Attached files
file | filename |
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8-K - FORM 8-K - NBC ACQUISITION CORP | c20102e8vk.htm |
EX-10.1 - EXHIBIT 10.1 - NBC ACQUISITION CORP | c20102exv10w1.htm |
EX-99.1 - EXHIBIT 99.1 - NBC ACQUISITION CORP | c20102exv99w1.htm |
EXHIBIT 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
FOR THE DISTRICT OF DELAWARE
) | ||||||
In re:
|
) | Chapter 11 | ||||
) | ||||||
NEBRASKA BOOK COMPANY, INC., et al.,1
|
) | Case No. 11-12005 (PJW) | ||||
) | ||||||
Debtors.
|
) | Jointly Administered | ||||
) | ||||||
DISCLOSURE STATEMENT RELATING TO
THE JOINT PLAN OF REORGANIZATION
OF NEBRASKA BOOK COMPANY, INC., ET AL.,
PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE
THE JOINT PLAN OF REORGANIZATION
OF NEBRASKA BOOK COMPANY, INC., ET AL.,
PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE
Marc Kieselstein, P.C. (admitted pro hac vice)
|
Laura Davis Jones (DE Bar No. 2436) | |
Chad J. Husnick (admitted pro hac vice)
|
James E. ONeill (DE Bar No. 4042) | |
Daniel R. Hodgman (admitted pro hac vice)
|
Peter J. Keane (DE Bar No. 5503) | |
KIRKLAND & ELLIS LLP
|
PACHULSKI STANG ZIEHL & JONES LLP | |
601 Lexington Avenue
|
919 North Market Street, 17th Floor | |
New York, New York 10022-4611
|
Wilmington, Delaware 19899-8705 | |
Telephone: (212) 446-4800
|
Telephone: (302) 652-4100 | |
Facsimile: (212) 446-4900
|
Facsimile: (302) 652-4400 | |
Proposed Counsel to the Debtors and
Debtors in Possession |
Attorneys for the Debtors
Dated: July 17, 2011
1 | The debtors in the Chapter 11 Case, along with the last four
digits of each debtors federal tax identification number include: Nebraska
Book Company, Inc. (9819); Campus Authentic LLC (9156); College Bookstores of
America, Inc. (9518); NBC Acquisition Corp. (3347); NBC Holdings Corp. (7477);
NBC Textbooks LLC (1425); Net Textstore LLC (6469); and Specialty Books, Inc.
(4807). The location of the debtors service address is: 4700 South 19th
Street, Lincoln, Nebraska 68512. |
TABLE OF CONTENTS
I. Questions and Answers Regarding this Disclosure Statement and the Plan |
3 | |||
II. The Debtors History and the Chapter 11 Cases |
8 | |||
III. Events Leading to the Chapter 11 Cases |
13 | |||
IV. The Debtors Initial Motions in the Chapter 11 Cases and Certain Related Relief |
16 | |||
V. Treatment of Claims and Interests Under the Plan |
18 | |||
VI. Management of the Company |
25 | |||
VII. Composition of New Board of Directors |
25 | |||
VIII. Capital Structure of the Reorganized Debtors upon Consummation |
26 | |||
IX. Summary of Legal Proceedings |
29 | |||
X. Valuation Analysis |
29 | |||
XI. Liquidation Analysis |
33 | |||
XII. Projected Financial Information |
41 | |||
XIII. Risk Factors |
45 | |||
XIV. Confirmation of the Plan |
54 | |||
XV. Effect of Confirmation of the Plan |
57 | |||
XVI. Important Securities Laws Disclosure |
61 | |||
XVII. Nominee Voting Instructions |
62 | |||
XVIII. Certain U.S. Federal Income Tax Consequences of the Plan |
64 | |||
XIX. Recommendation of the Debtors |
73 |
i
EXHIBITS
EXHIBIT A | Plan of Reorganization |
|
EXHIBIT B | Reorganized Debtors Financial Projections |
ii
Important Information About this Disclosure Statement
This disclosure statement (this Disclosure Statement) provides information regarding
the Joint Plan of Reorganization of Nebraska Book Company, Inc., Et Al., Pursuant to Chapter 11 of
the Bankruptcy Code (the Plan) that Nebraska Book Company, Inc. and the other debtors in
the above-captioned chapter 11 cases (collectively, the Debtors) are seeking to have
confirmed by the Bankruptcy Court. A copy of the Plan is attached as Exhibit A hereto.
All capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them
in the Plan. The Debtors believe that the Plan is in the best interests of all Holders of Claims
and Interests. The Debtors urge all Holders of a Claim or Interest entitled to vote on the Plan to
vote in favor of the Plan.
Confirmation and Consummation of the Plan are subject to certain material conditions precedent
described in Article IX of the Plan. There is no assurance that the Plan will be confirmed or, if
confirmed, that such material conditions precedent will be satisfied or waived.
You are encouraged to read this Disclosure Statement in its entirety, including the Plan, and
the Section herein entitled Risk Factors prior to submitting your ballot to vote to accept or
reject the Plan.
The Bankruptcy Courts approval of this Disclosure Statement does not constitute a guarantee
of the accuracy or completeness of the information contained herein or an endorsement of the merits
of the Plan by the Bankruptcy Court.
Summaries of the Plan and statements made in this Disclosure Statement in connection therewith
are qualified in their entirety by reference to the Plan, the exhibits and schedules attached to
the Plan, and the Plan Supplement. The statements contained in this Disclosure Statement are made
only as of the date of this Disclosure Statement, and there is no assurance that the statements
contained herein will be correct at any time after such date. Except as otherwise provided in the
Plan or in accordance with applicable law, the Debtors are under no duty to update or supplement
this Disclosure Statement.
The information contained in this Disclosure Statement is included for purposes of soliciting
acceptances to the Plan and obtaining Confirmation and may not be relied upon for any other
purpose. The Debtors believe that the summary of certain provisions of the Plan and certain other
documents and financial information contained or referenced in this Disclosure Statement is fair
and accurate. The summaries of the financial information and the documents attached to this
Disclosure Statement, or otherwise incorporated herein by reference, are qualified in their
entirety by reference to those documents. In the event of any inconsistency between this
Disclosure Statement and the Plan, the relevant provision of the Plan, as it relates to such
inconsistency, shall govern.
No representations concerning the Debtors or the value of the Debtors property has been
authorized by the Debtors other than as set forth in this Disclosure Statement. Any information,
representations, or inducements made to obtain acceptance of the Plan, which are other than or
inconsistent with the information contained in this Disclosure Statement and in the Plan, should
not be relied upon by any Holder of a Claim or Interest entitled to vote to accept or reject the
Plan.
Neither the United States Securities and Exchange Commission (SEC) nor any similar
federal, state, local, or foreign regulatory agency has approved or disapproved of the offered
securities or the Plan or passed upon the accuracy or adequacy of the statements contained in this
Disclosure Statement.
The Debtors have sought to ensure the accuracy of the financial information provided in this
Disclosure Statement, but the financial information contained in, or incorporated by reference
into, this
Disclosure Statement has not been, and will not, be audited or reviewed by the Debtors
independent auditors unless explicitly provided otherwise.
1
The shares of the common stock to be issued pursuant to the Plan (the New Common
Equity) as described in this Disclosure Statement will be issued without registration under
the Securities Act of 1933, as amended (the Securities Act), or similar federal, state,
local, or foreign laws, in reliance on the exemptions from the registration requirements of those
laws and the exemption set forth in section 1145 of the Bankruptcy Code and other applicable
exemptions in foreign jurisdictions. Other shares of the New Common Equity may be issued pursuant
to other applicable exemptions under the federal and foreign securities laws. To the extent
exemptions from registration other than section 1145 apply, such securities may not be offered or
sold except pursuant to a valid exemption or registration under the Securities Act or similar
foreign laws.
The Debtors make statements in this Disclosure Statement that are considered forward-looking
statements under the federal securities laws. The Debtors consider all statements regarding
anticipated or future matters, including the following, to be forward-looking statements:
| any future effects as a result of the pendency of the Chapter 11 Cases; |
|
| growth opportunities for existing service; |
|
| projected general market conditions; |
|
| disruption of operations; |
|
| projected cost reductions; |
|
| contractual obligations; |
|
| budgets; |
|
| plans and objectives of management for future operations; |
|
| financing plans; |
|
| business strategy; |
|
| potential asset sales; |
|
| competitive position; and |
|
| the Debtors expected future financial position, liquidity, results of operations, profitability, and cash flows. |
Statements concerning these and other matters are not guarantees of the Debtors future
performance. Such statements represent the Debtors estimates and assumptions only as of the date
such statements were made. There are risks, uncertainties, and other important factors that could
cause the Debtors actual performance or achievements to be materially different from those they
may project, and the Debtors undertake no obligation to update any such statement. These risks,
uncertainties, and factors include:
| lower prices for the Debtors goods or a decline in the Debtors market share due to competition or price pressure by customers; |
|
| the Debtors ability to confirm and consummate the Plan; |
|
| inability to have claims discharged or settled during the Chapter 11 Cases; |
|
| changes in laws and regulations; |
|
| interest rate fluctuations; |
|
| customer response to the Chapter 11 Cases; |
|
| limited access to capital resources; |
|
| cost of raw materials; |
2
| continued decline in the general economic, business, and market conditions where the Debtors operate; |
|
| the Debtors ability to reduce their overall financial leverage; |
|
| financial conditions of the Debtors customers; |
|
| labor costs; |
|
| adverse tax changes; |
|
| commodity prices, including cost of producing textbooks and general merchandise; |
|
| seasonality; and |
|
| the Debtors ability to implement cost reduction initiatives in a timely and effective manner. |
I. Questions and Answers Regarding this Disclosure Statement and the Plan
Why are the Debtors sending me this Disclosure Statement?
The Debtors are seeking to obtain Bankruptcy Court approval of the Plan. Prior to soliciting
acceptances of a proposed plan, section 1125 of the Bankruptcy Code requires a debtor to prepare a
disclosure statement containing adequate information of a kind, and in sufficient detail, to enable
a hypothetical reasonable investor to make an informed judgment regarding whether to accept or
reject the Plan. This Disclosure Statement is being submitted in respect of the Plan in accordance
with such requirements.
3
Am I entitled to vote to accept or reject the Plan? What will I receive from the Debtors if the
Plan is consummated?
Your ability to vote and your distribution, if any, depend on what kind of Claim or Interest
that you hold. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims
and Priority Tax Claims have not been classified. Such Claims must be satisfied in full in Cash on
the Effective Date or, in the case of Priority Tax Claims, within five years of the Petition Date
in accordance with section 1129(a)(9)(C) of the Bankruptcy Code. Administrative Claims and
Priority Tax Claims are not entitled to vote to accept or reject the Plan and are conclusively
deemed to have accepted the Plan. The remainder of Claims and Interests are classified into the
following Classes and their respective voting statuses and anticipated recoveries are as follows:
Anticipated | ||||||||
Class | Claims and Interests | Status | Recovery % | Voting Rights | ||||
Class 1 |
ABL Facility Claims | Unimpaired | 100% | Not Entitled to Vote (Deemed to Accept) | ||||
Class 2 |
Senior Secured Notes Claims | Unimpaired | 100% | Not Entitled to Vote (Deemed to Accept) | ||||
Class 3 |
Other Secured Claims | Unimpaired | 100% | Not Entitled to Vote (Deemed to Accept) | ||||
Class 4 |
Other Priority Claims | Unimpaired | 100% | Not Entitled to Vote (Deemed to Accept) | ||||
Class 5 |
8.625% Notes Claims | Impaired | 85% | Entitled to Vote | ||||
Class 6 |
AcqCo Notes Claims | Impaired | 5% | Entitled to Vote | ||||
Class 7 |
General Unsecured Claims | Unimpaired | 100% | Not Entitled to Vote (Deemed to Accept) | ||||
Class 8 |
Intercompany Claims | Unimpaired | N/A | Not Entitled to Vote (Deemed to Accept) | ||||
Class 9 |
Intercompany Interests | Unimpaired | N/A | Not Entitled to Vote (Deemed to Accept) | ||||
Class 10 |
HoldCo Interests | Impaired | N/A2 | Entitled to Vote. | ||||
Class 11 |
Subordinated Securities Claims | Impaired | N/A | Not Entitled to Vote (Deemed to Reject) |
For more information about the treatment of Claims and Interests, see the Section herein entitled
Treatment of Claims and Interests Under the Plan.
2 | If the Holders of HoldCo Interests do not object to the Plan and
vote to accept the Plan, each Holder of an Interest in Class 10 shall receive
its Pro Rata share of the New Warrants, which provide warrants to purchase up
to 5% of the New Common Equity (subject to dilution by the Management Equity
Incentive Plan) struck at a price that implies a total enterprise value of $500
million. |
4
If the Plan provides that I get a distribution, when do I get it, and what do you mean when you
refer to Confirmation, Effective Date, and Consummation?
Confirmation of the Plan refers to the Bankruptcy Courts approval of the Plan. Confirmation
of the Plan does not guarantee that you will receive the distribution indicated under the Plan.
After Confirmation of the Plan, there are conditions (described in Article IX of the Plan) that
need to be satisfied or waived so that the Plan can be consummated and become effective.
References to the Effective Date mean the date that all conditions to the Plan have been satisfied
or waived, at which point the Plan may be consummated. Distributions only will be made after
Consummation of the Plan. See the Section herein entitled Confirmation of the Plan, for a
discussion of the conditions to Confirmation.
How will the Reorganized Debtors fund distributions under the Plan?
The Reorganized Debtors will fund distributions under the Plan with cash on hand, including
cash from operations, as well as proceeds from the New ABL Facility and New Senior Secured Notes,
and through issuance of New Unsecured Notes, New Common Equity, and New Warrants (if any).
How is the Plan going to be implemented?
The Restructuring Transactions will be effected in accordance with the Restructuring
Transaction Memorandum, a copy of which will be filed as an exhibit to the Plan Supplement.
Reorganized NBC
will issue the New Common Equity and enter into the New ABL Facility, New Senior Secured
Notes, and New Unsecured Notes Indenture on the Effective Date.
What are the contents of the solicitation packages to be sent to Holders of Claims and Interests
who are eligible to vote to accept or reject the Plan?
Holders of Claims and Interests who are eligible to vote to accept or reject the Plan will
receive appropriate solicitation materials including:
| the appropriate ballot (each, a Ballot), beneficial holder ballot (each, a
Beneficial Holder Ballot,) or master ballot (each a Master Ballot)
(where any broker, dealer, commercial bank, trust company, savings and loan financial
institution, or other party (a Nominee) is entitled to cast a vote to accept
or reject the Plan on behalf of an Entity holding the beneficial interest in such
Claim, as applicable) and applicable voting instructions; |
| a pre-addressed, postage pre-paid return envelope; and |
| this Disclosure Statement with all exhibits, including the Plan. |
The notices sent to parties in interest will indicate that this Disclosure Statement, the
Plan, and all of the exhibits thereto are (and, in the future, the Plan Supplement will be)
available for viewing by any party by: (a) contacting the Nebraska Book Company, Inc. restructuring
hotline at 888-369-6612, or by writing to Nebraska Book Company, Inc. Balloting Processing Center
c/o Kurtzman Carlson Consultants LLC, 2335 Alaska Ave., El Segundo, California 90245; or (b)
downloading such documents (excluding the Ballots) from the Debtors restructuring website at
http://www.kccllc.net/nbc or by visiting the Bankruptcy Courts website at
http://www.deb.uscourts.gov.
Will the Debtors file reports with the SEC?
The Debtors expect to continue filing reports under the Securities Exchange Act of 1934 (as
amended) with the SEC after the filing of the Chapter 11 Cases and after the Effective Date.
5
What rights will the Debtors new stockholders have?
Each holder of New Common Equity issued under the Plan will be entitled to one vote per share
of New Common Equity on all matters subject to a vote of holders of New Common Equity under
applicable law and will be entitled to a pro rata share of any dividends that are declared by the
New Board to the extent such dividends are permitted. The New Common Equity will be the sole class
of voting stock of Reorganized NBC. The rights of new stockholders shall be consistent with those
set forth in the Shareholders Agreement, the Registration Rights Agreement, and any terms set forth
in the Plan Supplement related to the New Common Equity and the New Warrants, as applicable.
The holders of New Common Equity shall be parties to the Shareholders Agreement, which shall
be in form and substance satisfactory to the Ad Hoc 8.625% Noteholders and the JPMorgan
Noteholders.
The holders of New Common Equity and the Debtors shall be parties to the Registration Rights
Agreement, which shall be satisfactory in form and substance to the Ad Hoc 8.625% Noteholders, and
the JPMorgan Noteholders, obligating the Reorganized Debtors to register for resale certain shares
of the New Common Equity under the Securities Act in accordance with the terms set forth in such
agreement.
How will the New Common Equity be distributed? Will holders be entitled to stock certificates?
The New Common Equity delivered to Holders of Claims and Interests is expected to be delivered
to Depository Trust Company (DTC). DTC will then distribute the New Common Equity to
accounts at DTC designated by Holders of Claims entitled to a distribution of New Common Equity
under the Plan.
It is not expected that holders of New Common Equity will be entitled to stock certificates.
DTC or its nominee will initially be considered the sole owner or holder of the New Common Equity
issued. Holders of Claims that receive New Common Equity will be owners of beneficial interests in
such New Common Equity and will not receive or be entitled to receive physical delivery of such
securities.
What is the deadline to vote on the Plan?
The deadline to vote on the Plan is 5:00 p.m., prevailing Eastern Time, on September 20, 2011.
How do I vote to accept or reject the Plan?
The Debtors are distributing this Disclosure Statement, accompanied by a Ballot, Beneficial
Holder Ballot, or Master Ballot, as applicable, to be used for voting to accept or reject the Plan,
to the Holders of Claims and Interests entitled to vote to accept or reject the Plan (and Nominees,
as applicable). If you are a Holder of Claims or Interests in Classes 5, 6, and 10, you may vote
to accept or reject the Plan by completing the Ballot or Beneficial Holder Ballot and returning it
in the envelopes provided.
The Debtors have engaged Kurtzman Carson Consultants LLC to serve as the Claims and Balloting
Agent. The Claims and Balloting Agent is available to answer questions, provide additional copies
of all materials, and oversee the voting process. In addition, the Claims and Balloting Agent will
process and tabulate Ballots for each Class entitled to vote to accept or reject the Plan.
6
BALLOTS
Ballots and Master Ballots must be actually
received by the Claims and Balloting Agent by the
Voting Deadline, which is 5:00 p.m., prevailing
Eastern Time, on September 20, 2011, at the
following address:
Ballots and Master Ballots must be actually
received by the Claims and Balloting Agent by the
Voting Deadline, which is 5:00 p.m., prevailing
Eastern Time, on September 20, 2011, at the
following address:
Nebraska Book Company, Inc.
Balloting Processing Center c/o
Kurtzman Carson Consultants LLC
2335 Alaska Ave
El Segundo, California 90245
Balloting Processing Center c/o
Kurtzman Carson Consultants LLC
2335 Alaska Ave
El Segundo, California 90245
If you received an envelope addressed to your
Nominee, please allow enough time when you
return your Ballot for your Nominee to cast your
vote on a Master Ballot before the Voting
Deadline.
Nominee, please allow enough time when you
return your Ballot for your Nominee to cast your
vote on a Master Ballot before the Voting
Deadline.
If you have any questions on the procedure for
voting on the Plan, please call the Nebraska Book
Company restructuring hotline at:
888-369-6612
voting on the Plan, please call the Nebraska Book
Company restructuring hotline at:
888-369-6612
More detailed instructions regarding how to vote on the Plan are contained on the Ballots and
Beneficial Holder Ballots distributed to Holders of Claims and Interests that are entitled to vote
to accept or reject the Plan and the Master Ballots distributed to Nominees. For your vote to be
counted, your Ballot or Beneficial Holder Ballot must be completed, signed, and received by the
Voting Deadline; provided, however, that Ballots and Master Ballots received by the Claims and
Balloting Agent after the Voting Deadline may be counted only in the sole and absolute discretion
of the Debtors.
Any Ballot, Beneficial Holder Ballot, or Master Ballot that is properly executed by the Holder
of a Claim or Interest or a Nominee, but which does not clearly indicate an acceptance or rejection
of the Plan or which indicates both an acceptance and a rejection of the Plan, will not be counted.
Each Holder of a Claim or Interest entitled to vote to accept or reject the Plan may cast only
one Ballot for each Claim or Interest held by such Holder. By signing and returning a Ballot, each
Holder of a Claim or Interest in Classes 5, 6, and 10 will certify to the Bankruptcy Court and the
Debtors that no other Ballots with respect to such Claim or Interest have been cast or, if any
other Ballots have been cast with respect to such Claim or Interest, such earlier Ballots are
superseded and revoked.
All Ballots are accompanied by return envelopes. It is important to follow the specific
instructions provided on each Ballot. For information regarding voting by Nominees, see the
Section herein entitled Nominee Voting Instructions.
When is the Confirmation Hearing expected to occur?
The Bankruptcy Court has scheduled the Confirmation Hearing for September 27, 2011 at 10:30
a.m., prevailing Eastern Time. The Confirmation Hearing may be adjourned from time to time without
further notice except for an announcement of the adjourned date made at the Confirmation Hearing or
by
notice of any adjournment of the Confirmation Hearing filed by the Debtors and posted on their
website at www.kccllc.net/nbc.
7
II. The Debtors History and the Chapter 11 Cases
A. | Historical Overview. |
Nebraska Book Company, Inc. (NBC) was founded in 1915 with a single bookstore near
the University of Nebraska campus. Following World War II, when the supply of new textbooks could
not meet the demand created by returning soldiers attending college, NBC began buying books back
from students at the end of the term and reselling them, thus becoming an integral part of the
earliest years of the used textbook industry. In 1964, NBC became a national, rather than a
regional, wholesaler of used textbooks by acquiring The College Book Company of California.
During the 1970s, NBC continued to focus on the wholesale business, throughout the 1980s the
Debtors expanded their efforts in the college bookstore market to primarily operate bookstores on
or near larger campuses, typically where the institution-owned college bookstore was
contract-managed by a competitor or where the Debtors did not have a significant wholesale
presence. In the last several years, the Debtors revised their college bookstore strategy to
expand their efforts in the contract-management of institutional bookstores. The Debtors continue
to develop innovative strategies in order to remain at the forefront of the used textbook industry,
including pioneering new technology-savvy retail software and entering the textbook rental market.
Today, the Debtors service the college bookstore industry through its bookstore, textbook, and
complementary services divisions, each as described more fully below.
In an effort to remain a competitive player in the college services market, the Debtors
include a diverse network of companies. Effective July 1, 2002, the Debtors distance learning
division was separately incorporated under the laws of the State of Delaware as Specialty Books,
Inc., a wholly-owned subsidiary of NBC (Specialty Books). On January 1, 2005, the
textbook division was separately formed under the laws of the State of Delaware as NBC Textbooks
LLC, a wholly-owned subsidiary of NBC (the Textbook Division). On May 1, 2006, NBC added
another wholly-owned subsidiary through the acquisition of all of the outstanding stock of College
Book Stores of America, Inc. (CBA), an entity separately formed under the laws of the
State of Illinois. On April 24, 2007, NBC established Net Textstore LLC, a wholly-owned subsidiary
separately formed under the laws of the State of Delaware. Finally, effective January 26, 2009,
NBC established Campus Authentic LLC, a wholly-owned subsidiary separately incorporated under the
laws of the State of Delaware.
On March 4, 2004, a group of jointly managed private equity funds, including Weston Presidio
Capital III, L.P., Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund, L.P., and WPC
Entrepreneur Fund II, L.P. (collectively Weston Presidio) gained a controlling interest
in NBC Acquisition Corp. (AcqCo) and NBC.
8
B. | The Debtors Business Operations. |
The Debtors operate approximately 280 retail college bookstores and are one of the largest
wholesale distributors of used college textbooks in North America, offering over 105,000 textbook
titles and selling over 6.3 million books annually, primarily to bookstores serving campuses
located in the United States. The Debtors principal executive offices are located in Lincoln,
Nebraska. As of March 31, 2010, the Debtors employed approximately 1,300 full time employees, 800
part time employees, and 500 temporary workers. Since its founding in 1915, the Debtors have
successfully adapted to the changing landscape of American colleges and universities, including the
increase in student enrollment, and the advancement of technology and e-commerce.
Today, the Debtors serve the college bookstore industry through the operation of three main
divisions, their campus and off-campus bookstore locations (the Bookstore Division),
their wholesale of textbooks business (the Textbook Division), and their distance
education business and e-commerce software development (collectively, the Complementary
Services Division). For the 12 months ended March 31, 2010, the Debtors generated
approximately $605 million in total revenues.
The Bookstore Division. As of December 31, 2010, the Debtors operated approximately 280
college bookstores on or adjacent to college campuses throughout the United States. The Debtors
bookstores include on-campus locations leased from the educational institution that they serve, as
well as owned or leased off-campus bookstores. The Bookstore Division encompasses a number of
operations, including: (1) selling and renting a wide variety of used and new textbooks; (2)
selling assorted merchandise, including apparel, sundries, and gift items; (3) selling various
technology items such as calculators and computers; and (4) selling general books. Over the past
three fiscal years, bookstore revenues from activities other than used and new textbook sales and
rentals have been between 16.6% and 17.4% of total revenues. The Debtors tailor each of their
bookstores to fit the needs and lifestyles of each campus. While the individual managers have
significant planning and managing responsibilities, the Debtors staff also includes specialists to
assist bookstore managers in store planning, merchandise purchasing, media buying, inventory
control, and layout. In addition to in-store sales, the Debtors sell textbooks and other
merchandise via the internet through each stores individual website as well as the Debtors
consolidated website, known as Neebo.com, and numerous third-party websites such as Amazon.com and
Half.com.
The Debtors have enhanced the Bookstore Division within the last year by implementing a new
focus on textbook rentals. Several years ago, textbook rentals were uncommon, both online and in
bookstores. However, the availability and popularity of textbook rentals has rapidly increased
with online companies such as Chegg, Inc. and BookRenter.com leading that change. The college
bookstore industry is quickly reacting to this new competition, and the Debtors have been testing
various textbook rental models for the past two years. As a result of that testing, the Debtors
implemented the Rent Every Book model in the vast majority of their stores this past January.
Given that the textbook rental model is in its nascent state, the Bookstore Divisions full
potential utilizing that model remains to be seen. However, with the Rent Every Book model, the
Debtors remain a competitive and innovative player in the college bookstore arena.
In addition, the Debtors introduced a new website. Prior to implementing their new website,
Neebo.com, the Debtors maintained over 250 separate websites, each representing the inventory
offered by the Debtors bookstore serving a college or university where the Debtors had a
brickandmortar store. However, the websites were not connected to each other so a customer on
one web site could not access the inventory of the other Debtor bookstore locations. The Debtors
had significant viewership on the individual websites, but were unable to leverage that
volumeNeebo.com will allow the Debtors to better capitalize on that traffic volume.
9
Through the Rent Every Book initiative and Neebo.com, the Debtors Bookstore Division
continues to adapt to the increasingly competitive marketplace and changes in customer demands.
The Bookstore Division produced approximately $472 million in total revenues over the 12 months
ended March 31, 2010.
