Claim in this Class (other than equipment leases to
be either assumed or rejected by the Debtors).
Pursuant to the Plan, at the sole option of Reorganized Company, (i) an
Allowed General Secured Claim shall be reinstated and rendered unimpaired in
accordance with section 1124(2) of the Bankruptcy Code, (ii) a holder of an
Allowed General Secured Claim shall receive cash in an amount equal to such
Allowed General Secured Claim, including any interest on such Allowed General
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 General
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Secured Claim becomes Allowed, or as soon thereafter as is practicable, or (iii)
a holder of an Allowed General Secured Claim shall receive the collateral
securing its Allowed General Secured Claim and any interest on such Allowed
General Secured Claim required to be paid pursuant to section 506(b) of the
Bankruptcy Code, in full and complete satisfaction thereof on the later of the
Effective Date and the date such General Secured Claim becomes Allowed, or as
soon thereafter as is practicable. The legal, equitable and contractual rights
of the holders of Allowed General Secured Claims, if any exist, are not altered
by the Plan.
2. Priority Claims
Class 5: Class 5 is not impaired. Allowed Claims in Class 5 are Claims which
are entitled to priority in accordance with section 507(a) of the Bankruptcy
Code (other than Administrative Expense Claims and Priority Tax Claims). Such
Claims include (i) unsecured claims for accrued employee compensation earned
within 90 days prior to the Petition Date to the extent of $4,000 per employee
and (ii) contributions to employee benefit plans arising from services rendered
within 180 days prior to the commencement of the Case, but only for each such
plan to the extent of (a) the number of employees covered by such plan
multiplied by $4,000, less (b) the aggregate amount paid to such employees from
the Estates for wages, salaries or commissions. The Debtors estimate that the
aggregate of Priority Claims will be approximately $0.
Each holder of an Allowed Claim in Class 5 shall receive a cash payment in
complete satisfaction of the Allowed Claim.
3. Unsecured Claims
Class 6: Class 6 is impaired. The Claims in Class 6 consist of the unsecured
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Allowed Claims of any Creditor not included in any other class, including,
without limitation, the "deficiency" portion of any Allowed Secured Claim, but
not including Unclassified Claims treated elsewhere in the Plan. The Debtors
estimate that Allowed Claims in Class 6 will aggregate between approximately
$1,545,000 and $1,750,000 exclusive of claims arising as a result of the
rejection of executory contracts and leases, and insider wage claims, where such
insiders agreed to waive any piority status.
On the Effective Date, each holder of an Allowed Claim in Class 6 shall
receive from the Reorganized Parent in complete satisfaction of the Allowed
Claim, the following:
(i) An amount equal to its pro rata share, as compared to all other
holders of Allowed Claims in Class 6, of the Available Cash Distributions.
Pursuant to the Available Cash Distributions, distributions shall be made by
Reorganized Parent from Available Cash in the maximum amount of $30,000.00
per year for five (5) years beginning on January 30, 1999 and continuing on
each January 30 through January 30, 2003, so long as Reorganized Parent has
Available Cash. To the extent that there is insufficient Available Cash to
pay any installment with respect to the Available Cash Distributions (such
amount, a "Shortfall Amount"), then Reorganized Parent's obligation to make
an installment payment for such Shortfall Amount for that year shall be
extinguished; provided, however, notwithstanding anything in this Plan to
the contrary, if the Reorganized Parent does not, by January 30, 1999,
complete a public or private offering of its equity securities and offer the
holders of the Allowed Claims in Class 6 the opportunity to sell such
holders' Class A Common Stock in such public or private offering of equity
securities for a price of not less than $4.00 per share, then (x) the
payment of each Shortfall Amount shall be deferred (not extinguished)
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until the next scheduled installment payment date when there is sufficient
Available Cash to pay the regularly scheduled installment on the Available
Cash Distributions plus the Shortfall Amount and (y) the entire amount of
$150,000 (less any payments previously made with respect to the Available
Cash Distributions) shall be due and payable on January 30, 2003. Available
Cash Distributions shall be made by Reorganized Parent to the holders of the
Allowed Claims in Class 6; and
(ii) Shares of Class A Common Stock in the Reorganized Parent in an
amount equal to such holder's pro rata share, as compared to all other
holders of Allowed Claims in Class 6, of eight percent (8%) of the issued
and outstanding Class A Common Stock and Class B Common Stock of the
Reorganized Parent on the Effective Date giving effect to the exercise of
the New Warrants and before the exercise of any Financing Warrants.
Each holder of an Allowed Claim in this class will receive its pro rata
portion of the Available Cash Distributions and will receive its pro rata
portion of 138,350 shares of Class A Common Stock of the Reorganized Parent.
Such shares of Class A Common Stock shall not be transferable until the earlier
of six months after the Effective Date or the closing date of a registered
public offering by the Reorganized Parent. Holders of such shares shall have the
right for six months after the Effective Date to register such shares for sale
in a registered public offering; provided that if any such holder determines not
to include such shares in such a registered public offering, such holder shall
be obliged to agree to any lock-up requested by any underwriter of such public
offering. If such registered public offering is underwritten, holders who wish
to register such shares must sell such shares on the basis provided in any
underwriting arrangements and execute any documents reasonably required
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in connection with such underwriting arrangements.
Article XV of this Disclosure Statement contains a description of the Class
A Common Stock.
4. Equity Interests
Class 7: Class 7 is impaired. Class 7 consists of the Equity Interests of
holders of common shares of Gaylord Companies.
Pursuant to the Plan and following the conversion of Other Equity Interests
to common shares of Gaylord Companies as provided for in Class 10 below and the
merger of HRAC with and into the Gaylord Companies, the common shares of Gaylord
Companies shall be extinguished, and the holders of Allowed Equity Interests in
Class 7 shall receive their pro rata share of the number of 85,777 shares of
Class B Common Stock. Article XV of this Disclosure Statement contains a
description of the Class B Common Stock.
Class 8: Class 8 is impaired. Class 8 consists of the Equity Interests of
holders of preferred shares of Gaylord Companies.
Pursuant to the Plan, all issued and outstanding shares of preferred stock
in Gaylord Companies as of the Effective Date shall be converted to common stock
of Gaylord Companies. Following such conversion, such common shares of Gaylord
Companies shall be extinguished and the holders of Allowed Equity Interests in
Class 8 shall receive their pro rata share of the number of shares of Class B
Common Stock equal to four percent (4%) of the number of the issued and
outstanding shares of Class A Common Stock and Class B Common Stock of the
Reorganized Parent as of the Effective Date giving effect to the exercise of the
New Warrants. Article XV of this Disclosure Statement contains a
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description of the Class B Common Stock.
Class 9: Class 9 is impaired. Class 9 consists of the Equity Interests of
holders of warrants for the purchase of common shares of Gaylord Companies.
Pursuant to the Plan, all outstanding warrants for the purchase of common
shares of Gaylord Companies shall be deemed cancelled and become null and void
(without further act or action by any party). 52,573 New Warrants for 52,573
shares of Reorganized Parent at the initial exercise price of $11.57 shall be
distributed pro rata to the holders of Allowed Claims in Class 9. The New
Warrants shall not be exercisable or transferable until six months after the
Effective Date.
Class 10: Class 10 is impaired. Class 10 consists of all other Equity
Interests in the Debtors not included in Classes 7, 8 or 9.
Pursuant to the Plan, all Equity Interests in the Debtors not treated in
Classes 7, 8 or 9 hereof shall be converted, pursuant to the terms of the
applicable agreement (be it a put, or other applicable right, including without
limitation, any right to issue new warrants), to preferred or common shares of
Gaylord Companies, as provided in such agreement or, at the option of the holder
of any Class 10 Equity Interest, extinguished. If converted to preferred shares
of Gaylord Companies, the interests of the holder of such shares then shall be
subject to the further conversion provided for holders of Equity Interests in
Class 8 hereof. If converted to common shares of Gaylord Companies, the
interests of the holder of such shares then shall be subject to the treatment
provided for holders of Equity Interests in Class 7 hereof. C. Description and
Treatment of Unclassified Claims
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1. Description of Unclassified Claims.
Administrative Expense Claims are Claims constituting a cost or expense of
administration of the Cases allowed under sections 503(b) and 507(a)(1) of the
Bankruptcy Code. Such Claims include any actual and necessary costs and expenses
of preserving the estates of the Debtors, any actual and necessary costs and
expenses of operating the business of the Debtors and any indebtedness or
obligations incurred or assumed by the Debtors in connection with the conduct of
their business including, without limitation, for the acquisition or lease of
property or an interest in property or the rendition of services, all
compensation and reimbursement of expenses to the extent Allowed by the
Bankruptcy Court under section 330 or 503 of the Bankruptcy Code, and any fees
or charges assessed against the estates of the Debtors under Section 1930 of
chapter 123 of title 28 of the United States Code.
The Debtors estimate the aggregate amount of Administrative Expense Claims
against the Estate as of the Effective Date (excluding professional fees
described in Section II D 2 of this Disclosure Statement) will be $210,000.00,
including June rental payments and $15,000.00 in fees to the Office of the
United States Trustee for fees for the first quarter of 1998 and thereafter. As
of June 1, 1998, the Debtors were generally current (within thirty (30) days) on
all other matters that could give rise to a material Administrative Expense
Claim.
Pursuant to the Plan, except to the extent that any entity entitled to
payment of any Allowed Administrative Expense Claim agrees to a different
treatment, and except as provided in Article II(A)(2) and (3) of the Plan, each
holder of an Allowed Administrative
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Expense Claim shall receive cash in an amount equal to such Allowed
Administrative Expense Claim on the later of the Effective Date and the date
such Administrative Expense Claim becomes an Allowed Administrative Expense
Claim, or as soon thereafter as is practicable; provided, however, that (1)
Allowed Administrative Expense Claims representing liabilities or other
obligations incurred in the ordinary course of business by the Debtors shall be
paid in full (and any such other obligations shall be performed) by the
Reorganized Company 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 and (2) any Claim
for Administrative Expense held or asserted by an entity against the bankruptcy
estate(s) of the Debtors' Affiliates shall not be impaired hereby, and any such
claim for Administrative Expenses held or asserted against such other estate(s)
shall be reduced by the amount paid to such entity pursuant to the terms of the
Plan.
Under the Plan, all entities seeking an award by the Court of compensation
for services rendered or reimbursement of expenses incurred or any other
requests for payment of Administrative Expenses, through and including the
Confirmation Date under sections 503(b)(1), 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, or any other requests for payment of Administrative
Expenses, incurred through the Confirmation Date within 60 days after the
Effective Date and (b) if granted such an award by the Court, shall be paid in
full in such amounts as are allowed by the Court (i) on the later of the
Effective Date or the date such Administrative Expense
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Claim becomes an Allowed Administrative Expense Claim, or as soon thereafter as
is practicable or (ii) upon such other terms as may be mutually agreed upon
between such holder of an Allowed Administrative Expense Claim and the Debtors
or, on and after the Effective Date, the Reorganized Company. Under the Plan,
all professional fees for services rendered in connection with the Case and the
Plan after the Confirmation Date, including, without limitation, those relating
to the occurrence of the Effective Date and the resolution of Disputed Claims,
shall be paid by the Reorganized Company upon receipt of an invoice or on such
other terms as the Reorganized Company may agree to, without the need for
further Court authorization or entry of a Final Order, absent an objection by
the Reorganized Company. In the event the Reorganized Company objects to such
fees, the matter shall be resolved by the Bankruptcy Court upon motion of such
professional.
Under the Plan, all fees payable pursuant to section 1930 of title 28 of the
United States Code shall be paid on the later of the Effective Date or such
other date as specified in invoices therefor received by the Debtors or
Reorganized Company for fees incurred through and including entry of the Final
Decree.
Priority Tax Claims are Claims for taxes entitled to priority in payment
under section 507(a)(8) of the Bankruptcy Code. The Debtors estimate that the
amount of Priority Tax Claims that have not previously been paid pursuant to
orders of the Court and thus will be required to be paid will be approximately
$80,000.
Each holder of an Allowed Priority Tax Claim shall receive, at the sole
option of Reorganized Company, (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
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Priority Tax Claim, or as soon thereafter as is practicable, or (b) equal annual
cash payments in an aggregate amount equal to such Allowed Priority Tax Claim,
together with interest at a fixed annual rate equal to 8%, over a period through
the sixth anniversary of the date of assessment of such Allowed Priority Tax
Claim, or upon such terms determined by the Court to provide the holder of such
Allowed Priority Tax Claim deferred cash payments having a value, as of the
Effective Date, equal to such Allowed Priority Tax Claim.
2. Filing Unclassified Claims.
The Plan provides that the claims bar date for filing all Claims or
applications for payment of Professionals for fees, costs and disbursements
incurred through the Confirmation Date shall be thirty (30) days from the
Effective Date (the "Professionals Claim Bar Date"). Such Claims or applications
must be filed with the Court and must also be served upon counsel for the
Debtors and upon the Office of the United States Trustee. All Professionals must
have filed their requests for approval of their fees, costs and disbursements
incurred through the Confirmation Date by the Professionals Claims Bar Date or
be forever barred from asserting the same. All fees, costs and disbursements
incurred by and paid to any Professional must be allowed and authorized for
payment by an order of the Court or such fees, costs and disbursements shall be
disgorged by such Professional and returned to the Debtors or the Reorganized
Company, as appropriate.
The Plan further provides that any fees, costs and disbursements incurred by
any Professional in connection with this Case for any time period subsequent to
the Confirmation Date may be paid by the Reorganized Company without further
order of the Court. In the event of a dispute between the Reorganized Company
and a Professional
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regarding the amount or timing of payment of any fees, costs or disbursements
that may accrue subsequent to the Confirmation Date, the Plan provides that such
dispute may be heard by the Court upon the application of such Professional.
Persons or entities other than Professionals asserting Claims entitled to
priority under section 507(a)(1) of the Bankruptcy Code must file such Claims or
applications for payment with the Court within thirty (30) days of the Effective
Date for the amounts asserted to be due through the Confirmation Date, unless
such Claims or applications for payment were required to be filed earlier
pursuant to a Final Order entered prior to Confirmation. A copy of each such
Claim or application for payment shall also be served upon counsel for the
Debtors and the United States Trustee. Any Claim or request for Administrative
Expense that is not so filed and served shall be disallowed and forever barred.
Persons or entities asserting Claims based on assumed or rejected executory
contracts or unexpired leases should refer to Article VI of the Plan and Article
VI of this Disclosure Statement.
D. Means for Implementation of the Plan.
1. Conditions Precedent to Effectiveness of Plan
The Plan shall not become effective until the following conditions precedent
shall have occurred:
1. The Confirmation Order shall have been entered which provides that:
(a) except with respect to an entity that is an underwriter as defined
in Bankruptcy Code section 1145(b), section 5 of the Securities Act of 1933, as
amended, (15 U.S.C. Section 77(d)), or any state or local law requiring
registration for the offer or sale of
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a security or registration or licensing of an issuer of, underwriter of, or
broker or dealer in securities, does not apply to the transactions provided for
in the Plan; provided, however, that in the event the Court should refuse to
enter a Confirmation Order that is deemed to include such a finding, the Debtors
shall have the option of withdrawing the Plan or proceeding without the
Bankruptcy Code section 1145 qualification; and
(b) acceptance of the Plan has been made in good faith and in
compliance with the applicable provisions of the Bankruptcy Code as contemplated
by section 1125(e) of the Bankruptcy Code.
2. There shall be no stay in effect with respect to the Confirmation Order;
3. The Reorganized Company shall have credit available under the Exit
Financing Facility to provide the Reorganized Company with financing sufficient
to meet its cash obligations under the Plan and its business requirements as of
and after the Effective Date;
4. All actions, documents and agreements necessary to implement the Plan
shall have been effected or executed and delivered; and
5. Each of the Plan documents and the New Securities shall have been
effected or executed and delivered.
2. Objections to Claims
Under the Plan, the Debtors and the Reorganized Company shall be entitled to
file objections to proofs of claim at any time prior to the closing of the Case.
Notwithstanding any other provision of the Plan specifying a date or time for
payment or distributions, payments and distributions in respect of any Claim
which as of such date is disputed, unliquidated, or contingent shall not be made
until such Claim becomes an Allowed Claim whereupon such payments and
distributions shall be made promptly or as otherwise
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provided for in the Plan. In the event that, at the time a payment is to be made
to holders of Claims in a specific class, a Claim that would otherwise be a
Claim in that class remains disputed, unliquidated or contingent, the
Reorganized Company shall reserve from its distribution to said class an amount
estimated to be sufficient to pay the amount of such disputed, unliquidated and
contingent Claims. The Reorganized Company shall distribute the appropriate
amount to the holder of such disputed, unliquidated and contingent Claims at
such time, if any, as those Claims become Allowed Claims.
3. Voting of Claims
Under the Plan, each holder of an Allowed Claim in an impaired Class which
retains or receives property under the Plan shall be entitled to vote separately
to accept or reject the Plan and indicate such vote on a duly executed and
delivered Ballot as provided in such order as is 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.
4. Nonconsensual Confirmation
Under the Plan, if any impaired Class entitled to vote shall not accept
the Plan by the requisite statutory majorities provided in sections 1126(c) or
1126(d) of the Bankruptcy Code, as applicable, the Debtors and the Reorganized
Company reserve the right (a) to undertake to have the Court confirm the Plan
under section 1129(b) of the Bankruptcy Code and (b) to amend the Plan to the
extent necessary to obtain entry of the Confirmation Order.
5. Method of Distributions Under the Plan
a. In General. Under the Plan, subject to Bankruptcy Rule 9010, all
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distributions under the Plan shall be made by the Reorganized Company to the
holder of each Allowed Claim at the address of such holder as listed on the
Schedules as of the Record Date, unless the Debtors or Reorganized Company have
been notified in writing of a change of address, including, without limitation,
by the filing of a proof of claim or notice of transfer of claim filed by such
holder that provides an address for such holder different from the address
reflected on the Schedules to the Plan.
b. Distributions of Cash. Under the Plan, any payment of cash made by
the Reorganized Company pursuant to the Plan shall be made by check drawn on a
domestic bank.
c. Timing of Distributions. Under the Plan, any payment or distribution
required to be made under the Plan on a day other than a business day shall be
made on the next succeeding business day.
d. Fractional Cents. Under the Plan, whenever any payment of a fraction
of a cent would otherwise be called for, the actual payment shall reflect a
rounding of such fraction to the nearest whole cent (rounding down in the case
of .50 or less and rounding up in the case of more than .50).
e. Fractional Shares, New Warrants, Fremont Warrants, Individual
Warrants. Under the Plan, no fractional shares of Class A Common Stock, Class B
Common Stock or fractional New Warrants, Fremont Warrants or Individual Warrants
or cash in lieu thereof shall be distributed under the Plan. When any
distribution on account of an Allowed Claim pursuant to the Plan would otherwise
result in the issuance of a number of shares of Class A Common Stock, Class B
Common Stock, Fremont Warrants, Individual Warrants or New
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Warrants that is not a whole number, the actual distribution of shares of Class
A Common Stock, Class B Common Stock, Fremont Warrants, Individual Warrants or
New Warrants shall be rounded up to the nearest whole number. The total number
of shares of Class A Common Stock, Class B Common Stock, Fremont Warrants,
Individual Warrants or New Warrants to be distributed to a Class of Claims shall
be adjusted as necessary to account for the rounding provided in this Section
IVDe.
f. Unclaimed Distributions
Under the Plan, any distributions under the Plan that are unclaimed for a
period of one year after distribution thereof shall be revested in the
Reorganized Company and any entitlement of any holder of any Claim or Equity
Interest to such distributions shall be extinguished and forever barred.
g. Distributions to Equity Interest Holders as of the Record Date
Under the Plan, as of the close of business on the Record Date, the transfer
ledgers (for Equity Interests) shall be closed, and there shall be no further
changes in the record holders of any Equity Interests. Debtors and Reorganized
Company shall have no obligation to recognize any transfer of any Equity
Interests occurring after the Record Date. Debtors and Reorganized Company shall
instead be entitled to recognize and deal for all purposes under the Plan
(except as to voting to accept or reject the Plan) with only those record
holders stated on the transfer ledgers (for Equity Interests) as of the close of
business on the Record Date.
h. Injunction
Under the Plan, the Confirmation Order shall provide for, and shall operate
as, an injunction against the commencement or continuation of any action to
collect, recover, or offset from any of the Debtors or the Reorganized Company,
or any property of any of the
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Debtors or the Reorganized Company, any Claim or Equity Interest that is treated
in this Plan except as otherwise permitted by the Plan or by Final Order of the
Court. The Court shall have jurisdiction to determine and award damages for any
violation of the injunction provided for in this Plan or the Confirmation Order,
including, without limitation, compensatory damages, professional fees, expenses
and costs, and exemplary damages for any willful violation of the injunction.
i. Discharge of Debtors
Under the Plan, except as otherwise expressly provided in section 1141 of
the Bankruptcy Code or the Plan, the distributions made pursuant to and in
accordance with the applicable terms and conditions of the Plan are in full and
final satisfaction, settlement, release and discharge as against the Debtors of
any debt that arose before the Effective Date and any debt of a kind specified
in section 502(g), 502(h), or 502(i) of the Bankruptcy Code and all Claims and
Equity Interests of any nature, including, without limitation, any interest
accrued thereon from and after the Commencement Date, whether or not (i) a proof
of Claim or Equity Interest based on such debt, obligation or equity interest is
filed or deemed filed under section 501 of the Bankruptcy Code, (ii) such Claim
or Equity Interest is Allowed under section 502 of the Bankruptcy Code or (iii)
the holder of such Claim or Equity Interest has accepted the Plan.
