EXHIBIT 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
NEWNAN DIVISION
In re: ) Chapter 11
)
DAN RIVER INC., et al. ) Case Nos. 04-10990 through 04-10993
) Jointly Administered
)
Debtors. ) Judge Drake
)
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DISCLOSURE STATEMENT FOR
JOINT PLAN OF REORGANIZATION FILED BY
DAN RIVER INC., THE BIBB COMPANY LLC,
DAN RIVER INTERNATIONAL LTD.
and
DAN RIVER FACTORY STORES, INC.
Dated the 28th day of July, 2004
- -----------------------------------------------------------------
Filed by:
Dan River Inc., The Bibb Company LLC, Dan River International
Ltd. and Dan River Factory Stores, Inc., Debtors and Debtors-In-
Possession
Attorneys for the Debtors and Debtors-In-Possession:
James A. Pardo, Jr.
Sarah R. Borders
King & Spalding LLP
191 Peachtree Street
Atlanta, Georgia 30303
(404) 572-4600
TABLE OF CONTENTS
I. INTRODUCTION 1
A. PURPOSE OF THIS DOCUMENT 1
B. SUMMARY OF THE PLAN 2
C. VOTING AND CONFIRMATION PROCEDURES 4
1. Who May Vote 4
2. Voting Instructions and Voting Deadline 5
3. Whom to Contact for More Information 6
4. Acceptance or Rejection of the Plan 6
5. Time and Place of the Confirmation Hearing 6
6. Objections to the Plan 6
II. HISTORY OF THE DEBTORS AND EVENTS LEADING TO THE
CHAPTER 11 FILING 7
A. FORMATION, BUSINESS, DEBT STRUCTURE, AND OTHER
PRE-PETITION OBLIGATIONS OF THE DEBTORS 7
1. Formation and History of the Debtors 7
2. The Debtors' Business Operations 10
3. Competitive Factors Affecting The Debtors'Businesses 12
4. Regulatory Factors Affecting The Debtors' Businesses 13
5. Debtors' Assets, Debt Structure, and Other
Pre-Petition Obligations 15
B. EVENTS LEADING TO, AND CIRCUMSTANCES SURROUNDING, THE
CHAPTER 11 FILING 16
III. CORPORATE GOVERNANCE OF THE DEBTORS DURING THE CHAPTER 11
CASES 17
A. BOARDS OF DIRECTORS 17
B. SENIOR MANAGEMENT 18
IV. SIGNIFICANT DEVELOPMENTS IN THE CHAPTER 11 CASES 19
A. "FIRST DAY" ORDERS AND RETENTION OF PROFESSIONALS 19
B. APPOINTMENT OF COMMITTEE 20
C. DEBTOR-IN-POSSESSION FINANCING 20
D. DISSEMINATION OF INFORMATION ABOUT THE CASE 21
E. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES 21
F. SEVERANCE AND KEY EMPLOYEE RETENTION 22
G. POST-PETITION FINANCIAL PERFORMANCE 22
H. CLAIMS BAR DATE AND CLAIMS SUMMARY 22
V. SUMMARY OF THE PLAN 23
A. CLASSIFICATION OF CLAIMS AND INTERESTS 23
1. Introduction 23
2. Classification 23
(a) Class 1 -- Other Secured Claims 24
(b) Class 2 -- Priority Claims 25
(c) Class 3 -- American National Bank Claim 25
(d) Class 4 -- General Unsecured Claims 25
(e) Class 5 -- Unsecured Convenience Claims 26
(f) Class 6 -- Subordinated Claims 26
(g) Class 7 -- Interests 26
B. TREATMENT OF UNCLASSIFIED CLAIMS 27
1. Summary 27
2. Administrative Expense Claims 27
3. Bar Date for Filing Administrative Expense Claims 28
4. Priority Tax Claims 28
5. DIP Lender Claims 29
VI. MEANS FOR IMPLEMENTATION OF THE PLAN 29
A. SOURCES OF FUNDING FOR DISTRIBUTIONS UNDER THE PLAN 29
B. POOLING OF CLAIMS 29
C. CORPORATE STRUCTURE AND GOVERNANCE OF THE
REORGANIZED DEBTORS 29
1. Continued Corporate Existence 29
2. Amended Certificates of Incorporation and By-Laws 30
3. New Boards of Directors and Officers 30
4. Long-Term Incentive Plan 31
5. Cancellation of Existing Securities of Dan
River and Agreements 31
6. Issuance of New Common Stock and Other Equity
Interests 31
D. PRESERVATION OF CAUSES OF ACTION 32
VII. PROVISIONS REGARDING DISTRIBUTIONS 32
A. DISBURSING AGENT 32
B. DISTRIBUTIONS OF CASH 32
C. NO INTEREST ON CLAIMS OR INTERESTS 32
D. SURRENDER OF SECURITIES OR INSTRUMENTS 33
E. DELIVERY OF DISTRIBUTIONS 33
F. DISTRIBUTIONS TO HOLDERS AS OF THE RECORD DATE 34
G. DEMINIMIS DISTRIBUTIONS 34
H. FRACTIONAL SECURITIES; FRACTIONAL DOLLARS 34
I. WITHHOLDING TAXES 34
VIII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 34
A. REJECTION OF CONTRACTS AND LEASES 34
B. CLAIMS BASED ON REJECTION OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES 35