The Textbook Division. The Debtors also serve the college bookstore industry through their
Textbook Division. The Textbook Division utilizes three avenues to effectively service the
Debtors customers and to remain a pioneer of the college bookstore industry. First, the
Debtors engage in the procurement and redistribution of used textbooks on college campuses
primarily across the United States and through third-party websites. Second, the Textbook
Division focuses on maintaining current catalogs of textbooks. The Debtors publish a buyers guide
which lists approximately 52,000 textbooks according to author, title, and price. The guide is an
important part of the Debtors inventory control and textbook procurement system. The Debtors
maintain a staff dedicated to gathering information from all over the country to make the guide a
comprehensive and up-to-date pricing and buying aid for college bookstores. Third, the
Debtors maintain a database of approximately 174,000 titles to better serve their customers. For
the 12 months ended March 31, 2010, the Textbook Division produced approximately $141 million in
revenue.
The Complementary Services Division. The Debtors further expanded their services through
their Complementary Services Division. Through Specialty Books the Debtors access the market for
distance education products and services. As of June 2010, the Debtors provided students at
approximately 30 colleges and private high schools with textbooks and materials for use in distance
education and other education courses, and provided textbooks to nontraditional programs. In
addition, the Debtors offer services and specialty course materials to the distance education
marketplace. Over the past three fiscal years, Specialty Books external customer revenues
comprised between 50.2% and 54.9% of total Complementary Services Division revenues. The
Complementary Services Division generated approximately $35 million during the 12 months ended
March 31, 2010.
The Complementary Services Division also provides the Debtors customers with access and
services related to the Debtors turnkey bookstore management software (the Turnkey
Software). The Turnkey Software incorporates point of sale, inventory control, and accounting
modules that collectively generate revenue and assist the Debtors in gaining access to new sources
of used textbooks. In total, including the Debtors own bookstores, almost 1,200 college
bookstore locations use the Turnkey Software products. In addition, the Debtors have developed and
deployed software for e-commerce capabilities. This software allows college bookstores to launch
their own e-commerce sites and effectively compete against other online textbook and general
merchandise sellers by offering textbooks and both traditional and non-traditional store
merchandise online. As of June 2010, there were approximately 640 stores, including the Debtors
own stores, licensing the Debtors e-commerce technology through their e-commerce software
CampusHub. Also, the Debtors offer digital delivery solutions which enable college bookstores to
offer students the option of purchasing E-books via download. Through the Debtors continued
software innovation and adaption, the Debtors are able to adjust to the rapidly changing college
bookstore landscape.
The Debtors also remain competitive with online customers. The Debtors recently launched a
new web site for their retail division called Neebo.com. Prior to implementing Neebo.com, the
Debtors maintained over 250 separate web sites, each representing a college or university where the
Debtors had a brickandmortar store. The Debtors had significant viewership on the individual
websites, but were unable to leverage that volume Neebo.com allows the Debtors to use the volume
of information, a significant competitive advantage. The Debtors now operate a site that drives
traffic from the 250 separate sites to Neebo.com. Through this initiative, the Debtors continue to
adapt to the increasingly competitive marketplace and changes in customer demands.
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C. | The Debtors Prepetition Organizational Structure. |
The following chart generally depicts the Debtors prepetition organizational structure:
D. | The Debtors Prepetition Capital Structure. |
As of December 31, 2010, the Debtors reported approximately $657.2 million in total assets and
approximately $564 million in total liabilities. As of the Petition Date, the Debtors have
approximately $478 million in indebtedness and related obligations, consisting of (1) secured
obligations of $226.3 million under the ABL Facility and Senior Secured Notes, and (2) unsecured
obligations of (a) $175 million under the 8.625% Notes, and (b) $77 million under the AcqCo Notes.
These obligations are discussed in turn.
(i) Secured Indebtedness.
(a) ABL Facility.
NBC, as borrower, NBC Holdings Corp., AcqCo, and all NBC subsidiaries, as guarantors, JP
Morgan Chase Bank, N.A., as administrative agent (the ABL Agent), and the lenders party
thereto (the ABL Lenders) are parties to that certain amended and restated ABL Credit
Agreement (as amended, the ABL Facility), dated as of March 22, 2010.
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The ABL Facility provides the Debtors with an asset-based revolving credit facility with $75.0
million of maximum availability. Borrowings under the ABL Facility are subject to the Eurodollar
interest rate (with a 1.5% floor) plus an applicable margin ranging from 4.25% to 4.75% or a base
interest rate. In addition, the applicable margin increases 1.5% during the time periods from
April 15 to June 29 and from December 1 to January 29 of each year. As of the Petition Date,
approximately $26.3 million was outstanding under the ABL Facility (including $3.7 million in
issued and undrawn letters of credit). The interest rate as of the Petition Date was 8.25%. The
Debtors are using the proceeds of the DIP Facility to pay interest, fees, and expenses in
connection with DIP Loans (as defined in the Interim DIP Order defined herein) and to repay not
less than $26,300,000 in loans made and $3,733,597 in letters of credit and outstanding of the
obligations under the ABL Facility.
The ABL Facility is secured by a first priority interest in substantially all of the Debtors
property and assets, in addition to a pledge of all capital stock held by the Debtors. The ABL
Facility matures on the earlier of October 2, 2012 or 91 days prior to the earliest maturity of any
current outstanding debt obligations. The Senior Secured Notes mature on December 1, 2011; as a
result the ABL Facility matures 91 days prior, or on September 1, 2011.
(b) Senior Secured Notes.
NBC, as borrower, and Wilmington Trust FSB, as trustee and collateral agent, are parties to
that certain indenture (the Senior Secured Notes Indenture), dated as of October 2, 2009.
The Debtors issued $200 million senior secured notes at a discount of $1.0 million with
unamortized bond discount of $0.5 million (collectively, the Senior Secured Notes and the
noteholders thereunder, the Senior Secured Noteholders, together with the ABL Lenders,
the Prepetition Secured Lenders). The Senior Secured Notes are secured by a second
priority interest in substantially all of the Debtors property and assets and a subordinated
pledge of all capital stock held by the Debtors. The Senior Secured Notes require semi-annual
interest payments at a fixed rate of 10% and mature on December 1, 2011. Each of
NBCs subsidiaries guarantees the Senior Secured Notes, pursuant to the Senior Secured Notes
Indenture. As of the Petition Date, the outstanding principal balance of the Senior Secured Notes
was $200 million. The Senior Secured Notes Indenture contemplates a makewhole payment if the
Debtors satisfy the notes before maturity. The makewhole amount changes on a day-to-day basis,
and may not be payable after the Petition Date.
(c) Intercreditor Agreement.
The Debtors, the ABL Agent, and the Senior Secured Notes Trustee are parties to that certain
intercreditor agreement (the Intercreditor Agreement), dated as of October 2, 2009. The
Intercreditor Agreement assigned relative priorities to claims arising under the ABL Facility and
the Senior Secured Notes Indenture. The Intercreditor Agreement provides that claims arising under
the Senior Secured Notes Indenture are junior to claims arising under the ABL Facility. The
Intercreditor Agreement also imposes certain limitations on: (a) the rights and remedies available
to the Senior Secured Noteholders in an event of default under the Senior Secured Notes Indenture;
(b) the Senior Secured Noteholders ability to challenge the validity or priority of liens arising
under the ABL Facility; (c) the Senior Secured Noteholders ability to object to
debtor-in-possession financing under section 363 or section 364 of the Bankruptcy Code provided or
consented to by one or more of the ABL Lenders; and (d) the extent to which the Senior Secured
Noteholders may be entitled to request adequate protection during a bankruptcy proceeding.
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(d) Other Liens.
In the ordinary course of business, the Debtors have incurred certain secured indebtedness,
including mortgage liens, as permitted by their prepetition credit facilities (collectively, the
Permitted Encumbrances). As described more fully below, the Permitted Encumbrances are
not subject to the first priority priming liens granted pursuant to the Interim DIP Order.
(ii) Unsecured Indebtedness.
(a) 8.625% Notes.
NBC, as borrower, and The Bank of New York Mellon Trust Company, N.A., as successor indenture
trustee, are parties to that certain indenture (the 8.625% Indenture), dated as of March
4, 2004. Pursuant to the 8.625% Indenture, NBC issued $175 million senior subordinated notes
(collectively, the 8.625% Notes). The 8.625% Notes require semi-annual interest payments
at a fixed rate of 8.625% and mature on March 15, 2012. The 8.625% Notes are guaranteed by each of
NBCs subsidiaries, but are unsecured. As of the Petition Date, the outstanding principal balance
of the 8.625% Notes was $175 million.
(b) AcqCo Notes.
AcqCo, as borrower, and U.S. Bank National Association, as successor trustee pursuant to
Certification of Counsel Regarding Stipulation By and Among NBC Acquisition Corp., The Bank of New
York Mellon Trust Co., N.A., and U.S. Bank National Association Authorizing the Substitution of
Indenture Trustee [Docket No. 110], are parties to that certain indenture (the AcqCo Notes
Indenture), dated as of March 4, 2004. AcqCo issued $77 million senior discount notes
(collectively, the AcqCo Notes). The AcqCo Notes require semi-annual interest payments
which began on September 13, 2008, at a fixed interest rate of 11% and mature on March 15, 2013.
The AcqCo Notes are not guaranteed by NBC, any of its subsidiaries, or any other party and are
unsecured. As of the Petition Date, the outstanding principal balance of the AcqCo Notes was
approximately $77 million.
III. Events Leading to the Chapter 11 Cases
As discussed above, the Debtors have approximately $478 million of indebtedness and related
obligations, consisting of their ABL Facility, Senior Secured Notes, 8.625% Notes, and AcqCo Notes.
The changing industry dynamics placed significant strain on the Debtors ability to continue to
grow EBITDA and fully refinance their debt and ultimately led to the Debtors filing of the Chapter
11 Cases. In addition a few events contributed to the Debtors filing of the Chapter 11 Cases,
including: (A) the changing market, operational initiatives, and debt maturity; (B) the Debtors
unsuccessful out-of-court restructuring efforts; and (C) the Debtors successful negotiations with
its key stakeholders in connection with the prearranged Plan.
A. | Changing Market, Operational Initiatives, and Debt Maturity. |
The Debtors filed the Chapter 11 Cases after the Debtors Bookstore Division suffered through
several years of declining or stagnant levels of profitability, which in turn contributed to the
Debtors inability to fully refinance certain funded debt as it matures in 2011 and early 2012.
While the Debtors on-campus stores have maintained strong financial performance over the past
several years, the Debtors off-campus stores have struggled over the same time period. This
disparity is attributable, in large part, to advantages that the Debtors on-campus stores have when
compared to the Debtors off-campus stores, including: better location, ties to the schools
financial aid system, and school administration support. In addition, many of the Debtors
on-campus store customers are typically convenience shoppers who value the ease of getting the
right book at the right time with the least amount of time and effort expended on their part. In
contrast, the Debtors off-campus stores typically appeal to more price-conscious students who are
willing to put forth more time and effort in obtaining their classroom materials. These value
shoppers are willing to go through the trouble of comparison shopping and searching for used
books, the historic value proposition for the Debtors off-campus stores.
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Given the difference between the Debtors on- and off-campus shoppers, the competitive
environment for the Debtors off-campus stores has made it more difficult to maintain market share,
which is reflected in the declining performance of the Debtors off-campus stores. The Debtors
believe that the attrition of their off-campus stores performance is due to a combination of
on-line textbook sales and rental programs, which have been successful in attracting value
shoppers, the Debtors primary customers in the off-campus stores.
In response to this trend, the Debtors expended significant efforts to, among other things,
improve the off-campus stores online capabilities to both sell and acquire textbooks, improving
the look and feel of these off-campus stores, and aggressively manage labor and other controllable
costs. Despite those improvements, the Debtors off-campus store performance continued to suffer.
Specifically, the Debtors EBITDA for their off-campus stores peaked in 2008 at approximately $36
million, declined to approximately $31 million in 2009, and eventually fell to $19 million in the
year ending March 31, 2011.
After further analyzing market trends, the Debtors determined that student demand for
textbook rental had increased significantly, and implemented extensive rental programs at all their
brick-and-mortar stores, especially the Debtors off-campus locations. The Debtors off-campus
stores historically have had large numbers of used textbooks to price aggressively and make the
value proposition once again attractive to the value shopper. As discussed above, the Debtors
Rent Every Book model has shown significant promise and the Debtors are optimistic that their
off-campus stores will rebound as a result. However, the Debtors require additional time to fully
establish the rental model during several more back to school periods.
Unfortunately, the Debtors did not have sufficient time to fully implement the rental model
without refinancing significant portions of their capital structure given (a) the imminent
maturities of the ABL Facility in September 2011 and the Senior Secured Notes Indenture in December
2011, and (b) the possible change in credit terms from the new textbook publishers, who may require
an up front cash payment for the large purchases to begin in July and August 2011 due to the
uncertainty surrounding the Debtors refinancing efforts and capital structure.
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B. | Prepetition Negotiations. |
In late 2010, the Debtors recognized that, given their seasonal spending to acquire books
during July and August 2011 and the imminent maturity of approximately $478 million of debt shortly
thereafter, they faced an impending liquidity crisis. In response, the Debtors proactively
undertook extensive efforts to position themselves for ongoing success in the current industry
environment and right-size their capital structure. Initially, the Debtors implemented a number
of operational initiatives to improve earnings and their competitiveness, including cutting certain
labor costs that ultimately will save the Debtors approximately $6 million over the next 12
months. In addition, the Debtors engaged a third-party operational consulting firm to analyze the
Debtors business practices and help implement inventory optimization models. While these efforts
will streamline the Debtors business operations, they cannot alone prevent a liquidity shortfall.
To address the Debtors imminent liquidity issue, the Debtors engaged an investment banker,
Rothschild Inc. (Rothschild) and restructuring legal counsel, Kirkland & Ellis LLP
(Kirkland) to potentially refinance certain of their debt obligations and, if necessary,
engage creditors and other potential partners for a restructuring transaction. Beginning in
January 2011, the Debtors and their advisors began an extensive review of strategic alternatives
available in light of the Debtors current operating environment and leverage constraints. The
Debtors focused their initial efforts on refinancing all of the 8.625% Notes debt obligations and
seeking to extend the maturity of the Holdco Notes. However, lender demand was insufficient to
support a refinancing transaction.
Shortly after it became clear that an 8.625% refinancing transaction was not available, the
Debtors and their advisors began discussing the preliminary terms of a potential balance sheet
restructuring with their major stakeholders, including with certain holders of the 8.625% and AcqCo
Notes and their respective advisors. Upon execution of customary confidentiality agreements, the
Debtors provided parties with information regarding the Debtors operations, projections, and
business plan to facilitate their ability to develop a potential restructuring plan or to otherwise
constructively participate in the process.
C. | The Debtors Negotiate a Prearranged Chapter 11 Plan. |
After good-faith, arms-length negotiations, the Debtors reached an agreement with Holders of
an aggregate amount of over 95% of the 8.625% Notes, Holders of over 75% of the 11% Notes (such
Holders, collectively, the Plan Support Parties) with respect to a consensual
restructuring on the terms set forth in the Plan, and formalized by the Restructuring and Support
Agreement (the RSA), dated June 26, 2011.
The Debtors received an executed RSA from holders of (1) over 95% of the 8.625% Notes, and (2)
more than 75% of the AcqCo Notes that contemplates a comprehensive reorganization through a
pre-arranged plan of reorganization. In conjunction with the Plan, the Debtors have obtained
commitments for a $200 million debtor-in-possession financing, $75 million of which is a revolving
loan and $125 million of which is a term loan. This financing, together with cash on hand, will
enable the Debtors to fund the administration of these cases, send a clear signal to their
publishers and general merchandise
vendors that they have sufficient liquidity to satisfy any outstanding obligations, and help
pave the way to an expeditious and smooth exit from chapter 11.
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D. | The Debtors Commence the Chapter 11 Cases. |
The Debtors filed the Chapter 11 Cases to effectuate the terms of the RSA and the Plan. Based
on the RSA, the Debtors are prepared to seek confirmation of the Plan as soon as possible after the
Petition Date. Indeed, because the Plan is based on a consensual deal with the Debtors key
stakeholders and contemplates a significant de-leveraging of the Debtors balance sheets and a full
recovery for Holders of Allowed General Unsecured Claims, confirmation of the Plan is expected to
occur over a relatively short timeframe. Specifically, the Debtors and the Plan Support Parties
have agreed that: (1) the Plan must be filed within five days and this Disclosure Statement within
20 days of the Petition Date; (2) the Disclosure Statement and accompanying solicitation materials
must be approved and a hearing to confirm the Plan must be scheduled within 55 days after the
Petition Date; (3) the Plan must be confirmed within 60 days of the date upon which this Disclosure
Statement is approved (subject to a 14-day extension under certain circumstances); and (4) the Plan
must become effective within 16 days of the confirmation date (subject to a 14-day extension under
certain circumstances) but no later than November 3, 2011.
IV. The Debtors Initial Motions in the Chapter 11 Cases and Certain Related Relief
In order to minimize disruption to the Debtors operations and effectuate the terms of the
Plan, the Debtors obtained certain relief, including the relief summarized below.
A. | Motion for Authority to Use DIP Financing. |
The Debtors filed the Motion of the Debtors for Entry of Interim and Final Orders (A)
Authorizing the Debtors to Obtain Postpetition Financing and Letters of Credit, (B) Authorizing the
Debtors to Use Cash Collateral, (C) Granting Adequate Protection to Prepetition Secured Lenders and
Approving the Adequate Protection Stipulation, and (D) Scheduling a Final Order [Docket No. 12]
(the DIP Consolidated Motion) requesting (1) authority to obtain postpetition loans in a
principal amount not to exceed $125 million on an interim basis, and $200 million on a final basis,
consisting of a $75 million revolving loan and a $125 million term loan (collectively, the
DIP Facility). In addition, the Debtors requested that the Bankruptcy Court grant
adequate protection to certain prepetition secured lenders for priming of their existing liens on
the prepetition collateral.
On June 28, 2011, the Bankruptcy Court entered the order (the Interim DIP Order)
[Docket No. 56] authorizing the Debtors to obtain postpetition financing up to $125 million in term
loans under the DIP Agreement on a superpriority, priming lien basis and use cash collateral
pursuant to sections 363 and 364 of the Bankruptcy Code on an interim basis and approving an
adequate protection package for certain of the Debtors prepetition secured lenders. The Interim
DIP Order provides that the Debtors shall use the proceeds of the DIP Facility to pay interest,
fees, and expenses in connection with the DIP Loans (as defined in the Interim DIP Order) and to
repay not less than $26,300,000 in loans made and $3,733,597 in letters of credit issued and
outstanding under the ABL Facility. Pursuant to the Interim DIP Order and the terms of a separate
adequate protection stipulation with an ad hoc group of Holders of Senior Secured Notes, the
Bankruptcy Court granted adequate protection to the Holders of Senior Secured Notes for the priming
of their existing liens on the Prepetition Collateral (as defined in the Interim DIP Order). The
final hearing on the DIP/Cash Collateral Motion is on July 21, 2011, at 3 p.m. prevailing Eastern
Time.
B. | Motion to Pay Employee Wages and Associated Compensation. |
The Debtors filed the Motion of the Debtors for Entry of An Order Authorizing the Payment of
Prepetition (A) Wages, Salaries, and Other Compensation, (B) Reimbursable Employee Expenses, And
(C) Employee Medical And Similar Benefits [Docket No. 10] (the Wages Motion). Among
other things, the Debtors requested authority in the Wages Motion to implement a retention program
for certain of the Debtors non-insider employees (the Non-Insider Employee Retention
Program) to ensure the Debtors retain the services of their most critical non-insider
employees (collectively, the Critical Employees). Pursuant to the Non-Insider
Employee Retention Program, 50 Critical Employees are entitled to receive additional compensation
in the aggregate amount up to $500,000. No individual Critical Employee will receive a payment
totaling more than 15% of his or her base salary under the Non-Insider Employee Retention Program.
On June 28, 2011, the Bankruptcy Court entered an interim order [Docket No. 50] authorizing the
Debtors to honor their wage and benefit obligations (except the Non-Insider Employee Retention
Program) in accordance with their stated policies and in the ordinary course of their businesses.
The Bankruptcy Court set the final hearing to approve the Non-Insider Employee Retention Program
for July 21, 2011, at 3 p.m. prevailing Eastern Time.
16
C. | Motion to Pay Taxes and Fees. |
The Debtors filed a Motion of the Debtors for the Entry of An Order Authorizing The Debtors to
Pay Certain Prepetition Taxes and Fees and Granting Related Relief [Docket No. 8]. On June 28,
2011, the Bankruptcy Court entered the order [Docket No. 55] authorizing, but not directing the
Debtors, to pay certain taxes and fees that in the ordinary course of business accrued or arose
before the Petition Date.
D. | Motion to Prohibit Utilities from Terminating Service. |
The Debtors filed a Motion of the Debtors for Entry of Interim and Final Orders Determining
Adequate Assurance of Payment for Future Utility Services [Docket No. 5]. On June 28, 2011, the
Bankruptcy Court entered an interim order [Docket No. 67] setting a final hearing to approve, among
other things, the Debtors proposed adequate assurance of payment for future service to the utility
providers and procedures governing any requests for additional or different adequate assurance, and
prohibiting the utility providers from altering, refusing, or discontinuing utility services on
account of any unpaid prepetition charges. The Bankruptcy Court set the final hearing for July 21,
2011, at 3 p.m. prevailing Eastern Time.
E. | Motion to Honor Customer Programs. |
The Debtors filed a Motion of the Debtors for Entry of An Order Authorizing the Debtors to
Maintain and Administer Customer Programs and Honor Prepetition Obligations Related Thereto [Docket
No. 7]. On June 28, 2011, the Bankruptcy Court entered a final order [Docket No. 51] authorizing,
but not directing, the Debtors to honor and continue certain prepetition customer programs in the
ordinary course of business.
F. | Motion to Pay Shippers, Warehousemen, and Materialmen. |
The Debtors filed a Motion of the Debtors for Entry of an Order (A) Authorizing the Debtors to
Grant Administrative Expense Priority to All Undisputed Obligations for Goods Ordered Prepetition
and Delivered Postpetition and Satisfy Such Obligations in the Ordinary Course of Business and (B)
Authorizing, But Not Directing, the Debtors to Pay Prepetition Claims of Shippers, Warehousemen,
and Materialmen [Docket No. 9]. On June 28, 2011, the Bankruptcy Court entered a final order
[Docket No. 52] (i) granting administrative expense priority status in accordance with section
503(b) of the
Bankruptcy Code to certain outstanding orders, and (ii) authorizing, but not directing, the
Debtors to pay prepetition amounts owed to shippers, warehousemen, and materialmen.
G. | Motion to Pay Critical Vendors. |
The Debtors filed a Motion of the Debtors for Entry of Interim and Final Orders Authorizing
Payment of (A) Prepetition Critical Vendors Claims and (B) Section 503(b)(9) Claims [Docket No. 6].
On June 28, 2011, the Bankruptcy Court entered an interim order [Docket No. 53] authorizing the
Debtors to pay, in the ordinary course of business, prepetition claims held by (i) certain critical
trade vendors that are essential to the Debtors ongoing business operations, and (ii) prepetition
claims entitled to administrative priority under section 503(b)(9) of the Bankruptcy Code. The
Bankruptcy Court set the final hearing for July 21, 2011, at 3 p.m. prevailing Eastern Time.
17
H. | Other Related Relief. |
In addition, the Debtors filed the following motions, which were granted after a hearing in
the Bankruptcy Court, obtaining: (i) an order [Docket No. 40] directing the joint administration
of the eight chapter 11 cases under a single docket, Case Number 11-12005 (PJW); and (ii) an order
[Docket No. 44] authorizing the Debtors to continue to use their existing cash management system
and maintaining existing bank accounts and business.
V. Treatment of Claims and Interests Under the Plan.
A. | Substantive Consolidation. |
The Plan shall serve as a motion by the Debtors seeking entry of a Bankruptcy Court order
substantively consolidating all of the Estates and its subsidiaries into a single consolidated
Estate for all purposes associated with Confirmation and Consummation.
If substantive consolidation of all of the Estates is ordered, then on and after the Effective
Date, all assets and liabilities of the Debtors shall be treated as though they were merged into
the Estate of NBC for all purposes associated with Confirmation and Consummation, and all
guarantees by any Debtor of the obligations of any other Debtor shall be eliminated so that any
Claim and any guarantee thereof by any other Debtor, as well as any joint and several liability of
any Debtor with respect to any other Debtor shall be treated as one collective obligation of the
Debtors. Substantive consolidation shall not affect the legal and organizational structure of the
Reorganized Debtors Entities or their separate corporate existences or any prepetition or
postpetition guarantees, Liens, or security interests that are required to be maintained under the
Bankruptcy Code, under the Plan, any contract, instrument, or other agreement or document pursuant
to the Plan (including the New Senior Secured Notes Indenture, New Senior Unsecured Notes
Indenture, New ABL Facility, New Warrants, Registration Rights Agreement, or Shareholders
Agreement, or the identity of the New Board and management), or, in connection with contracts or
leases that were assumed or entered into during the Chapter 11 Cases. Furthermore, creditor
recoveries will not be adversely affected by substantive consolidation of the Debtors estates.
Any alleged defaults under any applicable agreement with the Debtors, the Reorganized Debtors, or
their Affiliates arising from substantive consolidation under the Plan shall be deemed cured as of
the Effective Date.
Notwithstanding the substantive consolidation provided for herein, nothing shall affect the
obligation of each and every Debtor to pay quarterly fees to the Office of the United States
Trustee pursuant to 28 U.S.C. § 1930 until such time as a particular case is closed, dismissed, or
converted.
B. | Asserted and Scheduled Claims. |
Claims and Interests, except for Administrative Claims and Priority Tax Claims, are classified
in the Classes set forth in Article III of the Plan. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within the description of
that Class and is classified in other Classes to the extent that any portion of the Claim or
Interest qualifies within the description of such other Classes. A Claim or Interest also is
classified in a particular Class for the purpose of receiving distributions pursuant to the Plan
only to the extent that such Claim is an Allowed Claim in that Class and has not been paid,
released, or otherwise satisfied prior to the Effective Date.
18
Distributions under the Plan will be made only to Holders of Allowed Claims or Allowed
Interests. As more fully described in Articles II and III of the Plan, Holders of Disputed Claims
or Disputed Interests will receive no distributions unless and until their Claims or Interests
become Allowed.
Pursuant to the terms of the Plan, except for Claims or Interests that are (1) expressly
exempted from the discharge provisions of the Bankruptcy Code or (2) specifically identified as
being reinstated, all Claims or Interests that arose prior to Confirmation will be discharged.
C. | Administrative Claims. |
In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and
Priority Tax Claims have not been classified and, thus, are excluded from the Classes of Claims and
Interests set forth in Article II of the Plan.
Except as specified in this Article II of the Plan, unless otherwise agreed to by the Holder
of a General Administrative Claim and the Debtors or the Reorganized Debtors, as applicable, each
Holder of an Allowed General Administrative Claim will receive, in full satisfaction of its General
Administrative Claim, Cash equal to the amount of such Allowed General Administrative Claim either:
(1) on the Effective Date or as soon thereafter as reasonably practicable; (2) if the General
Administrative Claim is not Allowed as of the Effective Date, 30 days after the date on which an
order allowing such General Administrative Claim becomes a Final Order, or as soon thereafter as
reasonably practicable; or (3) if the Allowed General Administrative Claims are based on
liabilities incurred by the Debtors in the ordinary course of their business during the
Postpetition Period, pursuant to the terms and conditions of the particular transaction giving rise
to such Allowed General Administrative Claims, without any further action by the Holders of such
Allowed General Administrative Claims.