6. Source of Funds
The payments to be made as provided in the Plan shall be made, at the sole
option of the Reorganized Company, from any cash or property held, received, or
obtained by Debtors and/or the Reorganized Company as of the Confirmation Date,
from funds
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generated by the Reorganized Company's future operations, and from loans made or
capital contributed by Fremont, HRAC, the Individual Junior Participants and/or
certain other parties. [Portion Omitted].
7. Financing
On the Effective Date, the Reorganized Company shall enter into (1) the Exit
Financing Facility and (2) a subordinated loan facility with the Individual
Junior Participants or other lenders designated by the Debtors or Reorganized
Company in the aggregate original principal amount equal to the Individual
Junior Tranche. As partial consideration for these loan facilities, Fremont will
receive Fremont Warrants and the Individual Junior Participants will receive
Individual Warrants. In addition to the foregoing, the Sponsor is seeking an
interim financing facility in an amount necessary to accomplish its objectives
pending the offering described above.
8. Merger of HRAC and Gaylord Companies
On the Effective Date, HRAC shall be merged into Gaylord Companies. Gaylord
Companies shall be the sole surviving entity of the merger, and shall be the
Reorganized Parent hereunder pursuant to the terms of the Merger Agreement.
Pursuant to the Merger Agreement, Reorganized Parent shall assume all of the
liabilities of HRAC, including the Assumed HRAC Obligations. A copy of the
Merger Agreement is annexed as Exhibit "H".
9. Issuance of New Securities and Cancellation of Existing Securities and
Agreements
Pursuant to the Plan, Reorganized Parent is authorized to issue the
following New Securities: (i) an aggregate of 1,383,684 shares of Class A Common
Stock to the
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shareholders of HRAC and 138,350 shares of Class A Common Stock to the holders
of Allowed Claims in Class 6; (ii) an aggregate of 85,777 shares of Class B
Common Stock to the holders of Allowed Claims in Class 7 and an aggregate of
69,174 shares of Class B Common Stock to the holders of Allowed Claims in Class
8; (iii) 52,573 New Warrants; (iv) 121,856 Financing Warrants; (vi) the Gem
Debenture. In addition, pursuant to the Plan the Reorganized Company shall
reserve for the issuance of 175,429 shares of Class A Common Stock to effectuate
the provisions of the New Warrants, Fremont Warrants and Individual Warrants,
154,951 shares of Class A Common Stock to effectuate the conversion of Class B
Common Stock to Class A Common Stock and 180,000 shares of Class A Common Stock
to be issued in connection with one or more employee equity incentive plans of
Reorganized Parent. All shares of Class A and Class B Common Stock to be issued
pursuant to this Plan shall be, upon issuance, fully paid and non-assessable and
shall be subject to dilution (subject to the anti-dilution provision as set
forth in the Commitment Letter) as set forth in Article IV of the Plan, and the
holders thereof shall have no preemptive or other rights to subscribe for
additional shares.
Under the Plan, on the Effective Date, the promissory notes, share
certificates, bonds and other instruments evidencing any Claim, except to the
extent contrary to and not consistent with the treatment of the Fremont Secured
Claim, the Allowed General Secured Claims or Equity Interests, shall be deemed
cancelled without further act or action under any applicable agreement, law,
regulation, order or rule and the obligations of the Debtors under the
agreements, indentures and certificates of designations governing such Claims
and Equity Interests, as the case may be, shall be discharged.
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Pursuant to the Plan, each holder of a promissory note, share certificate,
bond or other instrument evidencing such a Claim, except to the extent contrary
to and not consistent with the treatment of the Fremont Secured Claim, the
Allowed General Secured Claims or Equity Interests, shall surrender such
promissory note, share certificate, bond or instrument to the Reorganized
Company, unless such requirement is waived by the Reorganized Company. No
distribution of property shall be made to or on behalf of any such holders
unless and until such promissory note, share certificate, bond or instrument is
received by the Reorganized Company or the unavailability of such promissory
note, share certificate, bond or instrument is established to the reasonable
satisfaction of the Reorganized Company or such requirement is waived by the
Reorganized Company. The Reorganized Company may require any holder that is
unable to surrender or cause to be surrendered any such promissory notes, share
certificates, bonds or instruments to deliver an affidavit of loss and indemnity
and/or furnish a bond in form and substance (including, without limitation, with
respect to amount) reasonably satisfactory to the Reorganized Company. Any
holder that fails within the later of one year after the Effective Date and the
date of Allowance of its Claim or Equity Interest (i) if possible, to surrender
or cause to be surrendered such promissory note, share certificate, bond or
instrument; (ii) if requested, to execute and deliver an affidavit of loss and
indemnity reasonably satisfactory to the Reorganized Company and (iii) if
requested, to furnish a bond reasonably satisfactory to the Reorganized Company,
shall be deemed to have forfeited all rights, claims and causes of action
against the Debtors and the Reorganized Company, and shall not participate in
any distribution hereunder. Notwithstanding the foregoing, the Debtors and
Reorganized Company shall be
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deemed to waive the requirements of this Article IV as to any holder whose Claim
is expressly Allowed pursuant to the Confirmation Order.
10. Operation of Business
Under the Plan, after the Effective Date, the Reorganized Company shall
provide the holders of Allowed Claims the respective treatments set forth
herein, as applicable. The Debtors' operations shall be carried on by the
Reorganized Company, and the Reorganized Company shall have full authority to
operate Debtors' businesses and to incur and pay post-Petition Date and
post-Confirmation obligations..
11. The Reorganized Company
HRAC's interest in pursuing the Term Sheet Transaction stems in part from
the status of Gaylord Companies as a publicly traded company. Accordingly, the
Reorganized Parent will seek to retain its status as a publicly traded company
and recommence its required filings. (The Debtors have been delinquent
respecting a number of public filings). HRAC intends to pursue opportunities
with other businesses related to the business of the Cookstore Debtors with the
intention of bringing other operations under the Reorganized Company's ownership
in order to take advantage of synergies between the Cookstore business and
businesses in related fields.
12. Breaches
Under the Plan, in the event any of the Debtors or the Reorganized Company
breaches any of its obligations under the Plan, the Debtors and the Reorganized
Company shall have sixty (60) days from the receipt of written notice of such
breach from the holder of an Allowed Claim to cure such breach.
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13. Pre-Payment of Allowed Claims
Under the Plan, in the event the Debtors or the Reorganized Company is able
to pre-pay any Allowed Claim, the Debtors and the Reorganized Company shall have
the absolute right, in their sole discretion, to pre-pay all or a portion of any
class of Allowed Claims at any time, so long as each claimant in the class is
paid the same proportional amount. Any pre-payment shall be without penalty.
14. Continuation of Bankruptcy Injunction or Stays.
Under the Plan, all injunctions or stays provided for in the Cases under
sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, shall remain in full force and effect until the Effective
Date.
15. Reverting of Assets.
(a) Under the Plan, the property of the Estates shall revert in the
Reorganized Company on the Effective Date.
(b) Under the Plan, as of the Effective Date, all property of the
Debtors and the Reorganized Company shall be free and clear of all liens, claims
and interests of holders of Claims and Equity Interests, except as provided in
the Plan.
(c) Under the Plan, as of the Effective Date, the Reorganized Company
shall have the right to compromise Claims without further Court order.
16. General Release of Liens. Except as otherwise provided in the Plan, in
the treatment of the Individual Junior Tranche or in the Exit Financing
Facility, or in any contract, instrument, indenture or other agreement or
document created in connection with the Plan or the implementation thereof, on
the Effective Date, all mortgages, deeds of trust,
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liens or other security interests against property of the Estates will be
released, and all the right, title and interest of any holder of such mortgages,
deeds of trust, liens or other security interests will revert to Reorganized
Company or the Debtors, as applicable, and the successors and assigns thereof.
17. Compensation and Benefit Programs. Under the Plan, all employment and
severance practices and policies, and all compensation and benefit plans,
policies and programs of the Debtors applicable to their directors, officers or
employees, including, without limitation, all savings plans, retirement plans,
health care plans, severance benefit plans, incentive plans, workers'
compensation programs and life, disability and other insurance plans will be
treated either as executory contracts under the Plan pursuant to Article VI
thereof or as permitted under applicable non-bankruptcy law.
18. Retiree Benefits. Under the Plan, payments, if any, due to any person
for the purpose of providing or reimbursing payments for retired employees and
their spouses and dependents for medical, surgical, or hospital care benefits,
or benefits in the event of sickness, accident, disability, or death under any
plan, fund or program (through the purchase of insurance or otherwise)
maintained or established in whole or in part by the Debtors prior to the
Petition Date shall be continued for the duration of the period the Debtors have
obligated themselves to provide such benefits, subject to any and all rights of
the Debtors under applicable law. Notwithstanding the foregoing, the Debtors
intend to reject the Supplemental Executive Retirement Program of Gaylord
Companies on or before the Confirmation Date.
19. Amended Bylaws and Amended Certificates of Incorporation. Under the
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Plan and after giving effect to the Merger, the respective bylaws and
certificates of incorporation of the Reorganized Company shall be amended and
restated as of the Effective Date to the extent necessary (a) to prohibit the
issuance of nonvoting equity securities as required by section 1123(a)(6) of the
Bankruptcy Code, subject to further amendment of such certificate of
incorporation and bylaws as permitted by applicable law and (b) to effectuate
the provisions of the Plan, in each case without any further action by the
stockholders or directors of the Debtors or the Reorganized Company.
V. DISCLOSURES REQUIRED BY 11 U.S.C. 1129(a)(4) AND (5)
Section 1129(a)(4) of the Bankruptcy Code provides that a Plan can be
confirmed only if any payment made or to be made by Debtors or by a person
issuing securities or acquiring property under the Plan for services or for
costs and expenses in or in connection with the Case or in connection with the
Plan and incident to the Case, has been approved by, or is subject to approval
of the Court as reasonable. Section IV of the Plan meets the requirement of
section 1129(a)(4) of the Bankruptcy Code.
Section 1129(a)(5) of the Bankruptcy Code conditions Confirmation on
disclosure of the identity and affiliations of any individual proposed to serve
after Confirmation as a director, officer or voting trustee of the surviving
entity. Section 1129(a)(5) further requires that (i) appointment to or
continuance in such office of such individual be consistent with the interests
of Creditors and holders of Equity Interests and with public policy, and (ii)
the Debtors disclose the identity of any insider who will be employed or
retained by the reorganized Debtors and the nature of any compensation for such
insider.
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After confirmation, the directors of the Debtors will be those individuals
described in Section IIE7 of this Disclosure Statement. The officers of the
Debtors, who are described in Section IIB and IIE7, will continue to serve in
those capacities consistent with the needs of the Reorganized Company. In the
event HRAC makes an acquisition prior to or after the Effective Date, in
accordance with its business plan, one or more officers of the acquired entity
could become officers and/or directors of the Reorganized Company. Certain other
officers, employees and affiliates of Cambridge will be shareholders in
Reorganized Parent.
The Debtors submit that the appointment of the above-named individuals is in
the best interests of Creditors and the disclosure thereof and other disclosure
set forth in this Disclosure Statement is in full compliance with Section
1129(a)(5) of the Bankruptcy Code.
ARTICLE VI. TREATMENT OF EXECUTORY
CONTRACTS AND UNEXPIRED LEASES
Under the Plan, on the Effective Date, all executory contracts and unexpired
leases of the Debtors shall be rejected by the Debtors pursuant to the
provisions of sections 365 and 1123 of the Bankruptcy Code, except: (i) any
executory contract or unexpired lease that is the subject of a separate motion
to assume filed pursuant to section 365 of the Bankruptcy Code by the Debtors
before the entry of the Confirmation Order; (ii) executory contracts and
unexpired leases listed on Exhibit E, and (iii) all executory contracts or
unexpired leases assumed under this Plan or by order of the Bankruptcy Court
entered before the Confirmation Date and not subsequently terminated pursuant to
an order of the Bankruptcy Court. Under the Plan, the Debtors reserve the right
to amend, alter or modify Exhibit E at any time prior to the Confirmation
Hearing. The Debtors will provide notice of
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any amendments to Exhibit E to the parties to the executory contracts or
unexpired leases affected thereby.
Under the Plan, except as may otherwise be agreed to by the parties, within
60 days after the Effective Date, the Reorganized Company shall cure any and all
undisputed defaults under any executory contract or unexpired lease assumed
pursuant to the Plan in accordance with section 365(b)(1) of the Bankruptcy
Code. All disputed defaults that are required to be cured shall be cured either
within 30 days of the entry of a Final Order determining the amount, if any, of
the Debtors' or Reorganized Company's liability with respect thereto, or as may
otherwise be agreed to by the parties.
Under the Plan, claims based on executory contracts or unexpired leases that
were rejected on or prior to the Claims Bar Date that were not filed by that
date shall be disallowed and forever barred. Claims arising out of the rejection
of an executory contract or unexpired lease designated for rejection under the
Plan must be filed with the Court and served upon the Debtors or Reorganized
Company or as otherwise may be provided in the Confirmation Order by no later
than 30 days after the notice of entry of an order approving such rejection.
Under the Plan, any Claims not filed within such time will be forever barred
from assertion against the Debtors, their estates, the Reorganized Company and
their property, and the holders thereof shall not be entitled to any
distribution under this Plan or otherwise from the Debtors or Reorganized
Company. Claims required to be filed pursuant to a Final Order entered prior to
the Confirmation Date shall be forever barred and disallowed if not filed within
the time specified in such Final Order. Under the Plan, unless otherwise ordered
by the Bankruptcy Court, all Claims arising from the rejection of
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executory contracts and unexpired leases shall be treated as General Unsecured
Claims under the Plan.
VII. FEASIBILITY
Based on information provided by HRAC more particularly described herein,
and on operations prior to the commencement of the case, the Debtors anticipate
that Debtors and the Reorganized Company will have sufficient cash to fund
payments under the Plan from cash generated by operations, from cash or other
assets on hand at Confirmation, from the Exit Financing Facility and from the
proceeds of certain financial accommodations to be obtained by the Reorganized
Company.
Attached as Exhibit F are pro forma projected financial statements of the
Reorganized Company for the period July 1, 1998 through December 31, 1998. These
projections were prepared by HRAC and are based on the best estimates of HRAC in
light of its knowledge of Debtors' current market conditions, past experience,
and other factors, all of which are subject to change and any of which may cause
the actual results to differ from the projections. While the Debtors do not have
any information that the projections do not accurately reflect a good faith
estimate of the Reorganized Company's future cash flow, the projections are not
in any way guaranteed by Debtors. The projections show that the Plan is feasible
assuming the Reorganized Company meets the projections. If Reorganized Company
does not meet its projections, they would seek to borrow funds sufficient to
meet their needs and (as described herein) it is Sponsor's intent to raise
additional equity as soon as possible. However, there can be no assurance that
the Reorganized Company will successfully raise additional equity or debt
financing.
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VIII. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
The Debtors have evaluated numerous reorganization alternatives to the Plan.
After studying these alternatives, the Debtors have concluded that the Plan
provisions for continuation of operations present the best alternative and will
maximize recoveries by holders of Claims and Equity Interests, assuming that the
conditions to the Effective Date are achieved. Accordingly, if the Plan is not
confirmed, the following alternatives could occur:
A. Sale of Individual Stores
The Debtors have analyzed whether a higher return to Creditors could be
secured through a sale of the business of the Debtors on a breakup basis, e.g.,
through sales of individual stores, and have concluded that the business of the
Debtors enjoys a considerable enhanced value as a single operating unit because
of the overall integration of its system and discounts from volume purchases and
centralized operations. Thus, a breakup of the business of the Debtors would not
likely result in an aggregative higher return to Creditors than that to be
distributed pursuant to the Plan.
B. Chapter 11 Liquidation
An alternative plan providing for a Chapter 11 liquidation would
contemplate an orderly wind-down of the business and liquidation under the
control of the Debtors' existing management or a liquidation officer appointed
by the Bankruptcy Court. Similar to the reasons discussed below respecting a
conversion to Chapter 7, the Debtors believe that a Chapter 11 liquidation would
not result in any distribution to holders of Claims or interests, other than the
holders of the Fremont Allowed Secured Claims and that even such holders would
likely receive a recovery of less than 100%.
C. Conversion to Chapter 7
If the Plan is not confirmed, the Chapter 11 Case may be converted to
Chapter 7 of
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the Bankruptcy Code. A trustee would be appointed to liquidate the assets of the
Debtors for distribution to the Creditors in accordance with the priorities
established by the Bankruptcy Code. The Debtors believe that in a Chapter 7
liquidation, before Creditors receive any distributions, additional
administrative expenses would be incurred through the appointment of a trustee
and employment of additional professionals to assist the trustee. The Debtors
believe that the holders of Fremont Allowed Secured Claims would receive a
recovery of less than 100% , and that no other holders of Claims or Equity
Interests would receive any distribution.
D. Dismissal Alternative
Dismissal of the Chapter 11 Cases would have the effect of restoring (or
attempting to restore) all parties to the status quo ante. Upon dismissal, the
Debtors would lose the protection of the Bankruptcy Code, thereby requiring at
the very least, an extensive and time consuming negotiation process and
resulting in costly and protracted litigation in various jurisdictions.
Dismissal of the Chapter 11 Cases would also permit Fremont to foreclose upon
the assets of the Debtors which are subject to its liens. Therefore, the Debtors
believe that dismissal of the Chapter 11 Cases is not a viable alternative to
the Plan.
For the reasons described in this Disclosure Statement, the Debtors believe
that the distributions to each Class of impaired Claims and Equity Interests
under the Plan will be greater and will be received earlier than the
distributions which might be received after a sale of individual business
divisions, a Chapter 11 liquidation, a Chapter 7 liquidation or a dismissal of
the Case of the Debtors. The Debtors believe that if the conditions to the
Effective Date occur, the Plan maximizes the property available for distribution
and any alternative would result in lesser recoveries.
IX. LIQUIDATION ANALYSIS
Debtors believe that Confirmation and implementation of the Plan will
provide
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greater distributions to Creditors than would liquidation of Debtors under
Chapter 7 of the Bankruptcy Code. Should the Case convert to Chapter 7, a
trustee would be appointed to liquidate Debtors' assets and administer the
estate. In such event, the proceeds of the liquidation would be used first to
pay in full all Allowed Secured Claims against Debtors, the Administrative
Expenses of the Chapter 7 case, the Administrative Expenses of the superseded
Chapter 11 Case, and all other Priority Claims. The remaining proceeds, if any,
would be distributed to the unsecured Creditors on a pro rata basis.
The Debtors estimate that liquidation of their assets would yield nothing
for creditors except for the holders of the Fremont Allowed Secured Claim.
