SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 7, 1997
Wherehouse Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-8281 95-2647555
(State or other (Commission IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
19701 Hamilton Avenue
Torrance, California 90502-1334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (310) 538-2314
Not Applicable
(Former name or former address, if changed since last report)
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
The registrant and its parent company, WEI Holdings,
Inc. ("Holdings"; and, together with the registrant, the
"Debtors") are debtors and debtors-in-possession (collectively,
the "Debtors"), in Case No. 95-911 (HSB) (Jointly Administered)
(the "Bankruptcy Case") in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). On January 7,
1997, the Bankruptcy Court entered an order entitled "Findings of
Fact, Conclusions of Law and Order Confirming Debtors' First
Amended Chapter 11 Plan Under Chapter 11 of the Bankruptcy Code"
(the "Confirmation Order") confirming the Debtors' plan of
reorganization entitled "Debtors' First Amended Chapter 11 Plan,
as Revised for Technical Corrections dated October 4, 1996 and
Supplemental Amendments on December 2, 1996 and December 13,
1996" (the "Plan"). The Confirmation Order is incorporated by
reference to Exhibit 3.1. The Plan is incorporated by reference
to Exhibits A, B and C of Exhibit 3.1.
The material features of the Plan are as follows:
IMPLEMENTATION OF THE PLAN
The Plan contemplates that substantially all of the
assets of the Debtors and certain liabilities will be transferred
to a new company ("Reorganized Wherehouse"), which has been
organized under the laws of the State of Delaware. The new
certificate of incorporation for Reorganized Wherehouse
authorizes the issuance of 24,000,000 shares of common stock, par
value $0.01 per share (the "New Common Stock"). Up to 10,000,000
shares of New Common Stock are authorized to be issued under the
Plan. Reorganized Wherehouse will be the issuer of all New
Common Stock and warrants to be distributed under the Plan and
will distribute all cash and other consideration provided for in
the Plan. The Debtors will assign all of their executory
contracts and unexpired leases assumed during the Bankruptcy Case
and not otherwise assigned to Reorganized Wherehouse. After the
Plan becomes effective, the Debtors' bankruptcy estates will be
liquidated by Reorganized Wherehouse.
DISTRIBUTIONS UNDER THE PLAN
The Plan classifies the following classes of claims and
interests: Class 1 (Senior Lender Secured Claims), Class 2 (DC-2
Secured Claim), Class 3 (Miscellaneous Secured Claims), Class 4
(Miscellaneous Priority Claims), Class 5 (General Unsecured
Claims), Class 6 (Senior Lender Deficiency Claims), Class 7
(Senior Subordinated Note Claims), Class 8 (Convertible
Subordinated Debenture Claims), and Class 9 (Interests).
The Holders of senior lender claims (the "Senior
Lenders") are holders of the Debtors' prepetition bank debt and
have claims that are partially collateralized by assets of the
Debtors. The holders of General Unsecured Claims fall into two
general categories: trade creditors and other general unsecured
creditors. The Debtors' other major creditors are the holders of
the Senior Subordinated Notes of the registrant.
A portion of the Senior Lenders' total claims is a
secured claim. The Plan allows the Senior Lenders' secured
claims in the amount of $35,000,000.
The balance of the Senior Lenders' claims equals
$59,568,179.37 and are allowed in the Plan as unsecured
deficiency claims. These unsecured deficiency claims are of
equal legal rank with the claims of trade creditors and other
general unsecured creditors. Unlike trade creditors and other
general unsecured creditors, however, the Senior Lenders are the
beneficiaries of certain subordination provisions contained in
the indenture under which the Senior Subordinated Notes were
issued.
Accordingly, distributions under the Plan are as
follows:
In accordance with Bankruptcy Code Section 1123(a)(1)
under the Plan, allowed administrative expenses will be paid in
full on the latest of the effective date of the Plan (the
"Effective Date"), the date such claims become allowed, or
another date agreed by the parties.
Each holder of an allowed Senior Lender Secured Claim
will receive on account of such claim its pro rata share of (i)
the greater of $11,610,000 or the aggregate amount payable under
the Plan to eligible suppliers that exercise the Exchange Option
described below (the "Secured Claim Cash Distribution") and (ii)
117.6229653 shares of New Common Stock for each $1,000 in allowed
amount of Senior Lender Secured Claims after deducting the
Secured Claim Cash Distribution. New Common Stock distributed on
account of the Senior Lender Secured Claims should equal
approximately 2,436,560 shares of the New Common Stock assuming
an $11,610,000 Secured Claim Cash Distribution. Accordingly, of
the 10,000,000 authorized shares of New Common Stock to be issued
under the Plan, approximately 24.37% will be distributed to the
Senior Lenders on account of their secured claims.