D. | Professional Compensation. |
(i) Final Fee Applications.
All final requests for payment of Professional Fee Claims, including the Holdback Amount and
Professional Fee Claims incurred during the period from Petition Date through the Effective Date,
must be filed with the Bankruptcy Court and served on the Reorganized Debtors no later than 30 days
after the Effective Date. After notice and a hearing in accordance with the procedures established
by the Bankruptcy Code and prior orders of the Bankruptcy Court in the Chapter 11 Cases, the
allowed amounts of such Professional Fee Claims shall be determined by the Bankruptcy Court.
(ii) Payment of Interim Amounts.
Subject to the Holdback Amount, on the Effective Date, the Debtors or the Reorganized Debtors,
as applicable, shall pay all amounts owing to Professionals for all outstanding amounts payable in
accordance with the Professional Fee Order relating to prior periods through the Effective Date.
To
receive payment, on or before the Effective Date, each Professional shall submit a detailed
invoice covering such period in the manner and providing the detail as set forth in the
Professional Fee Order.
(iii) Post-Effective Date Fees and Expenses.
Except as otherwise specifically provided in the Plan, from and after the Effective Date, the
Reorganized Debtors shall, in the ordinary course of business and without any further notice to or
action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable legal, professional,
or other fees and expenses related to implementation of the Plan and Consummation incurred by the
Reorganized Debtors. Upon the Effective Date, any requirement that Professionals comply with
sections 327 through 331, 363, and 1103 of the Bankruptcy Code in seeking retention or compensation
for services rendered after such date shall terminate, and the Reorganized Debtors may employ and
pay any Professional in the ordinary course of business without any further notice to or action,
order, or approval of the Bankruptcy Court.
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E. DIP Claims.
Except to the extent that a Holder of an Allowed DIP Claim agrees to a less favorable
treatment in full and final satisfaction, settlement, release, and discharge of, and in exchange
for, each Allowed DIP Claim, each such Allowed DIP Claim shall be paid in full in Cash by the
Debtors on the Effective Date.
F. Priority Tax Claims.
Except to the extent that a Holder of an Allowed Priority Tax Claim agrees to a less favorable
treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange
for each Allowed Priority Tax Claim, each Holder of such Allowed Priority Tax Claim shall be
treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code.
G. Treatment of Classified Claims and Interests.
(i) Class 1 ABL Facility Claims.
| Classification: Class 1 consists of all ABL Facility Claims. |
| Allowance: The ABL Facility Claims are Allowed in an aggregate principal amount
of not less than $26,300,000 in loans made and $3,733,597 in letters of credit. To
the best of the Debtors knowledge, there are no outstanding ABL Facility Claims as
of the date of filing this Disclosure Statement. |
| Treatment: Except to the extent that a Holder of an Allowed Claim in Class 1
agrees to a less favorable treatment, in full and final satisfaction, settlement,
release, and discharge of and in exchange for each Allowed Claim in Class 1, each
such Holder shall be paid in full in Cash. |
| Voting: Class 1 is Unimpaired under the Plan. Holders of Claims in Class 1 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
(ii) Class 2 Senior Secured Notes Claims.
| Classification: Class 2 consists of all Senior Secured Notes Claims. |
| Allowance: The Senior Secured Notes Claims are Allowed in an aggregate amount
equal to approximately $200 million. |
| Treatment: Except to the extent that a Holder of an Allowed Claim in Class 2
agrees to a less favorable treatment, in full and final satisfaction, settlement,
release, and discharge of and in exchange for each Allowed Claim in Class 2, each
such Holder shall be paid in full in Cash. |
| Voting: Class 2 is Unimpaired under the Plan. Holders of Claims in Class 2 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
20
(iii) Class 3 Other Secured Claims.
| Classification: Class 3 consists of all Other Secured Claims. |
| Treatment: On the Effective Date, except to the extent that a Holder of an
Allowed Claim in Class 3 agrees to a less favorable treatment of its Allowed Claim,
in full and final satisfaction, settlement, release, and discharge of and in
exchange for each Allowed Claim in Class 3, each such Holder shall receive, at the
option of the Debtors, subject to the consent of the Ad Hoc 8.625% Noteholders and
JPMorgan Noteholders, such consent not to be unreasonably withheld, either: |
(1) | payment in full in cash; |
||
(2) | delivery of collateral securing any such Claim and
payment of any interest required under section 506(b) of the Bankruptcy
Code; |
||
(3) | reinstatement of such Other Secured Claims; or |
||
(4) | other treatment rendering such Claim Unimpaired. |
| Voting: Class 3 is Unimpaired under the Plan. Holders of Claims in Class 3 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
(iv) Class 4 Other Priority Claims
| Classification: Class 4 consists of all Other Priority Claims. |
| Treatment: On the Effective Date, except to the extent that a Holder of an
Allowed Claim in Class 4 agrees to a less favorable treatment of its Allowed Claim,
in full and final satisfaction, settlement, release, and discharge of and in
exchange for each Allowed Claim in Class 4, each such Holder shall receive, at the
option of the Debtors, subject to the consent of the Ad Hoc 8.625% Noteholders and
the JPMorgan Noteholders, such consents not to be unreasonably withheld, either: |
(1) | payment in full in cash; or |
||
(2) | other treatment rendering such Claim Unimpaired. |
| Voting: Class 4 is Unimpaired under the Plan. Holders of Claims in Class 4 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
21
(v) Class 5 8.625% Notes Claims.
| Classification: Class 5 consists of all 8.625% Notes Claims. |
| Allowance: The 8.625% Notes Claims shall be allowed in an aggregate amount equal
to approximately $179,234,636.42. |
| Treatment: On the Effective Date, except to the extent that a Holder of an
Allowed Claim in Class 5 agrees to a less favorable treatment of its Allowed Claim,
in full and final satisfaction, settlement, release, and discharge of and in
exchange for each Allowed Claim in Class 5, each such Holder shall receive its Pro
Rata share of: |
(1) | the Cash Payment; |
||
(2) | the New Senior Unsecured Notes; and |
||
(3) | 78% of the New Common Equity. |
| Voting: Class 5 is Impaired under the Plan. Holders of Allowed Claims in Class
5 are entitled to vote to accept or reject the Plan. |
(vi) Class 6 AcqCo Notes Claims.
| Classification: Class 6 consists of all AcqCo Notes Claims. |
| Allowance: The AcqCo Notes Claims shall be allowed in an aggregate amount equal
to approximately $77 million plus interest and fees accrued prior to the Petition
Date. |
| Treatment: On the Effective Date, except to the extent that a Holder of an
Allowed Claim in Class 6 agrees to a less favorable treatment of its Allowed Claim,
in full and final satisfaction, settlement, release, and discharge of and in
exchange for each Allowed Claim in Class 6, each such Holder shall receive its Pro
Rata share of 22% of the New Common Equity. |
| Voting: Class 6 is Impaired under the Plan. Holders of Allowed Claims in Class
6 are entitled to vote to accept or reject the Plan. |
(vii) Class 7 General Unsecured Claims.
| Classification: Class 7 consists of all General Unsecured Claims. |
| Treatment: On the Effective Date, except to the extent that a Holder of an
Allowed Claim in Class 7 agrees to a less favorable treatment of its, Allowed Claim
or has been paid prior to the Effective Date, each such Allowed Claim shall be
reinstated and rendered Unimpaired in accordance with section 1124 of the
Bankruptcy Code or each Holder of an Allowed Claim in Class 7 shall be paid in
full in Cash on the Distribution Date or soon thereafter. The Debtors reserve
their rights, however to dispute the validity of any Claim in Class 7, whether or
not objected to prior to the Effective Date. |
| Voting: Class 7 is Unimpaired under the Plan. Holders of Claims in Class 7 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan.
|
22
(viii) Class 8 Intercompany Claims.
| Classification: Class 8 consists of all Intercompany Claims. |
| Treatment: Intercompany Claims may be Reinstated as of the Effective Date or,
at the Debtors or the Reorganized Debtors option, subject to the consent of the
Ad Hoc 8.625% Noteholders and the JPMorgan Noteholders, such consent not to be
unreasonably withheld, be cancelled, and no distribution shall be made on account
of such Claims. |
| Voting: Class 8 is Unimpaired under the Plan. Holders of Claims in Class 8 are
conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
(ix) Class 9 Intercompany Interests.
| Classification: Class 9 consists of all Intercompany Interests. |
| Treatment: Intercompany Interests may be Reinstated as of the Effective Date
or, at the Debtors or the Reorganized Debtors option, subject to the consent of
the Ad Hoc 8.625% Noteholders and the JPMorgan Noteholders, such consent not to be
unreasonably withheld, be cancelled, and no distribution shall be made on account
of such Interests. |
| Voting: Class 9 is Unimpaired under the Plan. Holders of Interests in Class 9
are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
(x) Class 10 HoldCo Interests.
| Classification: Class 10 consists of all HoldCo Interests. |
| Treatment: On the Effective Date, all Interests in Class 10 shall be cancelled
without any distribution or recovery on account of such Interest, provided,
however, that if Weston Presidio and each of its affiliates which are Holders of
Holdco Interests either: (a) executes a joinder to the Plan Support Agreement
which binds at least 90% in amount of the HoldCo Interests to support the
Restructuring Transactions, or (b) does not object to
the Plan and votes to accept the Plan, each Holder of an Interest in Class 10 shall
receive its Pro Rata share of the New Warrants. |
| Voting: Class 10 is Impaired under the Plan. Holders of Interests in Class 10
are entitled to vote to accept or reject the Plan. |
23
(xi) Class 11 Subordinated Securities Claims.
| Classification: Class 11 consists of all Subordinated Securities Claims. |
| Treatment: On the Effective Date, all Claims in Class 11 shall be cancelled
without any distribution. |
| Voting: Class 11 is Impaired under the Plan. Holders of Claims in Class 11 are
conclusively presumed to have rejected the Plan pursuant to section 1126(g) of the
Bankruptcy Code. Therefore, such Holders are not entitled to vote to accept or
reject the Plan. |
H. | Special Provision Governing Unimpaired Claims. |
Except as otherwise provided in the Plan, nothing under the Plan shall affect the Debtors
rights in respect of any Unimpaired Claims, including, all rights in respect of legal and equitable
defenses or setoffs or recoupments against any such Unimpaired Claims.
I. | Acceptance or Rejection of the Plan. |
(i) Voting Classes.
Classes 5, 6, and 10 are Impaired under the Plan and the Holders of Claims and Interests in
such Classes are entitled to vote to accept or reject the Plan.
(ii) Presumed Acceptance of the Plan.
Classes 1, 2, 3, 4, 7, 8, and 9 are Unimpaired under the Plan. The Holders of Claims and
Interests in such Classes are deemed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code and are not entitled to vote to accept or reject the Plan.
(iii) Presumed Rejection of Plan.
Class 11 is Impaired and shall receive no distribution under the Plan. The Holders of Claims
in Class 11 are deemed to have rejected the Plan pursuant to section 1126(f) of the Bankruptcy Code
and are not entitled to vote to accept or reject the Plan.
J. | Controversy Concerning Impairment. |
If a controversy arises during the Chapter 11 Cases as to whether any Claims or Interests, or
any Class of Claims or Interests, are Impaired, the Bankruptcy Court shall, after notice and a
hearing, determine such controversy on or before the Confirmation Date.
K. | Subordinated Claims. |
The allowance, classification, and treatment of all Allowed Claims and Allowed Interests and
the respective distributions and treatments under the Plan take into account and conform to the
relative priority and rights of the Claims and Interests in each Class in connection with any
contractual, legal, and equitable subordination rights relating thereto, whether arising under
general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise.
Pursuant to section 510 of the Bankruptcy Code, the Reorganized Debtors reserve the right to
re-classify any Allowed Claim or Interest in accordance with any contractual, legal, or equitable
subordination relating thereto.
24
VI. Management of the Company
Biographical information for Mark W. Oppegard, Alan G. Siemek, and Barry S. Major is set forth
below:
Mr. Oppegard has served in the college bookstore industry for 40 years (all of which have been
with the Debtors). Mr. Oppegard has served as the Debtors Chief Executive Officer, Secretary, and
Director of NBC since February 1998. In addition, Mr. Oppegard served as President of NBC from
1998 to 2008. Additionally, Mr. Oppegard served as the Debtors President from 1992 to 2008 and
has served as a Director since 1995. Prior to 1998, Mr. Oppegard served as Vice President,
Secretary, Assistant Treasurer and a Director of NBC. Prior to 1992, Mr. Oppegard served in a
series of positions, including Vice President of the Bookstore Division.
Mr. Major has served in the college bookstore industry for 11 years (all of which have been
with the Debtors). Mr. Major has served as Chief Operating Officer since January 1999 and was
named President in 2008. Mr. Major is also a member of the board of directors of Mutual of Omaha
Bank, where he also serves on the loan committee of the board of directors and chairs the audit and
compensation committees. Prior to joining the Debtors, he held various executive management
positions at SITEL Corporation. From 1985-1995, he held executive management positions at American
National Corporation.
Mr. Siemek has served in the college bookstore industry for 11 years (all of which have been
with the Debtors). Mr. Siemek has served as the Debtors Chief Financial Officer since 1999. In
addition, Mr. Siemek was named Senior Vice President of Finance and Administration in 2001. Mr.
Siemek has also served as the Debtors Treasurer, Assistant Secretary, and Vice President since
1999. Mr. Siemek was previously employed as Corporate Comptroller of SITEL Corporation and also
was employed as Director and Manager of SEC Reporting and Risk Management at MFS Communications.
Prior to 1994, he worked as a public accountant at Coopers & Lybrand LLP.
VII. Composition of New Board of Directors
The New Board shall consist of five members, and include (a) the two Ad Hoc Members, which
members shall be reasonably satisfactory to the JPMorgan Noteholders, and designated by the
Debtors, (b) the one JPM Member, which member shall be reasonably satisfactory to the Ad Hoc 8.625%
Noteholders, and designated by the Debtors, (c) one member to be jointly selected by the Ad Hoc
8.625% Noteholders and the JPMorgan Noteholders, and (d) the Chief Executive Officer of the
Company. The Ad Hoc Members and the JPM Member shall each be members of the audit, governance, and
compensation committees.
Pursuant to section 1129(a)(5) of the Bankruptcy Code, the Debtors will disclose in advance of
the Confirmation Hearing the identity and affiliations of any Person proposed to serve on the
initial board of directors or be an officer of each of the Reorganized Debtors. To the extent any
such director or officer of the Reorganized Debtors is an insider under the Bankruptcy Code, the
Debtors also will
disclose the nature of any compensation to be paid to such director or officer. Each such
director and officer shall serve from and after the Effective Date pursuant to the terms of the New
Organizational Documents and other constituent documents of the Reorganized Debtors.
25
VIII. Capital Structure of the Reorganized Debtors upon Consummation
A. | New ABL Facility. |
On the Effective Date, the Reorganized Debtors will obtain access to the New ABL Facility,
which shall be reasonably satisfactory in form and substance to the Ad Hoc 8.625% Noteholders and
JPMorgan Noteholders; provided, however, that to the extent any provision will affect the nature,
value, or form of the recovery to the Ad Hoc 8.625% Noteholders and JPMorgan Noteholders, it shall
be satisfactory to such Holders. Confirmation shall be deemed approval of the New ABL Facility
(including the transactions contemplated thereby, and all actions to be taken, undertakings to be
made, and obligations to be incurred by the Reorganized Debtors in connection therewith) and
authorization for the Reorganized Debtors to enter into and execute New ABL Facility documents,
subject to such modifications as the Reorganized Debtors may deem to be reasonably necessary to
consummate such New ABL Facility.
B. | New Senior Secured Notes. |
On the Effective Date, the Reorganized Debtors may issue the New Senior Secured Notes, which
shall be reasonably satisfactory in form and substance to the Ad Hoc 8.625% Noteholders and
JPMorgan Noteholders; provided, however, that to the extent any provisions will affect the nature,
value, or form of the recovery to the Ad Hoc 8.625% Noteholders and the JPMorgan Noteholders, they
shall be satisfactory to such Holders; provided, further, if the New Senior Secured Notes contain
terms less favorable to the Debtors and their creditors than those set forth in the Key Terms of
New Senior Secured Notes attached to the RSA as Exhibit D, such terms must be satisfactory to the
Ad Hoc 8.625% Noteholders and the JPMorgan Noteholders. Confirmation shall be deemed approval of
New Senior Secured Notes (including the transactions contemplated thereby, and all actions to be
taken, undertakings to be made, and obligations to be incurred by the Reorganized Debtors in
connection therewith) and authorization for the Reorganized Debtors to enter into and execute New
Senior Secured Notes documents, subject to such modifications as the Reorganized Debtors may deem
to be reasonably necessary to consummate such New Senior Secured Notes.
C. | New Senior Unsecured Notes. |
On the Effective Date, the Reorganized Debtors may issue the New Senior Unsecured Notes, which
shall be satisfactory in form and substance to the Ad Hoc 8.625% Noteholders and JPMorgan
Noteholders, and shall have terms materially consistent with the terms set forth in Exhibit E
attached to the RSA. Confirmation shall be deemed approval of New Senior Unsecured Notes
(including the transactions contemplated thereby, and all actions to be taken, undertakings to be
made, and obligations to be incurred by the Reorganized Debtors in connection therewith) and
authorization for the Reorganized Debtors to enter into and execute New Senior Unsecured Notes
documents, subject to such modifications as the Reorganized Debtors may deem to be reasonably
necessary to consummate such New Senior Unsecured Notes.
D. | Issuance of New Common Equity. |
The issuance of the New Common Equity, including options or other equity awards, if any,
reserved for the Management Equity Incentive Plan, by Reorganized NBC is authorized without the
need
for any further corporate action or without any further action by the Holders of Claims or
Interests. Reorganized NBC shall be authorized to issue a certain number of shares of New Common
Equity pursuant to its New Organizational Documents. On the Effective Date, the Debtors shall
issue all securities, notes, instruments, certificates, and other documents required to be issued
pursuant to the Plan.
26
All of the shares of New Common Equity issued pursuant to the Plan shall be duly authorized,
validly issued, fully paid, and non-assessable. Each distribution and issuance referred to in
Article VI of the Plan shall be governed by the terms and conditions set forth in the Plan
applicable to such distribution or issuance and by the terms and conditions of the instruments
evidencing or relating to such distribution or issuance, which terms and conditions shall bind each
Entity receiving such distribution or issuance. For purposes of distribution, the New Common
Equity shall be deemed to have the value assigned to it based upon, among other things, the
Reorganized NBC Total Enterprise Value, regardless of the date of distribution.
The Holders of New Common Equity shall be parties to the Shareholders Agreement, which shall
be satisfactory in form and substance to the Ad Hoc 8.625% Noteholders and the JPMorgan
Noteholders.
The holders of New Common Equity and the Debtors shall be parties to the Registration Rights
Agreement that is satisfactory in form and substance to the Ad Hoc 8.625% Noteholders, and the
JPMorgan Noteholders, obliging the Reorganized Debtors to register for resale certain shares of the
New Common Equity under the Securities Act in accordance with the terms set forth in such
agreement.
E. | Issuance of New Warrants. |
Within 30 days of the Effective Date, if Class 10 votes to accept the Plan and does not object
to the Plan, Reorganized Debtor shall issue the New Warrants to the Holders of Interests in Class
10, pursuant to the terms of the New Warrants Agreement. All of the New Warrants issued pursuant
to the Plan shall be duly authorized, validly issued, fully paid, and non-assessable. Each
distribution and issuance referred to in Article VI of the Plan shall be governed by the terms and
conditions set forth in the Plan applicable to such distribution or issuance and by the terms and
conditions of the instruments evidencing or relating to such distribution or issuance, which terms
and conditions shall bind each Entity receiving such distribution or issuance.
F. | Intercompany Account Settlement. |
The Debtors and the Reorganized Debtors, as applicable, will be entitled to transfer funds
between and among themselves as they determine to be necessary or appropriate to enable the
Reorganized Debtor to satisfy their obligations under the Plan. Except as set forth herein, any
changes in intercompany account balances resulting from such transfers will be accounted for and in
accordance with the Debtors historical intercompany account settlement practices and will not
violate the terms of the Plan.
G. | Cancellation of Existing Securities and Agreements. |
On the Effective Date, except to the extent otherwise provided in the Plan, all notes,
instruments, certificates, and other documents evidencing Claims or Interests, including 8.625%
Notes Claims, AcqCo Notes Claims, ABL Facility Claims, Senior Secured Notes Claims, Subordinated
Securities Claims, HoldCo Interests, and credit agreements, shall be deemed cancelled and
surrendered without any need for a Holder to take further action with respect to any note(s) or
security and the obligations of the Debtors or Reorganized Debtors, as applicable, thereunder or in
any way related thereto shall be deemed satisfied in full and discharged; provided, however, that
notwithstanding Confirmation or Consummation, any such
indenture or agreement that governs the rights of the Holder of a Claim shall continue in
effect solely for purposes of (i) allowing Holders to receive distributions under the Plan, (ii)
allowing the Indenture Trustees to make the distributions to be made on account of the 8.625% Notes
and the AcqCo Notes, as applicable, and (iii) permitting the Indenture Trustees to assert their
respective Indenture Trustee Charging Liens against such distributions under the Plan for payment
of the Indenture Trustee Fees; provided further, however, that the preceding proviso shall not
affect the discharge of Claims or Interests pursuant to the Bankruptcy Code, the Confirmation
Order, or the Plan, or result in any expense or liability to the Reorganized Debtors; provided
further, however, that the foregoing shall not affect the cancellation of shares issued pursuant to
the Restructuring Transactions nor any other shares held by one Debtor in the capital of another
Debtor.
27
H. | Management Equity Incentive Program. |
On the Effective Date, the Debtors shall adopt the Management Equity Incentive Plan. The
Management Equity Incentive Plan will cover 10% of the fully-diluted and fully-distributed shares
of New Common Equity contemplated herein, with such percent being diluted for additional stock
issuances by the Debtors (other than pursuant to such issuances contemplated by the Plan, including
pursuant to the Management Equity Incentive Plan) following the Effective Date. On the Effective
Date: (a) 50% of the aggregate pool will be granted as restricted stock units (collectively, the
RSUs); and (b) 25% of the aggregate pool will be granted in the form of stock options
(collectively, the Emergence Options, and together with the RSUs, the Emergence
Award). The remaining 25% will be granted in the future as stock options (the Remaining
Options, and together with the Emergence Award, the Incentive Award), vesting based
on the achievement of reasonably attainable performance goals determined by the New Board in good
faith. The Chief Executive Officer shall provide a proposed allocation for the Emergence Award to
the Ad Hoc 8.625% Noteholders and the JPMorgan Noteholders at least 21 days prior to the Effective
Date. Such allocation shall be as agreed upon by the Chief Executive Officer, the Ad Hoc 8.625%
Noteholders, and the JPMorgan Noteholders prior to the Effective Date. The Emergence Award will
vest in four equal annual installments on the anniversary of the Effective Date. The Remaining
Options will be granted within four years of the Effective Date and will vest and become
exercisable in annual installments, as determined by the New Board over a period that will not
exceed four years. Any Incentive Award shall automatically vest upon: (i) the death, disability,
termination without cause, or termination for good reason; or (ii) a change in control of the
Debtors following the Effective Date. Shares of New Common Equity acquired in connection with any
Incentive Award will be subject to customary restrictions on transfer and will have customary tag
along and registration rights. To the extent no equity security of the Debtors is publicly traded
at the time a tax liability is incurred, the Debtors shall, at the holders election, withhold
sufficient New Common Equity to pay any taxes due upon settlement of any Incentive Award.
I. | Employee and Retiree Benefits. |
In consideration for releasing all Claims and Interests, all employees that are (a) party to
employment, retirement, indemnification, and other agreements or arrangements with the Debtors in
place as of the Effective Date, including the Debtors officers, directors, or employees, who will
continue in such capacities or similar capacities after the Effective Date, or (b) party to
variable incentive plans regarding payment of a percentage of annual salary based on performance
goals and financial targets for certain employees identified as key leaders, top level managers, or
sales leaders shall receive new employment agreements with the Reorganized Debtors, which shall
have economic terms that are not less favorable to such employee than such employees current
employment agreement, as satisfactory to the Ad Hoc 8.625% Noteholders and the JPMorgan
Noteholders.
28
Summary of Legal Proceedings3
From time to time, the Debtors are subject to legal proceedings and other claims arising in
the ordinary course of their business. Currently, the Debtors are not a party to any litigation
the outcome of which would have a material adverse affect on their financial condition or results
of operations. The Debtors maintain insurance coverage against claims in an adequate amount given
the Debtors litigation proceedings.
Most of these legal proceedings have arisen in the ordinary course of the Debtors business
and involve Claims for money damages. Whether these Claims are or will be liquidated or resolved
in the Bankruptcy Court or in some other jurisdiction depends upon the nature of the Claims and the
debt arising therefrom. Generally, if the debt underlying such Claims was incurred by the Debtors
prior to the date the Plan is confirmed, such debt, in accordance with section 1141 of the
Bankruptcy Code, will be discharged through bankruptcy, depending upon the nature of the relief
sought, regardless of whether the Claim is liquidated and resolved before or after the Effective
Date. Claims arising from conduct occurring after the Effective Date, unless provided for under
the Plan, generally are not dischargeable through bankruptcy, and will be handled by the
Reorganized Debtors in the ordinary course of their business after emergence.
A number of transactions occurred prior to the Petition Date that may give rise to Claims,
including preference actions, fraudulent transfer and conveyance actions, rights of setoff and
other claims, or causes of action under sections 510, 544, 547, 548, 549, 550, and 553 of the
Bankruptcy Code, and other applicable bankruptcy or non-bankruptcy law (collectively, the
Avoidance Actions).
Pursuant to section 546(a) of the Bankruptcy Code, the statute of limitations with respect to
the commencement of avoidance or recovery actions under sections 544, 545, 547, 548, and 553 of the
Bankruptcy Code will expire on June 27, 2013 (i.e., two years after the Petition Date).
IX. Valuation Analysis
THE VALUATION SET FORTH HEREIN REPRESENTS ESTIMATED DISTRIBUTABLE VALUE AND DOES NOT NECESSARILY
REFLECT VALUES THAT COULD BE ATTAINABLE IN THE PUBLIC OR PRIVATE MARKETS. THE VALUE OF THE NEW
COMMON EQUITY DOES NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE.
Because certain distributions contemplated by the Plan are composed of equity in the
Reorganized Debtors, the Debtors determined it was necessary to estimate the value of their
reorganized businesses. Accordingly, Rothschild Inc. (Rothschild) has performed an
analysis of the estimated value of the Reorganized Debtors on a going-concern basis (the
Valuation Analysis). The Valuation Analysis should be considered in conjunction with the
Risk Factors discussed herein. The Valuation Analysis is dated as of July 13, 2011 and is based
on data and information as of that date. Rothschild makes no representations as to changes to such
data and information that may have occurred since July 13, 2011.
In preparing the Valuation Analysis, Rothschild has, among other things: (1) reviewed certain
recent available financial results of the Debtors; (2) reviewed certain internal financial and
operating data of the Debtors; (3) discussed with senior executives the current operations and
prospects of the Debtors;
3 | This summary is not intended as an exhaustive description of all
pending legal matters or proceedings in which the Debtors are involved.