Attached as Exhibit G is a liquidation analysis. Given the amount of
Administrative Expenses and Priority Claims, together with the expenses of a
Chapter 7 trustee, nothing would remain to make any distribution whatsoever to
holders of Unsecured Claims. Therefore, Debtors believe that the general
unsecured Creditors as well as priority claimants will receive more under the
Plan than they would in the other alternatives described above. (Creditors
should also note that, typically, no distribution is made in a Chapter 7 case
until all of the assets of the estate and all Claims have been liquidated. This
process could take one or more years.)
The Debtors know of no alternative to the proposed Plan, other than a
Chapter 7 liquidation. The Plan is the only plan of reorganization that has been
proposed.
X. PENDING AND ANTICIPATED LITIGATION
Debtors were parties to the following actions which were still pending on
the date of this Disclosure Statement:
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1. Greenfield Commercial Credit, L.L.C. v. Gaylord Companies, Inc., et al.,
Case No. 97CVH-11-9881 (Franklin County. Common Pleas) (action on Loan
Agreement). In connection with the entry of the Financing Order, Greenfield's
obligation was satisfied and Greenfield delivered a release to the Debtors.
2. Century Graphics v. Gaylord Companies, Inc., Case No. 9711CVF-036582
(Franklin County Municipal Court). (collection action)
3. M&I First National Leasing v. Gaylord Companies, Case No. 97-CVH-109660
(Franklin County Court of Common Pleas) (replevin action).
4. The Cincinnati Enquirer v. Gaylord Company, Inc. d/b/a Little Profession,
Case No. 97-CV-29175 (Hamilton County Municipal Court) (collection action).
5. UAP - COLUMBUS JV 32132 v. The Cookstore Inc., et al, Case No.
97-CVH-07-7380 (Franklin County Common Pleas) (forcible entry and detainer
action and claim for rent).
6. The Western and Southern Life Insurance Co. v. The Cookstore, Inc., Case
No. 97-C-01278 (Boone County, Kentucky) (Forcible entry and detainer action).
All of these actions, with the exception of the first, which has been
settled, will be stayed as to any further proceedings against the Debtors if not
otherwise settled pursuant to the Plan.
The Reorganized Company will have the authority to commence any Avoiding
Action, and to object to any Claim, until the Case is closed. Any proceeds from
such actions will be retained by the Reorganized Company to fund their
operations and the Plan.
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XI. SECURITIES LAWS MATTERS
A. Bankruptcy Code Exemptions From Registration Requirements.
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 Class A Common Stock, Class B Common
Stock, Available Cash Distributionss, Financing Warrants and New Warrants
(collectively, the "Plan Securities"). The Debtors believe that the provisions
of Section 1145(a)(1) exempt the offer and distribution of the Plan Securities
from federal and state securities registration requirements.
B. 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; (ii) the
Securities 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; and
(iii) the recipients of the securities must hold a prepetition or administrative
expense claim against the debtor or an interest in the debtor, or principally in
such exchange and partly for cash or property. The Debtors believe that the
offer and sale of the Plan Securities under the Plan satisfies the requirements
of Section 1145(a)(1) of the Bankruptcy Code and are, therefore, exempt from
registration under the Securities Act and state
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securities laws.
C. Subsequent Transfers of Plan Securities.
In general, all resales and subsequent transactions in the Plan Securities
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");
(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"
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is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an "issuer" includes any
"affiliate" of the issuer, which means any person directly or indirectly
through one or more intermediaries controlling, controlled by or under common
control with the issuer. Under Section 2(12) of the Securities Act, a
"dealer" is any person who engages either for all or part of his or her time,
directly or indirectly, as agent, broker or principal, in the business of
offering, buying, selling or otherwise dealing or trading in securities
issued by another person. Whether or not any particular person would be
deemed to be an "underwriter" or an "affiliate" with respect to any Plan
Security or to be a "dealer" would depend upon various facts and
circumstances applicable to that person. Accordingly, the Debtors express no
view as to whether any person would be an "underwriter" or an "affiliate"
with respect to any Plan Security or would be a "dealer".
The Securities and Exchange Commission (the "Commission") has taken the
position that resales by accumulators and distributors of securities distributed
under a plan or reorganization who are not affiliates of the issuer of such
securities are exempt from registration under the Securities Act if effected in
"ordinary trading transactions". The staff of the Commission has indicated in
this context that a transaction by such non-affiliates may be considered an
"ordinary trading transaction" if it is made on an exchange or in the
over-the-counter market and does not involve any of the following factors:
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(i) (a) concerted action by the recipients of securities issued under a
plan in connection with the sale of such securities or (b) concerted action
by distributors on behalf of one or more such recipients in connection with
such sales;
(ii) the use of informational documents concerning the offering of the
securities prepared or used to assist in the resale of such securities,
other than a bankruptcy court-approved disclosure statement and supplements
thereto, and documents filed with the Commission pursuant to the Securities
Exchange Act of 1934 (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 Commission on the matter have not, however, been sought by
the Debtors and, therefore, no assurance can be given regarding the proper
application of the "ordinary trading transaction" exemption described above.
Any person intending to rely on such exemption is urged to consult his or her
own counsel as to the applicability thereof to his or her circumstances.
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Rule 144, promulgated under the Securities Act, provides an exemption from
registration under the Securities Act for certain limited public resales of
unrestricted securities by "affiliates" of the issuer of such securities. Rule
144 allows a holder of unrestricted securities that is an affiliate of the
issuer of such securities to sell, without registration, within any three-month
period a number of shares of such unrestricted securities that does not exceed
the greater of one percent (1%) of the number of outstanding securities in
question or the average weekly trading volume in the securities in question
during the four calendar weeks preceding the date on which notice of such sale
was filed pursuant to Rule 144, subject to the satisfaction of certain other
requirements of Rule 144 regarding the manner of sale, notice requirements and
the availability of current public information regarding the issuer. The Debtors
believe that, pursuant to Section 1145(c) of the Bankruptcy Code, the Plan
Securities will be unrestricted securities for purposes of Rule 144.
GIVEN THE COMPLEX NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY
BE AN UNDERWRITER OR AFFILIATE, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING
THE RIGHT OF ANY PERSON TO TRADE IN THE PLAN SECURITIES. THE DEBTORS RECOMMEND
THAT HOLDERS OF CLAIMS AND INTERESTS CONSULT THEIR OWN COUNSEL CONCERNING
WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.
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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 the Plan
Securities.
THE DEBTORS DO NOT PRESENTLY INTEND TO SUBMIT ANY NO-ACTION OR
INTERPRETATIVE REQUESTS TO THE COMMISSION WITH RESPECT TO ANY SECURITIES LAWS
MATTERS.
XII. FEDERAL TAX CONSEQUENCES
Neither the Debtors or Reorganized Company intend to request (x) a ruling
(whether prior or subsequent to the Effective Date) from the IRS or (y) an
opinion (whether prior or subsequent to the Effective Date) from legal counsel,
in each case regarding the tax consequences of the Plan. The tax consequences of
the Plan may vary based on individual circumstances. Therefore, this Disclosure
Statement renders no advice on the tax consequences of implementation of this
Plan to any Creditor, to the Debtor, or to holders of Equity Interests. Each
such party is urged to consult such party's tax advisor as to the consequences
of the Plan, including any consequences under state and local tax laws.
Debtors filed a Federal Income Tax Return for the calendar year ending 1996.
Debtors are unaware of any audits or other investigation of that or any prior
return. Debtors have not yet filed tax returns for 1997.
XIII. CONFIRMATION
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A. Confirmation Procedure
As indicated above, the purpose of this Disclosure Statement is to provide
Creditors with adequate information to enable them to make an informed decision
regarding the merits of the Plan. The Court has conditionally approved this
Disclosure Statement. Section 1128 of the Bankruptcy Code requires the Court,
after notice, to hold a further hearing on Confirmation. Final approval of this
Disclosure Statement will be considered at the Confirmation Hearing. The
Bankruptcy Code, moreover, contemplates Creditor voting with regard to Chapter
11 plans of reorganization. The following section summarizes the voting and
Confirmation requirements in Chapter 11 proceedings. This summary constitutes
neither a complete recital of all Bankruptcy Code requirements regarding voting
and Confirmation nor a conclusive statement of Creditor rights. Any Creditor
with questions concerning voting, Confirmation or other matters should seek the
advice of counsel.
Pursuant to section 1129 of the Bankruptcy Code, in order to confirm the
Plan, the Court must find, among other things, that: (1) the Plan complies with
the applicable provisions of the Bankruptcy Code; (2) Debtors have complied with
the applicable provisions of the Bankruptcy Code; (3) Debtors proposed the Plan
in good faith and not by any means forbidden by law; (4) Debtors have made the
disclosure required by Section 1125 of the Bankruptcy Code; (5) the Plan has
been accepted by the requisite vote of Creditors; (6) the Plan is feasible and
Confirmation is not likely to be followed by liquidation; (7) the Plan is in the
best interests of the Creditors by providing Creditors on account of such Claims
or interests property of a value, as of the Effective Date, that is not less
than the amount that such Creditor would receive or retain in a Chapter 7
liquidation;
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(8) all fees and expenses required under 28 U.S.C. 1930 as determined by the
Court at the hearing on Confirmation have been paid or the Plan provides for
payment of such fees on the Effective Date; and (9) the Plan addresses Priority
Claims.
As noted above, one of the conditions to Confirmation is that the Plan be
accepted by the requisite votes of Creditors in order to be confirmed by the
Court. Section 1129 of the Bankruptcy Code requires that each class of Claims
accept the Plan by the requisite majorities, or that the class be unimpaired
under the Plan and deemed to have accepted the Plan without solicitation.
Pursuant to the Bankruptcy Code, therefore, only Creditors holding Claims
classified as Allowed Claims which are impaired under the Plan are entitled to
vote to accept or reject the Plan. Generally, a class is "impaired" unless the
legal, equitable, or contractual rights attached to the Allowed Claims of that
class are unaltered by the Plan or the Plan proposes to cure pre-petition
defaults, reinstate maturities, and compensate the holder of such claim for any
damages or proposes payment in full in cash. Certain of the classes described in
the Plan are impaired, and holders of the Allowed Claims in such impaired
classes are entitled to vote to accept or reject the Plan.
The majorities required for acceptance by an impaired class relate both to
amount of the Allowed Claims in the class and the number of members in the class
that actually vote for acceptance or rejection of the Plan. An impaired class is
deemed to have accepted the Plan if the holders of at least two thirds (2/3) in
dollar amount and more than one-half (1/2) in number of the Allowed Claims of
the class vote to accept the Plan. Only holders of Allowed Claims entitled to
vote who actually do vote to accept or reject the Plan are counted in this
tabulation; holders of Allowed Claims who do not vote are not counted. A
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Creditor's vote may be disregarded to the extent the Court determines that
Debtors did not solicit or procure the Creditor's acceptance or rejection in
good faith.
If the Plan is accepted by all classes impaired under the Plan, the Plan
will be confirmed provided that the Court finds that the Plan satisfies the
other conditions set forth in section 1129(a) of the Bankruptcy Code. If,
however, the voting members of an impaired class do not vote for acceptance of
the Plan, the Court must conclude that each holder of a Claim in an impaired
class has either accepted the Plan or will receive property of a value, as of
the Effective Date, not less than the amount such Creditor would receive if the
Case were a case under Chapter 7 of the Bankruptcy Code.
The Plan may be confirmed even though it is not accepted by all impaired
classes to the extent: (1) at least one impaired class accepts the Plan; (2) the
Plan is "fair and equitable" as to those impaired classes not accepting the
Plan; (3) the Plan does not "discriminate unfairly" against any impaired class
electing not to accept the Plan; and (4) the Plan meets the "cram down"
conditions set forth in section 1129(b) of the Bankruptcy Code. The "fair and
equitable" standard requires, among other things, that (a) no holder of any
Claim or Equity Interest in any class junior to any dissenting class of
unsecured Claims receive or retain any property on account of such Claim or
Equity Interest unless the dissenting class of unsecured Claims receives full
compensation for its Allowed Claims, and (b) the members of any dissenting class
of secured claims either retain their liens and receive deferred cash payments
with a value as of the Effective Date of the Plan equal to the value of their
interests in the Debtors' property or otherwise receive the "indubitable
equivalent" of the value of their secured claims. The requirement that the Plan
not
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"discriminate unfairly" simply means that a dissenting class must be treated
substantially the same as other classes of equal rank. To the extent necessary,
if at all, the Debtors will seek to rely on the cramdown provisions of the
Bankruptcy Code.
B. Effect of Confirmation
Upon the Effective Date, the Debtors, the Reorganized Company, each
Creditor, and each holder of an Equity Interest will be bound by the provisions
of the Plan regardless of whether or not the Claim or Equity Interest of such
Creditor or holder of an Equity Interest is impaired under the Plan, whether or
not such Creditor or holder of an Equity Interest filed a proof of Claim or a
proof of Claim was deemed filed, whether or not the Claim or Equity Interest is
allowed by the Court, or whether or not such Creditor or holder of an Equity
Interest voted to accept the Plan. Except as otherwise specifically provided in
the Plan, upon the Effective Date, all property dealt with by the Plan will be
free and clear of all Claims and Equity Interests. The rights afforded under the
Plan and the treatment of Claims and Equity Interests will be exchanged for and
in complete satisfaction, discharge, and release of, all Claims (including
post-Petition Date interest on Claims) and Equity Interests.
XIV. RISK FACTORS
A. Acquisition Strategy; Impact on Operating Results; Need for Capital.
The Reorganized Company's strategy includes acquisitions of retail cookware
businesses and other companies complementary to its business. The success of any
such acquisition will depend on many factors, including the Reorganized
Company's ability to identify suitable acquisition candidates, the purchase
price, the availability and terms of
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financing, and management's ability to effectively integrate the acquired
businesses into the Reorganized Company's operations. Significant competition
for acquisition opportunities exists in the retail cookware industry, which may
significantly increase the costs of and decrease the opportunities for
acquisitions. Although the Reorganized Company is actively pursuing potential
acquisitions, there can be no assurance that any acquisition will be
consummated. No assurances can be given that the Reorganized Company will be
able to operate any acquired businesses profitably or otherwise successfully
implement its expansion strategy. There can be no assurance that the Reorganized
Company will be able to hire, train and integrate qualified employees, locate
and obtain favorable store sites for new stores, and adapt its management
information and other operational systems, to the extent necessary to grow in a
profitable manner. The Reorganized Company may finance future acquisitions and
planned internal growth through borrowings or the issuance of debt or equity
securities. There can be no assurances that future lenders to the Reorganized
Company will extend credit, or extend credit on favorable terms. There can be no
assurance that the Reorganized Company will be able to raise additional equity.
In the event that the Reorganized Company fails to obtain additional financing
when required, such failure could result in the modification, delay or
abandonment of some or all of the Reorganized Company's development and
expansion plans. Any such modification, delay or abandonment is likely to have a
material adverse effect on the Reorganized Company's business, which could
adversely affect the value of the Reorganized Companys securities and the
warrants issued pursuant to the Plan and may limit the Reorganized Company's
ability to make principal and interest payments on its indebtedness including
the Available
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Cash Distributions and the Gem Debenture. Further, any issuance of equity
securities could have a significant dilutive effect on the holders of Class A
Common Stock and Class B Common Stock. Such acquisitions may result in increased
costs, significant goodwill and increases in the amount of depreciation and
amortization expense and could also result in write downs of purchased assets,
all of which could adversely affect the Reorganized Company's operating results
in future periods. In the event that the reorganized Company's plans for
expansion are not successful, there could be a material adverse affect on the
Reorganized Company's business.
B. Operating History
The Debtors incurred substantial losses in 1996 and 1997 and in 1998 to
date. There can be no assurance that the Reorganized Company's future operations
will be profitable. The Reorganized Company may, in fact, continue to incur
losses for the foreseeable future.
C. Ability to Service Indebtedness
The Debtors currently are not able to, and there can be no assurance that
the Reorganized Company will be able to, generate sufficient cash flow to meet
required interest and principal payments associated with its indebtedness. If
the Reorganized Company is unable to generate sufficient cash flow to meet its
debt obligations, the Reorganized Company may be required to renegotiate the
payment terms or to refinance all or a portion of its indebtedness, to sell
assets or to obtain additional financing. If the Reorganized Company is unable
to refinance such indebtedness, substantially all of the Reorganized Company's
debt would be in default and could be declared immediately due
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and payable. For instance, the Gem Debenture is due and payable on October 1,
1998.
D. Suppliers
Although the Cookstore Debtors currently acquire their products from over
200 suppliers, certain suppliers of well-known products are particularly
important to the Cookstore Debtors' ability to offer the quality of products
necessary to implement the Reorganized Company's strategy. These suppliers are
not obligated to continue to furnish products to the Reorganized Company. The
Reorganized Company does not have any written contracts with its suppliers. In
the event that the Reorganized Company cannot maintain its existing
relationships with its suppliers on terms no less advantageous than currently
available, or experiences any delay or difficulty in obtaining alternative
suppliers on comparable terms, then there could be a material adverse affect on
the Reorganized Company's business.
E. Control by Current Officers and Directors; Relationship of Principal
Shareholders
Cambridge and its affiliates will own an aggregate of approximately 80% of
the Reorganized Company's Class A Common Stock and all but two of the
Reorganized Company's directors are principals of Cambridge. Messrs. Czarnecki
and Tuttle may be deemed to be affiliates of Cambridge. As a result, Cambridge
will be in a position to exercise significant influence over the Reorganized
Company and the election of the Reorganized Company's directors and otherwise
essentially control the outcome of all matters requiring shareholder approval.
F. Leases
The Debtors currently lease all of their properties. No assurance can be
given that
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the Reorganized Company will be able to find favorable store sites for expansion
and negotiate leases on satisfactory terms and conditions or that the
Reorganized Company will be able to comply with the provisions of the current
leases or renegotiate favorable lease terms as they expire.
G. Seasonality
The Reorganized Company's business is subject to substantial seasonal
variations. Historically, a significant portion of the Reorganized Company's net
sales and net earnings have been realized during the period from October through
December, and levels of net sales and net earnings have generally been
significantly lower during the period from January through September. The
Reorganized Company believes that this is the general pattern associated with
similar retail industries. If for any reason the Reorganized Company's sales
were to be substantially below seasonal norms during the October through
December period, the Reorganized Company's annual results could be materially
and adversely affected. Unfavorable economic conditions affecting retailers
generally during the Christmas selling season in any year could materially and
adversely affect the Reorganized Company's results of operations for the year.
The Reorganized Company must also make decisions regarding how much inventory to
buy well in advance of the season in which it will be sold, especially for the
Christmas selling season. Significant deviations in actual from projected demand
for products can have an adverse affect on the Reorganized Company's sales and
profitability.
H. Dependency Upon Key Executives
The Reorganized Company's success depends upon the contributions of its
senior
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management. The Reorganized Company believes that its future success will depend
upon its ability to attract, motivate and retain highly-skilled managerial,
technical and marketing personnel. The loss of the services of certain of the
Reorganized Company's executives or technical personnel, or the inability to
hire and retain qualified personnel could have an adverse effect upon the
Reorganized Company's business. Competition for personnel having the
qualifications required by the Reorganized Company is expected and there can be
no assurance that the Reorganized Company will be successful in attracting and
retaining the personnel it requires to successfully develop new and enhanced
services and to continue to grow and operate profitably. The Reorganized Company
has no key man life insurance on the lives of any of its executive officers or
technical personnel. See "Background of Management".
I. Lack of Trading Market; No Market for Class B Common Stock
There is no liquid public trading market for the Debtors' securities and
there is no assurance that a regular public trading market for the Reorganized
Company's securities will be sustained. Since the Class B Common Stock cannot be
transferred there will be no public market for Class B Common Stock. Holders of
Class B Common Stock will not be able to sell their shares of Class B Common
Stock until they are converted into Class A Common Stock. See "Description of
Capital Stock - Common Stock."
J. Delisting of Securities from NASDAQ; Risks of Low-Priced Stocks
Gaylord Company's securities were delisted from the Nasdaq Small
Capitalization market. To re-list, the Company must have $4,000,000 in total
assets, $1,000,000 in total
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capital and surplus, $200,000 in market value of public float, a minimum bid
price of $1.00 per share, a minimum of 100,000 shares publicly held and a
minimum of 300 shareholders. If the Reorganized Company is unable to list on
Nasdaq, trading, if any, in the Company's Class A Common Stock and New Warrants
would continue to be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board." As a consequence, an
investor would likely continue to find it difficult to dispose of, or to obtain
quotations as to the price of, the Class A Common Stock and New Warrants of the
Reorganized Company.