After this distribution on account of the Senior
Lenders' secured claims, there will be a total of approximately
$236,920,000 in remaining unsecured claims including the
deficiency portion of the Senior Lenders' claims. The Plan
provides that the remaining 75.37% of Reorganized Wherehouse's
equity will be distributed in accordance with each class' pro
rata percentage representation of the total remaining unsecured
claims by allocating 31.92430893 shares of New Common Stock for
every $1,000 in allowed amount of unsecured claim. From that
amount, the Senior Lenders will receive 1,901,673 shares of New
Common Stock on account of their deficiency claims and 3,741,201
shares that would otherwise have been distributed to the holders
of Senior Subordinated Note Claims.
Trade creditors who are identified by Reorganized
Wherehouse as continuing suppliers and commit to provide normal
trade credit to Reorganized Wherehouse and exercise the exchange
of shares of New Common Stock for cash described below (the
"Exchange Option"), will receive cash equal to approximately 27%
of their allowed claims. This cash otherwise would be
distributed to the Senior Lenders on account of their secured
claims and the New Common Stock that otherwise would go to the
electing trade creditors will be distributed to the Senior
Lenders. Based on the Debtors' estimated trade claims of
$43,000,000, $11,610,000 of cash will be distributed to trade
creditors and the 1,372,745 shares of New Common Stock that would
have been distributed on account of their claims will be
distributed to the Senior Lenders.
Assuming that the allowed claims are consistent with
the Debtors' estimates and that all the trade creditors exercise
the Exchange Option, a total of 9,452,179 shares of New Common
Stock will be distributed to the Senior Lenders and 547,821
shares will be distributed to general unsecured creditors under
the Plan.
Holders of the Senior Subordinated Note Claims will
receive 576,000 Tranche A Warrants permitting the purchase of an
equal number of shares of New Common Stock with an exercise price
of $2.38 per share and a five year maturity, (b) 100,000 Tranche
B Warrants permitting the purchase of an equal number of shares
of New Common Stock with an exercise price of $9.00 per share and
a seven year maturity, (c) 100,000 Tranche C Warrants permitting
the purchase of an equal number of shares of New Common Stock
with an exercise price of $11.00 per share and a seven year
maturity and (d) $3,900,000 in cash.
Holders of Convertible Subordinated Debenture Claims
and common stock of WEI will receive no distributions under the
Plan.
PLAN RELEASES AND SETTLEMENTS
The Plan contains numerous compromises and settlements
including, without limitation, releases by the Debtors of all
bankruptcy and other causes of action (with certain limited
exceptions). One of the settlements is with Adler & Shakin
in the amount of $1,550,000, the proceeds of which will be
included in the $3,900,000 in cash to be distributed to the
holders of the Senior Subordinated Note Claims.
The above summary of the material features of the Plan
does not purport to be a complete description of the Plan and is
qualified in its entirety be reference to the Plan attached
hereto as Exhibits A, B & C to Exhibit 3.1
The number of shares of the registrant's common stock,
par value $0.01 per share, issued and outstanding is 10. The
number of shares of the common stock, par value $0.10, of the
registrant's parent, WEI Holdings, Inc., issued and outstanding
is 2,360,729.
As described above, no shares of the registrant will be
issued in respect of claims and interests filed and allowed under
the Plan. Instead, shares of the New Common Stock will be issued
as described above in respect of claims and interests filed and
allowed under the Plan.
The assets and liabilities of the Debtors for the
period ended October 31, 1996 are incorporated by reference to
the registrant's Form 10-Q for the period ended October 31, 1996
which were filed with the Securities Exchange Commission on
December 20, 1996.
ITEM 7. EXHIBITS.
Attached as Exhibit 3.1 hereto is the Confirmation
Order (Findings of Fact, Conclusions of Law and Order Confirming
Debtors' First Amended Chapter 11 Plan Under Chapter 11 of the
Bankruptcy Code), together with the following exhibits thereto:
Exhibit A: Debtors' First Amended Chapter 11 Plan, as
Revised for Technical Corrections on October
4, 1996, together with the following exhibits
thereto:
Exhibit A: Form of Asset Purchase
Agreement and exhibits
thereto;
Exhibit B: Bylaws of Reorganized
Wherehouse
Exhibit C: Certificate of Incorporation
of Reorganized Wherehouse
Exhibit D: Form of Open Credit Terms
Commitment and Option Exercise
Notice
Exhibit B: Supplemental Amendments to Debtors' First
Amended Chapter 11 Plan dated December 2,
1996;
Exhibit C: Supplemental Amendments to Debtors' First
Amended Chapter 11 Plan, dated December 13,
1996, together with the following exhibits
thereto:
Exhibit E: Form of Tranche A Warrant
Agreement
Exhibit F: Form of Tranche B Warrant
Agreement
Exhibit G: Form of Tranche C Warrant
Agreement
Exhibit H: Tag-Along Rights Agreement
The Plan is attached as Exhibits A, B and C to Exhibit
3.1 attached hereto as described above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to the
signed on its behalf by the undersigned hereunto duly authorized.
WHEREHOUSE ENTERTAINMENT INC
(Registrant)
Date January 22, 1997 By /s/ Henry Del Castillo
-----------------------------
Name: Henry Del Castillo,
Chief Financial Officer