C. CURE OF DEFAULTS FOR EXECUTORY CONTRACTS AND
UNEXPIRED LEASES 35
D. SURVIVAL OF CERTAIN CORPORATE INDEMNITIES 35
E. COMPENSATION AND BENEFIT PROGRAMS 36
F. RETIREE BENEFITS 36
IX. PROCEDURES FOR TREATING AND RESOLVING DISPUTED CLAIMS 36
A. OBJECTIONS TO CLAIMS 36
B. NO DISTRIBUTIONS PENDING ALLOWANCE 36
C. DISTRIBUTION RESERVE 36
D. ESTIMATION OF CLAIMS 37
E. RESOLUTION OF CLAIMS OBJECTIONS 37
F. DISTRIBUTIONS AFTER ALLOWANCE 37
G. NO RECOURSE 38
X. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE 38
A. CONDITIONS TO CONFIRMATION 38
B. CONDITIONS TO EFFECTIVE DATE 38
C. NON-WAIVEABLE CONDITIONS 39
XI. CERTAIN EFFECTS OF CONFIRMATION 39
A. VESTING OF THE DEBTORS' ASSETS 39
B. DISCHARGE OF THE DEBTORS 39
C. RELEASE BY DEBTORS OF CERTAIN PARTIES 40
D. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS 40
E. SETOFFS 41
F. EXCULPATION AND LIMITATION OF LIABILITY 41
G. INJUNCTION 41
H. MISCELLANEOUS PLAN PROVISIONS 42
1. Plan Supplement 42
2. Modification of Plan 42
3. Retention of Jurisdiction 42
4. Dissolution of Creditors' Committee 43
XII. CERTAIN RISK FACTORS TO CONSIDER 43
XIII. RESALE OF SECURITIES RECEIVED UNDER THE PLAN 46
A. ISSUANCE OF NEW COMMON STOCK 46
B. SUBSEQUENT TRANSFERS OF NEW COMMON STOCK 46
XIV. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES 47
A. INTRODUCTION 48
B. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO
THE DEBTORS 49
1. Cancellation of Indebtedness Income 49
2. Net Operating Losses - Section 382 49
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS 50
1. Holders of Secured Claims 51
2. Holders of Priority Claims and Unsecured
Convenience Claims 51
3. Accrued Interest 52
4. Market Discount 52
5. Holders of Unsecured Claims 52
6. Holders of Interests 53
7. Information Reporting and Backup Withholding 53
XV. CONFIRMATION AND CONSUMMATION PROCEDURE 53
A. GENERAL INFORMATION 53
B. SOLICITATION OF ACCEPTANCES 54
C. ACCEPTANCES NECESSARY TO CONFIRM THE PLAN 54
D. CONFIRMATION OF PLAN PURSUANT TO SECTION 1129(b) 54
E. CONSIDERATIONS RELEVANT TO ACCEPTANCE OF THE PLAN 54
F. FEASIBILITY OF THE PLAN 55
G. BEST INTEREST OF CREDITORS TEST 55
XVI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN 56
A. CONTINUATION OF THE BANKRUPTCY CASES 56
B. ALTERNATIVE PLANS OF REORGANIZATION 56
C. LIQUIDATION UNDER CHAPTER 7 56
XVII. RECOMMENDATION 57
I.
INTRODUCTION
A. PURPOSE OF THIS DOCUMENT
Dan River Inc., The Bibb Company LLC, Dan River International
Ltd., and Dan River Factory Stores, Inc., debtors and debtors-in-
possession in the above-captioned cases (the "Debtors") hereby submit
this Disclosure Statement pursuant to section 1125(b) of Title 11,
United States Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
and Rule 3017 of the Federal Rules of Bankruptcy Procedure, in
connection with the Joint Plan of Reorganization filed by the Debtors
dated July 27, 2004 (the "Plan"). A copy of the Plan is attached
hereto as Appendix A. All capitalized terms used but not defined in
the Disclosure Statement shall have the respective meanings ascribed
to such terms in the Plan, unless otherwise noted. In the event of
any inconsistency between the Disclosure Statement and the Plan, the
terms of the Plan shall govern and such inconsistency shall be
resolved in favor of the Plan.
The purpose of this Disclosure Statement is to enable you, as a
creditor whose Claim is Impaired under the Plan, to make an informed
decision in exercising your right to accept or reject the Plan.
By order dated [ ] 2004 (the "Disclosure Statement Approval
Order"), the United States Bankruptcy Court for the Northern District
of Georgia (the "Court") has found that the Disclosure Statement
provides adequate information to enable holders of Claims that are
impaired under the Plan to make an informed judgment in exercising
their right to vote for acceptance or rejection of the Plan.