Certain legal proceedings may be subject to appeal in or outside the Bankruptcy
Court. Nothing in this discussion is deemed to be an admission by the Debtors
of any liability or wrongdoing. |
29
(4) reviewed certain operating and financial forecasts prepared by the Debtors, including the
financial projections attached hereto as Exhibit B (the Financial Projections);
(5) discussed with certain senior executives of the Debtors regarding key assumptions related to
the Financial Projections; (6) prepared discounted cash flow analyses based on the Financial
Projections, utilizing various discount rates; (7) considered the market value of certain
publicly-traded companies in businesses reasonably comparable to the operating business of the
Debtors; (8) considered the value assigned to certain precedent change-in-control transactions for
businesses similar to the Debtors; (9) analyzed market value of pre-petition debt; (10) conducted
such other analyses as Rothschild deemed necessary and/or appropriate under the circumstances; and
(11) considered a range of potential risk factors.
Rothschild assumed, without independent verification, the accuracy, completeness, and fairness
of all of the financial and other information available to it from public sources or as provided to
Rothschild by the Debtors or their representatives. Rothschild also assumed that the Financial
Projections has been reasonably prepared on a basis reflecting the Debtors best estimates and good
faith judgment as to future operating and financial performance. To the extent the valuation is
dependent upon the Reorganized Debtors achievement of the Financial Projections, the Valuation
Analysis must be considered speculative. Rothschild does not make any representation or warranty
as to the fairness of the terms of the Plan. In addition to the foregoing, Rothschild relied upon
the following assumptions in preparing the Valuation Analysis:
| the Reorganized Debtors are able to maintain adequate liquidity to operate in
accordance with the Financial Projections; |
| the Reorganized Debtors operate consistently with the levels specified in the
Financial Projections; |
| the Plan will become effective on September 30, 2011 (the Assumed Effective
Date); |
| future values were discounted to September 30, 2011; |
| the Debtors shall have availability of an undrawn revolving facility up to $75.0
million as of the Effective Date; |
| general financial and market conditions as of the Assumed Effective Date will not
differ materially from those conditions prevailing as of the date of the Valuation
Analysis of July 13, 2011 (the Valuation Date); |
| Rothschild has not considered the impact of a prolonged bankruptcy case and has
assumed operations will continue in the ordinary course consistent with the Financial
Projections; and |
| Rothschild did not provide a valuation or other potential outcomes under alternative
scenarios such as a prolonged bankruptcy case or a partial or full break-up and sale of
the Debtors business. |
A. | Valuation Methodologies. |
The following is a summary of certain financial analyses performed by Rothschild to arrive at
its range of estimated values. Rothschilds valuation analysis must be considered as a whole.
Rothschild has assigned an equal weighting to each methodology to arrive at its value range.
30
(i) Discounted Cash Flow Analysis.
The discounted cash flow analysis (the DCF) estimates the value of an asset or
business by calculating the present value of expected future cash flows to be generated by that
asset or business. The DCF discounts the expected cash flows by a theoretical or observed discount
rate. This approach has two components: (i) calculating the present value of the projected
unlevered after-tax free cash flows for a determined period of time and (ii) adding the present
value of the terminal value of the cash flows.
The DCF calculations were performed on unlevered after-tax free cash flows for the period
beginning October 1, 2011 through March 31, 2016, discounted to the Assumed Effective Date (the
Projection Period). Rothschild utilized the Financial Projections for performing these
calculations.
In performing the DCF calculations, Rothschild made assumptions for the weighted average cost
of capital (the Discount Rate), which is used to calculate the present value of future
cash flows. Rothschild also made assumptions for (x) a perpetuity growth rate for the future cash
flows and (y) an exit multiple, which are used to determine the value of the Reorganized Debtors
represented by the time period beyond the Projection Period. Rothschild calculated the Discount
Rate with a traditional cost of equity capital calculation using the capital asset pricing model.
Based on this methodology, Rothschild used a Discount Rate range of 10.5% to 12.5% for the
Reorganized Debtors, which reflects a number of NBC and market-specific factors, and is calculated
based on the cost of capital for companies that Rothschild analyzed in its Comparable Companies
Analysis. The DCF utilized the perpetuity growth method and under this method the terminal value is
estimated using a long-run growth rate for the period beyond the Projection Period (beyond FY
2016). The DCF analysis was also conducted using the exit multiple method. In this approach, the
terminal value is estimated using a multiple of terminal year EBITDA. The Valuation Analysis uses a
perpetuity growth rate for free cash flow of 0.1% 3.0% and an exit multiple of 4.0x 6.0x
terminal year EBITDA. The discount rate range was calculated based on assumed cost of debt and the
Capital Asset Pricing Model (CAPM) using the companies identified for the Comparable
Companies Analysis as benchmarks.
(ii) Comparable Companies Analysis.
The comparable companies analysis (the Comparable Companies Analysis) estimates the
value of a company based on a comparison of such companys financial statistics with the valuation
in the public markets and related implied financial statistics of publicly-traded companies with
similar characteristics. Criteria for selecting comparable companies for this analysis includes,
among other relevant characteristics, similar lines of business, geographic presence, business
risks, growth prospects, maturity of businesses, market presence, size and scale of operations. The
Comparable Companies analysis is challenged by a lack of publicly-traded pure play comparable
companies for NBC. Companies used in the Comparable Companies Analysis include: Barnes & Noble,
Inc., Books-A-Million Inc., Gamestop Corp., Indigo Books & Music, Inc., Renaissance Learning Inc.,
and School Specialty, Inc. The Comparable Companies Analysis establishes benchmarks for valuation
by deriving financial multiples and ratios for the comparable companies, standardized using common
metrics such as EBITDA.
(iii) Precedent Transactions Analysis.
The precedent transactions analysis (the Precedent Transactions Analysis) is based
on the enterprise values of companies involved in public or private merger and acquisition
transactions that have operating and financial characteristics similar to the Debtors. Under this
methodology, the enterprise value of such companies is determined by an analysis of the
consideration paid and the debt assumed in the merger, acquisition or restructuring transaction.
As in a comparable company valuation analysis, the analysis establishes benchmarks for valuation by
deriving financial multiples and ratios, standardized
using common variables such as EBITDA. Rothschild relied on the derived EBITDA multiples and
then applied these to the Debtors operating statistics to determine enterprise value. The
following transaction was used in the Precedent Transactions Analysis:
Target | Acquiror | |
Barnes & Noble College Booksellers, Inc. | Barnes & Noble, Inc. |
31
Factors not directly related to a companys business operations can affect a valuation based
on precedent transactions, including (i) circumstances surrounding a merger transaction may
introduce other motivations for higher premiums (e.g., a buyer may pay an additional premium for
reasons not solely related to competitive bidding), (ii) the market environment is not identical
for transactions occurring at different periods of time; and (iii) circumstances pertaining to the
financial position of the company may impact the resulting purchase price (e.g., a company is in
financial distress and may receive a lower price due to weaker negotiating leverage).
The summary set forth above does not purport to be a complete description of the analyses
performed by Rothschild. The preparation of an estimate involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application of these methods in
the particular circumstances and, therefore, such an estimate is not readily susceptible to summary
description. The value of an operating business is subject to uncertainties and contingencies that
are difficult to predict and will fluctuate with changes in factors affecting the financial
conditions and prospects of such a business. As a result, the estimates set forth herein are not
necessarily indicative of actual outcomes, which may be significantly more or less favorable than
those set forth herein. In addition, such estimates do not purport to be appraisals, nor do they
necessarily reflect the values that might be realized if assets were sold. The estimates prepared
by Rothschild assume that Reorganized Debtors will continue as the owner and operator of their
businesses and assets and that such assets will be operated in accordance with the Debtors
business plan. Depending on the results of the Debtors operations or changes in the financial
markets, Rothschilds valuation analysis as of the Effective Date may differ from that disclosed
herein.
(iv) Distributable Equity Value of Reorganized NBC Under the Plan.
The distributable equity value of Reorganized NBC (the Distributable Equity Value)
is calculated by adjusting the total enterprise value calculated under the DCF, Precedent
Transactions Analysis, and Comparable Companies Analysis for factors that would impact Reorganized
Debtors Cash and/or debt levels.
In the calculation of Distributable Equity Value, Rothschild assumes that any excess Cash on
the Debtors balance sheet is used to satisfy any administrative expenses and Allowed General
Unsecured Claims that are expected to arise under the restructuring.
The chart below illustrates the Distributable Equity Value of Reorganized NBC under the
Plan:
(In Millions) | Amount | |||
Total Enterprise Value |
$ | 390.0 | ||
Less: New ABL Facility |
| |||
Less: Capital Leases |
(2.5 | ) | ||
Less: New Senior Secured Notes |
(250.0 | ) | ||
Less: New Senior Unsecured Notes |
(110.0 | ) | ||
Implied Equity Value |
$ | 27.5 |
32
These estimated values are based on a hypothetical value that reflects the estimated intrinsic
value of the Debtors derived through the application of various valuation methodologies. The
implied reorganized equity value ascribed in this analysis does not purport to be an estimate of
any post-reorganization market trading value. Any such trading value may be materially different
from the Distributable Equity Value ranges associated with Rothschilds valuation analysis.
Rothschilds estimate is based on economic, market, financial, and other conditions as they exist
on, and on the information made available as of, the Valuation Date. It should be understood that,
although subsequent developments may affect Rothschilds conclusions, before or after the
confirmation hearing, Rothschild does not have any obligation to update, revise or reaffirm its
estimate.
In addition, the valuation of any newly issued securities is subject to additional
uncertainties and contingencies, all of which are difficult to predict. Actual market prices of
such securities at issuance will depend upon, among other things, prevailing interest rates,
conditions in the financial markets, the anticipated initial securities held by Creditors, some of
which may prefer to liquidate their investment rather than hold it on a long-term basis, and other
factors that generally influence the prices of securities. Actual market prices of such securities
also may be affected by other factors not possible to predict. Accordingly, the values estimated
by Rothschild do not necessarily reflect, and should not be construed as reflecting, values that
will be attained in the public or private markets.
THE FOREGOING VALUATION IS BASED UPON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT ARE
INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES BEYOND THE CONTROL OF THE DEBTORS
OR THE REORGANIZED DEBTORS. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE RANGES REFLECTED IN
THE VALUATION WOULD BE REALIZED IF THE PLAN WERE TO BECOME EFFECTIVE, AND ACTUAL RESULTS COULD VARY
MATERIALLY FROM THOSE SHOWN HEREIN.
THE ESTIMATED CALCULATION OF ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING THE FUTURE
FINANCIAL RESULTS AS SET FORTH IN THE DEBTORS FINANCIAL PROJECTIONS, AS WELL AS THE REALIZATION OF
CERTAIN OTHER ASSUMPTIONS, NONE OF WHICH ARE GUARANTEED AND MANY OF WHICH ARE OUTSIDE OF THE
DEBTORS CONTROL, AS FURTHER DISCUSSED IN SECTION XII OF THE DISCLOSURE STATEMENT.
THE CALCULATIONS OF VALUE SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION VALUES AND DO
NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE
VALUATION ANALYSES IS BASED ON DATA AND INFORMATION AS OF THE VALUATION DATE. NO RESPONSIBILITY IS
TAKEN FOR CHANGES IN MARKET CONDITIONS THAT MAY HAVE OCCURRED SINCE THE VALUATION DATE AND NO
OBLIGATION IS ASSUMED TO REVISE THIS CALCULATION OF THE REORGANIZED DEBTORS VALUE TO REFLECT
EVENTS OR CONDITIONS THAT SUBSEQUENTLY OCCUR. THE CALCULATIONS OF VALUE DO NOT CONFORM TO THE
UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE OF THE APPRAISAL FOUNDATION.
X. Liquidation Analysis
Pursuant to section 1129(a)(7) of the Bankruptcy Code, often called the best interests test,
holders of allowed claims must either (a) accept the plan of reorganization, or (b) receive or
retain under the plan property of a value, as of the plans assumed effective date, that is not
less than the value such non-accepting holders would receive or retain if the debtors were to be
liquidated under chapter 7 of the
Bankruptcy Code on such date. The Debtors believe that the Plan meets the best interest of
creditors test as set forth in section 1129(a)(7) of the Bankruptcy Code.
33
To demonstrate compliance with the best interests test, the Debtors estimated a range of
proceeds that would be generated from a hypothetical chapter 7 liquidation in their liquidation
analysis included below (the Liquidation Analysis). In the Liquidation Analysis, the
Debtors determined a hypothetical liquidation value of their businesses if a chapter 7 trustee were
appointed and charged with reducing to cash any and all of the Debtors assets. The Debtors
compared this hypothetical liquidation value to the value and returns provided for under the Plan.
As reflected in more detail in the Liquidation Analysis, the Debtors believe that the value of
any distributions if the Chapter 11 Cases were converted to cases under chapter 7 of the Bankruptcy
Code would not be greater than the value of distributions under the Plan.
The Debtors believe that Holders of Allowed Claims in each Impaired Class will receive at
least as much under the Plan as they would if the Debtors were liquidated under chapter 7 of the
Bankruptcy Code. The Liquidation Analysis reflects the estimated cash proceeds, net of
liquidation-related costs, which would be realized if the Debtors were to be liquidated in
accordance with chapter 7 of the Bankruptcy Code.
The Liquidation Analysis reflects managements estimated net value of the Debtors assets if
the Debtors were liquidated under the provisions of chapter 7 of the Bankruptcy Code, and the net
proceeds of the liquidation were applied in strict priority to satisfy Claims against the Debtors.
The Liquidation Analysis assumes the Debtors estates are substantively consolidated, and is based
on the Debtors projected balance sheets as of September 30, 2011 (except as indicated). The
Liquidation Analysis assumes a range of recoveries for these assets assuming a forced liquidation
asset sale process conducted by the Debtors trustee. The value available for distribution to
creditors as of the date of an actual liquidation may differ from the value used in this
Liquidation Analysis, potentially by a material amount.
Conversion of the Chapter 11 Cases to chapter 7 likely would result in additional costs to the
Estates. Costs of liquidation under chapter 7 of the Bankruptcy Code would include the
compensation of a trustee, as well as of counsel and other professionals retained by the trustee,
asset dispositions expenses, all unpaid expenses incurred by the Debtors in the Chapter 11 Cases
(such as compensation of attorneys, financial advisors, and restructuring consultants) that are
allowed in the chapter 7 case, litigation costs, and Claims arising from the operations of the
Debtors during the pendency of the Chapter 11 Cases.
In order to maximize total liquidation value, the Liquidation Analysis assumes that the
Debtors continue to operate the business for a period of three months, then liquidates the
remaining assets during a threemonthperiod after the filing of a chapter 7 bankruptcy petition.
The Debtors would then require an additional six months to wind down the estate. The Liquidation
Analysis assumes distressed sales of the Debtors assets as the basis for this liquidation. There
can be no assurance that the actual value realized in a sale of these assets would yield the
balances assumed in the Liquidation Analysis. If actual results were lower than those shown, or
if the assumptions used in formulating the Analysis were not realized, distribution to each member
of each class of Claims could be affected adversely.
The Liquidation Analysis assumes that proceeds would be distributed in accordance with section
726 of the Bankruptcy Code. If the Debtors were liquidated pursuant to chapter 7 proceedings, the
amount of liquidation value available to creditors would be reduced by: (1) the costs of the
liquidation, which includes the fees and expenses of the Chapter 7 Trustee appointed to manage the
liquidation, the fees and expenses of other professionals retained to assist with the liquidation,
and other asset disposition expenses; (2) letters of credit drawn down against the DIP Facility;
(3) the DIP Facility; (4) Administrative Expense Claims, including administrative trade claims,
and employee benefit obligations,
and Priority Tax Claims; (5) Senior Secured Notes; (6) any remaining residual value would be
available to unsecured lender and general unsecured creditors pari passu with the deficiency
secured claims; and (7) to the extent any value remains HoldCo Interests would be satisfied.
34
The Liquidation Analysis necessarily contains an estimate of Claims that ultimately will
become Allowed Claims. Estimates for various Classes of Claims are based solely upon the Debtors
review of their books and records. No order or finding has been entered by the Bankruptcy Court
estimating or otherwise fixing the amount of Claims at the projected levels set forth in this
Liquidation Analysis. In preparing the Liquidation Analysis, the Debtors have projected amounts of
Claims that are consistent with the estimated Claims reflected in the Plan with certain
modifications. The Liquidation Analysis was prepared for the sole purpose of generating a
reasonable good-faith estimate of the proceeds that would be generated if the Debtors were
liquidated in accordance with chapter 7 of the Bankruptcy Code. The Liquidation Analysis is not
intended and should not be used for any other purpose. The Liquidation Analysis does contain
estimates of potential damage Claims with respect to executory contracts that may be rejected;
however, these estimates may be substantially different if, in fact, executory contracts are
rejected. Nothing contained in the Liquidation Analysis is intended to be or constitutes a
concession or admission of the Debtors. The actual amount of Allowed Claims in the Chapter 11
Cases could materially differ from the estimated amounts set forth in the Liquidation Analysis.
A. | Scope, Intent, and Purpose of the Liquidation Analysis. |
The determination of the costs of, and hypothetical proceeds from, the liquidation of the
Debtors assets is an uncertain process involving the extensive use of estimates and assumptions
that, although considered reasonable by the Debtors, are inherently subject to significant
business, economic, and competitive uncertainties and contingencies beyond the control of the
Debtors, their management, and their advisors. Inevitably, some assumptions in the Liquidation
Analysis would not materialize in an actual chapter 7 liquidation, and unanticipated events and
circumstances could affect the ultimate results in an actual chapter 7 liquidation. In addition,
the Debtors management cannot judge with any degree of certainty the effect of the forced
liquidation asset sales on the recoverable value of the Debtors Assets. The Liquidation Analysis
was prepared for the sole purpose of generating a reasonable good faith estimate of the proceeds
that would be generated if the Debtors were liquidated in accordance with chapter 7 of the
Bankruptcy Code. The Liquidation Analysis is not intended and should not be used for any other
purpose. The underlying financial information in the Liquidation Analysis was not compiled or
examined by any independent accountants. No independent appraisals were conducted in preparing the
Liquidation Analysis. NEITHER THE DEBTORS NOR THEIR ADVISORS MAKE ANY REPRESENTATION OR WARRANTY
THAT THE ACTUAL RESULTS WOULD OR WOULD NOT APPROXIMATE THE ESTIMATES AND ASSUMPTIONS REPRESENTED IN
THE LIQUIDATION ANALYSIS. ACTUAL RESULTS COULD VARY MATERIALLY.
In preparing the Liquidation Analysis, the Debtors estimated Allowed Claims based upon a
review of the Claims contained in the Debtors books and records. In addition, the Liquidation
Analysis includes estimates for Claims not currently asserted in the Chapter 11 Cases, but which
could be asserted and Allowed in a chapter 7 liquidation, including Administrative Claims, chapter
7 trustee fees, and certain lease and contract rejection damages Claims. To date, the Bankruptcy
Court has not estimated or otherwise fixed the total amount of Allowed Claims used for purposes of
preparing this Liquidation Analysis. The Debtors estimate of Allowed Claims set forth in the
Liquidation Analysis should not be relied on for any other purpose, including determining the value
of any distribution to be made on account of Allowed Claims under the Plan. NOTHING CONTAINED IN
THE LIQUIDATION ANALYSIS IS INTENDED TO BE OR CONSTITUTES A CONCESSION OR ADMISSION OF THE DEBTORS.
THE ACTUAL AMOUNT OF ALLOWED CLAIMS IN THE CHAPTER 11 CASES
COULD MATERIALLY DIFFER FROM THE ESTIMATED AMOUNTS SET FORTH IN THE LIQUIDATION ANALYSIS.
35
B. | Results of the Liquidation Analysis. |
The Debtors have eight legal entities that primarily engage in the procurement and sale of new
and used textbooks on college campuses, as well as the sale of other types of education material to
academic institutions. It is assumed that the orderly liquidation of the Debtors would commence
following three months of normal business operations through the end of the back to school
selling season, in order to maximize recovery. Upon completion of the Fall selling season, a
liquidation process would proceed for a period of three months under the direction of the chapter 7
trustee, during which time all of the Debtors major assets (consisting mostly of the inventory,
receivables, and property plant, and equipment) would be sold or wound down in an expedited manner,
the cash proceeds, net of liquidation related costs, would then be distributed to the creditors in
accordance with section 726 of the Bankruptcy Code. This three-month assumption is primarily based
on anticipated time pressure to liquidate inventory, dispose of land and buildings, and collect
upon receivables. Following the sale of the assets, the Liquidation Analysis assumes the chapter 7
trustee will wind down the estate expeditiously over a six month period.
The estimated proceeds of a hypothetical chapter 7 liquidation for all assets of the eight
Debtor entities were calculated based on assumptions provided herein and applied to estimated
Claims values for these entities to determine recovery estimates among creditor Classes. In
addition, these recovery estimates among creditor Classes were compared to estimated recoveries
under the Plan.
As is demonstrated in the analysis, all impaired creditor Classes are estimated to receive
less in the Liquidation Analysis than under the Plan. In both the high recovery scenario and the
low recovery scenario Administrative Claims and Priority Tax Claims receive a 100% recovery, the
Senior Secured Claims and the Senior Unsecured Claims are both impaired.
Based on the estimated recoveries in the Plan and Liquidation Analysis, it is managements
opinion that the Plan satisfies the best interests test. Under the Plan, each creditor class
will receive at least the same value or significantly more than they would if the business were to
be subject to a chapter 7 liquidation.
36
Estimated Recovery and Distribution to Claimants
Book | Estimated Recovery % | Estimated Recovery | ||||||||||||||||||||
($ in 000s) | Notes | Value | Low | High | Low | High | ||||||||||||||||
Liquidation Proceeds |
||||||||||||||||||||||
Cash & Cash Equivalents |
A | $ | 189,782 | 100 | % | 100 | % | $ | 189,782 | $ | 189,782 | |||||||||||
Trade Receivables |
B | 70,511 | 27 | % | 85 | % | 18,931 | 59,934 | ||||||||||||||
Inventory |
C | 124,042 | 46 | % | 70 | % | 56,543 | 86,829 | ||||||||||||||
Prepaid Assets |
D | 8,541 | 0 | % | 10 | % | | 854 | ||||||||||||||
Property Plant and Equipment |
E | 38,697 | 15 | % | 30 | % | 5,805 | 11,609 | ||||||||||||||
Other Assets |
F | 3,475 | 0 | % | 10 | % | | 348 | ||||||||||||||
Proceeds Available for Distribution |
271,061 | 349,356 | ||||||||||||||||||||
Costs of Liquidation and Distribution |
||||||||||||||||||||||
Chapter 7 Trustee Fees |
G | 2,438 | 4,787 | |||||||||||||||||||
Professional Fees |
H | 6,812 | 5,573 | |||||||||||||||||||
Winddown & Liquidation Costs |
I | 1,718 | 1,406 | |||||||||||||||||||
Letter of Credit Facilities |
J | 3,734 | | |||||||||||||||||||
14,702 | 11,766 | |||||||||||||||||||||
Adjusted Proceeds Available for Distribution |
256,359 | 337,590 | ||||||||||||||||||||
Chapter 11 Administrative Claims |
||||||||||||||||||||||
DIP Facility Claim |
K | 125,000 | 125,000 | |||||||||||||||||||
Liabilities incurred in Chapter 11 at the operating entities |
L | 100,004 | 100,004 | |||||||||||||||||||
Employee Benefit Obligations |
M | 1,627 | 1,627 | |||||||||||||||||||
Priority Tax Claims |
N | 85 | 85 | |||||||||||||||||||
226,716 | 226,716 | |||||||||||||||||||||
Proceeds Available for Distribution to Pre-petition Creditors |
29,642 | 110,874 | ||||||||||||||||||||
Secured Debt Claims |
O | $ | 200,200 | 15 | % | 55 | % | 29,642 | 110,874 | |||||||||||||
Proceeds Available for Distribution to Pre-petition Unsecured Creditors |
| | ||||||||||||||||||||
Unsecured Debt Claims |
P | 258,700 | 0 | % | 0 | % | | | ||||||||||||||
Unsecured Claims sharing Pari Pasu with Lenders |
Q | 41,037 | 0 | % | 0 | % | | | ||||||||||||||
HoldCo Interests |
R | 110,000 | 0 | % | 0 | % | | | ||||||||||||||
$ | 409,737 | 0 | % | 0 | % | $ | | $ | | |||||||||||||
37
C. | Notes to Liquidation Analysis. |
(i) Note A Cash and Cash Equivalents.
Cash and cash equivalents are in the form of depository accounts and short term investments.
These accounts are liquid, and a 100% recovery is assumed. September 30, 2011 balance is based on
the Debtors initial cash flow budget (base case, assuming normal trade credit), which reflects the
following:
($ in 000s) | ||||
Forecasted Cash Balance as of July 8, 2011 |
$ | 112,079 | ||
Operating Cash Flow July 9 -Sept 30 |
85,638 | |||
Debt Service July 9 - Sept 30 |
(7,934 | ) | ||
$ | 189,782 | |||
(ii) Note B Trade Receivables.
The trade receivables balance is based upon the estimated balance as of September 30, 2011.
Low end recovery is based on the Revolving DIP Loan (as defined in the Interim DIP Order) advance
ineligibles and advance rate (no advances are provided against retail receivables, which are due
from schools that provide textbooks through financial aid). The high end is based on judgment to
reflect the fact that the majority of receivables are relative new and borrowing base calculations
tend to be conservative by design.
Book | Estimated Recovery % | Estimated Recovery | ||||||||||||||||||
($ in 000s) | Value | Low | High | Low | High | |||||||||||||||
Trade Receivables |
||||||||||||||||||||
Wholesale |
$ | 38,282 | 49 | % | 85 | % | $ | 18,931 | $ | 32,540 | ||||||||||
Retail & Other |
32,229 | 0 | % | 85 | % | | 27,394 | |||||||||||||
Total |
$ | 70,511 | 27 | % | 85 | % | $ | 18,931 | $ | 59,934 | ||||||||||
(iii) Note C Inventory.
The Inventory balance is based upon the estimated balance as of September 30, 2011. Low end
recovery is based on the Revolving DIP Loan (as defined in the Interim DIP Order) advance
ineligibles and advance rate (no advances are provided against Rental Inventory, which is in the
hands of students and potentially very difficult to realize upon). The high end is based on
judgment to reflect the fact that borrowing base calculations tend to be conservative by design.
Book | Estimated Recovery % | Estimated Recovery | ||||||||||||||||||
($ in 000s) | Value | Low | High | Low | High | |||||||||||||||
Inventory |
||||||||||||||||||||
Wholesale |
$ | 16,443 | 20 | % | 70 | % | $ | 3,361 | $ | 11,510 | ||||||||||
Retail |
90,799 | 59 | % | 70 | % | 53,182 | 63,559 | |||||||||||||
Rental |
16,800 | 0 | % | 70 | % | | 11,760 | |||||||||||||
Total |
$ | 124,042 | 46 | % | 70 | % | $ | 56,543 | $ | 86,829 | ||||||||||
38
(iv) Note D Prepaid Assets.
Prepaid Assets consist primarily of prepaid consulting fees, insurance, maintenance and leases
and reflect the April 30, 2011 actual balance. There is assumed to be a minimal recovery for these
assets. 0%-10% is based upon the assumption that a small percentage may be sold or refunded,
however the majority will be exhausted prior to the conclusion of a liquidation.
(v) Note E Property, Plant, and Equipment.