K. Penny Stock Regulation
In the event that the Reorganized Parent is unable to satisfy the Nasdaq
listing requirements, trading would continue to be conducted in the pink sheets
or the NASD's Electronic Bulletin Board. In the absence of the Class A Common
Stock being quoted on Nasdaq, or the Reorganized Company having $4,000,000 in
net tangible assets (and meeting certain other tests), trading in the securities
would be covered by Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq
and non-exchange listed securities. Under such rule, broker-dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
If the Reorganized Parent's securities were subject to the regulations
applicable to penny stocks, the market liquidity for the securities would
continue to be severely affected by limiting the ability of broker-dealers to
sell the securities and the ability of stockholders
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to sell their securities in the secondary market. There is no assurance that
trading in the Reorganized Parent's securities will not continue to be subject
to these or other regulations that would adversely affect the market for such
securities.
L. Non-Compliance with Securities Laws
Gaylord Company has not made the regular disclosure filings required by the
Exchange Act. Although the Reorganized Company plans to resume compliance with
the Exchange Act after confirmation, the Reorganized Company may be subject to
various sanctions, disabilities and damages as a result of its previous
non-compliance. For instance, holders of restricted securities will not be able
to sell such securities under Rule 144. See "Securities Laws Matters."
M. Volatility of Stock Price; Absence of Dividends
From time to time, there may be significant volatility in the market price
for the Class A Common Stock. Quarterly operating results of the Reorganized
Company, changes in earnings estimated by analysts, if any, changes in general
conditions in the Reorganized Company's industry or the economy or the financial
markets or other developments affecting the Reorganized Company could cause the
market price of the Class A Common Stock to fluctuate substantially. In
addition, in recent years the stock market has experienced significant price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance. For the foreseeable future, it is expected that earnings,
if any, generated from the Reorganized Company's operations will be used to
finance the growth of its business, and that no dividends will be paid to
holders of any of the capital stock of
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Reorganized Parent.
N. Potential Adverse Effect of Redemption of New Warrants
The New Warrants are redeemable by the Reorganized Parent at a price of $.05
per New Warrant, provided that (i) prior notice of not less than 30 days is
given to the holders of the New Warrants, and (ii) the closing sale price of the
Class A Common Stock as reported on NASDAQ or other reporting agency on each of
the 20 consecutive trading days ending on the tenth day prior to the date on
which the Reorganized Parent gives notice of redemption has been at least
$12.00. The holders of the New Warrants shall have exercise rights until the
close of the business day preceding the date fixed for redemption. Notice of
redemption of the New Warrants could force the holders to exercise the New
Warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so, to sell the New Warrants at the market price when they might
otherwise wish to hold the New Warrants, or to accept the redemption price which
is likely to be substantially less than the market value of the New Warrants at
the time of redemption.
O. Competition
The Reorganized Company faces significant competition from companies that
are similarly specialized and also from companies that are involved in more
generalized retailing. The Reorganized Company also faces competition from other
companies, such as catalogue companies, which have added or may add cookware to
existing or future offerings. Many of the Reorganized Company's existing and
potential competitors are larger and have significantly greater financial,
marketing, technological and other resources than the Reorganized Company. There
can be no assurance as to the degree to which the
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Reorganized Company will be able to compete effectively.
P. Risks Associated with Forward-Looking Statements
This Disclosure Statement contains certain statements that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange
Act. Those statements include, among other things, the discussions of the
Reorganized Company's business strategy and expectations concerning developments
in the retail cookware industry, the Reorganized Company's market position,
future operations, transaction growth, margins and profitability, and liquidity
and capital resources. Holders of Claims and Equity Interests are cautioned that
reliance on any forward-looking statement involves risks and uncertainties, and
that although the Reorganized Company believes that the assumptions on which the
forward-looking statements contained herein are reasonable, any of those
assumptions could prove to be inaccurate, and as a result, the forward-looking
statements based on those assumptions also could be incorrect. The uncertainties
in this regard include, but are not limited to, those identified in the risk
factors discussed below. In light of these and other uncertainties, the
inclusion of a forward-looking statement herein should not be regarded as a
representation by the Reorganized Company that the Reorganized Company's plans
and objectives will be achieved.
Q. Certain Anti-Takeover Provisions; Possible Future Issuances of Preferred
Stock.
The Charter and Bylaws of the Reorganized Parent, and Delaware law contain
certain provisions that may have the effect of inhibiting a non-negotiated
merger or other business
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combination involving the Reorganized Company. Such provisions are intended
to encourage any person interested in acquiring the Reorganized Company to
negotiate with and obtain the approval of the Board of Directors in
connection with any such transaction. These provisions include a staggered
Board of Directors, blank check preferred stock, super majority voting
provisions, and the application of Delaware law provisions on business
combinations. Certain of these provisions may discourage a future acquisition
of the Reorganized Company not approved by the Board of Directors in which
shareholders might receive a premium value for their shares. As a result,
shareholders who might desire to participate in such a transaction may not
have the opportunity to do so. In addition, the Board of Directors has the
power to designate the issuance of up to 1,000,000 shares of preferred stock.
The rights and preferences for any series or class may be set by the Board of
Directors, in its sole discretion and without approval of the holders of the
Reorganized Company's Class A Common Stock, and the rights and preferences of
any such preferred stock may be superior to those of the Class A Common
Stock, thus adversely affecting the rights of the holders of Class A Common
Stock. While the Reorganized Company has no present intention to issue shares
of preferred stock, any such issuance could be used to discourage, delay or
make more difficult a change in control of the Reorganized Company. See
"Description of Capital Stock - Preferred Stock."
ARTICLE XV. DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Reorganized Parent will consist of
20,000,000 shares of Class A Common Stock, par value $0.01 per share, 155,000
shares of Class B Restricted
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Common Stock, par value $0.01 per share and one million (1,000,000) shares of
Serial Preferred Stock, par value $0.01 per share.
The following summary of certain terms of Reorganized Parent's capital stock
describes material provisions of, but does not purport to be complete and is
subject to and qualified in its entirety by, Reorganized Parent's Restated and
Amended Certificate of Incorporation, Reorganized Parent's Bylaws and the
Delaware General Corporation Law.
A. Common Stock
The Class A Common Stock and Class B Common Stock shall have the same
rights, privileges and preferences except that the Class B Common Stock (i)
shall have no dividend or liquidation rights except as required under the
General Corporation Law of the State of Delaware, and (ii) shall not be
transferable except by operation of law in the event of the death, bankruptcy or
liquidation of the holder thereof. Subject to prior dividend rights and sinking
fund or redemption or purchase rights which may be applicable to any outstanding
preferred stock, the holders of Class A Common Stock are entitled to share
ratably in such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion out of funds legally available therefor.
The holders of Class A Common Stock are entitled to share ratably in any assets
remaining after satisfaction of all prior claims upon liquidation of Reorganized
Parent, including prior claims of any outstanding preferred stock.
Each share of Class B Common Stock shall be automatically converted into one
share of Class A Common Stock (the "Conversion Rate") in any one of the
following events
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(each, a "Trigger Event"): (i) the closing sale price of the Class A Common
Stock for twenty (20) consecutive trading days as quoted on Nasdaq or, if such
shares are not trading on Nasdaq, then on the principal market on which such
shares shall then be trading for twenty (20) consecutive trading days exceeds
$11.57 per share of Class A Common Stock (the "Trigger Price") or (ii) of a sale
of all or substantially all the assets of Reorganized Parent, a sale of all the
equity interests of Reorganized Parent or a merger or consolidation of
Reorganized Parent with or into another entity in which Reorganized Parent is
not the surviving entity pursuant to which the holders of Class A Common Stock
would receive, on a fully diluted basis after giving effect to the conversion of
the Class B Common Stock and any other convertible securities, consideration
which exceeds the Trigger Price, in each case subject to adjustment in the event
of any stock splits or other similar events. As soon as practicable after a
Trigger Event, Reorganized Parent shall give or cause notice to be given to each
holder of Class B Common Stock that the Class B Common Stock has been converted
into Class A Common Stock, and such conversion shall be deemed to have occurred
on the sooner of the date of such notice and the date of such a merger or
consolidation, if any, constituting a Trigger Event. Each holder of shares of
Class B Common Stock outstanding immediately prior to the date of the Trigger
Event, upon surrender of the certificate or certificates representing such
shares to Reorganized Parent, shall receive in exchange therefor a certificate
or certificates representing the number of whole shares of Class A Common Stock
which such holder shall be entitled to receive as provided herein. After the
Trigger Event, each certificate which represented outstanding shares of Class B
Common Stock, prior to such date, shall be deemed for all corporate
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purposes to evidence the ownership of the shares of Class A Common Stock as
provided herein. No dividend or other distribution payable with respect to the
Class A Common Stock shall be paid to any holder of any certificate representing
shares of Class B Common Stock issued and outstanding immediately prior to such
date until such holder surrenders such certificate for exchange. All shares of
Class A Common Stock for and into which shares of Class B Common Stock shall
have been exchanged and converted shall be deemed to have been issued in full
satisfaction of all rights pertaining to such exchanged and converted shares.
Except for such rights, the holder of certificate(s) representing shares of
Class B Common Stock issued and outstanding immediately prior to such date shall
have no rights with respect to such shares after such date other than to
surrender such certificate for conversion. Reorganized Parent shall at all times
reserve a sufficient number of shares of authorized but unissued Class A Common
Stock for issuance upon conversion of the Class B Common Stock. No share of
Class B Common Stock may be issued after a Trigger Event.
After giving effect to the reorganization of the Debtors under the Plan,
there will be 1,522,033 shares of Class A Common Stock and 154,951 shares of
Class B Common Stock issued and outstanding.
The holders of Class A Common Stock and Class B Common Stock are entitled to
one vote per share on all matters to be submitted to a vote of the shareholders
and are not entitled to cumulative voting in the election of directors, which
means that the holders of the majority of the shares voting for the election of
directors can elect all of the directors then standing for election by the
holders of Common Stock. The holders of Class A Common
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Stock and Class B Common Stock have no preemptive or other subscription rights,
and shares of Class A Common Stock and Class B Common Stock are not redeemable
at the option of the holders, do not have any conversion rights, and are not
subject to call. The rights, preferences and privileges of holders of Class A
Common Stock and Class B Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of preferred stock
that Reorganized Parent may designate and issue in the future or which is
currently outstanding. See "Preferred Stock."
B. Preferred Stock
The authorized but undesignated preferred stock may be issued from time to
time in one or more designated series or classes. The Board of Directors,
without approval of the stockholders, is authorized to establish the voting,
dividend, redemption, conversion, liquidation and other relevant provisions that
may be provided with respect to a particular series or class. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Class A Common Stock and Class B
Common Stock and, under certain circumstances, make it more difficult for a
third-party to acquire, or discourage a third-party from acquiring, a majority
of the outstanding voting stock of Reorganized Parent.
C. Registration Rights
Holders of Allowed Claims in Class 6 shall have the right for six months
after the Effective Date to include shares of Class A Common Stock issued to
them pursuant to the Plan in any registered public offering of the Reorganized
Parent and in any underwriting of
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such offering. See IV.A.4 above. Registration rights were also issued in
connection with the issuance of the Fremont Warrants. The holders of the Fremont
Warrants or the shares of Class A Common Stock issued on conversion of the
Fremont Warrants have the right to unlimited incidental registrations.
XVI. MERGER
Pursuant to the Merger, which will become effective on the Effective Date of
the Plan (i) the holders of HRAC Common Stock will become entitled to receive
1,383,684 shares of Class A Common Stock, (ii) the holders of Gaylord Companies
Common Stock will become entitled to receive 85,777 shares of Class B Common
Stock, and (iii) the holders of Gaylord Companies Preferred Stock will become
entitled to receive 69,174 shares of Class B Common Stock.
XVII. EQUITY INCENTIVE PLAN
The 1998 Equity Incentive Plan is designed to advance the Reorganized
Company's interests by enhancing its ability to attract and retain employees and
others in a position to make significant contributions to the success of the
Reorganized Company through ownership of shares of Class A Common Stock. The
1998 Equity Incentive Plan provides for the grant of incentive stock options
("ISOs"), non-statutory stock options ("NQSOs"), stock appreciation rights
("SARs"), restricted stock, unrestricted stock, deferred stock grants, and
performance awards, loans to participants in connection with awards,
supplemental grants and combinations of the above. A total of 180,000 shares of
Class A Common Stock are reserved for issuance under the 1998 Equity Incentive
Plan. The
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maximum number of shares as to which options or SARs may be granted to any
participant in any one calendar year is 80,000. The shares of Class A Common
Stock issuable under the 1998 Equity Incentive Plan are subject to adjustment
for stock dividends and similar events. Awards under the 1998 Equity Incentive
Plan may also include provision for payment of dividend equivalents with respect
to the shares subject to the award.
The 1998 Equity Incentive Plan is administered by the Option Committee of
the Board of Directors (the "Option Committee"). The Option Committee shall
consist of at least two directors. If the Class A Common Stock is registered
under the Exchange Act, all members of the Option Committee shall be "outside
directors" as defined. All employees of the Reorganized Company and any of its
subsidiaries and other persons or entities (including non-employee directors of
the Reorganized Company and its subsidiaries) who, in the opinion of the Option
Committee, are in a position to make a significant contribution to the success
of the Reorganized Company or its subsidiaries are eligible to participate in
the 1998 Equity Incentive Plan.
No determination has been made (i) as to which individuals may in the future
receive options or rights under the 1998 Equity Incentive Plan, (ii) as to the
number of shares to be covered by any such options or rights granted to any
single individual, or (iii) as to the number of individuals to whom such options
or rights will be granted. The proceeds received by the Reorganized Company from
the sale of stock pursuant to the 1998 Equity Incentive Plan will be used for
the general purposes of the Reorganized Company, or in the case of the receipt
of payment in shares of Class A Common Stock, as the Board of Directors may
determine, including redelivery of the shares received upon exercise of
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options.
Approval of the Plan of Reorganization shall constitute approval of the
adoption of the 1998 Equity Incentive Plan.
XVIII. CONCLUSION
The Debtors believe that acceptance of the Plan by Creditors and holders of
Equity Interests is in the best interests of all parties, and that Confirmation
will provide the best and most prompt recovery for all parties in interest.
Debtors urge all parties to vote in favor of the Plan.
Dated: June 24, 1998 Gaylord Companies, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
The Cookstore, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
The Cookstore Worthington, Inc.
/s/ John D. Critser
--------------------
By: John D. Critser
Its: President
Respectfully submitted,
SCHOTTENSTEIN, ZOX & DUNN
A Legal Professional Association
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/s/ Daniel R. Swetnam
----------------------
Daniel R. Swetnam (0011022)
E. James Hopple (0019298)
Victoria E. Powers (0054589)
Susan K. Cliffel (0046915)
Daniel M. Anderson (0067041)
41 S. High Street, Suite 2600
Columbus, Ohio 43215
(614) 221-3211
Case Attorneys For Debtors
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EXHIBITS
Exhibit A Gaylord Companies, Inc.'s and Cookstore Debtors' Amended Plan of
Reorganization dated June 24, 1998 [Included as Exhibit 2.1]
Exhibit B Form 10-KSB of Gaylord Companies, Inc. for the period ending
December 31, 1996 [Omitted]
Exhibit C Financial Report of Cookstore Debtors for 1997
Exhibit D Term Sheet, Advisory Agreement and Related Documents
Exhibit E Schedule of Treatment of Executory Contracts and Unexpired Leases
Exhibit F Projected Financial Operations of Reorganized Company [Omitted]
Exhibit G Liquidation Analysis [Omitted]
Exhibit H Merger Agreement
Exhibit I 1998 Equity Incentive Plan
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EXHIBIT C
Gaylord Companies Inc., Cookstore Operations
Consolidated Statement of Operations
<TABLE>
<CAPTION>
1997
----
<S> <C>
Sales $ 3724,157
Cost of Sales 2,018,684
---------
Gross Profit 1,705,473
Variable Expenses 737,201
Fixed Expenses 876,964
---------
Total Expenses 1,814,168
Contribution Margin 91,307
Other Income (Expenses):
Corporate Charges (1,013,656)
Cash Discounts Taken 1,263
Interest Expenses (105,976)
Other Income (Expenses) (3,116)
Depreciation & Amortization (95,640)
-----------
Total Other Income (Expenses) (1,217,125)
Net Income Before Taxes (1,126,818)
Taxes on Income 37,160
Net Income $ (1,162,999)
</TABLE>
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EXHIBIT D
TERM SHEET
This Term Sheet sets forth the material terms of the Plan or Plans of
Reorganization to be submitted by Gaylord Companies, Inc. ("Gaylord Companies"),
The Cookstore, Inc. ("TCI"), and The Cookstore Worthington, Inc. ("TCWI")
(Gaylord Companies, TCI and TCWI are collectively referred to as the "Debtors"),
as well as certain key operational issues between the date hereof and the
Effective Date (as described in Section 3.1 below).
1. Introduction. Gaylord Companies is a Delaware corporation with six
wholly-owned subsidiaries (the "Subsidiaries"). Two of the Subsidiaries (TCI and
TCWI) own and operate six retail stores known as Cookstores (the "Cookstores"),
while four Subsidiaries own and operate six retail bookstores (collectively
referred to herein as the "Bookstores"). On November 13, 1997, Gaylord Companies
and each of the six Subsidiaries filed petitions under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court in the Southern District
of Ohio (Consolidated Case No. 97-60560).
This Term Sheet confirms (i) the essential terms and conditions of the
agreement to consummate the transactions described herein, (ii) the parties'
mutual intent to continue to negotiate in good faith regarding the non-essential
terms of the agreement, and (iii) the obligations of the parties to enter into
and deliver definitive agreements consistent with such terms and to perform such
agreements. The Term Sheet shall be signed by Cambridge Holdings, L.L.C.
("Cambridge") and the Debtors with the understanding that the Debtors do not
have the authority to execute this Term Sheet unless and until the Bankruptcy
Court grants the Debtors authority to do so. Therefore, none of the obligations
and agreements of Cambridge hereunder shall be enforceable against Cambridge
until such authorization is received by the Debtors. Immediately after the Term
Sheet is signed by the parties hereto, the Debtors will file a motion with the
Bankruptcy Court seeking authority to execute and perform the terms hereof, and
will promptly prepare and submit an appropriate Plan or Plans of Reorganization
to fully implement the terms hereof. The Debtors agree to take all reasonable
measures necessary or appropriate to obtain approval of the foregoing motion and
Plan or Plans of Reorganization.
2. Assets and Liabilities of the Debtors. The following is a brief summary
of the assets and liabilities of the Debtors.
2.1. Assets. TCI and TCWI own and operate the six Cookstores. TCI and
TCWI estimate that they will have, as of February 28, 1998, inventory (either on
hand or the subject of prepaid orders) with an estimated value (at cost) of
$1,075,000. TCI and TCWI also estimate that they will have, as of February 28,
1998, cash on hand of approximately $80,000. TCI and TCWI are parties to certain
leases and executory contracts, as described in the schedules
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filed with the Bankruptcy Court. Gaylord Companies, TCI or TCWI owns the trade
name "Cookstore." Other assets, which are described in TCI's and TCWI's
schedules filed with the Bankruptcy Court, are of nominal value.
Gaylord Companies is a publicly traded entity. Gaylord Companies is a party
to a lease of the Cookstores' point of sale equipment. Gaylord Companies is also
party to a real property lease for the corporate offices. The remaining assets
of Gaylord Companies are described in its schedules filed with the Bankruptcy
Court and are of nominal value.