Property, Plant, and Equipment consists of land, buildings, furniture and fixtures,
information systems, and leasehold improvements and reflect the April 30, 2011 actual balance. The
majority of the recovery relates to Land and Buildings. Land makes up less than 10% of the total
value, and the recovery for the buildings in a distressed sale is not expected to yield full value.
Therefore a recovery of 15%-30% is estimated, based on judgment.
(vi) Note F Other Assets.
Other assets consist primarily of software development costs and reflects the April 30, 2011
actual balance. There is minimal recovery assigned to this, however the software may be sold to
other bookstores or have value to existing customers. Therefore a recovery of 0%-10% is estimated.
(vii) Note G Trustee Fees of Chapter 7 Estates.
Compensation for the Chapter 7 trustee will be limited to fee guidelines in section 326(a) of
the Bankruptcy Code and is calculated at 3% of estimated recovery of assets available for
distribution, excluding cash on hand.
(viii) Note H Professional Fees.
Professional Fees & Costs include ongoing professional fees associated with winding down the
business. These professional fees include fees for legal and financial support. The cost to
operate the business during the liquidation process is detailed in the winddown costs. Once the
liquidation is complete, certain corporate and administrative functions would be required to
oversee the distribution of proceeds, to maintain and close the accounting records and to prepare
tax returns for the estates, among other things. For purposes of analysis, the low end recovery is
10% higher and the high end is 10% lower than the forecast of $6.2 million.
39
(ix) Note I Winddown & Liquidation Costs.
The estimated cost to operate the business during the liquidation process is detailed below.
Once the liquidation is complete, certain corporate and administrative functions would be required
to oversee the distribution of proceeds, to maintain and close the accounting records, and to
prepare tax returns for the estates, among other things. For purposes of analysis, the low end
recovery is 10% higher and the high end is 10% lower than the forecast of $1.562 million.
Oct-Dec | Jan-Mar | Apr-Jun | ||||||||||||||||||||||||||||||||||||||
Monthly | 2011 | 2012 | 2012 | Low | High | |||||||||||||||||||||||||||||||||||
($ in 000s) | Actual | Fcst | % of Act | Fcst | % of Act | Fcst | % of Act | Total | Recovery | Recovery | ||||||||||||||||||||||||||||||
Estimated Wind Down Expenses |
||||||||||||||||||||||||||||||||||||||||
Distribution Center Wage Expenses |
$ | 286 | $ | 428 | 50 | % | $ | | 0 | % | $ | | 0 | % | $ | 428 | $ | 471 | $ | 386 | ||||||||||||||||||||
Corporate Payroll Wind Down Costs |
191 | 287 | 50 | % | 143 | 25 | % | 72 | 13 | % | 502 | 552 | 452 | |||||||||||||||||||||||||||
Distribution & Office Facility Expenses |
77 | 124 | 54 | % | 75 | 33 | % | 75 | 33 | % | 274 | 301 | 247 | |||||||||||||||||||||||||||
Estimated Severance |
286 | 36 | 36 | 358 | 393 | 322 | ||||||||||||||||||||||||||||||||||
Total |
$ | 1,125 | $ | 254 | $ | 183 | $ | 1,562 | $ | 1,718 | $ | 1,406 | ||||||||||||||||||||||||||||
(x) Note J Letter of Credit Facilities.
Letter of Credit Facilities consist of two letters in the amounts of $3 million and
approximately $700 thousand, respectively. These letters are not funded and are collateralized
against the DIP Facility. For purposes of the analysis, it is assumed that the letters of credit
would both be drawn in the low recovery scenario and that neither would be drawn in the high
recovery scenario.
(xi) Note K DIP Facility Claim.
Upon filing the Chapter 11 Cases, the company entered into a $200 million DIP facility. The
Term portion of $125 million was drawn upon filing, the remaining $75 million DIP Revolving Loan
remains unutilized and is assumed to remain undrawn through the liquidation period.
(xii) Note L Liabilities Incurred in Chapter 11 at the Operating Entities.
Represents trade payables incurred after the Petition Date to acquire inventory and run the company
in order to prepare for the back to school selling season. Credit memo requests are netted
against these Administrative Liabilities, due to the fact that in a Liquidation Scenario, creditors
will likely offset their liabilities instead of providing proceeds from credit memos.
($ in 000s) | ||||
Net Liabilities incurred in Chapter 11 at the operating entities |
||||
Gross Liabilities incurred in Chapter 11 at the operating entities |
$ | 129,915 | ||
Credit Memo Requests |
(29,911 | ) | ||
$ | 100,004 | |||
(xiii) Note M Employee Benefit Obligations.
Employee Benefit Obligations are the Companys obligations to fund the employee 401(k)
program. The balance represents the actual liability as of April 30, 2011.
40
(xiv) Note N Priority Tax Claims.
The balance represents the estimated petition date amount of Priority Tax Claims less the
estimated payments under the First Day Motions.
(xv) Note O Secured Debt Claims.
Represents the $200 million 10% Senior Secured Notes outstanding plus the approximate $200,000
in outstanding mortgage obligations
(xvi) Note P Unsecured Debt Claims.
Represents the $179.3 million 8.625 Notes plus the $79.4 million of the AcqCo Notes
outstanding.
(xvii) Note Q Unsecured Claims.
Unsecured claims consist of unpaid prepetition trade claims and lease rejection claims. Trade
claims are estimated based on existing claims at the petition date less anticipated payments under
First Day Motions, and lease rejection claims are estimated based on one years worth of rent
expense, as follows:
($ in 000s) | ||||
Estimated Petition Date Unsecured Claims |
$ | 19,937 | ||
Estimated Payments under First Day Motions |
(14,000 | ) | ||
Net Liabilities incurred in Chapter 11 at the operating entities |
35,100 | |||
$ | 41,037 | |||
(xviii) Note R HoldCo Interests.
Represents an estimate of equityholders investments into NBC Holdings Corp. and AcqCo.
XI. Projected Financial Information
Attached as Exhibit B are the unaudited pro forma financial statements (the
Financial Projections), which consist of a statement of operations (the Income
Statement), a statement of cash flow (the Statement of Cash Flows), and a statement
of financial position (the Balance Sheet) for the time period from January 1, 2011
through December 31, 2015. The Financial Projections assume an Effective Date of September 30,
2011 and are based on the Debtors current business plan. A balance sheet (the Pro Forma
Balance Sheet) has been provided as of the Effective Date with pro forma adjustments to
account for (a) the reorganizing and related transactions pursuant to the Plan and (b) the
implementation of fresh start accounting pursuant to Statement of Position 90-7 (SOP
90-7), Financial Reporting by Entities in Reorganization Under The Bankruptcy Code, as issued
by the American Institute of Certified Public Accountants (the AICPA). The Balance Sheet
may not be in accordance with generally accepted accounting practices.
41
THE DEBTORS MANAGEMENT PREPARED THE FINANCIAL PROJECTIONS WITH THE ASSISTANCE OF THEIR
PROFESSIONALS. THE DEBTORS MANAGEMENT DID NOT PREPARE SUCH FINANCIAL PROJECTIONS TO COMPLY WITH
THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY AICPA OR THE RULES AND REGULATIONS
OF THE SEC. THE DEBTORS INDEPENDENT ACCOUNTANTS HAVE NEITHER EXAMINED NOR COMPILED THE FINANCIAL
PROJECTIONS THAT ACCOMPANY THIS DISCLOSURE STATEMENT AND, ACCORDINGLY, DO NOT EXPRESS AN OPINION OR
ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THE FINANCIAL PROJECTIONS, ASSUME NO RESPONSIBILITY FOR
THE FINANCIAL PROJECTIONS, AND DISCLAIM ANY ASSOCIATION WITH THE FINANCIAL PROJECTIONS. EXCEPT FOR
PURPOSES OF THIS DISCLOSURE STATEMENT, THE DEBTORS DO NOT PUBLISH FINANCIAL PROJECTIONS OF THEIR
ANTICIPATED FINANCIAL POSITION OR RESULTS OF OPERATIONS. THE FINANCIAL PROJECTIONS ARE QUALIFIED
IN THEIR ENTIRETY BY THE DESCRIPTION THEREOF CONTAINED HEREIN AND IN THE NOTES ACCOMPANYING THE
FINANCIAL PROJECTIONS.
MOREOVER, THE FINANCIAL PROJECTIONS CONTAIN CERTAIN STATEMENTS THAT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
STATEMENTS ARE SUBJECT TO A NUMBER OF ASSUMPTIONS, RISKS, AND UNCERTAINTIES, MANY OF WHICH ARE
BEYOND THE CONTROL OF THE DEBTORS, INCLUDING THE CONSUMMATION AND IMPLEMENTATION OF THE PLAN, THE
CONTINUING AVAILABILITY OF SUFFICIENT BORROWING CAPACITY OR OTHER FINANCING TO FUND OPERATIONS,
ACHIEVING OPERATING EFFICIENCIES, MAINTENANCE OF GOOD EMPLOYEE RELATIONS, EXISTING AND FUTURE
GOVERNMENTAL REGULATIONS AND ACTIONS OF GOVERNMENTAL BODIES, NATURAL DISASTERS, AND UNUSUAL WEATHER
CONDITIONS, ACTS OF TERRORISM OR WAR, INDUSTRY-SPECIFIC RISK FACTORS (AS DETAILED HEREIN), AND
OTHER MARKET AND COMPETITIVE CONDITIONS. HOLDERS OF CLAIMS AND INTERESTS ARE CAUTIONED THAT THE
FORWARD-LOOKING STATEMENTS SPEAK AS OF THE DATE MADE AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE.
ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER MATERIALLY FROM THE EXPECTATIONS EXPRESSED OR IMPLIED IN
THE FORWARD-LOOKING STATEMENTS, AND THE DEBTORS UNDERTAKE NO OBLIGATION TO UPDATE ANY SUCH
STATEMENTS.
THE FINANCIAL PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED
ON A VARIETY OF ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY THE DEBTORS, MAY
NOT BE REALIZED AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE,
INDUSTRY, REGULATORY, MARKET, AND FINANCIAL UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE REORGANIZED DEBTORS CONTROL. THE DEBTORS CAUTION THAT NO REPRESENTATIONS CAN BE MADE
OR ARE MADE AS TO THE ACCURACY OF THE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTORS ABILITY
TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL BE INCORRECT. MOREOVER, EVENTS
AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE DEBTORS PREPARED THE FINANCIAL
PROJECTIONS MAY BE DIFFERENT FROM THOSE ASSUMED, OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED,
AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIALLY ADVERSE OR
MATERIALLY BENEFICIAL MANNER. THE DEBTORS AND REORGANIZED DEBTORS, AS APPLICABLE, DO NOT INTEND
AND UNDERTAKE NO OBLIGATION TO UPDATE OR OTHERWISE REVISE THE FINANCIAL PROJECTIONS TO
REFLECT EVENTS OR CIRCUMSTANCES EXISTING OR ARISING AFTER THE DATE ON WHICH THIS DISCLOSURE
STATEMENT IS INITIALLY FILED OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THEREFORE, THE
FINANCIAL PROJECTIONS MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS
THAT WILL OCCUR. IN DECIDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN, HOLDERS OF CLAIMS AND
INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH ASSUMPTIONS AND THE
RELIABILITY OF THE FINANCIAL PROJECTIONS AND SHOULD CONSULT WITH THEIR OWN ADVISORS.
42
A. | Notes to the Income Statement and Cash Flow Statement. |
(i) Approach.
The Income Statement consolidates the financial performance of the Debtors operations using
an approach established by the Debtors management and professionals to forecast operating results.
The Income Statement accounts for conditions specific to each operating segment in which the
Debtors operate, including competitive pressures as well as the current state of the textbook
industry. The Debtors management team has considered various factors in developing the Financial
Projections based on specific assumptions and information available to them. The Financial
Projections should be reviewed in conjunction with the section entitled Risk Factors discussed
herein.
The Financial Projections was prepared on a bottom-up basis within each operating segment.
Revenue factors were developed specific to each segment and included drivers such as sales units,
rental units, and price per unit. Gross margins were estimated based on current results and
anticipated changes in the mix of sales versus rental and sales mix by new textbooks, used
textbooks, general merchandise, and other items. Costs for each division were developed based on
current relationships between actual costs and revenue and anticipated changes due to sales by
source such as in-store, online third party marketplaces, or the Debtors own online websites.
Specific adjustments were made to some costs to account for operational initiatives implemented, or
to be implemented, by the Debtors management team.
(ii) Operational Drivers.
Total revenue represents gross revenues derived from the operation of college bookstores, the
wholesale of used textbooks, and numerous businesses that complement the wholesale business. The
Debtors revenues from college bookstores are derived from both the number of bookstores that they
operates, which fluctuate based on the acquisition or contract management of new stores net of any
closed stores, plus expected changes in same store sales within those bookstores. The projections
include certain assumptions about increases in the number of bookstores operated by the Debtors as
well as certain improvements in same store sales results. Estimates of same store sales were made
for each primary revenue type within the college bookstore operations. Additionally, Debtors
revenues are projected to increase because of improved revenue results in its wholesale used
textbook business due to improved acquisition of used textbook inventory and improved inventory
management within the Debtors operation.
(iii) Cost of Sales and Selling, General and Administrative Expenses.
Cost of sales expenses primarily represent the direct operating expenses associated with
generating revenue from sales of the Debtors products and services. Those direct operating
expenses are primarily derived from the cost of acquisition of new and used textbooks, as well as
general merchandise, plus shipping costs incurred to get product to the appropriate bookstore or
warehouse. Costs of sales for
each primary sales category was estimated based on current trends. Cost of sales for the
wholesale and complementary services businesses were estimated based on current trends along with
certain improvements due to improved used textbook inventory management within the Debtors
operations.
43
Selling, general, and administrative (SG&A) expenses are specific to each primary
business operation, as well as the costs necessary to operate the corporate infrastructure. Each
business operation includes labor and benefits, travel, outbound shipping, marketing and
advertising, rent, and miscellaneous other costs, including commission payments to third party
online marketplace operators. All of these costs were projected based on current operating levels,
as adjusted for projected increases in the number of bookstores operated by the Debtors, and
further adjusted for normal increases in each category of expense. Corporate SG&A primarily
consists of the labor and benefits necessary to operate functions such as treasury, general
accounting, information technology, senior management and the corresponding support structure
related to these functions. Ongoing estimates for legal and other professional fees are included
in the estimates for corporate SG&A. Certain reductions in costs were also included in the
projections based on managements plans for improved efficiencies, the results of a voluntary
retirement program and certain other cost savings steps that have been implemented.
SG&A costs for fiscal 2012 also include approximately $28 million of professional fees and
expenses related to the bankruptcy process. These costs were projected based on the run-rate for
professionals billing at hourly and fixed-rates and include success fees.
(iv) Gain on Retirement of Debt.
Gain on retirement of debt relates to the extinguishment of the debt obligations as a result
of the Plan. This amount includes amounts for the write off of accrued interest on certain
liabilities subject to compromise as well as the write off of preferred stock balances offset
partially by an estimate for immediate write off of unamortized debt issuance costs associated with
the prepetition obligations.
(v) Interest Expense.
Interest expense for fiscal 2012 includes interest accrued on all prepetition and
post-petition debt for the assumed periods outstanding. Interest expense has been recognized for
all debt until September 30, 2011, the assumed Effective Date. Interest expense after September
30, 2011 was estimated only for all post-petition obligations.
Interest expense for the projection period has been determined based on terms of the RSA.
(vi) Income Taxes.
Income taxes were calculated based on an effective 40% blended United States federal and state
tax rate. This tax rate assumes all Debtors will emerge as taxpayers. For purposes of forecasting
provisions for taxes after the Effective Date, the Financial Projections assumes that the Debtors
do not emerge with any available net operating losses (NOLs). A final assessment of the
Debtors cancellation of debt income (CODI) and usable NOLs may vary based on the
structure of the Plan and events occurring after the Effective Date.
(vii) Capital Expenditures.
Capital expenditures projected in the Financial Projections are primarily maintenance in
nature and include estimates to update leasehold improvements and computer infrastructure and
replace machinery and equipment. While the projections do not contemplate any new lines of
business, there will
be expenditures necessary to maintain and refurbish the existing equipment as it ages over the
ordinary course of operations.
44
Capital expenditures also include estimated expenditures to acquire additional college
bookstore operations including working capital investments and certain upfront bonus payments to
colleges and universities who contract with the Debtors to operate their on campus bookstore, as
well as certain investments in information systems for those new operations.
B. | Balance Sheet and Pro Forma Balance Sheet. |
The Pro Forma Balance Sheet contains certain adjustments as a result of consummation of the
Plan. Liabilities subject to compromise will be extinguished and receive treatment based on the
Plan. Certain liabilities subject to compromise will be converted to equity as a result of the
Reorganized Debtors issuance of New Common Equity to satisfy certain Allowed Claims under the
Plan.
The Pro Forma Balance Sheet reflects the Reorganized Debtors pro forma projected consolidated
Balance Sheet as of the Effective Date. The Pro Forma Balance Sheet was developed from the
Debtors March 31, 2011 Balance Sheet, as adjusted for the projected income and cash flow for the
six months ended September 30, 2011. Adjustments were made to the September 30, 2011 Balance Sheet
for illustrative purposes only to demonstrate the effect of the Plan.
In addition, as part of the Debtors emergence from bankruptcy protection, they will be
required to adopt fresh start accounting. Accordingly, the Debtors assets and liabilities will be
recorded at fair value as of the fresh start reporting date. The fair value of the Debtors assets
and liabilities may differ materially from the recorded values of assets and liabilities in the
Financial Projections.
On the Effective Date, the Reorganized Debtors will use existing Cash to satisfy Allowed
General Administrative Claims, Allowed General Unsecured Claims, Allowed Other Priority Claims, and
Allowed Other Secured Claims in full in Cash. Proceeds from issuance of the New Senior Secured
Notes will be used to satisfy the Senior Secured Notes Claims.
The Financial Projections assumes the Debtors emerge with $2.5 million of reinstated capital
leases, the New ABL Facility, $250 million of New Senior Secured Notes, and $110 million of New
Senior Unsecured Notes, pursuant to the RSA and the Plan.
XII. Risk Factors
Holders of Claims and Interests entitled to vote should read and consider carefully the risk
factors set forth below, as well as the other information set forth in this Disclosure Statement,
the Plan, and the documents delivered together herewith, referred to, or incorporated by reference
herein, prior to voting to accept or reject the Plan. These factors should not be regarded as
constituting the only risks present in connection with the Debtors business or the Plan and its
implementation.
A. | The conditions precedent to the Confirmation and Consummation of the Plan may not occur. |
As more fully set forth in Article IX of the Plan, the occurrence of Confirmation of the Plan
and the Effective Date are each subject to a number of conditions precedent.
45
The Bankruptcy Court May Not Authorize Substantive Consolidation of the Debtors Estates.
The Plan provides for substantive consolidation of the Debtors Estates into a single Estate for
purposes of Confirmation and Consummation. The Debtors, however, can provide no assurance that the
Bankruptcy Court will authorize the Debtors to substantively consolidate all of their Estates.
Parties in Interest May Object to the Plans Classification of Claims and Interests. Section
1122 of the Bankruptcy Code provides that a plan may place a Claim or an Interest in a particular
Class only if such Claim or Interest is substantially similar to the other Claims or Interests in
such Class. The Debtors believe that the classification of Claims and Interests under the Plan
complies with the requirements set forth in the Bankruptcy Code because the Debtors created Classes
of Claims and Interests, each encompassing Claims or Interests, as applicable, that are
substantially similar to the other Claims or Interests, as applicable, in each such Class.
Nevertheless, there can be no assurance that the Bankruptcy Court will reach the same conclusion.
The Debtors May Not Be Able to Satisfy Vote Requirements. Pursuant to section 1126(c) of the
Bankruptcy Code, section 1129(a)(7)(A)(i) of the Bankruptcy Code will be satisfied with respect to
Classes 5 and 6 if at least two-thirds in amount and more than one-half in number of the Allowed
Claims that vote in each such Class, vote to accept the Plan, and pursuant to section 1126(d) of
the Bankruptcy Code, section 1129(a)(7)(A)(i) of the Bankruptcy Code will be satisfied with respect
to Class 10 if at least two-thirds in amount of Allowed Interests that vote in such Class, vote to
accept the Plan. There is no guarantee that the Debtors will receive the necessary acceptances
from Holders of Claims in Class 5 and Class 6 or Holders of Interests in Class 10. If Class 5,
Class 6, or Class 10 vote to reject the Plan, the Debtors may elect to amend the Plan with the
reasonable consent of the Plan Support Parties, seek Confirmation regardless of the rejection, or
proceed with liquidation.
The Debtors May Not Be Able to Secure Confirmation of the Plan. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation of a chapter 11 plan, and requires,
among other things, a finding by the bankruptcy court that: (a) such plan does not unfairly
discriminate and is fair and equitable with respect to any non-accepting classes; (b)
confirmation of such plan is not likely to be followed by a liquidation or a need for further
financial reorganization unless such liquidation or reorganization is contemplated by the plan; and
(c) the value of distributions to non-accepting holders of claims and interests within a particular
class under such plan will not be less than the value of distributions such holders would receive
if the debtor was liquidated under chapter 7 of the Bankruptcy Code.
There can be no assurance that the requisite acceptances to confirm the Plan will be received.
Even if the requisite acceptances are received, there can be no assurance that the Bankruptcy
Court will confirm the Plan. A dissenting Holder of an Allowed Claim or Allowed Interest might
challenge either the adequacy of this Disclosure Statement or whether the balloting procedures and
voting results satisfy the requirements of the Bankruptcy Code or Bankruptcy Rules. Even if the
Bankruptcy Court determines that this Disclosure Statement, the balloting procedures, and the
voting results are appropriate, the Bankruptcy Court still can decline to confirm the Plan if it
finds that any of the statutory requirements for Confirmation have not been met, including the
requirement that the terms of the Plan do not unfairly discriminate and are fair and equitable
to non-accepting Classes.
Confirmation of the Plan is also subject to settlement, release, injunction, and related
provisions, as described in Article VIII of the Plan. If the Plan is not confirmed, it is unclear
what distributions, if any, Holders of Allowed Claims and Allowed Interests will receive with
respect to their Allowed Claims and Allowed Interests.
46
The Debtors, subject to the terms and conditions of the Plan, reserve the right to modify the
terms and conditions of the Plan as necessary for Confirmation. Any such modifications could
result in a less favorable treatment of any non-accepting Class, as well as of any Classes junior
to such non-accepting Class, than the treatment currently provided in the Plan. Such a less
favorable treatment could include a distribution of property to the Class affected by the
modification of a lesser value than currently provided in the Plan or no distribution of property
whatsoever under the Plan.
The Debtors May Pursue Nonconsensual Confirmation. In the event that any impaired class of
claims or interests does not accept a chapter 11 plan, a bankruptcy court may nevertheless confirm
such a plan at the proponents request if at least one impaired class of claims has accepted the
plan (with such acceptance being determined without including the vote of any insider in such
class), and, as to each impaired class that has not accepted the plan, the bankruptcy court
determines that the plan does not discriminate unfairly and is fair and equitable with respect
to the dissenting impaired classes. The Debtors believe that the Plan satisfies these requirements
and the Debtors may request such nonconsensual Confirmation in accordance with section 1129(b) of
the Bankruptcy Code. Nevertheless, there can be no assurance that the Bankruptcy Court will reach
this conclusion. In addition, the pursuit of nonconsensual Confirmation or Consummation may result
in, among other things, increased expenses relating to Professional Fee Claims.
The Debtors May Not Have Sufficient Support from Impaired Classes of Creditors to Confirm or
Consummate the Plan. Pursuant to the RSA, the Holders of more than 95% of the 8.625% Notes and
more than 75% of the AcqCo Notes have agreed, subject to certain conditions, to support and vote in
favor of the Plan. The RSA, however, is subject to termination by the parties thereto under
certain circumstances. For example, the RSA may terminate if there are more than $30 million in
General Unsecured Claims that are not paid as ordinary course obligations of the Company, including
relief requested in interim and final first day orders (collectively, the First Day
Relief), provided, however, that to the extent the Bankruptcy Court denies any portion of the
First Day Relief, such $30 million cap shall be increased on a dollar-for-dollar basis by the
amount of First Day Relief denied by the Bankruptcy Court. In addition, the RSA is subject to
certain milestones that must be met or the RSA terminates automatically. Accordingly, to the
extent the RSA is terminated for any reason, the Debtors may not have sufficient support from
Impaired Classes of creditors to confirm and consummate the Plan.
The Debtors May Object to the Amount or Classification of a Claim or Interest. Except as
otherwise provided in the Plan, the Debtors and the Reorganized Debtors reserve the right to object
to the amount or classification of any Claim or Interest under the Plan. The estimates set forth
in this Disclosure Statement cannot be relied upon by any Holder of a Claim or Interest where such
Claim or Interest is subject to an objection. Any Holder of a Claim or Interest that is subject to
an objection thus may not receive its expected share of the estimated distributions described in
this Disclosure Statement.
The Effective Date May Not Occur. Although the Debtors believe that the Effective Date may
occur quickly after the Confirmation Date, there can be no assurance as to such timing or as to
whether the Effective Date will, in fact, occur.
Contingencies Could Affect Votes of Impaired Classes to Accept or Reject the Plan. The
distributions available to Holders of Allowed Claims and Allowed Interests under the Plan can be
affected by a variety of contingencies, including whether or not the Debtors are consolidated and
whether the Bankruptcy Court orders certain Allowed Claims to be subordinated to other Allowed
Claims. The occurrence of any and all such contingencies, which could affect distributions
available to Holders of Allowed Claims and Allowed Interests under the Plan, will not affect the
validity of the vote taken by the impaired Classes entitled to vote to accept or reject the Plan or
require any sort of revote by such impaired Classes.
47
If the conditions precedent to Confirmation are not met or waived, the Plan will not be
confirmed; and if the conditions precedent to Consummation are not met or waived, the Effective
Date will not take place. In the event that the Plan is not confirmed or is not consummated, the
Debtors may seek Confirmation of a new plan. However, if the Debtors do not secure sufficient
working capital to continue their operations or if the new plan is not confirmed, the Debtors may
be forced to liquidate their assets. While the Liquidation Analysis indicates that some Holders of
Claims in Classes 1, 2, 3, 4, and 5 would receive a full or partial recovery, it also demonstrates
that Holders of Claims in Classes 6, 7, 8, and 11 and Holders of Interests in Classes 9 and 10
would receive no recovery in a hypothetical chapter 7 liquidation. For a more detailed description
of the consequences of a liquidation scenario, see the Sections herein entitled Best Interests
Test and Findings of Liquidation Analysis, respectively.
B. | The Debtors cannot state with any degree of certainty the value of any recovery that will be
available to Holders of Allowed Claims and Allowed Interests in voting Classes. |
No less than three unknown factors make certainty of creditor recoveries under the Plan
impossible. First, the Debtors cannot know with any certainty, at this time, (i) how much money
will remain after paying all Allowed Claims that are senior to the voting Classes or (ii) the value
of the Reorganized Debtors. Second, the Debtors cannot know with any certainty, at this time, the
number or amount of Claims that ultimately will be Allowed. Third, the Debtors cannot know with
any certainty, at this time, the number or size of Claims senior to the voting Classes or
unclassified Claims that ultimately will be Allowed.