2.2. Liabilities. The liabilities of the Debtors as of the Petition
Date (as estimated by the Debtors) are as follows:
<TABLE>
<S> <C>
A. Greenfield Commercial Credit, L.L.C. $1,271,662.40
(Principal and interest as of petition
date; several post-petition payments
have been made to Greenfield)
B. Administrative Expenses 200,000.00
(Note: Debtors have prepaid most
of these expenses; all administrative
expenses are post-petition)
C. Priority Claims Pursuant to
11 U.S.C. Section 507(a)(8) (taxes) 80,000.00
D. Arrearages on Leases 190,000.00
E. General Unsecured Claims 1,200,000.00
(It is estimated that TCI and TCWI
have claims of approximately
$650,000 and Gaylord Companies
has claims of approximately
$550,000)
</TABLE>
3. Terms of the Plan(s) of Reorganization. The Plan or Plans of
Reorganization for the Debtors will contain the following terms:
3.1. Greenfield Debt. Greenfield will be paid the allowed secured
amount of its claim either (i) in cash at the Effective Date (the term
"Effective Date" will be fixed in the Plan as no later than 20 days after entry
of the order confirming the Plan or Plans of Reorganization), (ii) by deferred
payments with interest at a market rate, or (iii) on such terms as may be agreed
to by Greenfield, Cambridge and the Debtors. It is estimated by Debtors that
Greenfield's secured claim will be valued at approximately $900,000.
Notwithstanding the foregoing, unless otherwise agreed by Cambridge, in
Cambridge's discretion, the maximum cash
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payment to be made to Greenfield shall not exceed the lesser of (x) $910,000 and
(y) the value of the collateral securing Greenfield's claim on the confirmation
date as determined by the Bankruptcy Court. If Greenfield's allowed secured
claim exceeds the amount payable in cash as set forth in the preceding sentence,
then the balance of the allowed secured claim will be paid either (i) by
deferred payments with interest at a market rate, (ii) by cash payments from one
or more members of the Gaylord family, or (iii) on such other terms as may be
agreed to by Greenfield, Cambridge and the Debtors. Greenfield's lien upon the
Debtors' collateral will be released upon the effectiveness of the Plan or Plans
of Reorganization or if other collateral is substituted such that Greenfield
retains the indubitable equivalent of its present collateral, as determined by
the Bankruptcy Court. The balance of Greenfield's claim will be treated as a
general unsecured claim.
3.2. Administrative Claims. Debtors have paid a significant portion of
the administrative claims. All remaining amounts will be paid as agreed to by
the Debtors and the holders of such claims, subject to the approval of
Cambridge.
3.3. Priority Claims. The Debtors' priority claims will be paid over a
period of six years, with interest.
3.4. Leases and Executory Contracts. Cambridge will negotiate with the
lessors of the Debtors' real property leases, point of sale lease and any other
leases or executory contracts. Cambridge reserves the right to request that the
Debtors reject any lease, leases or executory contracts. The damage claims for
rejection of leases or executory contracts will be treated as general unsecured
claims.
3.5. General Unsecured Claims. Allowed unsecured claims will be paid
the sum of $150,000 over a period of five years, to be divided pro rata. This
amount will be evidenced by one or more unsecured and subordinated promissory
notes of the reorganized entities and will be paid in five equal installments of
$30,000 on January 30 of each year commencing January 30, 1999, subject to a
free cash flow test to be reasonably required by Cambridge and the Senior Lender
(as defined in Section 6.5 below), and such other restrictions as the Senior
Lender shall reasonably require.
3.6. Shareholder Interests. In exchange for the new value it will
provide, Cambridge and/or its designees will receive preferred convertible
shares (with a current pay, performance related coupon and other terms
consistent with the performance objective of Cambridge) of Gaylord Companies
equal to 80% of the capital stock of the Gaylord Companies, on a fully diluted
basis (subject to the final sentence of this paragraph), and sufficient to
control Gaylord Companies. The existing preferred stock of Gaylord Companies may
be converted to common stock. Thereafter, all existing shareholder interests
shall receive common shares equal to an aggregate of 20% of the capital stock of
Gaylord Companies on a fully diluted basis
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(subject to the final sentence of this paragraph). A portion of the 20% interest
in Gaylord Companies may be allocated and distributed to unsecured creditors,
all on such terms as may be agreed upon by the Debtors, the Creditors Committee
and Cambridge . The precise form and terms of the capital structure will be
developed as part of the Plan or Plans of Reorganization in a manner to be
agreed upon by Cambridge and the Debtors. At the option of Cambridge, TCI and
TCWI may be dissolved, merged or otherwise restructured so that Gaylord
Companies is the only remaining entity. The foregoing is subject to dilution
pursuant to terms requested by the Senior Lender providing funding for the
transactions, terms requested by new management of the reorganized Debtors, and
terms requested by new or additional equity (which may be either preferred or
common), provided that the total dilution will be pro rated between Cambridge
and the other shareholders.
3.7. The Bookstores. Cambridge has no interest in the Bookstores. The
Bookstores will be sold, liquidated or reorganized under their own Plan or Plans
of Reorganization, and will not be a part of the reorganized Debtors. The
expected purchase price with respect to the Bookstores is $200,000-250,000, all
of which will be paid to Greenfield in reduction of its secured claim. Gaylord
Companies will keep Cambridge advised regarding material developments in
connection with the sale of the Bookstores.
4. Procedure. Immediately after execution of this Term Sheet by each of the
parties, the Debtors will file a motion seeking authority to execute and perform
this Term Sheet, approve the break-up fee described in Section 7 below,
implement the Advisory Agreement under Section 5(a) hereof, and to implement the
other terms of this Term Sheet. If approved, the Debtors will then promptly
prepare and file an appropriate Plan or Plans of Reorganization to complete the
terms described herein. The Debtors agree that as long as Cambridge is
supporting and endorsing the Plan or Plans of Reorganization, the Debtors will
prosecute the Plan or Plans of Reorganization, and will not support any
competing Plan or Plans for the Debtors.
5. Election to Proceed; Interim Management.
(a) Within five (5) days of the date that the Bankruptcy Court approves
this Term Sheet, the Debtors agree to enter into an advisory agreement (the
"Advisory Agreement") with Cambridge whereby Cambridge will render advice to the
Debtors regarding the operation of the Cookstore business. The terms of such
Advisory Agreement shall be in form and substance reasonably satisfactory to
Cambridge and the Debtors (including, without limitation, an advisory fee of
$30,000 per month payable pursuant to a promissory note which shall be payable
only on or after the Effective Date, an agreement by the Debtors to provide all
reasonable information and access to Cambridge with respect to the Cookstores
business and an agreement by the Debtors to indemnify and hold Cambridge and
each of the employees, partners, agents and affiliates of Cambridge harmless
with respect to (x) the advisory services rendered to the Cookstores business,
other than with respect to the gross negligence or willful misconduct of
Cambridge and (y) the undertaking by Cambridge to provide funds pursuant to
Section 8 hereof (other than the failure of Cambridge or its designee to make
available the aggregate of $25,000 pursuant to the terms of Section 8 hereof
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<PAGE>
(provided that the liability under this clause (y) shall be limited to the
amount of $25,000 less any amounts made available under Section 8)). Further,
the Creditors Committee must agree that it will not file suit against Cambridge
as a result of any action taken pursuant to the Advisory Agreement except as set
forth in the preceeding sentence.
(b) On or before March 31, 1998, Cambridge will have satisfied or
waived the condition set forth in Section 6.2 and will make reasonable efforts
to have a commitment letter from a lender to provide the financing required by
Section 6.5 below. In the event that (x) Cambridge is unable to conclude
arrangements acceptable to it as described in Section 6.2 below or (y) Cambridge
is unable to obtain a commitment letter satisfactory to Cambridge from a lender
as described in the immediately preceding sentence, each on or before March 31,
1998, then Cambridge may, at its option, terminate all of its obligations
hereunder and/or in connection herewith (including, without limitation, Section
5(a) herein). The Debtors hereby agree (i) to hold Cambridge harmless in the
event that Cambridge elects to terminate its obligations pursuant to the
immediately proceeding sentence and (ii) advise Cambridge, prior to March 31,
1998, at Cambridge's request, as to whether the terms of a particular commitment
letter are satisfactory to the Debtors.
6. Conditions. Cambridge's obligation to proceed under a Plan or Plans of
Reorganization is conditioned upon the following:
6.1. Unless waived by Cambridge, entry of a final order within sixty
(60) days of the date the Bankruptcy Court approves this Term Sheet, from which
no appeal has been taken and the date for filing an appeal has passed,
confirming the Plan or Plans of Reorganization, the foregoing to reflect the
terms and conditions hereof, to terminate all liens and other claims with
respect to the Debtors except as stated in such Plan, to provide that all leases
and executory contracts have been rejected (except for leases and executory
contracts that are designated as accepted pursuant to a schedule to the Plan and
which shall be restructured pursuant to the arrangements described in Section
6.2 below) and to be otherwise in form and substance satisfactory to Cambridge.
6.2. Cambridge shall have concluded arrangements acceptable to it with
the lessors and parties to other executory contracts with respect to prepetition
arrearage and with respect to future arrangements .
6.3. Cambridge shall have completed all due diligence on or before the
date of the final hearing to consider confirmation of the Plan or Plans of
Reorganization, and the results thereof shall be satisfactory to Cambridge.
6.4. Execution by either John Gaylord or John Critser of a validity
guaranty in favor of the Senior Lender providing financing for the transaction,
in form and substance
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reasonably acceptable to both parties.
6.5. Senior debt financing by a lender (the "Senior Lender")
satisfactory to Cambridge shall be made available to Cambridge to enable
Cambridge to close the transactions contemplated by this Term Sheet, the terms
of which shall be satisfactory in form and substance to Cambridge.
6.6. Payment by the Gaylord Companies of the due diligence fees and
expenses of the Senior Lender , pursuant to the time frame required by such
Senior Lender.
6.7. Gaylord Companies shall have delivered to Cambridge on or before
March 5, 1998 projections on a weekly basis and on a cumulative basis with
respect to the Cookstores and the Cookstores-related business of Gaylord
Companies through June 30, 1998 (the "Budget") and (i) the form and substance of
such projections shall be satisfactory to Cambridge and (ii) the Cookstores and
the Cookstores-related business of Gaylord Companies shall achieve the
performance reflected in such projections on a weekly basis and on a cumulative
basis, as determined by Cambridge. Debtors shall furnish Cambridge (x) on a
weekly basis with financial statements prepared by the chief financial officer
of Debtors, which shall include a comparison of the Debtor's performance with
the projections submitted to Cambridge on both a weekly and cumulative basis and
management's written explanation of any variances, whether positive or negative
and (y) daily "spot" reports prepared by the Debtors' chief financial officers
regarding sales, inventory levels and any material events arising in the
business of the Debtors. Without limiting in any manner the other conditions and
provisions hereof, it is expressly confirmed and acknowledged that Cambridge may
at its option, terminate all of its obligations under this Term Sheet in the
event that this condition is not met at any time on a weekly or cumulative
basis.
6.8. (a) The Debtors shall comply with all of their obligations under
this Term Sheet and (b) all information and data furnished to Cambridge by or on
behalf of any of the Debtors (including the information in Sections 1 and 2 and
Section 6.7 hereof) shall at all times be true and correct in all material
respects.
6.9. Each Debtor and any senior officer, shareholder or affiliate
thereof shall cooperate in all material respects with Cambridge with respect to
the transactions contemplated by this Term Sheet.
6.10. The bankruptcy proceeding of any of the Debtors shall not be
dismissed, converted into a Chapter 7 proceeding or an examiner or trustee
appointed in such bankruptcy proceeding, and no Debtor (or any senior officer,
shareholder or affiliate thereof) or the Creditors Committee shall seek
Bankruptcy Court authorization for any of the foregoing.
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6.11. The Debtors shall have promptly notified all known creditors and
other parties of interest with respect to the Plan, such notice to include
advertising in a newspaper of record in Ohio.
6.12. The Debtors shall continue at all times to have the exclusive
right to prepare a Plan of Reorganization and the Debtors shall not have
submitted any other Plan to the Bankruptcy Court (except with the prior written
consent of Cambridge).
6.13. The execution and delivery of all other documents and agreements
reasonably required by Cambridge as part of the effectiveness of the
transaction.
If Cambridge learns that one or more of the above conditions has not been or
will not be satisfied, then Cambridge may, at its option, provide written notice
of termination of its obligations hereunder to the Debtors and the Creditors
Committee. The Debtors will have a grace period of ten days from the date of
giving of such notice within which to cure or satisfy conditions 6.4, 6.8(a),
6.9 and 6.10 to the extent that the failure of such condition was not the result
of the volitional act of any Debtor, Senior Officer of Debtor, Shareholder of
Debtor or affiliate of Debtor. If the condition has no grace period or remains
unsatisfied after any applicable grace period , then Cambridge may elect to
immediately terminate this Term Sheet and all parties will be released of any
obligation hereunder, except for the payment of the break-up fee in Section 7
below.
7. Break-up Fee. All parties recognize that the Debtors may receive
competing bids prior to closing and that the transactions contemplated hereby
may not be consummated. In the event that the transactions contemplated hereby
are not closed and (i) a competing bid or proposal for any or all of the Debtors
is submitted and concluded; (ii) the Debtors fail to prosecute the Plan of
Reorganization described herein; (iii) the Debtors seek authority to sell some
or all of the assets of any of the Debtors pursuant to Section 363 of the
Bankruptcy Code or any similar provision of applicable law; (iv) Section 6.4 is
not satisfied; or (v) prior to the date of the final hearing to consider
confirmation of the Plan or Plans of Reorganization, Cambridge or the Senior
Lender discover that the Debtors or any Senior Officer, Shareholder or director
of Debtors has made a misrepresentation of a fact or condition, or has failed to
disclose a fact, which is material to the Debtors' business or the prospects for
reorganization, then Debtors shall upon demand of Cambridge pay Cambridge a
break-up fee in the amount of $40,000 plus out of pocket expenses (including
reasonable attorneys' fees, which fees shall be subject to Court approval with
respect to reasonableness).
8. Good Faith Fund. (a) No later than three days after the Bankruptcy Court
approves execution of this Term Sheet, Cambridge will establish and fund a
separate account, under its own name, exclusive ownership and control, and shall
deposit therein not less than
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$250,000 to evidence its ability to proceed with this transaction. Cambridge
will provide evidence of the existence and amount of this fund to the Debtors
and the Creditors Committee. (b) Cambridge acknowledges that the Budget will
reflect an aggregate cash shortfall for the period ending May 2, 1998. On and
after the execution of the Advisory Agreement, and so long as the Debtors are in
compliance therewith, Cambridge agrees that up to $25,000 of the Good Faith Fund
described in clause (a) above will be made available to the Cookstores in order
to fund such cash shortfall pursuant to the schedule set forth on the Budget,
provided that (i) each request shall be made by the chief financial officer of
the Companies and shall contain a detailed explanation of the need for and usage
of the funds; (ii) the obligation of Cambridge to provide the foregoing funds
shall terminate without notice upon the termination of Cambridge's other
obligations hereunder; (iii) Cambridge shall have no obligation to provide the
foregoing funds in the event that any of the conditions set forth in Section 6
shall not or will not be satisfied, regardless of whether or not Cambridge
elects to terminate its obligations as a result thereof; (iv) such funds shall
be used only for the purchase of Cookstore inventory; and (v) such funds shall
be advanced as a loan to the Debtors, for which the Debtors shall be jointly and
severally liable, and which shall benefit from a final and non-appealable order
of the Bankruptcy Court (which order shall be in form and substance satisfactory
to Cambridge, including, without limitation, a superpriority administrative
expense priority and a first priority security interest in the proceeds of such
loan (including any property purchased with such loan and the proceeds thereof)
and repayment provisions reasonably satisfactory to Cambridge).
9. Due Diligence. Each of the parties agrees that Cambridge, acting through
its own management personnel, its counsel, its accountants and other
representatives designated by it, shall have full opportunity to examine the
Debtors' offices, properties, and books and records, and to meet and discuss the
business, operations, history and prospects with the Debtors' officers,
employees, attorneys, accountants, agents, suppliers and customers, and to
otherwise perform such diligence as it deems necessary or proper.
10. Miscellaneous.
10.1. Notice. In the event notice must be provided under this Term
Sheet, written notice shall be sent by both telecopy and regular mail as
follows:
If to Debtor:
John Gaylord
Gaylord Companies, Inc.
4006 Venture Court
Columbus, Ohio 43228
(614) 771-2777 (telephone)
(614) 771-8826 (telecopy)
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with a copy to:
Daniel R. Swetnam, Esq.
Schottenstein, Zox & Dunn
Huntington Center, Suite 2600
41 South High Street
Columbus, Ohio 43215-6106
(614) 462-2225 (telephone)
(614) 464-1135 (telecopy)
If to Cambridge:
David Danovitch
Cambridge Partners, L.L.C.
535 Madison Avenue, 19th Floor
New York, NY 10022-4212
(212) 508-6500 (telephone)
(212) 508-6501 (telecopy)
with a copy to:
Leonard Lee Podair, Esq.
Hahn & Hessen LLP
Empire State Building
350 Fifth Avenue
New York, NY 10118-0075
(212)-946-0243 (telephone)
(212)-594-7167 (telecopy)
If to the Creditors Committee:
Nick V. Cavalieri, Esq.
Arter & Hadden
One Columbus - 10 W. Broad Street
Columbus, OH 43215-3422
(614) 221-3155 (telephone)
(614) 221-0479 (telecopy)
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Notices sent pursuant to this Section 10.1 shall be deemed received by the
recipients thereof upon telecopy transmission, with answer back received.
10.2. Governing Law. Except to the extent required by applicable
bankruptcy law, the terms of this letter shall be governed by the laws of the
State of New York.
10.3. Assignability. The rights and obligations under this Term Sheet
shall not be assignable or delegable except (i) with the prior written consent
of the other parties hereto, and (ii) Cambridge may assign its rights hereunder
to an affiliate of Cambridge.
10.4. Time to Complete. At the option of Cambridge, this Term Sheet
shall terminate in the event that it is not approved by a final and
non-appealable order by the Bankruptcy Court by March 6, 1998.
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ACKNOWLEDGED AND AGREED:
GAYLORD COMPANIES, INC.
THE COOKSTORE, INC. and
THE COOKSTORE WORTHINGTON, INC.
Debtors in Possession
By: /s/ John Gaylord
Title: Chairman and CEO
Date: February 26, 1998
CAMBRIDGE HOLDINGS, L.L.C.
By: /s/ David Danovitch
--------------------------
Its: Managing Director
Date: February 26, 1998
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ADVISORY AGREEMENT
AGREEMENT made as of the 17th day of March, 1998, by and between Cambridge
Holdings, L.L.C., a Delaware limited liability company ("Cambridge Holdings")
and Gaylord Companies, Inc. ("Gaylord Company"), The Cookstore, Inc.
("Cookstore") and The Cookstore Worthington, Inc. ("Cookstore Worthington"), as
debtors in possession (collectively, the "Company").
Background: The parties have entered into a Term Sheet, dated as of February
26, 1998, concerning certain transactions, including without limitation the
conditional undertaking by Cambridge Holdings to provide funds pursuant to
Section 8 of the Term Sheet (the "Transactions") relating to reorganization of
Cookstore, Cookstore Worthington and the Cookstore-related business of Gaylord
Company (collectively, the "Cookstore Business") in a Chapter 11 proceeding.
Certain defined terms, not otherwise defined herein, have the same meaning as
set forth in the Term Sheet.
As set forth in Section 5 of the Term Sheet, the Creditors Committee has
entered into an agreement providing that it will not file suit against Cambridge
Holdings as a result of any action taken pursuant to the Term Sheet or this
Agreement, other than the failure of Cambridge Holdings or its designee to
provide funds pursuant to, and in accordance with the terms of, Section 8 of the
Term Sheet.
IT IS AGREED:
1. The Company agrees to and does hereby retain Cambridge Holdings, and
Cambridge Holdings agrees to and does hereby accept retainer as an advisor by
the Company in a part-time capacity in connection with the operations of the
Cookstore Business of the Company. In compensation for the advisory services to
be provided by Cambridge Holdings, the Company will pay Cambridge Holdings at
the rate of $30,000 per month pursuant to the provisions of the Term Sheet and
payable by delivery of a promissory note in the form attached hereto as Schedule
A. Such compensation shall not be subject to proration. It is understood and
agreed that Cambridge Holdings may act as an advisor or consultant to other
companies and that each of Cambridge Holdings' officers, directors and
affiliates may act as a director, officer, employee or agent of other companies
and may continue to hold such directorships or other positions and shall be
permitted to devote such time thereto as may reasonably be necessary to
discharge the ordinary duties attendant upon any such directorships or
positions.