C. | The Debtors may not be able to achieve their projected financial results or meet
post-reorganization debt obligations. |
The financial projections set forth on Exhibit B to this Disclosure Statement (the
Financial Projections) represent managements best estimate of the Debtors future
financial performance based on currently known facts and assumptions about the Debtors future
operations, as well as the U.S. and world economy in general and the industry segments in which the
Debtors operate in particular, and there is no guarantee that the Financial Projections will be
realized. The Debtors actual financial results may differ significantly from the Financial
Projections. To the extent the Reorganized Debtors do not meet their projected financial results
or achieve projected revenues and cash flows, the Reorganized Debtors may lack sufficient liquidity
to continue operating as planned after the Effective Date, may be unable to service their debt
obligations as they come due, may not be able to meet their operational needs, and the value of the
New Common Equity may thereby be negatively affected. Further, a failure of the Reorganized
Debtors to meet their projected financial results or achieve projected revenues and cash flows
could lead to cash flow and working capital constraints, which constraints may require the
Reorganized Debtors to seek additional working capital. The Reorganized Debtors may not be able to
obtain such working capital when it is required. Moreover, even if the Reorganized Debtors were
able to obtain additional working capital, it may only be available on unreasonable or cost
prohibitive terms. For example, the Reorganized Debtors may be required to take on additional
debt, the interest costs of which could adversely affect the results of the operations and
financial condition of the Reorganized Debtors. If any such required capital is obtained in the
form of equity, the interests of the holders of the then-existing New Common Equity could be
diluted.
D. | A liquid trading market for the New Common Equity is unlikely to develop. |
A liquid trading market for the New Common Equity is unlikely to develop. As of the Effective
Date, the New Common Equity will not be listed for trading on any stock exchange or trading system.
Consequently, the trading liquidity of the New Common Equity will be limited. The future
liquidity of the trading market for the New Common Equity will depend upon, among other things,
upon the number
of holders of the New Common Equity, whether the stock is listed for trading on an exchange,
and whether the New Common Equity is subject to the Shareholders Agreement, or Registration Rights
Agreement, the terms of the New Common Equity, and the terms of the New Warrants, as applicable.
48
E. | The Debtors May Face Tough and Increased Competition. |
The Debtors industry is highly competitive. A large number of actual and potential
competitors exist, some of which are larger than the Debtors with substantially greater resources.
Revenue levels and profit margins could be adversely affected if the Debtors experience increased
competition in the markets in which they currently operate or in markets in which they will operate
in the future. In addition, the increased competition may adversely impact the Debtors ability
to acquire an adequate supply of used textbooks.
F. | The Economy and Credit Markets May Further Deteriorate. |
As widely reported, the global credit markets and financial services industry have been
experiencing a period of upheaval characterized by the bankruptcy, failure, collapse or sale of
various financial institutions, diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates, and uncertainty about
economic stability. There can be no assurance that there will not be further deterioration in
credit and financial markets and confidence in economic conditions or that any recovery, if and
when achieved, will be sustained. While the ultimate outcome of these events cannot be predicted,
it may decrease student enrollment in colleges and universities due to the lack of financial aid
and other sources of funding for education. Spending by students on textbooks and other general
merchandise may also decrease due to the economic downturn.
G. | The Debtors May be Unable to Obtain a Sufficient Supply of Used Textbooks. |
The Debtors ability to purchase a sufficient number of used textbooks largely determines
their used textbook sales for future periods. Successfully acquiring books typically requires a
visible presence on college campuses at the end of each semester, which requires hiring a
significant number of temporary personnel. Textbook acquisition also depends upon college students
willingness to sell their used textbooks at the end of each semester. The unavailability of
sufficient personnel or a shift in student preferences, could impair the Debtors ability to
acquire sufficient used textbooks to meet their sales objectives, thereby adversely affecting
revenue levels and profit margins.
H. | The Debtors May Not be Able to Successfully Contract-Manage Additional Bookstores. |
Part of the Debtors business strategy is to expand sales for their college bookstore
operations by being awarded additional contracts to manage institutional bookstores. The Debtors
may not be successful in competing for contracts to manage additional institutional bookstores.
Due to their seasonal nature of business, the operations of the newly contract-managed bookstores
may be affected by the time of the fiscal year when a bookstore is contract-managed by us. In
addition, the Debtors integration of these future bookstores may not be successful, or the
anticipated strategic benefits of these future bookstores may not be realized. If the Debtors are
unable to successfully integrate their future bookstores, anticipated revenues and profit margins
from these new bookstores could be adversely affected.
I. | The Debtors May Not be Able to Successfully Renew Certain Contracts. |
As the Debtors expand their operations in contract-management of university bookstores, they
will increasingly be competing for the renewal of contracts for those stores as the current
contracts expire.
49
The Debtors contracts are typically three to five years, with various renewal and
cancellation clauses. The Debtors may not be successful in renewing their current contracts or
those renewals may not be on terms that provide them the opportunity to improve or maintain the
profitability of managing the bookstore. If the Debtors are unable to successfully renew
contracts on profitable terms, profit margins could be adversely affected.
J. | Publishers May Not Continue to Increase Prices of Textbooks. |
The Debtors generally buy used textbooks based on publishers prevailing prices for new
textbooks just prior to the implementation by publishers of their annual price increases which
historically have been 4% to 5%. The Debtors resell these textbooks shortly thereafter based upon
the new higher prices, thereby creating an immediate margin increase. The Debtors ability to
increase their used textbook prices each fiscal year depends on annual price increases on new
textbooks implemented by publishers. The failure of publishers to continue annual price increases
on new textbooks could adversely impact the Debtors revenue levels and profit margins.
K. | Publisher Practices May Change. |
Publishers have historically produced new editions of textbooks every two to four years.
Changes in the business models of publishers to accelerate the new edition cycle or to
significantly increase the number of textbooks with other materials packaged or bundled with them
could reduce the supply of used textbooks available to the Debtors, thereby adversely impacting the
Debtors revenue levels and profit margins.
L. | Certain Laws and Regulations May Change. |
The Debtors operations are subject to federal, state, and local laws relating to the
protection of the environment and of human health and safety. As an owner and operator of real
property, the Debtors can be found jointly and severally liable under such laws for costs
associated with investigating, removing, and remediating any hazardous or toxic substances that may
exist on, in, or about their real property. Some of the Debtors properties may have been affected
by the migration of hazardous substances released at neighboring third-party locations.
Environmental conditions relating to any former, current, or future locations could adversely
impact the Debtors business and results of operations.
M. | Estimated Valuation of the Reorganized Debtors, the New Common Equity, and the estimated
recoveries to Holders of Allowed Claims and Allowed Interests are not intended to represent
the potential market values (if any) of the New Common Equity. |
The Debtors estimated recoveries to Holders of Allowed Claims and Allowed Interests are not
intended to represent the market value of the Reorganized Debtors securities, if any. The
estimated recoveries are based on numerous assumptions (the realization of many of which will be
beyond the control of the Reorganized Debtors), including: (a) the successful reorganization of
the Debtors; (b) an assumed date for the occurrence of the Effective Date; (c) the Reorganized
Debtors ability to achieve the operating and financial results included in the Financial
Projections; (d) the Reorganized Debtors ability to maintain adequate liquidity to fund
operations; and (e) the assumption that capital and equity markets remain consistent with current
conditions.
50
N. | Certain Holders of Claims will acquire the New Common Equity upon Consummation of the Plan. |
Upon Consummation of the Plan, certain Holders of Claims will receive distributions of
outstanding shares of the New Common Equity, and certain Holders of Claims will be in a position to
exercise substantial influence over the outcome of actions requiring stockholder approval,
including, among other things, election of directors. This concentration of ownership could also
facilitate or hinder a negotiated change of control of the Reorganized Debtors and, consequently,
affect the value of the New Common Equity.
O. | Certain tax implications of the Debtors bankruptcy and reorganization may increase the tax
liability of the Reorganized Debtors. |
Holders of Allowed Claims and Allowed Interests should carefully review the Section herein
entitled, Certain U.S. Federal Income Tax Consequences of the Plan, to determine how the tax
implications of the Plan and the Chapter 11 Cases may adversely affect the Reorganized Debtors.
P. | The Debtors business is subject to seasonality. |
The Debtors business experiences seasonal business swings. The college and university
semester and quarterly schedules drive the Debtors business cycle and require the Debtors to make
large orders and receive large shipments of new textbooks and general merchandise between mid-June
and August and again between mid-October and December each year in advance of the back-to-school
rush. This seasonality requires that the Debtors manage their cash flows over the course of the
year. If sales were to fall substantially below what the Debtors would normally expect during
certain periods, the Debtors annual financial results would be adversely affected and the Debtors
ability to service their debt may also be adversely affected.
Q. | The Debtors are subject to litigation, which, if adversely determined, could result in
substantial losses. |
As described in the Section herein entitled Summary of Legal Proceedings, the Debtors are,
from time to time, during the ordinary course of operating their business, subject to various
litigation claims and legal disputes, including contract, lease, and employment claims.
Certain litigation claims may not be covered entirely or at all by the Debtors insurance
policies or their insurance carriers may seek to deny coverage. In addition, litigation claims can
be expensive to defend and may divert the Debtors attention from the operations of their business.
Further, litigation, even if without merit, can attract adverse media attention. As a result,
litigation can have a material adverse effect on the Debtors business and, because the Debtors
cannot predict the outcome of any action, it is possible that adverse judgments or settlements
could significantly reduce the Debtors earnings or result in losses.
R. | The Debtors are subject to the credit risk of their customers. |
The Debtors provide credit to their customers in the normal course of business and generally
do not require collateral in extending such credit. This exposure could have an adverse effect on
the Debtors business, financial condition, results of operations, and cash flow. In addition, the
Debtors may need to make credit decisions that could cause their business to decline or the
collection of certain receivables could become impossible and they would need to write those off.
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S. | Increased prices for raw materials or finished goods used in the Debtors products and/or
interruptions in deliveries of raw materials or finished goods could adversely affect the
Debtors profitability, margins, and revenues. |
The principal raw materials used by the Debtors suppliers include paper, various fabrics, and
plastics. The prices the Debtors pay their suppliers for new textbooks, clothing, and general
merchandise are dependent in part on the market price for raw materials used to produce them. The
price and availability of such raw materials may fluctuate substantially, depending on a variety of
factors, including demand, crop yields, weather, supply conditions, transportation costs, energy
prices, work stoppages, government regulation, economic climates, and other unpredictable factors.
Any and all of these factors may be exacerbated by global climate change. Fluctuations in the
price and availability of raw materials to their suppliers have not materially affected the
Debtors profitability in recent years. However, increases in raw material costs, together with
other factors, might cause an increase in the cost of goods for the Debtors suppliers which may be
passed onto the Debtors through higher prices.
T. | Increases in labor costs, potential labor disputes, and work stoppages at the Debtors
facilities or the facilities of their suppliers could materially adversely affect the Debtors
financial performance. |
The Debtors financial performance is affected by the availability of qualified personnel and
the cost of labor. The Debtors employ approximately 1,300 full time employees, 800 part time
employees, and 500 temporary workers. If the Debtors workers were to engage in a strike, a work
stoppage, or other slowdowns, the Debtors could experience disruptions of their operations. Such
disruptions could result in a loss of business and an increase in operating expenses, which could
reduce profit margins. In addition, the Debtors labor force, which currently is non-unionized,
may become subject to labor union organizing efforts, which could cause the Debtors to incur
additional labor costs and increase the related risks currently faced. Strikes, work stoppages, or
slowdowns experienced by these suppliers and customers could result in slowdowns or closures of
facilities where components of the Debtors products are manufactured or delivered. Any
interruption in the production or delivery of these components could reduce sales, increase costs,
and have a material adverse affect on the Debtors business.
U. | The Debtors business will suffer if certain of their key officers or employees discontinue
their employment. |
The success of the Debtors business is materially dependent upon the skills, experience, and
efforts of certain of their key officers and employees. The loss of key personnel could have a
material adverse effect on the Debtors business, operating results, or financial condition. The
Debtors may not succeed in attracting and retaining the personnel they need to generate sales and
to expand their operations successfully, and, in such event, the Debtors business could be
materially and adversely affected. The loss of the services of any key personnel, or the Debtors
inability to hire new personnel with the requisite skills, could impair the Debtors ability to
develop new products or enhance existing products, sell products to their customers, or manage
their business effectively.
V. | The Debtors historical financial information may not be comparable to the financial
information of the Reorganized Debtors. |
As a result of the Consummation of the Plan and the transactions contemplated thereby, the
financial condition and results of operations of the Reorganized Debtors from and after the
Effective Date may not be comparable to the financial condition or results of operations reflected
in the Debtors historical financial statements.
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W. | The financial information is based on the Debtors books and records and, unless otherwise
stated, no audit was performed. |
The financial information contained in this Disclosure Statement has not been audited. In
preparing this Disclosure Statement, the Debtors relied on financial data derived from their books
and records that was available at the time of such preparation. Although the Debtors have used
their reasonable business judgment to assure the accuracy of the financial information provided in
this Disclosure Statement, and while the Debtors believe that such financial information fairly
reflects their financial condition, the Debtors are unable to warrant or represent that the
financial information contained herein and attached hereto is without inaccuracies.
X. | No legal or tax advice is provided by this Disclosure Statement. |
This Disclosure Statement is not legal advice to any Entity. The contents of this Disclosure
Statement should not be construed as legal, business, or tax advice. Each Holder of a Claim or
Interest should consult its own legal counsel and accountant with regard to any legal, tax, and
other matters concerning its Claim or Interest. This Disclosure Statement may not be relied upon
for any purpose other than to determine how to vote to accept or reject the Plan or whether to
object to Confirmation of the Plan.
Y. | No admissions made. |
The information and statements contained in this Disclosure Statement will neither (a)
constitute an admission of any fact or liability by any entity (including the Debtors) nor (b) be
deemed evidence of the tax or other legal effects of the Plan on the Debtors, the Reorganized
Debtors, Holders of Allowed Claims and Allowed Interests, or any other parties in interest.
Z. | Failure to identify litigation claims or projected objections. |
No reliance should be placed on the fact that a particular litigation claim or projected
objection to a particular Claim is, or is not, identified in this Disclosure Statement. The
Debtors or the Reorganized Debtors, as applicable, may seek to investigate, file, and prosecute
Claims and may object to Claims after Confirmation and Consummation of the Plan, irrespective of
whether this Disclosure Statement identifies such Claims or objections to Claims.
AA. | Information was provided by the Debtors and was relied upon by the Debtors advisors. |
Counsel to and other advisors retained by the Debtors have relied upon information provided by
the Debtors in connection with the preparation of this Disclosure Statement. Although counsel to
and other advisors retained by the Debtors have performed certain limited due diligence in
connection with the preparation of this Disclosure Statement, they have not verified independently
the information contained herein.
BB. | No representations outside this Disclosure Statement are authorized. |
No representations concerning or relating to the Debtors, the Chapter 11 Cases, or the Plan
are authorized by the Bankruptcy Court or the Bankruptcy Code, other than as set forth in this
Disclosure Statement. Any representations or inducements made to secure your acceptance or
rejection of the Plan that are other than as contained in, or included with, this Disclosure
Statement, should not be relied upon by you in arriving at your decision. You should promptly
report unauthorized representations or inducements to counsel to the Debtors, the ABL Agent,
counsel to the Ad Hoc 8.625% Noteholders,
counsel to the JPMorgan Noteholders, and the Office of the United States Trustee for the
District of Delaware.
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XIII. Confirmation of the Plan
A. | The Confirmation Hearing. |
The Bankruptcy Court has scheduled the Confirmation Hearing for September 27, 2011 at 10:30
a.m. prevailing Eastern Time, before the Honorable Peter J. Walsh, United States Bankruptcy Judge,
in the United States Bankruptcy Court for the District of Delaware, located at 824 N. Market
Street, Wilmington, Delaware 19801. The Confirmation Hearing may be adjourned from time to time
without further notice except for an announcement of the adjourned date made at the Confirmation
Hearing or by any notice of adjournment of the Confirmation Hearing filed by the Debtors and posted
on their website at www.kccllc.net/nbc.
B. | Requirements For Confirmation of the Plan. |
The Debtors must satisfy various requirements to confirm the Plan, including those set forth
in section 1129 of the Bankruptcy Code.
(i) Requirements of Section 1129(a) of the Bankruptcy Code.
The following requirements must be satisfied pursuant to section 1129(a) of the Bankruptcy
Code before the Bankruptcy Court may confirm a plan of reorganization:
| The plan complies with the applicable provisions of the Bankruptcy Code. |
| The proponents of the plan comply with the applicable provisions of the
Bankruptcy Code. |
| The plan has been proposed in good faith and not by any means forbidden by law. |
| Any payment made or to be made by the proponent, by the debtor, or by a person
issuing securities or acquiring property under a plan, for services or for costs
and expenses in or in connection with the case, in connection with the plan and
incident to the case, has been approved by, or is subject to the approval of, the
Bankruptcy Court as reasonable. |
| The proponent of the plan has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the plan, as a director,
officer, or voting trustee of the debtor, an affiliate of the debtor participating
in a joint plan with the debtor or a successor to the debtor under the plan, and
the appointment to, or continuance in, such office of such individual is consistent
with the interests of creditors and equity security holders and with public
policies. |
| The proponent of the plan has disclosed the identity of any insider (as
defined in section 101 of the Bankruptcy Code) that will be employed or retained by
the Reorganized Debtors and the nature of any compensation for such insider. |
| With respect to each holder within an impaired class of claims or interests |
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| each such holder (a) has accepted the plan or (b) will receive or
retain under the plan on account of such claim or interest property of
a value, as of the effective date of the plan, that is not less than
the amount that such holder would so receive or retain if the debtor
were liquidated under chapter 7 of the Bankruptcy Code on such date
the best interests of creditors test; or |
| if section 1111(b)(2) of the Bankruptcy Code applies to the claims
of such class due to its election to retain a lien, each holder of a
claim of such class will receive or retain under the plan on account of
such claim property of a value, as of the effective date of the plan,
that is not less than the value of such holders interest in the
estates interest in the property that secures such claims. |
| With respect to each class of claims or interests, such class (a) has accepted
the plan or (b) is not impaired under the plan (subject to the cramdown
provisions discussed below). |
| Except to the extent that the holder of a particular claim has agreed to a
different treatment of such claim, the plan provides that: |
| with respect to a claim of a kind specified in sections 507(a)(2) or
507(a)(3) of the Bankruptcy Code, on the effective date of the plan,
the holder of the claim will receive on account of such claim cash
equal to the allowed amount of such claim, unless otherwise agreed; |
| with respect to a class of claim of the kind specified in sections
507(a)(1), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of the
Bankruptcy Code, each holder of a claim of such class will receive (a)
if such class has accepted the plan, deferred cash payments of a value,
on the effective date of the plan, equal to the allowed amount of such
claim; or (b) if such class has not accepted the plan, cash on the
effective date of the plan equal to the allowed amount of such claim;
and |
| with respect to a priority tax claim of a kind specified in section
507(a)(8) of the Bankruptcy Code, the holder of such claim will receive
on account of such claim deferred cash payments, over a period not
exceeding five years from the Petition Date, of a value, as of the
effective date of the plan, equal to the allowed amount of such claim. |
| If a class of claims is impaired under the plan, at least one class of claims
that is impaired under the plan has accepted the plan, determined without including
any acceptance of the plan by any insider, as defined in section 101 of the
Bankruptcy Code. |
| Confirmation of the plan is not likely to be followed by the liquidation, or the
need for further financial reorganization, of the debtor or any successor to the
debtor under the plan, unless such liquidation or reorganization is proposed in the
plan. |
| All fees payable under 28 U.S.C. § 1930, as determined by the Bankruptcy Court
at the hearing on confirmation of the plan, have been paid or the plan provides for
the payment of all such fees on the effective date of the plan the feasibility
requirement. |
55
| The plan provides for the continuation after its effective date of payment of
all retiree benefits, as that term is defined in section 1114 of the Bankruptcy
Code, at the level established pursuant to subsection (e)(i)(B) or (g) of section
1114 of the Bankruptcy Code, at any time prior to confirmation of the plan, for the
duration of the period the debtor has obligated itself to provide such benefits. |
Section 1126(c) of the Bankruptcy Code provides that a class of claims has accepted a plan of
reorganization if such plan has been accepted by creditors that hold at least two-thirds in amount
and more than one-half in number of the allowed claims of such class. Section 1126(d) of the
Bankruptcy Code provides that a class of interests has accepted a plan of reorganization if such
plan has been accepted by holders of such interests that hold at least two-thirds in amount of the
allowed interests of such class.
The Debtors believe that the Plan will be able to satisfy each of the 1129(a) confirmation
requirements. To determine whether the Plan meets the feasibility requirement, the Debtors have
analyzed their ability to meet their respective obligations under the Plan. As part of this
analysis, the Debtors have prepared the Financial Projections. Based upon the Financial
Projections, the Debtors believe that they will be a viable operation following the Chapter 11
Cases, and that the Plan will meet the feasibility requirements of the Bankruptcy Code.
(ii) Requirements of Section 1129(b) of the Bankruptcy Code.
The Debtors believe the Plan can be confirmed even if certain classes of Claims or Interests
vote to reject the Plan. The Bankruptcy Code permits confirmation of a plan of reorganization
notwithstanding rejection of the plan by an impaired class so long as (a) the plan of
reorganization otherwise satisfies the requirements for confirmation, (b) at least one impaired
class of claims has accepted the plan of reorganization without taking into consideration the votes
of any insiders in such class, and (c) the plan of reorganization is fair and equitable and does
not discriminate unfairly as to any impaired class that has not accepted such plan. These
so-called cramdown provisions are set forth in section 1129(b) of the Bankruptcy Code.
(1) Fair and Equitable.
The Bankruptcy Code establishes different cramdown tests for determining whether a plan is
fair and equitable to dissenting impaired classes of secured creditors, unsecured creditors, and
interest holders as follows:
Secured Creditors.
A plan of reorganization is fair and equitable as to an impaired class of secured claims that
rejects the plan if the plan provides: (a) that each of the holders of the secured claims included
in the rejecting class (i) retains the liens securing its claim to the extent of the allowed amount
of such claim, to the extent of the allowed amount of such claims, whether the property subject to
those liens is retained by the debtor or transferred to another entity, and (ii) receives on
account of its secured claim deferred cash payments having a present value, as of the effective
date of the plan of reorganization, at least equal to the value of such Holders interest in the
Estates interest in such property; (b) that each of the holders of the secured claims included in
the rejecting class realizes the indubitable equivalent of its allowed secured claim; or (c) for
the sale, subject to section 363(k) of the Bankruptcy Code, of any property that is subject to the
liens securing the claims included in the rejecting class, free and clear of such liens, with such
liens to attach to the proceeds of the sale and the treatment of such liens on proceeds in
accordance with clause (a) or (b) of this paragraph.
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Unsecured Creditors.
A plan of reorganization is fair and equitable as to an impaired class of unsecured claims
that rejects the plan if the plan provides that: (i) each Holder of a claim included in the
rejecting class receives or retains under the plan property of a value, as of the effective date of
the plan of reorganization, equal to the amount of its allowed claim; or (ii) the holders of claims
and Interests that are junior to the claims of the rejecting class will not receive or retain any
property under the plan of reorganization on account of such junior claims or interests.
Holders of Interests.
A plan of reorganization is fair and equitable as to an impaired class of Interests that
rejects the plan if the plan provides that: (a) each holder of an Interest included in the
rejecting class receives or retains under the plan property of a value, as of the effective date of
the plan of reorganization, equal to the greatest of the allowed amount of (i) any fixed
liquidation preference to which such holder is entitled, (ii) the fixed redemption price to which
such Holder is entitled, or (iii) the value of the Interest; or (b) the Holder of any Interest that
is junior to the Interests of the rejecting class will not receive or retain any property under the
plan of reorganization on account of such junior interest.
The Plan is fair and equitable as to Holders of Claims in Classes 5 and 6, pursuant to the
Restructuring and Support Agreement, the Debtors have sufficient support from such Holders so that
such Classes vote to accept the Plan. The Plan is fair and equitable as to Holders of Claims in
Classes 1, 2, 3, 4, 7, 8 and Holders of Interests in Class 9 because the Plan provides that their
Allowed Claims and Allowed Interests are Unimpaired. The Plan is fair and equitable as to Holders
of Interests in Class 10 because the Holder of any Interest that is junior to the Interests of
Class 10 will not receive or retain any property under the Plan on account of such junior interest.
The Debtors believe the Plan is fair and equitable as to Holders of Claims in Class 11, who are
conclusively deemed to have rejected the Plan, because there are no Claims or Interests junior to
Class 11 Claims and, as such, the Plan does not provide any distribution to such Claims or
Interests.
(2) Unfair Discrimination.
A plan of reorganization does not discriminate unfairly if a dissenting class is treated
substantially equally to other classes similarly situated and no such class receives more than it
is legally entitled to receive for its claims or interests.
The Debtors do not believe that the Plan discriminates unfairly against any impaired Class of
Claims or Interests.
The Debtors believe that the Plan and the treatment of all Classes of Claims and Interests
under the Plan satisfy the foregoing requirements for nonconsensual Confirmation of the Plan.
XIV. Effect of Confirmation of the Plan
A. | Preservation of Causes of Actions. |
In accordance with section 1123(b) of the Bankruptcy Code, but subject to Article VIII of the
Plan, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as
appropriate, any and all Causes of Action, whether arising before or after the Petition Date,
including any actions specifically enumerated in the Plan Supplement, and the Reorganized Debtors
rights
57
to commence, prosecute, or settle such Causes of Action shall be preserved notwithstanding
the occurrence of the Effective Date, other than the Causes of Action released by the Debtors pursuant to the
releases and exculpations contained in the Plan, including in Article VIII. The Reorganized
Debtors may pursue such Causes of Action, as appropriate, in accordance with the best interests of
the Reorganized Debtors. No Entity may rely on the absence of a specific reference in the Plan,
the Plan Supplement, or the Disclosure Statement to any Cause of Action against it as any
indication that the Debtors or the Reorganized Debtors, as applicable, will not pursue any and all
available Causes of Action against it. The Debtors or the Reorganized Debtors, as applicable,
expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except
as otherwise expressly provided in the Plan. Unless any Causes of Action against an Entity are
expressly waived, relinquished, exculpated, released, compromised, or settled in the Plan or a
Bankruptcy Court order, the Reorganized Debtors expressly reserve all Causes of Action, for later
adjudication, and, therefore, no preclusion doctrine, including the doctrines of res judicata,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable, or
otherwise), or laches, shall apply to such Causes of Action upon, after, or as a consequence of the
Confirmation or Consummation.
The Reorganized Debtors reserve and shall retain the Causes of Action notwithstanding the
rejection or repudiation of any Executory Contract or Unexpired Lease during the Chapter 11 Cases
or pursuant to the Plan. In accordance with section 1123(b)(3) of the Bankruptcy Code, any Causes
of Action that a Debtor may hold against any Entity shall vest in the Reorganized Debtors. The
applicable Reorganized Debtors, through their authorized agents or representatives, shall retain
and may exclusively enforce any and all such Causes of Action. The Reorganized Debtors shall have
the exclusive right, authority, and discretion to determine and to initiate, file, prosecute,
enforce, abandon, settle, compromise, release, withdraw, or litigate to judgment any such Causes of
Action and to decline to do any of the foregoing without the consent or approval of any third party
or further notice to or action, order, or approval of the Bankruptcy Court.