2. This Agreement shall become effective as of a date (the "Commencement
Date") that is five (5) days after the date that the Bankruptcy Court approves
the Term Sheet and shall continue until the earlier of the Effective Date or the
first anniversary of the Commencement Date. In addition, Cambridge Holdings may
immediately terminate its obligations under this Agreement if Cambridge Holdings
terminates its obligations pursuant to the terms of Section 5(b) or Section 6 of
the Term Sheet or if a Plan or Plans of Reorganization as contemplated by the
Term Sheet are not filed or confirmed as contemplated under the Term Sheet. The
Company may terminate this Agreement only upon the termination of the Term
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Sheet.
3. (a) The Company shall upon reasonable notice give Cambridge Holdings and
its counsel, financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of the Company,
including, but not limited to, all employee benefit plans, and will instruct the
Company's employees, counsel and financial advisors to cooperate with Cambridge
Holdings and each such representative in its investigation of the Company;
provided that no investigation pursuant to this Section shall affect any
representation or warranty given by the Company to Cambridge Holdings hereunder.
(b) Cambridge Holdings agrees that, during the term of Cambridge
Holdings' retention by the Company and thereafter, it shall preserve in
confidence all Confidential Information (as hereinafter defined) acquired or
developed by Cambridge Holdings or disclosed to Cambridge Holdings as a direct
or indirect consequence of or through Cambridge Holdings' retention by the
Company and/or its affiliates. Cambridge Holdings will not, without the prior
written authorization of the Company, disseminate, publish, disclose or
otherwise make available any such Confidential Information or any portion
thereof to any other person, except to Cambridge Holdings' advisors, counsel,
accountants and agents in connection with providing the services hereunder, make
use of such information for Cambridge Holdings' personal benefit or for the
benefit of any person other than the Company and/or its affiliates or assist
others in doing so or except pursuant to subpoena or government request;
provided that Cambridge Holdings shall give 10 days notice to the Company prior
to complying with such subpoena or request.
(c) "Confidential Information" shall mean all information of any kind
or nature pertaining to the Company or its affiliates which is not available to
the public, including, but not limited to, information relating to the Company's
or its affiliates' agreements, the Company's or its affiliates' proprietary
rights, research, developments, inventions, know-how, trade secrets, patents,
patent applications, documents of any kind and manuals, technical advances,
research results, commercial arrangements, manufacture, engineering, products,
processes, accounting, sales, strategies, tax returns, financial statements,
marketing, customers or customer lists, and any information of a like nature
furnished to or obtained by Cambridge Holdings from the Company and/or its
affiliates relating to activities of third parties have transmitted to the
Company or its affiliates under any agreement or arrangement to hold the same
secret or confidential.
(d) All documents, records, notebooks and similar repositories
containing Confidential Information, including copies thereof, in Cambridge
Holdings' possession or control, whether prepared by Cambridge Holdings or
others, shall be promptly destroyed or, at the Company's option and expense
returned to the Company upon the request of the Company after the last day of
Cambridge Holdings' retention by the Company and/or its affiliates. If at any
time after the termination of this Agreement, Cambridge Holdings has any
Confidential Information in its possession or control, it shall immediately
return to the Company all such Confidential Information, including all copies
and portions thereof.
4. Cambridge Holdings and the Company acknowledge that Cambridge Holdings
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is an independent contractor. Cambridge Holdings shall not hold itself out as,
nor shall it take any action from which others might infer that it is a partner,
agent or joint venturer of the Company. Cambridge Holdings shall not take any
action which binds, or purports to bind, the Company.
5. The Company agrees to indemnify Cambridge Holdings in accordance with the
indemnification provisions (the "Indemnification Provisions") attached to this
Agreement, which Indemnification Provisions are incorporated herein and made a
part hereof by reference. The Indemnification Provisions shall survive the
termination of this Agreement.
6. This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof. It may not be changed except by agreement
in writing signed by the party against whom enforcement or any waiver, change,
discharge, or modification is sought. Waiver of or failure to exercise any
rights provided by this Agreement in any respect shall not be deemed a waiver of
any further or future rights.
7. This Agreement shall be interpreted according to, and governed by, the
laws of the State of New York.
8. This Agreement shall be binding upon the parties and their successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
CAMBRIDGE HOLDINGS, L.L.C.
By: /s/ David Danovitch, Managing Director
GAYLORD COMPANIES, INC., THE
COOKSTORE, INC. AND THE COOKSTORE
WORTHINGTON, INC., as debtors in possession
By: /s/ John Gaylord, Chairman and CEO
INDEMNIFICATION PROVISIONS
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The Company (as such term is defined in the Agreement (as such term is
defined below)) agrees to indemnify and hold harmless Cambridge Holdings against
any and all losses, claims, damages obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements (and all actions, suits,
proceedings and investigations in respect thereof and any and all legal or other
costs, expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including without limitation, prompt
advancement of the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, proceeding or
investigation (whether or not in connection with litigation to which Cambridge
Holdings is a party), directly or indirectly, caused by, relating to , based
upon, arising out of or in connection with (a) Cambridge Holdings' acting for
the Company under the Advisory Agreement dated March 17, 1998 between Cambridge
Holdings and the Company, as it may be amended from time to time (the
"Agreement"), including, without limitation, any act or omission by Cambridge
Holdings in connection with its acceptance of or the performance of its
obligations under the Agreement; provided, however, such indemnity agreement
shall not apply to any portion of any such loss, claim, damage, obligation,
penalty, judgment, award, liability, cost, expense or disbursement to the extent
it is found by the final and unappealable order of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
Cambridge Holdings; or (b) any Transactions (as such term is defined in the
Agreement) (other than the failure of Cambridge Holdings or its designee to
provide funds pursuant to Section 8 of the Term Sheet; provided, however, the
liability of Cambridge Holdings under this clause (b) shall be limited to the
amount of $25,000 less any amounts made available under Section 8 of the Term
Sheet). The Company also agrees that Cambridge Holdings shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or to any person (including, without limitation, Company stockholders)
claiming through the Company for or in connection with the engagement of
Cambridge Holdings, except to the extent that any such liability results from
Cambridge Holdings' gross negligence or willful misconduct.
These Indemnification Provisions shall be in addition to any liability which
the Company may otherwise have to Cambridge Holdings or the persons indemnified
below in this sentence and shall extend to the following: Cambridge Holdings and
Cambridge Holdings' affiliated entities, directors, officers, employees,
counsel, and agents and controlling persons, and their respective affiliated
entities, directors, officers, employees, counsel, agents and controlling
persons (within the meaning of the federal securities laws). All references to
Cambridge Holdings in these Indemnification Provisions shall be understood to
include any and all of the foregoing.
If any action, suit, proceeding or investigation is commenced, as to which
Cambridge Holdings proposes to demand indemnification, it shall notify the
Company with reasonable promptness; provided, however, that any failure by
Cambridge Holdings to notify the Company shall not relieve the Company from its
obligations hereunder to the extent the Company has actual knowledge of such
action, suit, proceeding or investigation. Cambridge Holdings shall use the
Company's counsel in any action, suit, proceeding or investigation that is
commenced, as to which Cambridge Holdings proposes to demand indemnification,
provided,
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however, that if Cambridge Holdings or the Company's counsel determines that a
conflict of interest or potential conflict of interest exists between such
counsel's representation of the Company and Cambridge Holdings, then such
counsel shall inform Cambridge Holdings that it shall not represent Cambridge
and Cambridge Holdings shall have the right to retain counsel of its own choice,
which counsel shall be reasonably acceptable to the Company, and the Company
shall pay the fees, expenses and disbursement of such counsel; and such counsel
shall to the extent consistent with its professional responsibilities cooperate
with the Company and any counsel designated by the Company. The Company shall be
liable for any settlement of any claim against Cambridge Holdings made with the
Company's written consent, which consent shall not be unreasonably withheld. The
Company shall not, without the prior written consent of Cambridge Holdings,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof, unless such settlement, compromise or consent
includes, as an unconditional term thereof, the giving by the claimant to
Cambridge Holdings of an unconditional release from all liability in respect of
such claim.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these Indemnification Provisions is made but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the express provisions hereof provide for indemnification in such case,
then the Company shall contribute to the losses, claims, damages, obligations
penalties, judgments, awards, liabilities, costs, expenses and disbursements to
which the indemnified persons may be subject in accordance with relative
benefits received by the Company and also the relative fault of the Company, in
connection with the statements, acts or omissions which resulted in such losses,
claims, damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses and disbursements and the relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation shall
be entitled to contribution from any person who is not also found liable for
such fraudulent misrepresentation.
Neither termination nor completion of the engagement of Cambridge Holdings
referred to above shall affect these Indemnification Provisions which shall then
remain operative and in full force and effect.
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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: :
GAYLORD COMPANIES, INC. : Case No. 97-60560
Joint Administered With:
GAYLORD BOOK COMPANY, : Case No. 97-60562
GAYLORD'S, INC., : Case No. 97-60561
SAWWORTH BOOK COMPANY, : Case No. 97-60563
GAYLORD ENTERPRISES, INC., : Case No. 97-60564
THE COOKSTORE, INC., and : Case No. 97-60565
THE COOKSTORE WORTHINGTON, INC.; : Case No. 97-60566
: Chapter 11
Debtors. : (Judge Caldwell)
STIPULATION AND ORDER MODIFYING ADVISORY AGREEMENT BETWEEN
CAMBRIDGE HOLDINGS, L.L.C. AND GAYLORD COMPANIES, INC.,
THE COOKSTORE, INC. AND THE COOKSTORE WORTHINGTON, INC.
WHEREAS,
A. By Order dated March 5, 1998 this Court granted the above-captioned
Debtors authority to enter into and perform a certain Term Sheet
Agreement, including, among other things, an Advisory Agreement annexed
hereto as Exhibit A between Cambridge Holdings, L.L.C. ("Cambridge
Holdings") and Gaylord Companies, Inc. ("Gaylord Companies"), The
Cookstore, Inc. ("Cookstore") and The Cookstore Worthington, Inc.
("Cookstore Worthington") (collectively, the "Cookstore Debtors"). The
Term Sheet specifically authorizes assignment of Cambridge's rights and
obligations to an affiliate of Cambridge. Term Sheet at P. 10.3.
Likewise, the Advisory Agreement permits
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amendments, in writing, signed by both parties.
B. By Order entered April 13, 1998 the Court authorized the Cookstore
Debtors to enter into and perform a Commitment Letter for a DIP
financing (the "Fremont Financing") with Fremont Financial Corporation
("Fremont").
C. Certain necessary participants to the Fremont Financing have made it a
condition to their participation in the Fremont Financing that Cambridge
Holdings or an affiliate of Cambridge Holdings exercise daily oversight
of the business operations of the Cookstore Debtors.
D. Without the participation of such participants the Fremont Financing
will yield insufficient funds to allow the Cookstore Debtors to
successfully emerge from Chapter 11.
E. The request of such participants is reasonable under the circumstances
and is generally in conformity with the spirit of the Advisory
Agreement previously entered into. However, out of an abundance of
caution, the parties felt it prudent to seek approval of this Court to
modify the Advisory Agreement in accordance with the terms set forth
below.
F. Likewise, in the event that the Cookstore Debtors need additional cash
in connection with the Fremont Financing, Cambridge has indicated that
it may be willing to increase the amount of its participation under
section 9(g) of the Commitment Letter.
NOW, THEREFORE, it is stipulated and agreed by and between the
undersigned as follows:
1. Cambridge Holdings' affiliate Home Retail Acquisition Corporation
("HRAC") shall be designated to perform under the Advisory Agreement in place
and instead of Cambridge
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Holdings in accordance with the Advisory Agreement and shall have the benefit of
any protections granted to Cambridge holdings pursuant to such Advisory
Agreement;
2. The following paragraph shall be deemed added to the Advisory
Agreement as a new paragraph 9:
"Notwithstanding anything herein to the contrary, one or more
officers and/or designees of Home Retail Acquisition Corporation
("HRAC") may at all times be present at any of the Companies'
premises and shall have unlimited access to any financial and
other information which such individual deems necessary to conduct
oversight of the Cookstore Business. The foregoing officers of
HRAC (and/or their designees) shall be consulted as to all
day-to-day business decisions with respect to the Companies'
operations. Any individual check or other disbursement, or
aggregate of checks or other disbursements of the Companies to any
one payee in amounts in excess of $10,000 per calendar month, must
be signed by such officer of HRAC (or a designee thereof) in
addition to any other designated signatory of the Companies. For
the purposes of the foregoing sentence, HRAC may designate
additional officers of HRAC as authorized signatories. The
Companies shall promptly reimburse HRAC for all reasonable
out-of-pocket expenses of the foregoing officers of HRAC (or their
designees) incurred in connection with this paragraph 9."
3. Section 9(g) of the Commitment Letter will be modified to permit
Cambridge (or its designees) to purchase participation interests of not less
than $500,000, but not more than $1,000,000, in connection with the Fremont
Financing.
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IT IS SO ORDERED.
Dated: April 27, 1998 /s/ Charles M. Caldwell
-----------------------
United States Bankruptcy Judge
Charles M. Caldwell
Submitted and Approved by:
/s/ Victoria E. Powers
- ----------------------
Daniel R. Swetnam (0011022)
E. James Hopple (0019298)
Victoria E. Powers (0054589)
Susan K. Cliffel (0046915)
Daniel M. Anderson (0067041)
Schottenstein, Zox & Dunn Co., LPA
41 South High Street, Suite 2600
Columbus, Ohio 43215
(614) 221-3211
Case Attorneys for Debtors
/s/ Nick V. Cavalieri/ by telephone authority by Victoria E. Powers
- -------------------------------------------------------------------
Nick V. Cavalieri
Arter & Hadden
One Columbus - 10 W. Broad Street
Columbus, Ohio 43215-3422
(614) 221-3155
Attorneys for Creditors' Committee
/s/ Jeffrey L. Schwartz / by telephone authority by Victoria E. Powers
- -----------------------------------------------------------------------
Jeffrey L. Schwartz
Hahn & Hessen, LLP
350 Fifth Avenue, Suite 3700
New York, NY 10118
(212) 736-1000
Attorneys for Cambridge Holdings, L.L.C. and
Home Retail Acquisition Corporation
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Copies to:
Service List
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EXHIBIT E
Treatment of Executory Contracts and Unexpired Leases
The following executory contracts and unexpired leases will be assumed by
Debtors:
1. Lane Avenue Shopping Center, 1677 West Lane Avenue, Columbus, OH
(Landlord: UAP-Columbus, JV326132);
2. Summit Mall, 3265 West Market Street, Akron, OH (Landlord: DeBartolo
Capital Partnership);
3. Worthington Mall, 100 Worthington Mall, Worthington, OH (Landlord:
Aetna Life Insurance Co.);
4. The Mall at Fairfield Commons, 2727 Fairfield Commons Road,
Beavercreek, OH 45431 (Landlord: Glimcher Properties Corporation); and
5. Lease with M&I First National Leasing with respect to certain
computers.
All executory contracts and unexpired leases not specifically assumed are
rejected. The following is a non-exclusive list of the executory contracts and
unexpired leases which are being rejected by the Debtors:
1. Lease between Teachers Insurance Annuity Association and Gaylord
Companies, Inc. ("Teachers") dated October 9, 1996 for headquarters
space at 4006 Venture Court (rejection effective on August 31, 1998);
2. Consulting Agreement between Gaylord Companies, Inc. and George Gaylord
dated as of October 27, 1995 with Amendment No. 1 dated as of June 1,
1996;
3. Employment Agreement between Gaylord Companies, Inc. and John Gaylord
dated as of October 27, 1995 with Amendment No. 1 dated as of June 1,
1996;
4. Employment Agreement between Gaylord Companies, Inc. and John Critser
dated as of October 27, 1995 with Amendment No. 1 dated as of June 1,
1996 (rejection effective as of the Effective Date);
5. Supplemental Executive Retirement Plan dated as of August 1, 1996;
6. Representative's Warrant Agreement between Gaylord Companies, Inc. and
RAS Securities, Inc. dated October 31, 1995; and
7. Letter Agreement dated October 25, 1996 between Gaylord Companies, Inc.
and RAS Securities Corp.
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Exhibit H to Disclosure Statement
MERGER AGREEMENT AND PLAN OF RECAPITALIZATION, dated June __, 1998, among HOME
RETAIL ACQUISITION CORP. , a Delaware corporation ("HRAC"), and GAYLORD
COMPANIES, INC., Debtor-in-Possession, a Delaware corporation ("Gaylord").
Gaylord is a debtor-in-possession in a Chapter 11 Bankruptcy proceeding, and
HRAC is preparing a Plan of Reorganization (the "Bankruptcy Plan") in order to
enable Gaylord to emerge from bankruptcy.
The respective Boards of Directors of HRAC and Gaylord deem it advisable and
in the best interests of such corporations and their respective stockholders
that simultaneously at the Effective Time, as hereafter defined: (a) HRAC be
merged with and into Gaylord with Gaylord as the surviving entity in a
transaction intended to qualify as a tax-free statutory merger under Section
368(a)(1)(A) of the Tax Code and (b) Gaylord restructure its equity ownership in
a transaction intended to qualify as a tax-free recapitalization under Section
368(a)(1)(E) or Section 1036 of the Tax Code, on the terms and conditions set
forth in this Agreement.
Accordingly, the parties agree as follows:
Definitions. As used in this Agreement and in any amendments thereto, the
following terms shall have the following meanings:
(a) "Closing" shall refer to the closing under this Agreement as
described in Section 6.
(b) "Effective Time" shall mean the date and time when the Merger
becomes effective pursuant to the General Corporation Law of the State of
Delaware ("GCL").
(c) "Merger" shall refer to the merger of HRAC into and with Gaylord as
provided in Section 1.
(d) "Gaylord Common Stock" shall refer to the Common Stock, $0.01 par
value per share, of Gaylord outstanding prior to the Effective Time.
(e) "HRAC Common Stock" shall refer to the Common Stock, $0.01 par
value per share, of HRAC.
(f) "HRH Class A Common Stock" shall refer to the Class A Common Stock,
$0.01 par value per share, of the Surviving Corporation.
(g) "HRH Class B Common Stock" shall refer to the Class B Restricted
Common Stock, $0.01 par value per share, of the Surviving Corporation.
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(h) "Recapitalization" shall refer to the restructuring of the equity
interests of the shareholders of Gaylord simultaneous with the Merger as
described in Section 4 hereof.
(i) "Series A Preferred Stock" shall refer to the Series A Cumulative
Preferred Stock, $0.01 par value per share, of Gaylord.
(j) "Surviving Corporation" shall have the meaning set forth in Section
3(a) below.
(k) "Tax Code" shall refer to the Internal Revenue Code of 1986, as
amended.
1. The Merger. At the Effective Time, HRAC shall be merged into and with
Gaylord upon the terms set forth in this Agreement in a transaction intended to
qualify as a reorganization described in Section 368(a)(1)(A) of the Internal
Revenue Code.
2. Certificate of Merger. After satisfaction or waiver of all conditions
established herein to the obligations of the parties, Gaylord shall file with
the Secretary of State of the State of Delaware a duly executed Certificate of
Merger in the form of Annex I (the "Certificate of Merger"). The parties shall
use their best efforts to cause such conditions to be fulfilled as soon as
possible.
3. Effect of Merger. The effect of the Merger shall be as provided in this
Agreement, the Certificate of Merger and the GCL. At the Effective Time:
(a) Gaylord shall be the surviving corporation after giving effect to
the Merger (in such capacity, the "Surviving Corporation");
(b) the certificate of incorporation of the Surviving Corporation shall
be as set forth on Exhibit A to Annex I hereto, giving effect to the
restatement and amendment thereof as set forth on such Exhibit A;
(c) the Bylaws of the Surviving Corporation shall be as set forth on
Annex II hereto, giving effect to the restatement and amendment thereof as
set forth on such Annex II;
(d) the initial directors of the Surviving Corporation shall be those
persons who immediately prior to the Effective Time were serving as the
directors of Gaylord to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until their successors
are duly elected or appointed;
(e) the initial officers of the Surviving Corporation shall be those
persons who immediately prior to the Effective Time were serving as the
officers of Gaylord until their successors are duly elected or appointed;
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(f) the corporate existence, franchises and rights of Gaylord, with its
purposes, powers and objects, shall continue unaffected and unimpaired by
the Merger, and the Surviving Corporation shall succeed to and be fully
vested insofar as permitted by law and not otherwise expressly provided
herein, with the corporate existence, identity and all rights, franchises,
assets, liabilities and obligations of HRAC, all as set forth in and subject
to Section 259 of the GCL;
(g) the name of the Surviving Corporation shall be changed to "Home
Retail Holdings, Inc."; and
(h) the separate existence and corporate organization of HRAC shall
cease.
4. Treatment of Shares. At the Effective Time, by virtue of the simultaneous
Merger and Recapitalization and without any action on the part of any
stockholder of HRAC, Gaylord or their stockholders:
(a) each issued share of HRAC Common Stock outstanding immediately
prior to the Effective Time shall be converted by operation of law under the
Merger into the right to receive 13.83684 shares of HRH Class A Common
Stock;
(b) each issued share of Gaylord Common Stock outstanding immediately
prior to the Effective Time shall be converted pursuant to the
Recapitalization into .0226026 share of HRH Class B Common Stock;
(c) each issued share of Series A Preferred Stock outstanding
immediately prior to the Effective Time shall be converted pursuant to the
Recapitalization into the right to receive 1.1529 shares of HRH Class B
Common Stock; and
(d) no fractional shares of HRH Class A Common Stock or HRH Class B
Common Stock will be issued as a result of the Merger, either at the Closing
or at the time of issuance of certificates in the names of the holders of
HRAC Common Stock, Gaylord Common Stock and Series A Preferred Stock. In
lieu of the issuance of fractional shares, each holder of HRAC Common Stock,
Gaylord Common Stock or Series A Preferred Stock who otherwise would be
entitled to receive a fractional share of HRH Class A or Class B Common
Stock shall receive one share of HRH Class A or Class B Common Stock, as the
case may be;
provided that in no case shall more than an aggregate of 154,951 shares of Class
B Common Stock be issued to holders of Gaylord Common Stock and Series A
Preferred Stock.
5. Further Assurances. If at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other things are necessary or desirable to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to any property or right of HRAC acquired or to be acquired by reason of
or as a result of the Merger, the officers of Gaylord in office immediately
prior to the
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Effective Time shall in the name and on behalf of Gaylord have and may exercise
power and authority to execute and deliver all such proper deeds, assignments
and assurances in law and do all things necessary and proper to vest, perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, and the proper officers
and directors of the Surviving Corporation are hereby additionally authorized in
the name of HRAC or otherwise to take any and all such action.
6. Closing and Exchange of Stock Certificates.
(a) The Closing (provided that the Effective Time shall already have
arrived) will take place at 10:00 A.M. New York time on the date of the
Effective Time, or at such other time as the parties to this Agreement,
acting through their Boards of Directors or the Executive Committees
thereof, may mutually agree. The place of Closing will be at the offices of
Hahn & Hessen LLP, 350 Fifth Avenue, New York, New York or at such other
place as may be mutually agreed upon by the parties.
(b) As soon as practicable after the Effective Time, each holder of
shares of HRAC Common Stock, Gaylord Common Stock or Series A Preferred
Stock outstanding immediately prior to the Effective Time shall surrender
the certificate or certificates representing such shares to Surviving
Corporation and shall receive in exchange therefor a certificate or
certificates representing the number of whole shares of HRH Class A Common
Stock or HRH Class B Common Stock which such holder shall be entitled to
receive as provided in Section 4. The certificate or certificates so
surrendered shall be duly endorsed as Surviving Corporation may require.
Subject to the following provisions of this Section 6(b), after the
Effective Time each certificate which represented outstanding shares of HRAC
Common Stock, Gaylord Common Stock or Series A Preferred Stock prior to the
Effective Time shall be deemed for all corporate purposes to evidence the
ownership of the shares of HRH Class A Common Stock or HRH Class B Common
Stock, as the case may be, provided in Section 4. No dividend or other
distribution payable with respect to the HRH Class A Common Stock or HRH
Class B Common Stock shall be paid to any holder of any certificate
representing shares of HRAC Common Stock, Gaylord Common Stock or Series A
Preferred Stock issued and outstanding immediately prior to the Effective
Time until such holder surrenders such certificate for exchange as provided
in this Section 6(b).
(c) All shares of HRH Class A Common Stock or HRH Class B Common Stock
for and into which shares of HRAC Common Stock, Gaylord Common Stock or
Series A Preferred Stock shall have been exchanged and converted pursuant to
this Agreement shall be deemed to have been issued in full satisfaction of
all rights pertaining to such exchanged and converted shares. Except for
such rights and except as provided in Section 6(b), the holder of
certificate(s) representing shares of HRAC Common Stock, Gaylord Common
Stock or Series A Preferred Stock issued and outstanding immediately prior
to the
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Effective Time shall have no rights with respect to such shares other
than to surrender such certificate or certificates pursuant to Section 6(b).
7. Representations, Warranties and Covenants of Gaylord . Gaylord
represents, warrants and agrees as follows:
(a) Gaylord is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware with corporate power
and authority to carry on the business in which it is engaged, to own,
lease, and operate its properties, to execute and deliver this Agreement and
to perform its obligations under this Agreement;
(b) The authorized capital stock of Gaylord consists of 10,000,000
shares of Gaylord Common Stock, $.01 par value per share, of which 3,795,000
shares are issued and outstanding on the date of this Agreement, and
1,500,000 shares of cumulative preferred stock, $.01 par value per share, of
which 60,000 shares of Series A Preferred Stock are issued and outstanding
on the date of this Agreement. Gaylord does not hold any shares of its
authorized capital stock in its treasury. All of the issued and outstanding
shares of such capital stock are duly and validly issued and outstanding and
are fully paid and nonassessable.
(c) Except with the prior written approval of HRAC and as set forth in
the Bankruptcy Plan, between the date of this Agreement and the Effective
Time, there will be no change in the Certificate of Incorporation or By-Laws
or in the authorized or issued capital stock of Gaylord.
(d) Except with the prior written approval of HRAC and as set forth in
the Bankruptcy Plan, between the date of this Agreement and the Effective
Time, Gaylord will not (i) issue any additional capital stock or other
security, (ii) declare, set aside or pay any dividend or make any other
distribution in respect to its capital, (iii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock, or (iv) issue
to any person options, warrants or other rights to acquire any securities of
Gaylord .
(e) From the date of this Agreement up to and including the Effective
Time, except with the prior written approval of HRAC as set forth in the
Bankruptcy Plan, the business of Gaylord will be conducted in the usual,
regular and ordinary manner, and Gaylord will not make any material change
in its methods of management, distribution, marketing, accounting or
operations.
8. Representations, Warranties and Covenants of Gaylord and HRAC. Each of
Gaylord and HRAC will use its respective best efforts to cause all of the
conditions set forth in Sections 7 through 11 that are within its control to be
satisfied as soon as practicable after the date hereof.
9. Representations, Warranties and Covenants of HRAC.
(a) HRAC is a corporation duly organized, validly existing and in good
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standing under the laws of the State of Delaware with power and authority to
carry on its business, to own its properties, and to execute and deliver
this Agreement and perform its obligations hereunder.
(b) Between the date of this Agreement and the Effective Time, there
will be no change in the Certificate of Incorporation or By-Laws or in the
authorized or issued capital stock of HRAC.
(c) Except as otherwise provided herein, between the date of this
Agreement and the Effective Time, HRAC will not (i) issue any additional
capital stock or other security, (ii) declare, set aside or pay any dividend
or make any other distribution in respect to its capital, (iii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock, or (iv) issue to any person options, warrants or other rights to
acquire any securities of HRAC.
(d) The authorized capital stock of HRAC consists of 1,000,000 shares
of HRAC Common Stock, $0.01 par value per share, of which 100,000 shares are
issued and outstanding on the date of this Agreement, and 100,000 shares of
serial preferred stock, $0.01 par value per share, of which no shares are
issued and outstanding on the date of this Agreement. HRAC does not hold any
shares of its authorized capital stock in its treasury. All of the issued
and outstanding shares of such capital stock are duly and validly issued and
outstanding and are fully paid and nonassessable.
10. Conditions Precedent to the Obligation of HRAC. The obligations of HRAC
under this Agreement and the Certificate of Merger are subject to the
fulfillment prior to or on the Effective Time of the following conditions:
(a) this Agreement and the Merger shall have been approved by the
affirmative vote of the holders of all of the shares of HRAC Common Stock
entitled to vote thereon; and
(b) the Bankruptcy Plan shall have been confirmed and declared
effective.
11. Conditions Precedent to Obligations of Gaylord . The obligations of
Gaylord under this Agreement are subject to the fulfillment prior to or on the
Effective Time of the following condition:
(a) The Bankruptcy Plan shall have been confirmed and declared
effective.
12. Modification and Termination. To the fullest extent permitted under the
GCL, HRAC and Gaylord, by mutual consent of their respective Boards of
Directors, may amend, modify and supplement this Agreement in such manner as may
be agreed upon by them in writing at any time before the Closing. HRAC and
Gaylord may at any time, by mutual consent of their Boards of Directors,
terminate this Agreement.
13. Miscellaneous.
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(a) Parties in Interest. This Agreement shall only bind and inure to
the benefit of the parties and their respective successors and assigns.
(b) Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute only one
agreement.
(d) Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of law.
IN WITNESS WHEREOF, the Board of Directors of each of the parties hereto
first having duly adopted and approved the same, this Merger Agreement and Plan
of Reorganization has been executed and delivered on the date first above
written.
HOME RETAIL ACQUISITION CORP.
Attest: By:
--------------------------
Name:
- ------------------ Title:
Name:
Title:
GAYLORD COMPANIES, INC., debtor-in-possession
Attest: By:
--------------------------
Name:
- ------------------ Title:
Name:
Title:
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ANNEX I
TO MERGER AGREEMENT
AND PLAN OF RECAPITALIZATION
CERTIFICATE OF MERGER
OF
HOME RETAIL ACQUISITION CORP.
WITH AND INTO
GAYLORD COMPANIES, INC.
The undersigned corporation, organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law"), DOES
HEREBY CERTIFY:
FIRST: The name and state of incorporation of each of the constituent
corporations in the merger are as follows:
Name State of Incorporation
HOME RETAIL ACQUISITION CORP. Delaware
GAYLORD COMPANIES, INC. Delaware
SECOND: A Merger Agreement and Plan of Recapitalization dated June __, 1998
(the "Merger Agreement") has been approved, adopted, certified, executed, and
acknowledged by each constituent corporation in accordance with Section 251 or
303 of the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation shall be HOME RETAIL HOLDINGS,
INC.
FOURTH: Such amendments or changes to the certificate of incorporation of
the surviving corporation as are desired to be effected by the merger are set
forth on Exhibit A attached hereto and incorporated herein by reference, which
sets forth such certificate of incorporation, as so amended and restated, in its
entirety.
FIFTH: The executed Merger Agreement is on file at the principal place of
business of the surviving corporation at ____________________, _____________.
SIXTH: A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
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IN WITNESS WHEREOF, this Certificate of Merger has been executed and
acknowledged this __ day of June, 1998.
GAYLORD COMPANIES, INC., debtor-in-possession
By:
------------------------------------------
Name:
Title:
Acknowledged:
- ------------------------------
Name:
Title:
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Annex II
RESTATED AND AMENDED
BYLAWS
OF
HOME RETAIL HOLDINGS, INC.
(a Delaware corporation)
Effective ______ __, 1998
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
Corporation shall be signed by, or in the name of, the Corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The Corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
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General Corporation Law, the Board of Directors of the Corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the Corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
Corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the Corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the Corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer
or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the
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date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by the General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action. In
order that the Corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the Corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder, provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors. A special meeting shall be held on the date
and at the time fixed by the
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directors.
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the Corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by a majority of
the directors or by any officer instructed by a majority of the directors to
call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given,
stating the place, date, and hour of the meeting and stating the place within
the city or other municipality or community at which the list of stockholders of
the Corporation may be examined. The notice of an annual meeting shall state
that the meeting is called for the election of directors and for the transaction
of other business which may properly come before the meeting, and shall (if any
other action which could be taken at a special meeting is to be taken at such
annual meeting) state the purpose or purposes. The notice of a special meeting
shall in all instances state the purpose or purposes for which the meeting is
called. The notice of any meeting shall also include, or be accompanied by, any
additional statements, information, or documents prescribed by the General
Corporation Law. Except as otherwise provided by the General Corporation Law, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten days nor more than sixty days before the date of the meeting,
unless the lapse of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such other address
which he may have furnished by request in writing to the Secretary of the
Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. No business shall be
conducted at an annual meeting except in accordance with this procedure. The
Chairman of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this section, and if so determined, shall
declare to the meeting that any such business not properly bought before the
meeting shall not be transacted. If a meeting is adjourned to another time, not
more than thirty days hence, and/or to another place, and if an announcement of
the adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the directors, after
adjournment, fix a new record date for the adjourned meeting. Notice need not be
given to any stockholder who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of
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each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city or
other municipality or community where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the Corporation, or to vote at
any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by
one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the Corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, bur if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the Corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge,
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question, or matter determined by him or them and execute a certificate of any
fact found by him or them. Except as otherwise required by subsection (e) of
Section 231 of the General Corporation Law, the provisions of that Section shall
not apply to the Corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock shall
constitute a quorum at a meeting of stockholders for the transaction of any
business. The stockholders present may adjourn the meeting despite the absence
of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted; provided that if at
any time the Corporation shall have a class of stock registered pursuant to the
provisions of the Securities Exchange Act of 1934, for so long as such class is
so registered, any action by the stockholders of such class must be taken at an
annual or special meeting of stockholders and may not be taken by written
consent. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors of the
Corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of three persons. Thereafter the number
of directors constituting the whole board
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shall be at least three. Subject to the foregoing limitation and except for the
first Board of Directors, the number of directors shall be fixed by resolution
of the Board of Directors and may be increased at any time or from time to time
by the directors by vote of a majority of the directors then in office but not
to a greater number than nine without action by the stockholders. The number of
directors may be decreased to any number permitted by the foregoing at any time
by the directors by vote of a majority of the directors then in office, but only
to eliminate vacancies existing by reason of the death, resignation or removal
of one or more directors.
3. ELECTION AND TERM. All members of the Board of Directors shall be
classified, with respect to the time for which they each hold office, into three
classes. One class shall originally be elected for an initial one year term
expiring at the annual meeting of stockholders to be held in 1999, another class
shall be originally elected for an initial two year term expiring at the annual
meeting of stockholders to be held in 2000, and another class shall be
originally elected for an initial three year term expiring at the annual meeting
of stockholders to be held in 2001, with each member of each class to hold
office until a successor is elected and qualified or until his earlier
resignation or removal. Thereafter, at each annual meeting of stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a three year term until their successors are elected
and qualified or until their earlier resignation or removal.
Except as otherwise provided in or fixed by or pursuant to the Corporation's
Certificate of Incorporation, nominations for the election of directors may be
made by the Board of Directors or by any stockholder of record entitled to vote
in the election of directors generally. However, any such stockholders may
nominate one or more persons for election as director or directors at a
stockholders' meeting only if written notice of intent to make such nomination
or nominations has been given either by personal delivery or by mail to the
Secretary of the Corporation not less than 30 days before the meeting of
stockholders at which such election is held. Each such notice shall state (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (d) the consent of each nominee to serve as a director of the Corporation if
so elected, and shall be accompanied by a petition in support of such nomination
signed by at least 50 holders of record of stock entitled to vote in the
election of directors holding in the aggregate not less than 5% of such stock.
The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
4. MEETINGS.
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- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State of
Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called: by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum
except when a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided, that such
majority shall constitute at least one-third of the whole Board. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place. Except as herein otherwise provided, and except as
otherwise provided by the General Corporation Law, the vote of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law and
these Bylaws which govern a meeting of directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
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5. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign at any time
by delivering his resignation in writing to the chairman of the board, if any,
the president, or the secretary or to a meeting of the board of directors. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time, and without in either case the necessity of it being accepted
unless the resignation shall so state. Except as otherwise provided in the
certificate of incorporation or these by-laws relating to the rights of the
holders of any class or series of preferred stock, voting separately by class or
series, to elect directors under specified circumstances, any director or
directors may be removed from office at any time, but only for cause and only by
the affirmative vote, at any regular meeting or special meeting of the
stockholders, of not less than 50% of the total number of votes of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class, but
only if notice of such proposal was contained in the notice of such meeting. Any
vacancy in the board of directors resulting from any such removal shall be
filled only by vote of a majority of the directors then in office, although less
than a quorum, and any director or directors so chosen shall hold office until
the next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified or until their earlier
death, resignation or removal. No director resigning and (except where a right
to receive compensation shall be expressly provided in a duly authorized written
agreement with the corporation) no director removed shall have any right to any
compensation as such director for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise; unless, in the case of
a resignation, the directors, or, in the case of removal, the body acting on the
removal, shall in their or its discretion provide for compensation.
6. VACANCIES. Vacancies and any newly created directorships resulting from
any increase in the number of directors shall be filled only by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Stockholders shall have no power to fill any vacancies
or newly created directorships. When one or more directors shall resign from the
board, effective at a future date, a majority of the directors then in office,
including those who have resigned, shall have power to fill such vacancy or
vacancies, the vote or action by writing thereon to take effect when such
resignation or resignations shall become effective. The directors shall have and
may exercise all their powers notwithstanding the existence of one or more
vacancies in their number, subject to any requirement of law or of the
certificate of incorporation or of these by-laws as to the number of directors
required for a quorum or for any vote or other actions.
7. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may
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authorize the seal of the Corporation to be affixed to all papers which may
require it.
8. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
9. INTERESTED DIRECTORS AND OFFICERS.
(a) No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of the Corporation's directors or officers are directors or officers,
or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, one or more
Executive Vice Presidents, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such
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other officers with such titles as the resolution of the Board of Directors
choosing them shall designate. Except as may otherwise be provided in the
resolution of the Board of Directors choosing him, no officer other than the
Chairman or Vice-Chairman of the Board, if any, need be a director. Any number
of offices may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer shall
be chosen for a term which shall continue until the meeting of the Board of
Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the Corporation shall have such authority and perform such
duties in the management and operation of the Corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the Corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
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ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders except that the power to amend, alter or repeal Article
II Sections 2 and 3 may be exercised only by the stockholders acting by at least
75% vote of the outstanding voting shares.
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EXHIBIT I TO DISCLOSURE STATEMENT
HOME RETAIL HOLDINGS, INC.
1998 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of Home Retail Holdings, Inc. (the "Company") by enhancing its ability
to attract and retain employees and other persons or entities who are in a
position to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's Class A Common Stock
("Stock").
The Plan was adopted by the Company on June __, 1998, and adopted by
stockholders on___________________ .
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplement Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. During such times as the Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), all members of the Committee
shall be disinterested persons within the meaning of Rule 16b-3 under the 1934
Act and "outside directors" within the meaning of Section 162(m)(4)(C)(i) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a holder of an Award with
any obligations to be performed by such holder under an Award and waive any
terms or conditions of an Award; (f) amend or cancel an existing Award in whole
or in part (and if an award is canceled, grant another Award in its place on
such terms and conditions as the Committee shall specify), except that the
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Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants (as defined below),
and change such forms from time to time; (h) adopt, amend and rescind rules and
regulations for the administration of the Plan; and (i) interpret the Plan and
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determinations and actions of the Committee, and
all other determinations and actions of the Committee made or taken under
authority granted by any provision of the Plan, will be conclusive and will bind
all parties. Nothing in this paragraph shall be construed as limiting the power
of the Committee to make adjustments under Section 7.3 or Section 8.6.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. No Award may be granted under the Plan ten years
following the date of stockholder approval, but Awards previously granted may
extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be 180,000.