B. | Retention of Jurisdiction by the Bankruptcy Court. |
Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date,
on and after the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all
matters arising out of, or related to, the Chapter 11 Cases and the Plan pursuant to sections
105(a) and 1142 of the Bankruptcy Code, including jurisdiction to:
1. allow, disallow, determine, liquidate, classify, estimate, or establish the priority,
Secured or unsecured status, or amount of any Claim or Interest, including the resolution of any
request for payment of any Administrative Claim and the resolution of any and all objections to the
Secured or unsecured status, priority, amount, or allowance of Claims or Interests;
2. decide and resolve all matters related to the granting and denying, in whole or in part,
any applications for allowance of compensation or reimbursement of expenses to Professionals
authorized pursuant to the Bankruptcy Code or the Plan;
3. resolve any matters related to: (a) the assumption, assumption and assignment, or
rejection of any Executory Contract or Unexpired Lease to which a Debtor is party or with respect
to which a Debtor may be liable and to hear, determine, and, if necessary, liquidate, any Claims
arising therefrom, including Cure Claims pursuant to section 365 of the Bankruptcy Code; (b) any
potential contractual obligation under any Executory Contract or Unexpired Lease that is assumed;
(c) the Reorganized Debtors amending, modifying, or supplementing, after the Effective Date,
pursuant to Article V of the Plan, any Executory Contracts or Unexpired Leases to the list of
Executory Contracts and Unexpired Leases to be assumed or rejected or otherwise; and (d) any
dispute regarding whether a contract or lease is or was executory or expired;
58
4. ensure that distributions to Holders of Allowed Claims and Allowed Interests are
accomplished pursuant to the provisions of the Plan;
5. adjudicate, decide, or resolve any motions, adversary proceedings, contested or litigated
matters, and any other matters, and grant or deny any applications involving a Debtor that may be
pending on the Effective Date;
6. adjudicate, decide, or resolve any and all matters related to section 1141 of the
Bankruptcy Code;
7. enter and implement such orders as may be necessary to execute, implement, or consummate
the provisions of the Plan and all contracts, instruments, releases, indentures, and other
agreements or documents created in connection with the Plan or the Disclosure Statement;
8. enter and enforce any order for the sale of property pursuant to sections 363, 1123, or
1146(a) of the Bankruptcy Code; and
9. resolve any cases, controversies, suits, disputes, or Causes of Action that may arise in
connection with the Consummation, interpretation, or enforcement of the Plan or any Entitys
obligations incurred in connection with the Plan.
This list of matters over which the Bankruptcy Court will retain exclusive jurisdiction
following the Confirmation and Consummation of the Plan is not exhaustive. For a full list of the
matters over which the Bankruptcy Court retains jurisdiction through and after the Effective Date,
please see Article XI of the Plan.
C. | Settlement, Release, Injunction, and Related Provisions. |
(i) Discharge of Claims and Termination of Interests.
Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically
provided in the Plan or in any contract, instrument, or other agreement or document created
pursuant to the Plan, the distributions, rights, and treatment that are provided in the Plan shall
be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims
(including any Intercompany Claims resolved or compromised after the Effective Date by the
Reorganized Debtors), Interests, and Causes of Action of any nature whatsoever, including any
interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown,
against, liabilities of, Liens on, obligations of, rights against, and Interests in, the Debtors or
any of their assets or properties, regardless of whether any property shall have been distributed
or retained pursuant to the Plan on account of such Claims and Interests, including demands,
liabilities, and Causes of Action that arose before the Effective Date, any liability (including
withdrawal liability) to the extent such Claims or Interests relate to services performed by
employees of the Debtors prior to the Effective Date and that arise from a termination of
employment, any contingent or non-contingent liability on account of representations or warranties
issued on or before the Effective Date, and all debts of the kind specified in sections 502(g),
502(h), or 502(i) of the Bankruptcy Code, in each case whether or not: (1) a Proof of Claim or
Proof of Interest based upon such debt, right, or Interest is Filed or deemed Filed pursuant to
section 501 of the Bankruptcy Code; (2) a Claim or Interest based upon such debt, right, or
Interest is Allowed pursuant to section 502 of the Bankruptcy Code; or (3) the Holder of such a
Claim or Interest has accepted the Plan. Any default by the Debtors or Affiliates with respect to
any Claim or Interest that existed immediately prior to or on account of the filing of the Chapter
11 Cases shall be deemed cured on the Effective Date. The Confirmation
Order shall be a judicial determination of the discharge of all Claims and Interests subject
to the Effective Date occurring.
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(ii) Release of Liens.
Except as otherwise provided in the Plan or in any contract, instrument, release, or other
agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the
applicable distributions made pursuant to the Plan and, in the case of a Secured Claim,
satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date,
except for Other Secured Claims that the Debtors elect to reinstate in accordance with Article III
of the Plan, all mortgages, deeds of trust, Liens, pledges, or other security interests against any
property of the Estates shall be fully released and discharged, and all of the right, title, and
interest of any Holder of such mortgages, deeds of trust, Liens, pledges, or other security
interests shall revert to the Reorganized Debtors and their successors and assigns.
(iii) Releases by the Debtors.
Pursuant to section 1123(b) of the Bankruptcy Code, and except as otherwise specifically
provided in the Plan, for good and valuable consideration, on and after the Effective Date, the
Released Parties are deemed released and discharged by the Debtors from any and all claims,
obligations, rights, suits, damages, causes of action, remedies, and liabilities whatsoever,
including any derivative claims asserted on behalf of the Debtors, whether known or unknown,
foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, that the
Debtors would have been legally entitled to assert in their own right (whether individually or
collectively) or on behalf of the Holder of any Claim or Interest or other Entity, based on or
relating to, or in any manner arising from, in whole or in part, the Debtors, the Chapter 11 Cases,
the purchase, sale, or rescission of the purchase or sale of any security of the Debtors, the
subject matter of, or the transactions or events giving rise to, any Claim or Interest that is
treated in the Plan, the business or contractual arrangements between any Debtor and any Released
Party, the restructuring of Claims and Interests prior to or in the Chapter 11 Cases, the
negotiation, formulation, or preparation of the Restructuring Documents and related disclosures, or
related agreements, instruments, or other documents, upon any other act or omission, transaction,
agreement, event, or other occurrence taking place on or before the Effective Date, other than
Claims or liabilities arising out of or relating to any act or omission of a Released Party that
constitutes willful misconduct (including actual fraud) or gross negligence.
(iv) Releases by Holders of Claims and Interests.
As of the Effective Date, except as otherwise specifically provided in the Plan and to the
fullest extent permitted by law, for good and valuable consideration, Holders of Claims and
Interests shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and
forever released and discharged the Debtors and the Released Parties from any and all claims,
interests, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities
whatsoever, including any derivative claims asserted on behalf of the Debtors, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity, or otherwise, that
such Entity would have been legally entitled to assert (whether individually or collectively),
based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the
Debtors restructuring, the Chapter 11 Cases, the purchase, sale, or rescission of the purchase or
sale of any security of the Debtors, the subject matter of, or the transactions or events giving
rise to, any Claim or Interest that is treated in the Plan, the business or contractual
arrangements between any Debtors and any Released Party, the restructuring of Claims and Interests
prior to or in the Chapter 11 Cases, the
negotiation, formulation, or preparation of the Restructuring Documents and related
disclosures, or related agreements, instruments, or other documents, upon any other act or
omission, transaction, agreement, event, or other occurrence taking place on or before the
Effective Date, other than Claims or liabilities arising out of or relating to any act or omission
of the Debtors or Released Party that constitutes willful misconduct (including actual fraud) or
gross negligence.
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(v) Exculpation.
Except as otherwise specifically provided in the Plan, no Released Party shall have or incur,
and each Released Party is hereby released and exculpated from any claim, obligation, Cause of
Action, or liability for any Exculpated Claim, except for gross negligence or willful misconduct
(including actual fraud), but in all respects such Entities shall be entitled to reasonably rely
upon the advice of counsel with respect to their duties and responsibilities pursuant to the Plan.
The Released Parties have, and upon completion of the Plan shall be deemed to have, participated in
good faith and in compliance with the applicable laws with regard to the solicitation and
distribution of the New ABL Facility, the New Senior Secured Notes, the New Senior Unsecured Notes,
the New Warrants, and the New Common Equity pursuant to the Plan and, therefore, are not, and on
account of such distributions shall not be, liable at any time for the violation of any applicable
law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or
such distributions made pursuant to the Plan.
(vi) Injunction.
Except as otherwise expressly provided in the Plan or for obligations issued pursuant to the
Plan (including any obligations under the New ABL Facility, the New Senior Secured Notes, the New
Senior Unsecured Notes, the New Warrants, and documents and instruments related thereto), all
Entities who have held, hold, or may hold Claims or Interests that have been released pursuant to
Article VIII.C or Article VIII.D of the Plan, discharged pursuant to Article VIII.A of the Plan, or
are subject to exculpation pursuant to Article VIII.E of the Plan are permanently enjoined, from
and after the Effective Date, from taking any of the following actions against, as applicable, the
Debtors or the Released Parties: (1) commencing or continuing in any manner any action or other
proceeding of any kind on account of or in connection with or with respect to any such Claims or
Interests; (2) enforcing, attaching, collecting, or recovering by any manner or means any judgment,
award, decree, or order against such Entities on account of or in connection with or with respect
to any such Claims or Interests; (3) creating, perfecting, or enforcing any encumbrance of any kind
against such Entities or the property or the estates of such Entities on account of or in
connection with or with respect to any such Claims or Interests; (4) asserting any right of setoff,
subrogation, or recoupment of any kind against any obligation due from such Entities or against the
property of such Entities on account of or in connection with or with respect to any such Claims or
Interests unless such Holder has Filed a motion requesting the right to perform such setoff on or
before the Effective Date, and notwithstanding an indication of a Claim or Interest or otherwise
that such Holder asserts, has, or intends to preserve any right of setoff pursuant to applicable
law or otherwise; and (5) commencing or continuing in any manner any action or other proceeding of
any kind on account of or in connection with or with respect to any such Claims or Interests
released or settled pursuant to the Plan.
XV. Important Securities Laws Disclosure
Under the Plan, the New Senior Unsecured Notes will be distributed to Holders of Claims in
Class 5 and shares of New Common Equity will be distributed to Holders of Claims in Classes 5 and 6
and may be distributed to Holders of Claims in Class 10 if such Holders enforce rights under
the New Warrants.
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The Reorganized Debtors will rely on section 1145 of the Bankruptcy Code to exempt from the
registration requirements of the Securities Act the offer and distribution of the New Senior
Unsecured Notes, the New Common Equity, or the New Warrants. Section 1145(a)(1) of the Bankruptcy
Code exempts the offer and sale of securities under a plan of reorganization from registration
under Section 5 of the Securities Act and state laws when such securities are to be exchanged for
claims or principally in exchange for claims and partly for cash. In general, securities issued
under section 1145 may be resold without registration unless the recipient is an underwriter with
respect to those securities. Section 1145(b)(1) of the Bankruptcy Code defines an underwriter as
any person who:
| purchases a claim against, an interest in, or a claim for an administrative
expense against the debtor, if that purchase is with a view to distributing any
security received in exchange for such a claim or interest; |
| offers to sell securities offered under a plan of reorganization for the holders
of those securities; |
| offers to buy those securities from the holders of the securities, if the offer
to buy is (a) with a view to distributing those securities, and (b) under an
agreement made in connection with the plan of reorganization, the completion of the
plan of reorganization, or with the offer or sale of securities under the plan of
reorganization; or |
| is an issuer with respect to the securities, as the term issuer is defined in
Section 2(a)(11) of the Securities Act. |
To the extent that Entities who receive the New Senior Unsecured Notes, the New Common Equity,
or the New Warrants are deemed to be underwriters, resales by those Entities would not be
exempted from registration under the Securities Act or other applicable law by section 1145 of the
Bankruptcy Code. Those Entities would, however, be permitted to sell New Senior Unsecured Notes,
New Common Equity, New Warrants or other securities without registration if they are able to comply
with the provisions of Rule 144 under the Securities Act, as described further below.
You should confer with your own legal advisors to help determine whether or not you are an
underwriter.
Under certain circumstances, holders of New Senior Unsecured Notes, New Common Equity, or New
Warrants deemed to be underwriters may be entitled to resell their securities pursuant to the
limited safe harbor resale provisions of Rule 144 of the Securities Act, to the extent available,
and in compliance with applicable state securities laws. Generally, Rule 144 of the Securities Act
provides that persons who are affiliates of an issuer who resell securities will not be deemed to
be underwriters if certain conditions are met. These conditions include the requirement that
current public information with respect to the issuer be available, a limitation as to the amount
of securities that may be sold, the requirement that the securities be sold in a brokers
transaction or in a transaction directly with a market maker, and that notice of the resale be
filed with the SEC.
XVI. Nominee Voting Instructions
Only the Holders of Claims in Classes 5 and 6 and Holders of Interests in Class 10 are
entitled to vote to accept or reject the Plan, and such Holders may do so by completing the
appropriate Ballots and
returning them in the envelope provided. The failure of a Holder to deliver a duly executed
Ballot will be deemed to constitute an abstention by such Holder with respect to voting to accept
or reject the Plan, and such abstentions will not be counted as votes to accept or reject the Plan.
Voting instructions are attached to each Ballot.
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With respect to certain Holders of Claims in Class 5 and Class 6, a broker, dealer, commercial
bank, trust company, or other agent or nominee of beneficial holders (each, a Nominee)
should deliver the Ballot and other documents relating to the Plan, including this Disclosure
Statement, to each beneficial owner of the eligible Claims for which they serve as Nominee
(Beneficial Owner).
A Nominee has two options with respect to voting. Under the first option, the Nominee will
forward the solicitation package, including the Ballot and related subscription forms, to each
Beneficial Owner for voting and include a return envelope provided by and addressed to the Nominee
so that the Beneficial Owner may return the completed Beneficial Owner Ballot to the Nominee. Upon
receipt of the Ballots, the Nominee will summarize the individual votes of its respective
Beneficial Owners on the appropriate Master Ballot and then return the Master Ballot to the Claims
and Balloting Agent before the Voting Deadline.
Under the second option, if the Nominee elects to pre-validate Ballots:
| The Nominee shall forward the solicitation package or copies thereof (including
(a) this Disclosure Statement (together with the Plan attached thereto as
Exhibit A, and all other exhibits), (b) an individual Ballot that has been
pre-validated, as indicated in the paragraph immediately below, and (c) a return
envelope provided by and addressed to the Claims and Balloting Agent) to the
Beneficial Owner within five business days of the receipt by such nominee of the
solicitation package; |
| To pre-validate a Ballot, the Nominee shall complete and execute the Ballot
and indicate on the Ballot the name of the registered Holder, the amount of
securities held by the Nominee for the Beneficial Owner, and the account number(s)
for the account(s) in which such securities are held by the Nominee; and |
| The Beneficial Owner shall return the pre-validated Ballot to the Claims and
Balloting Agent by the voting deadline. |
If a Master Ballot is received after the Voting Deadline, the votes and elections on such
Master Ballot may be counted only in the sole and absolute discretion of the Debtors in
consultation with counsel for the Ad Hoc 8.625% Noteholders and counsel for the JPMorgan
Noteholders. The method of delivery of a Master Ballot to be sent to the Balloting Agent is at the
election and risk of each Nominee. Except as otherwise provided in this Disclosure Statement, such
delivery will be deemed made only when the executed Master Ballot is actually received by the
Balloting Agent. Instead of effecting delivery by mail, it is recommended, though not required,
that such entities use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery. No Ballot should be sent to the Debtors, or the Debtors
financial or legal advisors, but only to the Claims and Balloting Agent as set forth under How do
I vote for or against the Plan? in the Section herein entitled Questions and Answers Regarding
this Disclosure Statement and the Plan.
Nominees must provide appropriate information for each of the items on the Master Ballot,
including identifying the votes to accept or reject the Plan.
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By returning a Master Ballot, each Nominee will be certifying to the Debtors and the
Bankruptcy Court, among other things, that:
| it has received a copy of this Disclosure Statement and other solicitation
materials attached to this Disclosure Statement, and it has delivered the same to
the Beneficial Owners; |
| it has received a completed and signed Ballot from each Beneficial Owner whose
vote is reflected on such Master Ballot; |
| it is a bank, broker, or other nominee (or agent thereof) that holds the
securities being voted on behalf of the Beneficial Owners identified on such Master
Ballot; |
| it has properly disclosed (a) the number of such Beneficial Owners, (b) the
amount of securities held by each such Beneficial Owner, (c) each Beneficial
Owners respective vote, if any, concerning the Plan, and (d) the customer account,
serial number, and/or other identification number for each such Beneficial Owner; |
| each such Beneficial Owner has certified to the nominee that such Beneficial
Owner has not submitted any other Ballots for such Claims held in other accounts or
other names, or, if it has submitted another ballot held in other accounts or
names, that the Beneficial Owner has certified to the Nominee that such Beneficial
Owner has cast the same vote for such Claims, and the undersigned has identified
such other accounts or owner and such other Ballots; |
| it has been authorized by each such Beneficial Owner to vote on the Plan; and |
| it will maintain the original Beneficial Owner Ballot returned by each
Beneficial Owner (whether properly completed or defective) for one year after the
Voting Deadline (or such other date as is set by subsequent Bankruptcy Court order)
for disclosure to the Bankruptcy Court or the Debtors, if so ordered. |
Except as otherwise provided herein, each Master Ballot must be returned in sufficient time to
allow it to be RECEIVED by the Claims and Balloting Agent by no later than the Voting Deadline.
XVII. Certain U.S. Federal Income Tax Consequences of the Plan
The following is a summary of certain United States federal income tax consequences of the
Plan to the Debtors and certain Holders of Claims and Interests. This summary does not address the
United States federal income tax consequences to Holders (i) whose Claims or Interests are
Unimpaired or otherwise entitled to payment in full under the Plan or (ii) that are deemed to
reject the Plan. This summary is based on the Internal Revenue Code of 1986, as amended (the
Internal Revenue Code), Treasury Regulations thereunder (the Treasury
Regulations), and administrative and judicial interpretations and practice, all as in effect
on the date of this Disclosure Statement and all of which are subject to change or differing
interpretations, possibly with retroactive effect. Due to the lack of definitive judicial and
administrative authority in a number of areas, substantial uncertainty may exist with respect to
some of the tax consequences described below. No opinion of counsel has been obtained and the
Debtors do not intend to seek a ruling from the Internal Revenue Service (the IRS) as to
any of the tax consequences of the Plan discussed below. This summary is not binding on the IRS or
the courts. There can be no assurance that the IRS will not assert, or that a court will not
sustain, a different position than any position discussed below.
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This summary does not address all aspects of United States federal income taxation that may be
relevant to the Debtors or to certain Holders in light of their individual circumstances, nor does
it discuss tax issues applicable to Holders of Claims or Interests that are not United States
persons (as such term is defined in the Internal Revenue Code) or that are otherwise subject to
special treatment under United States federal income tax law (including, without limitation, banks,
brokers, dealers and traders in securities, financial institutions, governmental authorities or
agencies, insurance companies, mutual funds, pass-through entities, regulated investment companies,
small business investment companies, tax-exempt organizations, and trusts and those holding, or who
will hold, Claims, Interests, New Senior Unsecured Notes, New Common Equity, or New Warrants as
part of a hedge, straddle, conversion or constructive sale transaction). This summary assumes (i)
each Holder of a Claim or Interest holds its Claim, Interest, New Senior Unsecured Notes, New
Common Equity, or New Warrants as capital assets (generally, property held for investment) within
the meaning of Section 1221 of the Internal Revenue Code and (ii) the debt obligations(s)
underlying each Allowed Claim is properly treated as debt (rather than equity) of the Debtors.
Moreover, this summary does not purport to cover all aspects of United States federal income
taxation that may apply to the Debtors and Holders of Claims and Interests based upon their
particular circumstances. Additionally, this summary does not discuss any tax consequences that
may arise under any laws other than United States federal income tax law, including under state,
local, estate, gift, foreign or other tax law.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED
UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM OR INTEREST. ALL HOLDERS OF
CLAIMS OR INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL,
ESTATE, GIFT, FOREIGN AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
IRS CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE
IRS, ANY TAX ADVICE CONTAINED IN THIS DISCLOSURE STATEMENT (INCLUDING ANY ATTACHMENTS) IS NOT
INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING
TAX-RELATED PENALTIES UNDER THE INTERNAL REVENUE CODE. TAX ADVICE CONTAINED IN THIS DISCLOSURE
STATEMENT (INCLUDING ANY ATTACHMENTS) IS WRITTEN IN CONNECTION WITH THE MARKETING OR PROMOTION OF
THE TRANSACTIONS OR MATTERS ADDRESSED BY THIS DISCLOSURE STATEMENT. EACH TAXPAYER SHOULD SEEK
ADVICE BASED ON THE TAXPAYERS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
A. | Certain United States Federal Income Tax Consequences to the Debtors. |
(i) Cancellation of Debt and Reduction of Tax Attribute.
In general, absent an exception, a debtor will realize and recognize cancellation of debt
income (CODI) upon satisfaction of its outstanding indebtedness for total consideration
less than the amount of such indebtedness. The amount of CODI, in general, is the excess of (a)
the adjusted issue price of the indebtedness satisfied, over (b) the sum of (x) the amount of cash
paid, (y) the issue price of any new indebtedness of the taxpayer issued (including New Senior
Unsecured Notes) and (z) the fair market value of any other consideration (including New Common
Equity) given in satisfaction of such indebtedness at the time of the exchange.
65
Pursuant to Section 108 of the Internal Revenue Code, a debtor is not required to include CODI
in gross income if the debtor is under the jurisdiction of a court in a case under chapter 11 of
the Bankruptcy Code and the discharge of debt occurs pursuant to that proceeding. Instead, as a
consequence of such exclusion, a debtor must reduce its tax attributes by the amount of CODI that
it excluded from gross income. In general, tax attributes are reduced in the following order: (a)
net operating losses (NOLs); (b) general business credit carryovers; (c) minimum tax
credit carryovers; (d) capital loss carryovers; (e) tax basis in assets (but not below the amount
of liabilities to which the debtor remains subject); (f) passive activity loss and credit
carryovers; and (g) foreign tax credits. A debtor with CODI may elect first to reduce the basis of
its depreciable assets pursuant to section 108(b)(5) of the Internal Revenue Code. The reduction
in tax attributes occurs only after the tax for the year of the debt discharge has been determined.
Any excess CODI over the amount of available tax attributes is generally not subject to United
States federal income tax and has no other United States federal income tax impact.
The Treasury Regulations address the method and order for applying tax attribute reduction to
an affiliated group of corporations. Under these regulations, the tax attributes of each member of
an affiliated group of corporations that is excluding CODI is first subject to reduction. To the
extent the debtor members tax basis in stock of a lower-tier member of the affiliated group is
reduced, a look through rule requires that a corresponding reduction be made to the tax
attributes of the lower-tier member. If a debtor members excluded CODI exceeds its tax attributes,
the excess CODI is applied to reduce certain remaining consolidated tax attributes of the
affiliated group.
Because the Plan provides that Holders of certain Claims will receive New Senior Unsecured
Notes and/or New Common Equity, the amount of CODI, and accordingly the amount of tax attributes
required to be reduced, will depend on the (i) issue price of the New Senior Unsecured Notes and
(ii) fair market value of the New Common Equity. The amount of such CODI is therefore uncertain.
The Debtors expect, however, that the amount of such CODI will be sufficient to eliminate their NOL
carryovers.
Under a special rule that may apply here, when a taxpayer reduces its tax attributes on
account of CODI that is excluded from income because the taxpayer is in bankruptcy, the taxpayers
tax basis in its assets is not subject to reduction below the amount of its liabilities that may
exist immediately after the transaction giving rise to the CODI. In this case, the Debtors believe
that the amount of their tax basis in their assets is less than the amount of its
post-reorganization liabilities. As a result, if that occurs, the Reorganized Debtors will not be
required to reduce their tax basis in their assets. This limitation rule will not apply if the
Reorganized Debtors were to elect to reduce first their basis in depreciable assets. For that
reason, the Reorganized Debtors do not expect to make that election.
(ii) Limitation of NOL Carryforwards and Other Tax Attributes.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership
change, the amount of its NOLs and built-in losses (collectively, Pre-Change Losses)
that may be utilized to offset future taxable income generally is subject to an annual limitation.
As discussed in greater detail herein, the Debtors anticipate that the issuance of the New Common
Equity pursuant to the Plan will result in an ownership change of the Reorganized Debtors for
these purposes, and that the Reorganized Debtors use of their Pre-Change Losses, if any, will be
subject to limitation after the Reorganized Debtors emerge from bankruptcy.
66
This discussion refers to the limitation determined under Section 382 of the Internal Revenue
Code in the case of an ownership change as the Section 382 Limitation. In general, the
annual Section 382 Limitation on the use of Pre-Change Losses in any post-change year is equal to
the product of (a) the fair market value of the stock of the corporation immediately before the
ownership change
(with certain adjustments) multiplied by (b) the long-term tax-exempt rate in effect for the
month in which the ownership change occurs (approximately 4.3% for the month of July 2011). The
Section 382 Limitation may be increased to the extent that the Debtors recognize certain built-in
gains in their assets during the five-year period following the ownership change, or are treated as
recognizing built-in gains pursuant to the safe harbors provided in IRS Notice 2003-65. Any unused
limitation may be carried forward, thereby increasing the annual limitation in the subsequent
taxable year. Special rules may apply in the case of a corporation which experiences an ownership
change as the result of a bankruptcy proceeding, although the Debtors do not believe that the use
of these special rules will have any material effect here.
The issuance under the Plan of the New Common Equity, along with the cancellation of existing
Interests through the Plan, is expected to cause an ownership change with respect to the Debtors on
the Effective Date. As a result, Section 382 of the Internal Revenue Code will apply to limit the
Debtors use of any remaining Pre-Change Losses after the Effective Date. However, as explained
above, the Debtors expect that their NOLs will be completely eliminated because the Debtors expect
that the amount of CODI that will exist here may exceed the amount of the Debtors NOLs, and the
Debtors do not expect to have other Pre-Change Losses that will exist going forward. Consequently,
the limitations imposed by Section 382 should not have a material effect on the Reorganized
Debtors.
B. | Certain United States Federal Income Tax Consequences to the Holders of Allowed Claims. |
(i) Consequences to Holders of Class 5 Claims.
Pursuant to the Plan, and in full satisfaction of its Claim, a Holder of an Allowed Class 5
Claim will receive its Pro Rata share of Cash, New Senior Unsecured Notes, and New Common Equity.
Whether a Holder of an Allowed Class 5 Claim recognizes gain or loss as a result of the
exchange of its Claim for its Pro Rata share of Cash, New Senior Unsecured Notes, and New Common
Equity, and the amount of such gain (if any), depends on whether (a) the exchange qualifies as a
tax-free recapitalization, which in turn depends on whether the 8.625% Notes constituting the
Allowed Class 5 Claim surrendered and the New Senior Unsecured Notes received are treated as a
securities for the reorganization provisions of the Internal Revenue Code; (b) such Holder
previously included in income any accrued but unpaid interest with respect to the Allowed Class 5
Claim; (c) such Holder has claimed a bad debt deduction with respect to such Allowed Class 5 Claim;
and (d) such Holder uses the accrual or cash method of accounting for tax purposes.