If any Award requiring exercise by the Participant for delivery of Stock
terminates without having been exercised in full, or if any Award payable in
Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Subject to Section 8.6(a), the maximum number of shares of Stock as to which
Options and Stock Appreciation Rights may be granted to any Participant in any
one calendar year is 80,000, which limitation shall be construed and applied
consistently with the rules under Section 162(m) of the Internal Revenue Code.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Each person in the employ of the Company or any of its subsidiaries (an
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"Employee") and each other person or entity (including without limitation
non-Employee directors of the Company or a subsidiary of the Company) who, in
the opinion of the Committee, is in a position to make a significant
contribution to the success of the Company or its subsidiaries will be eligible
to receive Awards under the Plan (each such Employee, person or entity receiving
an Award, a "Participant"). A "subsidiary" for purposes of the Plan will be a
corporation in which the Company owns, directly or indirectly, stock possessing
50 % or more of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. Options
(a) Nature of Options. An Option is an Award giving the recipient the
right on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422 of the Internal
Revenue of 1986, as amended (the "Code") (any Option intended to qualify as an
incentive stock option being hereinafter referred to as an "ISO"), and Options
that are not incentive stock options, may be granted under the Plan. ISOs shall
be awarded only to Employees. Any Option not identified at the time of grant as
being either an ISO or a non-incentive stock option shall be a non-incentive
stock option.
(b) Exercise Price. The exercise price of an Option will be determined
by the Committee subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110%
in the case of an ISO granted to a ten-percent stockholder) of the fair
market value of the Stock subject to the Option, determined as of the
time the Option is granted. A "ten percent stockholder" is any person
who at the time of grant owns, directly or indirectly, or is deemed to
own by reason of the attribution rules of section 424(d) of the Code,
stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is part
of an original issue of authorized Stock be less than the par value per
share of the Stock.
(3) The Committee may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the Participant.
(c) Duration of Options. The latest date on which an Option may be
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exercised will be the tenth anniversary (fifth anniversary, in the case of
an ISO granted to a ten-percent shareholder) of the day immediately
preceding the date the Option was granted, or such earlier date as may have
been specified by the Committee at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time
or times, and on such conditions, as the Committee may specify. The
Committee may at any time and from time to time accelerate the time at which
all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with paragraph
(e) below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or
money order payable to the order of the Company or (2) if so permitted by
the Committee at or after the grant of the Option (with the consent of the
optionee of an ISO if permitted after the grant) or by the instrument
evidencing the Option, (i) through the delivery of shares of Stock which
have been outstanding for at least six months (unless the Committee approves
a shorter period) and which have a fair market value equal to the exercise
price, (ii) by delivery of a promissory note of the person exercising the
Option to the Company, payable on such terms as are specified by the
Committee, (iii) by delivery of an unconditional and irrevocable undertaking
by a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or (iv) by any combination of the foregoing permissible
forms of payment.
(f) Discretionary Payments. If (i) the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise
price of the Option at the time of its exercise, and (ii) the person
exercising the Option so requests the Committee in writing, the Committee
may in its sole discretion cancel the Option and cause the Company to pay in
cash or in shares of Common Stock (at a price per share equal to the fair
market value per share) to the person exercising the Option an amount equal
to the difference between the fair market value of the Stock which would
have been purchased pursuant to the exercise (determined on the date the
Option is canceled) and the aggregate exercise price which would have been
paid.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is
an Award entitling the holder on exercise to receive an amount in cash or
Stock or a combination thereof (such form to be determined by the Committee)
determined in whole or in part by reference to appreciation in the fair
market value of a share of Stock on the date
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of grant as compared to its fair market value on the date of exercise or any
performance standard selected or established by the Committee.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the
Plan. A Stock Appreciation Right granted in tandem with an Option which is
not an ISO may be granted either at or after the time the Option is granted.
A Stock Appreciation Right granted in tandem with an ISO may be granted only
at the time the Option is granted. The Committee may also grant Stock
Appreciation Rights which provide that following a change in control of the
Company, as determined by the Committee, the holder of such Right will be
entitled to receive, with respect to each share of Stock subject to the
Right, an amount equal to the excess of a specified value (which may include
an average of values) for a share of Stock during a period preceding such
change in control over the fair market value of a share of Stock on the date
the Right was granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be reduced
until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by
the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon
the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with
the related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may
be exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Committee
may specify. The Committee may at any time accelerate the time at which all
or any part of the Right may be exercised.
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Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Committee.
6.3. Restricted and Unrestricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant shares
of Restricted Stock in such amounts and upon such terms and conditions as
the Committee shall determine subject to the restrictions described below.
(b) Restricted Stock Agreement. The Committee may require, as a
condition to an Award, that a recipient of a Restricted Stock Award enter
into a Restricted Stock Award Agreement, setting forth the terms and
conditions of the Award. In lieu of a Restricted Stock Award Agreement, the
Committee may provide the terms and conditions of an Award in a notice to
the Participant of the Award, on the Stock certificate representing the
Restricted Stock, in the resolution approving the Award, or in such other
manner as it deems appropriate.
(c) Transferability and Other Restrictions. Except as otherwise
provided in this Section 6.3, the shares of Restricted Stock granted herein
may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period or periods established
by the Committee and the satisfaction of any other conditions or
restrictions established by the Committee (such period during which a share
of Restricted Stock is subject to such restrictions and conditions is
referred to as the "Restricted Period"). Except as the Committee may
otherwise determine, if a Participant ceases to be an Employee or otherwise
suffers a Status Change (as defined at Section 7.2(a) below) for any reason
during the Restricted Period, the Company may purchase the shares of
Restricted Stock subject to such restrictions and conditions for the amount
of cash paid by the Participant for such shares, or such shares of
Restricted Stock shall be forfeited to the Company if no cash was paid by
the Participant.
The Company shall also have the right to retain the certificates
representing shares of Restricted Stock in the Company's possession during the
Restricted Period.
(d) Removal of Restrictions. Except as otherwise provided in this
Section 6.3, a share of Restricted Stock covered by a Restricted Stock grant
shall become freely transferable by the Participant upon completion of the
Restricted Period including the passage of any applicable period of time and
satisfaction of any conditions to vesting. However, unless otherwise
provided by the Committee, the Committee, in its sole discretion, shall have
the right to immediately waive all or part of the restrictions and
conditions with regard to all or part of the shares held by any Participant
at any time.
(e) Voting Rights, Dividends and Other Distributions. During the
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Restricted Period, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights and shall receive all regular cash
dividends paid with respect to such shares. Except as the Committee shall
otherwise determine, any other cash dividends and other distributions paid
to Participants with respect to shares of Restricted Stock including any
dividends and distributions paid in shares shall be subject to the same
restrictions and conditions as the shares of Restricted Stock with respect
to which they were paid.
(f) Other Awards Settled with Restricted Stock. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any
or all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Committee may, in its sole discretion, sell
to any Participant shares of Stock free of restrictions under the Plan for a
price which is not less than the par value of the Stock.
(h) Notice of Section 83(b) Election. Any Participant making an
election under Section 83(b) of the Code with respect to Restricted Stock
must provide a copy thereof to the Company within 10 days of filing such
election with the Internal Revenue Service.
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any Award described in this Section 6 is
granted, the Committee may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following
the attainment of performance goals. Performance goals may be related to
personal performance, corporate performance, departmental performance or any
other category of performance established by the Committee. The Committee
will determine the performance goals, the period or periods during which
performance is to be measured and all other terms and conditions applicable
to the Award.
(b) Other Awards Subject to Performance Condition. The Committee may,
at the time any Award described in this Section 6 is granted, impose the
condition (in
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addition to any conditions specified or authorized in this Section 6 or any
other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the Participant. A
Loan may be made either in connection with the purchase of Stock under the
Award or with the payment of any Federal, state and local income tax with
respect to income recognized as a result of the Award. The Committee will
have full authority to decide whether to make a Loan and to determine the
amount, terms and conditions of the Loan, including the interest rate (which
may be zero), whether the Loan is to be secured or unsecured or with or
without recourse against the borrower, the terms on which the Loan is to be
repaid and the conditions, if any, under which it may be forgiven. However,
no Loan may have a term (including extensions) exceeding ten years in
duration.
(b) Supplemental Grants. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and grant
a cash award to the Participant ("Supplemental Grant") not to exceed an
amount equal to (1) the amount of any Federal, state and local income tax on
ordinary income for which the Participant may be liable with respect to the
Award, determined by assuming taxation at the highest marginal rate, plus
(2) an additional amount on a grossed-up basis intended to make the
Participant whole on an after-tax basis after discharging all the
Participant's income tax liabilities arising from all payments under this
Section 6. Any payments under this subsection (b) will be made at the time
the Participant incurs Federal income tax liability with respect to the
Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised
by the Participant's executor or administrator or the person or persons to
whom the Option or Right is transferred by will or the applicable laws of
descent and distribution, at any time within the one year period ending with
the first anniversary of the Participant's death (or such shorter or longer
period as the Committee may determine), and shall thereupon terminate. In no
event, however, shall an Option or Stock Appreciation Right remain
exercisable beyond the latest date on which it could have been exercised
without regard to this Section 7. Except as otherwise determined by the
Committee, all Options and Stock Appreciation Rights held by a Participant
immediately prior to death that are not then exercisable shall terminate at
death.
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(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in
the event the certificates representing such Restricted Stock are held by
the Company, such Restricted Stock will be so transferred without any
further action by the Participant) in accordance with Section 6.3(d) above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled as of the
time of death, unless otherwise determined the Committee.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, or if there is a termination (other than by reason of death)
of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the
Status Change. Any Options or Rights that were exercisable immediately prior
to the Status Change will continue to be exercisable for a period of three
months (or such longer period as the Committee may determine), and shall
thereupon terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change (unless otherwise determined by
the Committee) or unless the Status Change results from a discharge for
cause which in the opinion of the Committee casts such discredit on the
Participant as to justify immediate termination of the Award (unless
otherwise determined by the Committee). In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date
on which it could have been exercised without regard to this Section 7. For
purposes of this paragraph, in the case of a Participant who is an Employee,
a Status Change shall not be deemed to have resulted by reason of (i) a sick
leave or other bona fide leave of absence approved for purposes of the Plan
by the Committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of
employment between the Company and a subsidiary or between subsidiaries, or
to the employment of a corporation (or a parent or subsidiary corporation of
such corporation) issuing or assuming an option in a transaction to which
section 424(a) of the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing
such Restricted Stock are held by the Company, such Restricted Stock will be
so transferred without any further action by the Participant) in accordance
with Section 6.3 (c) above.
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(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award
cancelled as of the date of such Status Change unless otherwise determined
by the Committee.
7.3. Certain Corporate Transactions.
Except as otherwise provided by the Committee at the time of grant, in the
event of a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all the
Company's outstanding Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), the following rules shall
apply:
(a) Subject to paragraph (b) below, all outstanding Awards requiring
exercise will cease to be exercisable, and all other Awards to the extent
not fully vested (including Awards subject to conditions not yet satisfied
or determined) will be forfeited, as of the effective time of the covered
transaction, provided that the Committee may in its sole discretion, on or
prior to the effective date of the covered transaction, (1) make any
outstanding Option and Stock Appreciation Right exercisable in full, (2)
remove the restrictions from any Restricted Stock, (3) cause the Company to
make any payment and provide any benefit under any Deferred Stock Award,
Performance Award, or Supplemental Grant, (4) remove any performance or
other conditions or restrictions on any Award, and (5) forgive all or any
portion of the principal of or interest on a Loan; or
(b) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise
providing services to a corporation which is a surviving or acquiring
corporation in the covered transaction or an affiliate of such a
corporation, the Committee may at or prior to the effective time of the
covered transaction, in its sole discretion and in lieu of the action
described in paragraph (a) above, arrange to have such surviving or
acquiring corporation or affiliate assume any Award held by such participant
outstanding hereunder or grant a replacement award which, in the judgment of
the Committee, is substantially equivalent to any Award being replaced.
7.4. Termination Following Change of Control.
Notwithstanding any other provision of this Plan, if the Participant's
employment terminates because of a "Qualified Termination" as defined in Exhibit
A, all unvested Options and Stock Appreciation Rights then held by such person
shall immediately become fully vested, all Options and Stock Appreciation Rights
then held by such person shall remain exercisable until the earlier of (i) the
fourth anniversary of such Qualified Termination and (ii) the latest date on
which such Option or Right could have been exercised without regard to Section
7.1 and Section 7.2, and all other Awards shall immediately become fully vested
and all restrictions, conditions and performance goals with
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respect to such Awards shall be deemed satisfied and shall no longer be
applicable.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee may,
on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable Federal and state
laws and regulation have been complied with, (c) if the outstanding Stock is at
the time listed on any stock exchange or The Nasdaq National Market, until the
shares to be delivered have been listed or authorized to be listed on such
exchange or market upon official notice of notice of issuance, and (d) until all
other legal matters in connection with the issuance and delivery of such shares
have been approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. Tax Withholding.
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The Company will withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement. The Committee may make such share
withholding mandatory with respect to any Award at the time such Award is made
to a Participant.
If at the time an ISO is exercised the Committee determines that the Company
could be liable for withholding requirements with respect to a disposition of
the Stock received upon exercise, the Committee may require as a condition of
exercise that the person exercising the ISO agree (a) to inform the Company
promptly of any disposition (within the meaning of section 424(c) of the Code)
of Stock received upon exercise, and (b) to give such security as the Committee
deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Committee to preserve the adequacy of
such security.
8.5. Nontransferability of Awards.
Unless otherwise permitted by the Committee, no Award (other than an Award
in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution, and
during a Participant's lifetime an Award requiring exercise may be exercised
only by the Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's behalf).
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Committee will make any
appropriate adjustments to the maximum number of shares that may be
delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of stock
or securities
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subject to Awards then outstanding or subsequently granted, any exercise
prices relating to Awards and any other provision of Awards affected by such
change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate
transactions, or any other event, if it is determined by the Committee that
adjustments are appropriate to avoid distortion in the operation of the
Plan.
(c) In the case of ISOs or for purposes of the limits set forth in the
second paragraph of Section 4, the adjustments described in (a) and (b) will
be made only to the extent consistent with continued qualification of the
option under Section 422 of the Code (in the case of an ISO) or Section
162(m) of the Code (in the case of the limits in Section 4).
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary as
an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any particular case,
the loss of existing or potential profit in Awards granted under the Plan will
not constitute an element of damages in the event of termination of an
employment, service or similar relationship even if the termination is in
violation of an obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Committee may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent
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expressly required or permitted by the Plan) no such amendment will, without the
approval of the stockholders of the Company, effectuate a change for which
stockholder approval is required in order for the Plan to continue to qualify
for the award of ISOs under section 422 of the Code, for the award of
performance-based compensation under Section 162(m) of the Code or under Rule
16b-3 promulgated under Section 16 of the 1934 Act.
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EXHIBIT A
For purposes of Section 7.4 of the Plan, the following terms have the
following meanings:
"Base Salary" means Participant's annual base salary, exclusive of any bonus
or other benefits the Participant may receive.
"Cause" means the following, determined by the Committee in its reasonable
judgment:
(i) willful failure to perform, or gross negligence in the
performance of, Participant's duties and responsibilities
to the Company and its subsidiaries; or
(ii) fraud, embezzlement or other material dishonesty with respect to
the Company or any of its subsidiaries; or
(iii) conviction of, or plea of nolo contendere to, a felony or other
crime involving moral turpitude; or
(iv) other conduct by Participant that is materially harmful to the
business, interests or reputation of the Company or any of its
subsidiaries.
"Change of Control" means such time as:
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of
Voting Stock representing more than 50 % of the total voting
power of the Voting Stock of the Company on a fully diluted
basis,
(ii) individuals who on _________, 1998 constitute the Board (together
with any new directors whose election by the Board or whose
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the
Board then in office who either were members of the Board on
______, 1998 or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the members of the Board then in office and
(iii) the merger or consolidation of the Company with or into another
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corporation; or the merger or consolidation of another
corporation with and into the Company, with the effect that,
immediately after such transaction, the Voting Stock of the
entity surviving such merger or consolidation received in such
transaction by the stockholders of the Company immediately prior
to such transaction represents the ultimate beneficial ownership
of less than 50% of Voting Stock of the entity surviving such
merger or consolidation.
"Disability" has the meaning given it in any long-term disability plan of
the Company in which Participant participates. Participant's employment shall be
deemed terminated for Disability when Participant is entitled to receive
long-term disability compensation pursuant to such long-term disability plan. If
the Company does not maintain such a plan, Participant shall be deemed
terminated for Disability if the Company terminates his employment due to
illness, injury, accident or condition of either a physical or psychological
nature as a result of which Participant is unable to perform substantially the
duties and responsibilities of his position for 180 days during a period of 365
consecutive calendar days.
"Good Reason" means the voluntary termination by Participant of his or her
employment after the occurrence, without Participant's express written consent,
of any of the following events:
(i) assignment to Participant of duties materially inconsistent with
his or her positions, duties, responsibilities, or reporting
requirements with the Company (or a subsidiary) immediately prior
to a Change of Control or a material adverse alteration in
Participant's status or the nature of his or her responsibilities
with the Company immediately prior to a Change in Control; or
(ii) reduction in Participant's rate of Base Salary to less than 100
percent of the rate of Base Salary paid to the Participant
immediately preceding the Change of Control, or reduction in
Participant's total cash compensation opportunities, including
salary, incentives and other benefits, for any fiscal year to
less than 100 percent of the total cash compensation
opportunities made available to the Participant immediately
preceding the Change of Control (for this purpose, such
opportunities shall be deemed reduced if the objective standards
by which Participant's incentive compensation is measured become
materially more stringent or if the amount of such compensation
is materially reduced on a discretionary basis from the amount
that would be payable solely by reference to the objective
standards).
"Qualified Termination" means the termination of Participant's employment
during a Standstill Period (1) by the Company other than for Cause, death or
Disability, and (2) in
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the case of a Participant who at the time of the Change of Control holds an
office specifically designated by the Committee in its sole discretion to have
such right, by Participant for Good Reason.
"Standstill Period" is the period commencing on the date of a Change of
Control and continuing until the close of business on the last business day of
the 24th calendar month following such Change of Control.
"Voting Stock" means the capital stock of any class or kind ordinarily
having the power to vote for the election of directors, managers or other voting
members of the governing body of such Person.
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Exhibit 2.3
GAYLORD COMPANIES, INC. PLAN OF REORGANIZATION CONFIRMED
COLUMBUS, OHIO - July 27, 1998 - Gaylord Companies, Inc. (OTC Bulletin Board:
GJCO) today announced that the Amended Plan of Reorganization of Gaylord
Companies, Inc. and its subsidiaries The Cookstore, Inc., and the Cookstore
Worthington, Inc., dated June 24, 1998, was confirmed by the United States
Bankruptcy Court for the Southern District of Ohio (Eastern Division) on July
10, 1998.
The Plan was sponsored by Cambridge Holdings, LLC, a New York-based merchant
bank. Gaylord and each of its six subsidiaries filed petitions for relief under
Chapter 11 of the Bankruptcy Code on November 13, 1997, after efforts to raise
additional capital failed.
Gaylord, founded over 20 years ago, is a specialty retailer of quality cookware
and serving equipment, cooking accessories and certain select food products, as
well as cookbooks and food-related publications, in specialty retail stores.
Gaylord was also formerly a specialty retailer of books in a separate bookstore
operation which was spun-off in a separate transaction. Upon the effective date
of the Plan of Reorganization, the reorganized Gaylord will merge with Home
Retail Acquisition Corp., a special-purpose vehicle owned in part by Cambridge
and its affiliates, and will be renamed Home Retail Holdings, Inc.
Cambridge Holdings is a merchant bank that specializes in working with troubled
companies, misunderstood industries and mis-financed asset classes. The firm
focuses on opportunities that offer an arbitrage between the inefficiencies that
exist between certain industries/companies and the capital markets. The firm
targets opportunities where profits can be increased through the addition of
capital to augment an existing strategy, improvements in existing operations,
introduction of new product lines or services or acquisitions in industry
consolidations.
Certain statements contained in this release are not historical and may be
deemed "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Many factors could cause the events in such
forward looking statements not to occur, or to occur in a manner materially
different from that contemplated by such forward looking statements, including
the inability of the company to implement the confirmed plan. Accordingly,
actual results could differ materially from those contemplated in such
forward-looking statements.
CONTACT: Gaylord Companies, Inc., Greg E. Dukoff, 614-771-2777
Cambridge Holdings, LLC., David E. Danovitch, 212-508-6509
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