Whether a debt instrument constitutes a security for United States federal income tax
purposes is determined based on all the relevant facts and circumstances, but most authorities have
held that the length of the term of a debt instrument is an important factor in determining whether
such instrument is a security for United States federal income tax purposes. These authorities have
indicated that a term of less than five years is evidence that the instrument is not a security,
whereas a term of ten years or more is evidence that it is a security. There are numerous other
factors that could be taken into account in determining whether a debt instrument is a security,
including the security for payment, the creditworthiness of the obligor, the subordination or lack
thereof to other creditors, the right to vote or otherwise participate in the management of the
obligor, convertibility of the instrument into an equity interest of the obligor, whether payments
of interest are fixed, variable or contingent and whether such payments are made on a current basis
or accrued. The Debtors anticipate taking the position that both the 8.625% Notes underlying the
Allowed Class 5 Claims and the New Senior Unsecured Notes will be treated as securities for
United States federal income tax purposes.
67
Under this position, the exchange of such Holders Allowed Class 5 Claim for its Pro Rata
share of Cash, New Senior Unsecured Notes, and New Common Equity should be treated as a
recapitalization, and therefore a reorganization, under the Internal Revenue Code. In general,
this means such a Holder will recognize gain, but not loss, on the exchange. Specifically, such a
Holder will recognize (a) capital gain, subject to the market discount rules discussed below, to
the extent of the lesser of (i) the amount of gain realized from the exchange or (ii) the amount of
Cash (i.e., the other property, that is, property that is not a security for U.S. federal
income tax purposes) received, and (b) ordinary interest income to the extent that any portion of
the consideration treated as received in satisfaction of accrued but untaxed interest on the 8.625%
Notes underlying the Allowed Class 5 Claim (see discussion of Accrued Interest below). A
Holders gain will generally equal the excess of (a) the sum of the Cash, the issue price of the
New Senior Unsecured Notes and the fair market value of the New Common Equity received by the
Holder (other than any such property treated as received in satisfaction of accrued but unpaid
interest on such Holders claims) over (ii) the Holders adjusted basis in its claim. In such
case, such a Holders aggregate tax basis in the New Senior Unsecured Notes and New Common Equity
received should be equal to the tax basis of the 8.625% Notes constituting the Allowed Class 5
Claim surrendered therefor (increased by the amount of any gain recognized and decreased by the
amount of Cash (i.e., the other property) received), and such a Holders holding period for the
New Senior Unsecured Notes and New Common Equity received should include the holding period for the
8.625% Notes constituting the surrendered Allowed Class 5 Claim; provided that the tax basis of any
portion of New Senior Unsecured Notes and New Common Equity that is treated as received in
satisfaction of accrued but untaxed interest should equal the amount of such accrued but untaxed
interest, and the holding period for any such portion of the New Senior Unsecured Notes and New
Common Equity should not include the holding period of the 8.625% Notes constituting the
surrendered Allowed Class 5 Claim.
A Holder of an Allowed Class 5 Claim should consult its tax advisor regarding whether such
Claim, the New Senior Unsecured Notes, and the New Common Equity could not be treated as
securities for U.S. federal income tax purposes, and the taxable exchange consequences that would
then apply.
(ii) Consequences to Holders of Class 6 Claims.
Pursuant to the Plan, and in full satisfaction of its Claim, a Holder of an Allowed Class 6
Claim will receive its Pro Rata share of New Common Equity.
A Holder of an Allowed Class 6 Claim who receives New Common Equity in exchange for its
Allowed Claim generally should recognize income, gain or loss for federal tax purposes in an amount
equal to the difference between (a) the fair market value of the New Common Equity received in
exchange for its Claim not allocable to accrued but unpaid interest and (b) the Holders adjusted
tax basis in its Claim. The character of such gain or loss as capital gain (subject to the market
discount rules described below) or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the Holder, the nature of the Claim in such Holders
hands, the extent that a portion of the Cash received in exchange for the Claim is allocable to
accrued but unpaid interest (see Accrued Interest below), whether the Claim constitutes a capital
asset in the hands of the Holder, whether the Claim was purchased at a discount and whether and to
what extent the Holder has previously claimed a bad debt deduction with respect to its Claim.
(iii) Consequences to Holders of Class 10 Interests.
Pursuant to the Plan, and in full satisfaction of its Interests, a Holder of an Allowed Class
10 Interest will receive its Pro Rata share of the New Warrants, if Class 10 votes to accept the
Plan. In the
event Class 10 votes to reject the Plan, a Holder of an Allowed Class 10 Interest will receive
no recovery. The discussion that follows assumes Class 10 votes to accept the Plan.
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A Holder of an Allowed Class 10 Interest who receives New Warrants in exchange for its Allowed
Interest generally should recognize income, gain or loss for federal income tax purposes in an
amount equal to the difference between (a) the fair market value of the New Warrants received in
exchange for its Interest and (b) the Holders adjusted tax basis in its Interest. The character
of such gain or loss as capital gain or loss or as ordinary income or loss will be determined by a
number of factors, including the tax status of the Holder, the nature of the Interest in such
Holders hands, whether the Interest constitutes a capital asset in the hands of the Holder, and
whether and to what extent the Holder has previously claimed a worthless stock deduction with
respect to its Interest.
(iv) Accrued Interest.
To the extent that any amount received by a Holder of a surrendered Allowed Claim under the
Plan is attributable to accrued but unpaid interest and such amount has not previously been
included in the Holders gross income, such amount should be taxable to the Holder as ordinary
interest income. Conversely, a Holder of a surrendered Allowed Claim may be able to recognize a
deductible loss (or, possibly, a write-off against a reserve for worthless debts) to the extent
that any accrued interest on the debt instrument(s) constituting such Claim was previously included
in the Holders gross income but was not paid in full by the Debtors. Such loss may be ordinary,
but the tax law is unclear on this point.
The extent to which the consideration received by a Holder of a surrendered Allowed Claim will
be attributable to accrued interest on the debt instrument(s) constituting the surrendered Allowed
Claim is unclear. Certain Treasury Regulations generally treat a payment under a debt instrument
first as a payment of accrued and untaxed interest and then as a payment of principal. Application
of this rule to a final payment on a debt instrument being discharged at a discount in bankruptcy
is unclear. Pursuant to the Plan, distributions in respect of Allowed Claims will be allocated
first to the principal amount of such claims (as determined for United States federal income tax
purposes) and then, to the extent the consideration exceeds the principal amount of the Claims, to
any portion of such Claims for accrued but unpaid interest. However, the provisions of the Plan
are not binding on the IRS nor a court with respect to the appropriate tax treatment for creditors.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE ALLOCATION OF CONSIDERATION
RECEIVED IN SATISFACTION OF THEIR CLAIMS AND THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF
ACCRUED BUT UNPAID INTEREST.
(v) Market Discount.
Under the market discount provisions of sections 1276 through 1278 of the Internal Revenue
Code, some or all of the gain realized by a Holder who exchanges the debt instrument(s)
constituting its Allowed Claim for other property on the Effective Date may be treated as ordinary
income (instead of capital gain), to the extent of the amount of market discount on the debt
instrument(s) constituting the surrendered Allowed Claim.
In general, a debt instrument is considered to have been acquired with market discount if
its Holders adjusted tax basis in the debt instrument is less than (a) the sum of all remaining
payments to be made on the debt instrument, excluding qualified stated interest or (b) in the
case of a debt instrument issued with original issue discount, its adjusted issue price, by at
least a de minimis amount (equal to
0.25% of the sum of all remaining payments to be made on the debt instrument, excluding
qualified stated interest, multiplied by the number of remaining whole years to maturity).
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Any gain recognized by a Holder on the exchange of the debt instrument(s) constituting its
Allowed Claim that had been acquired with market discount should be treated as ordinary income to
the extent of the market discount that accrued thereon while such debts were considered to be
held by the Holder (unless the Holder elected to include market discount in income as it
accrued).
(vi) Issue Price.
Current Treasury Regulations provide that the issue price of any class of debt instruments
depends on whether, at any time during the 60-day period ending 30 days after the exchange date,
such class of instruments is traded on an established market or any debt instrument exchanged (in
whole or in part) for such new debt instrument is traded on an established market. If the new debt
instrument or the old debt instrument exchanged therefor are treated as traded on an established
market (i.e., publicly traded), the issue price of the new debt instrument will equal (or
approximate) the fair market value of such debt instrument as of the Effective Date. In such
event, a debt instrument will be treated as issued with original issue discount (in addition to any
original issue discount resulting from the deferred portion of the stated interest thereon) to the
extent that its issue price is less than its principal amount. Depending on the fair market value
of a debt instrument, the total amount of original issue discount could be substantial.
If neither the 8.625% Notes underlying the Class 5 Claims nor the New Senior Unsecured Notes
are considered traded on an established market, then the issue price for the New Senior Unsecured
Notes should generally equal their stated principal amounts. However, if the 8.625% Notes
underlying the Class 5 Claims or the New Senior Unsecured Notes are considered traded on an
established market, then the issue price for the New Senior Unsecured Notes would generally equal
their fair market value at the time of the exchange (or deemed exchange). Holders of Class 5
Claims should consult their tax advisors regarding the issue price for the 8.625% Notes underlying
their Claims and the New Senior Unsecured Notes.
(vii) Consequences to Holders of New Common Equity.
(a) Dividends on New Common Equity.
Any distributions made on account of the New Common Equity will constitute dividends for
United States federal income tax purposes to the extent of the current or accumulated earnings and
profits of the Reorganized Debtors as determined under United States federal income tax principles.
To the extent that a Holder receives distributions that would otherwise constitute dividends for
United States federal income tax purposes but that exceed such current and accumulated earnings and
profits, such distributions will be treated first as a non-taxable return of capital reducing the
Holders basis in its shares. Any such distributions in excess of the Holders basis in its shares
(determined on a share-by-share basis) generally will be treated as capital gain. Subject to
certain exceptions, dividends received by noncorporate Holders prior to 2013 will be taxed under
current law at a maximum rate of 15%, provided that certain holding period requirements and other
requirements are met.
Dividends paid to Holders that are corporations generally will be eligible for the
dividends-received deduction so long as there are sufficient earnings and profits. However, the
dividends-received deduction is only available if certain holding period requirements are
satisfied. The length of time that a shareholder has held its stock is reduced for any period
during which the shareholders risk of loss with respect to the stock is diminished by reason of
the existence of certain options, contracts to sell, short
sales or similar transactions. In addition, to the extent that a corporation incurs indebtedness
that is directly attributable to an investment in the stock on which the dividend is paid, all or a
portion of the dividends received deduction may be disallowed.
70
(b) Sale, Redemption or Repurchase of New Common Equity.
Unless a non-recognition provision applies, subject to the market discount rules discussed
above, Holders generally will recognize capital gain or loss upon the sale, redemption or other
taxable disposition of New Common Equity.
(c) Medicare Tax.
Certain Holders that are individuals, estates or trusts are required to pay an additional 3.8%
tax on, among other things, dividends and gains from the sale or other disposition of capital
assets for taxable years beginning after December 31, 2012. Holders that are individuals, estates
or trusts should consult their tax advisors regarding the effect, if any, of this tax provision on
their ownership and disposition of New Common Equity.
(viii) Consequences to Holders of the New Senior Unsecured Notes.
(a) Stated Interest and Original Issue Discount.
As a general matter, a Holder of New Senior Unsecured Notes will be required to include stated
interest on such debt obligation in income in accordance with the Holders regular method of
accounting to the extent such stated interest is qualified stated interest. Stated interest is
qualified stated interest if it is payable in cash at least annually. Where stated interest
payable on the New Senior Unsecured Notes is not payable at least annually (the deferred
interest), such portion of the stated interest will be included in the determination of the
original issue discount on such New Senior Unsecured Notes (as set forth below). Because the
Reorganized Debtors will have the option to defer the payment in cash of all or a portion of the
accrued interest in exchange for an increase in the interest rate (the PIK Toggle Option)
none of the interest on the New Senior Unsecured Notes will constitute qualified stated interest.
A debt instrument generally has original issue discount if its stated redemption price at
maturity exceeds its issue price by more than a de minimis amount. A debt instruments stated
redemption price at maturity includes all principal and interest payable over the term of the debt
instrument, other than qualified stated interest. Thus, because of the PIK Toggle Option, all of
the stated interest payments on the New Senior Unsecured Notes will be included in the stated
redemption price at maturity and taxed as part of original issue discount. The amount of stated
interest on the New Senior Unsecured Notes will depend on whether and to what extent the
Reorganized Debtors elect to use the PIK Toggle Option. For purposes of determining the New Senior
Unsecured Notes stated redemption price at maturity, the Reorganized Debtors will be presumed to
exercise the PIK Toggle Option in a way that will minimize the yield to maturity on the notes.
Whether the exercise of the PIK Toggle Option will reduce or increase yield to maturity on the
Senior Unsecured Notes will depend on whether and to what extent, the issue price of the notes is
less than the principal amount of the notes. As discussed above, the issue price of the New Senior
Unsecured Notes will depend on (a) whether either the 8.625% Notes or the New Senior Unsecured
Notes are treated as publicly traded, and (b) the fair market value of the New Senior Unsecured
Notes on the Effective Date.
A Holder of New Senior Unsecured Notes with original issue discount generally will be required
to include any original issue discount in income over the term of such debt obligation (for so long
as the New Senior Unsecured Notes continue to be owned by the Holder) in accordance with a constant
yield-to-maturity method, regardless of whether the Holder is a cash or accrual method taxpayer,
and regardless of
whether and when the Holder receives cash payments of interest on the New Senior Unsecured Notes.
Accordingly, a Holder could be treated as receiving income in advance of a corresponding receipt of
cash. Any original issue discount that a Holder includes in income will increase the tax basis of
the Holder in its New Senior Unsecured Notes. A Holder of New Senior Unsecured Notes will not be
separately taxable on any cash payments that have already been taxed under the original issue
discount rules, but will reduce its tax basis in such debt obligation by the amount of such
payments.
71
(b) Sale, Exchange, or Other Disposition of the New Senior Unsecured Notes.
Except as discussed above with respect to market discount, any gain or loss recognized by a
Holder on a sale, exchange or other disposition of the New Senior Unsecured Notes generally should
be capital gain or loss in an amount equal to the difference, if any, between the amount realized
by the Holder and the Holders adjusted tax basis in the New Senior Unsecured Notes immediately
before the sale, exchange or other disposition (increased for any original issue discount accrued
through the date of disposition, which original issue discount would be includible as ordinary
income). Any such gain or loss generally should be long term capital gain or loss if the Holders
holding period in the New Senior Unsecured Notes is more than one year at that time.
(c) Medicare Tax.
Certain Holders that are individuals, estates or trusts are required to pay an additional 3.8%
tax on, among other things, interest and gains from the sale or other disposition of capital assets
for taxable years beginning after December 31, 2012. Holders that are individuals, estates or
trusts should consult their tax advisors regarding the effect, if any, of this tax provision on
their ownership and disposition of the New Senior Unsecured Notes.
(ix) Information Reporting and Backup Withholding.
The Debtors will withhold all amounts required by law to be withheld from payments of interest
and dividends. The Debtors will comply with all applicable reporting requirements of the Internal
Revenue Code. In general, information reporting requirements may apply to distributions or
payments under the Plan. Additionally, under the backup withholding rules, a Holder of a Claim or
Interest may be subject to backup withholding (currently at a rate of 28%) with respect to
distributions or payments made pursuant to the Plan unless that Holder complies with the applicable
requirements of the backup withholding rules and: (a) comes within certain exempt categories
(which generally include corporations) and, when required, demonstrates that fact; or (b) provides
a correct taxpayer identification number and certifies under penalty of perjury that the taxpayer
identification number is correct and that the Holder is not subject to backup withholding because
of a failure to report all dividend and interest income. Backup withholding is not an additional
tax but is, instead, an advance payment that may be refunded to the extent it results in an
overpayment of tax; provided, however, that the required information is provided to the IRS.
In addition, from an information reporting perspective, the Treasury Regulations generally
require disclosure by a taxpayer on its United States federal income tax return of certain types of
transactions in which the taxpayer participated, including, among other types of transactions,
certain transactions that result in the taxpayers claiming a loss in excess of specified
thresholds. Holders are urged to consult their tax advisors regarding these regulations and whether
the transactions contemplated by the Plan would be subject to these regulations and require
disclosure on the Holders tax returns.
72
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX. THE FOREGOING
SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER
OF A CLAIM OR INTEREST IN LIGHT OF SUCH HOLDERS CIRCUMSTANCES AND INCOME TAX SITUATION. ALL
HOLDERS OF EQUITY INTERESTS IN OR CLAIMS AGAINST THE DEBTORS SHOULD CONSULT WITH THEIR TAX ADVISORS
AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTION CONTEMPLATED BY THE RESTRUCTURING,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, ESTATE, GIFT, FOREIGN OR OTHER TAX
LAWS, AND OF ANY CHANGE IN APPLICABLE TAX LAWS.
XVIII. Recommendation of the Debtors
In the opinion of the Debtors, the Plan is preferable to the alternatives described in this
Disclosure Statement because it provides for a larger distribution to the Debtors creditors and
other parties in interest than would otherwise result in a liquidation under chapter 7 of the
Bankruptcy Code. In addition, any alternative other than Confirmation of the Plan could result in
extensive delays and increased administrative expenses resulting in smaller distributions to
Holders of Allowed Claims and Allowed Interests than proposed under the Plan. Accordingly, the
Debtors recommend that Holders of Claims and Interests entitled to vote to accept or reject the
Plan support Confirmation of the Plan and vote to accept the Plan.
73
Dated: July 17, 2011
Respectfully submitted, | ||||||
NEBRASKA BOOK COMPANY, INC. (for itself and on behalf of each of its affiliated debtors) |
||||||
By: | ||||||
Title: Chief Financial Officer |
Prepared by:
601 Lexington Avenue |
||
New York, New York 10022-4611 |
||
(212) 446-4800 (telephone) |
||
- and - |
||
PACHULSKI STANG ZIEHL & JONES LLP |
||
919 North Market Street, 17th Floor |
||
Wilmington, Delaware 19899-8705 |
||
(302) 652-4100 (telephone) |
||
Proposed Counsel to the Debtors and Debtors in Possession |
EXHIBIT A
PLAN OF REORGANIZATION
EXHIBIT B
REORGANIZED DEBTORS FINANCIAL PROJECTIONS
NBC Acquisition Corp
Unaudited Financial Statement
(Dollars in millions)
Unaudited Financial Statement
(Dollars in millions)
For the Year Ending March 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
INCOME STATEMENT |
||||||||||||||||||||
Revenue |
$ | 591.8 | $ | 625.2 | $ | 673.6 | $ | 729.9 | $ | 790.2 | ||||||||||
Cost of sales |
355.2 | 370.0 | 394.4 | 424.0 | 459.3 | |||||||||||||||
Gross Profit |
$ | 236.5 | $ | 255.2 | $ | 279.2 | $ | 305.9 | $ | 330.9 | ||||||||||
Operating expenses: |
||||||||||||||||||||
SG&A |
$ | 199.9 | $ | 181.6 | $ | 195.6 | $ | 211.0 | $ | 226.6 | ||||||||||
Depr & amort |
17.4 | 18.2 | 19.1 | 20.1 | 21.1 | |||||||||||||||
Other income |
(.9 | ) | (1.0 | ) | (1.3 | ) | (2.0 | ) | (2.9 | ) | ||||||||||
$ | 216.4 | $ | 198.8 | $ | 213.4 | $ | 229.1 | $ | 244.8 | |||||||||||
Income from operations |
20.2 | 56.4 | 65.8 | 76.8 | 86.2 | |||||||||||||||
Other expense (inc) |
||||||||||||||||||||
Interest expense, net |
51.7 | 50.5 | 53.2 | 56.2 | 59.7 | |||||||||||||||
Gain on
extinguishment of
debt |
(128.7 | ) | | | | | ||||||||||||||
$ | (77.0 | ) | $ | 50.5 | $ | 53.2 | $ | 56.2 | $ | 59.7 | ||||||||||
Income before taxes |
97.2 | 5.9 | 12.7 | 20.6 | 26.4 | |||||||||||||||
Income taxes |
38.9 | 2.4 | 5.1 | 8.2 | 10.6 | |||||||||||||||
Net income |
$ | 58.3 | $ | 3.5 | $ | 7.6 | $ | 12.4 | $ | 15.9 | ||||||||||
Unaudited amounts subject to Fresh Start Accounting
NBC Acquisition Corp
Unaudited Financial Statement
(Dollars in millions)
Unaudited Financial Statement
(Dollars in millions)
For the Year Ending March 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
CASH FLOWS |
||||||||||||||||||||
Net income |
$ | 58.3 | $ | 3.5 | $ | 7.6 | $ | 12.4 | $ | 15.9 | ||||||||||
Adjustments |
||||||||||||||||||||
Depr & amort |
17.4 | 18.2 | 19.1 | 20.1 | 21.1 | |||||||||||||||
Gain on extinguishment of debt |
(128.7 | ) | | | | | ||||||||||||||
Non-cash interest and amort of debt issue costs |
25.3 | 19.7 | 22.4 | 25.5 | 29.0 | |||||||||||||||
Changes in operating assets and liabilities, net
of effect of acquisitions, |
||||||||||||||||||||
A/R and inventory |
(4.5 | ) | (10.1 | ) | (10.9 | ) | (11.3 | ) | (12.1 | ) | ||||||||||
Other current assets |
(3.0 | ) | (3.0 | ) | (3.0 | ) | (3.0 | ) | (3.0 | ) | ||||||||||
Current Liabilities |
(.8 | ) | 1.8 | 2.6 | 3.2 | 3.6 | ||||||||||||||
Change in taxes |
45.5 | (2.5 | ) | (3.6 | ) | (4.4 | ) | (4.7 | ) | |||||||||||
Net cash flows from operating activities |
9.5 | 27.6 | 34.2 | 42.4 | 49.7 | |||||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Capital expenditures |
(7.2 | ) | (9.0 | ) | (10.0 | ) | (10.0 | ) | (10.0 | ) | ||||||||||
Acquisitions |
(1.0 | ) | (3.3 | ) | (6.1 | ) | (8.0 | ) | (8.8 | ) | ||||||||||
Net cash flows from investing activities |
(8.2 | ) | (12.3 | ) | (16.1 | ) | (18.0 | ) | (18.8 | ) | ||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Proceeds from issuance of long-term debt |
250.0 | | | | | |||||||||||||||
Payment of financing costs |
(10.0 | ) | | | | | ||||||||||||||
Payment of long-term debt |
(230.6 | ) | (.1 | ) | | | | |||||||||||||
Payment of capital leases |
(.2 | ) | (.7 | ) | (.5 | ) | (.4 | ) | (.0 | ) | ||||||||||
Borrowing under DIP credit facility |
125.0 | | | | | |||||||||||||||
Payments under DIP credit facility |
(125.0 | ) | | | | | ||||||||||||||
Net cash flows from financing activities |
9.1 | (.8 | ) | (.5 | ) | (.4 | ) | (.0 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents |
10.4 | 14.5 | 17.7 | 24.1 | 30.8 | |||||||||||||||
Beginning Cash |
$ | 47.7 | $ | 58.1 | $ | 72.6 | $ | 90.3 | $ | 114.3 | ||||||||||
Ending Cash |
$ | 58.1 | $ | 72.6 | $ | 90.3 | $ | 114.3 | $ | 145.2 | ||||||||||
58.1 | 72.6 | 90.3 | 114.3 | 145.2 |
Unaudited amounts subject to Fresh Start Accounting
NBC Acquisition Corp
Unaudited Financial Statement
(Dollars in millions)
Unaudited Financial Statement
(Dollars in millions)
March 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
BALANCE SHEET |
||||||||||||||||||||
Cash |
$ | 58.1 | $ | 72.6 | $ | 90.3 | $ | 114.3 | $ | 145.2 | ||||||||||
A/R and Inventory |
149.6 | 163.0 | 179.9 | 199.2 | 220.1 | |||||||||||||||
Other Current Assets |
22.8 | 25.8 | 28.8 | 31.8 | 34.8 | |||||||||||||||
Total Current Assets |
230.5 | 261.4 | 299.0 | 345.3 | 400.1 | |||||||||||||||
PP&E, net |
38.9 | 36.3 | 34.2 | 31.5 | 27.8 | |||||||||||||||
Goodwill & Other
Intangibles |
235.1 | 229.9 | 225.3 | 221.1 | 217.1 | |||||||||||||||
Debt Issue and Other |
9.0 | 7.0 | 5.0 | 3.0 | 1.0 | |||||||||||||||
Total Assets |
$ | 513.5 | $ | 534.6 | $ | 563.5 | $ | 600.9 | $ | 646.0 | ||||||||||
Current Maturities of Debt |
.0 | .0 | .0 | .0 | .0 | |||||||||||||||
Current Liabilities |
$ | 49.1 | $ | 50.9 | $ | 53.5 | $ | 56.7 | $ | 60.3 | ||||||||||
Total Current Liabilities |
49.1 | 50.9 | 53.5 | 56.7 | 60.3 | |||||||||||||||
LT Debt |
368.3 | 386.0 | 406.4 | 429.8 | 456.8 | |||||||||||||||
Deferred income taxes |
87.6 | 86.4 | 85.2 | 83.9 | 82.7 | |||||||||||||||
Capital Leases |
1.6 | .9 | .4 | .0 | .0 | |||||||||||||||
Other |
1.6 | 1.6 | 1.6 | 1.6 | 1.6 | |||||||||||||||
Preferred |
| | | | | |||||||||||||||
Stockholders Equity
(Deficit) |
5.3 | 8.9 | 16.5 | 28.8 | 44.7 | |||||||||||||||
Total Liabilities and
Equity |
$ | 513.5 | $ | 534.6 | $ | 563.5 | $ | 600.9 | $ | 646.0 | ||||||||||
Unaudited amounts subject to Fresh Start Accounting
NBC Acquisition Corp
Unaudited Financial Statement
(Dollars in millions)
Unaudited Financial Statement
(Dollars in millions)
Projected | Recapitalization | Pro Forma | ||||||||||
9/30/2011 | Adjustments | 9/30/2011 | ||||||||||
BALANCE SHEET |
||||||||||||
Cash |
$ | 195.0 | $ | (130.0 | ) | $ | 65.0 | |||||
A/R and Inventory |
223.9 | | 223.9 | |||||||||
Other Current Assets |
25.2 | | 25.2 | |||||||||
Total Current Assets |
444.1 | $ | (130.0 | ) | 314.1 | |||||||
PP&E, net |
37.2 | | 37.2 | |||||||||
Goodwill & Other Intangibles |
237.3 | | 237.3 | |||||||||
Debt Issue and Other |
9.6 | .4 | 10.0 | |||||||||
Total Assets |
$ | 728.2 | $ | (129.6 | ) | $ | 598.6 | |||||
Current Maturities of Debt |
$ | 576.9 | $ | (576.9 | ) | | ||||||
Current Liabilities |
156.7 | $ | (11.8 | ) | 144.9 | |||||||
Total Current Liabilities |
733.6 | $ | (588.7 | ) | 144.9 | |||||||
LT Debt |
.1 | 360.0 | 360.1 | |||||||||
Deferred income taxes |
39.7 | 51.5 | 91.2 | |||||||||
Capital Leases |
1.7 | | 1.7 | |||||||||
Other |
1.6 | | 1.6 | |||||||||
Preferred |
14.6 | $ | (14.6 | ) | | |||||||
Stockholders Equity
(Deficit) |
$ | (63.2 | ) | 62.2 | $ | (.9 | ) | |||||
Total Liabilities and
Equity |
$ | 728.2 | $ | (129.6 | ) | $ | 598.6 | |||||
Unaudited amounts subject to Fresh Start Accounting