DISCLAIMER
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE COURT
AS CONTAINING INFORMATION OF A KIND, AND IN SUFFICIENT DETAIL, TO
ENABLE HOLDERS OF CLAIMS TO MAKE AN INFORMED JUDGMENT IN VOTING TO
ACCEPT OR REJECT THE PLAN. APPROVAL OF THIS DISCLOSURE STATEMENT DOES
NOT, HOWEVER, CONSTITUTE A DETERMINATION OR RECOMMENDATION BY THE
BANKRUPTCY COURT AS TO THE FAIRNESS OR THE MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN
PROVISIONS OF THE PLAN, THE EXHIBITS ANNEXED TO THIS DISCLOSURE
STATEMENT, AND CERTAIN FINANCIAL INFORMATION. ALTHOUGH THE DEBTORS
BELIEVE THAT THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE
ADEQUATE INFORMATION WITH RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH
SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE
ENTIRE TEXT OF, OR ARE INCONSISTENT WITH, SUCH DOCUMENTS.
FURTHERMORE, ALTHOUGH THE DEBTORS HAVE MADE EVERY EFFORT TO BE
ACCURATE, THE FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN THE
SUBJECT OF AN AUDIT OR OTHER REVIEW BY AN ACCOUNTING FIRM. IN THE
EVENT OF ANY CONFLICT, INCONSISTENCY, OR DISCREPANCY BETWEEN THE TERMS
AND PROVISIONS IN THE PLAN, THIS DISCLOSURE STATEMENT, THE EXHIBITS
ANNEXED TO THIS DISCLOSURE STATEMENT, OR THE FINANCIAL INFORMATION
INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE PLAN SHALL GOVERN FOR
ALL PURPOSES. ALL HOLDERS OF CLAIMS SHOULD READ THIS DISCLOSURE
STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN.
THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE
BEEN MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS
OF CLAIMS AND INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT
INFER AT THE TIME OF SUCH REVIEW THAT THERE HAVE BEEN NO CHANGES IN
THE FACTS SET FORTH HEREIN, UNLESS SO SPECIFIED. ALTHOUGH THE DEBTORS
HAVE MADE AN EFFORT TO DISCLOSE WHERE CHANGES IN PRESENT CIRCUMSTANCES
COULD REASONABLY BE EXPECTED TO AFFECT MATERIALLY THE RECOVERY UNDER
THE PLAN, THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT CERTAIN
EVENTS DO OCCUR.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL
OR STATE SECURITIES LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAW.
PERSONS OR ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING,
SELLING, OR TRANSFERRING CLAIMS AGAINST THE DEBTORS SHOULD EVALUATE
THIS DISCLOSURE STATEMENT IN LIGHT OF THE PURPOSE FOR WHICH IT WAS
PREPARED.
IN ACCORDANCE WITH THE BANKRUPTCY CODE, THIS DISCLOSURE STATEMENT
HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"), NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
B. SUMMARY OF THE PLAN
The Plan contemplates the reorganization and ongoing business
operations by the Debtors, and the resolution of the outstanding
Claims against and Interests in the Debtors pursuant to sections
1121(a) and 1123 of the Bankruptcy Code. The Plan classifies all
Claims against and Interests in the Debtors into 7 separate Classes.
As a general matter, except for Subordinated Claims and a convenience
class for Claims less than $2,500, obligations owed to unsecured
creditors will be converted into New Common Stock. Except for the
American National Bank Claim, Secured Claims are Unimpaired. Existing
holders of equity interests in Dan River will not receive any
Distribution of New Common Stock on account of their existing equity
interests in Dan River. The Plan provides that unsecured priority
claims, post-petition administrative expenses, and priority tax claims
will be paid in full or otherwise treated in a manner so that such
claims will be unimpaired by the Plan.
A summary of the Classes, the treatment of each Class, and the
voting rights of each Class is set forth in the table below. A
complete description of the treatment of each Class is set forth in
Article III of the Plan and Section V of the Disclosure Statement.
Parties should refer to those sections for a complete description of
each Class.
<Table>
Class
Class Description Class Treatment Class Status Voting
Rights
- ----- ----------- --------------- ------------ --------
- -----
1 Other Secured Legal, equitable and Unimpaired Deemed
to accept
Claims contractual rights Plan;
not entitled
will be reinstated or to vote
collateral returned
2 Priority Paid in full in cash Unimpaired Deemed
to accept
Claims Plan;
not entitled
to vote
3 American Shall continue to be Impaired Entitled
to vote
National Bank secured and shall be
Claim paid in 150 monthly
payments at a fixed
rate of interest of
9%
4 General Unsecured claims in Impaired Entitled
to vote
Unsecured excess of $2,500 will
Claims receive a pro rata
share of the Class 4
Share of New Common
Stock
5 Unsecured Unsecured claims less Impaired Entitled
to vote
Convenience than $2,500 will
Claims receive a cash payment
equal to 30% of such
parties' Allowed Claim
6 Subordinated No distribution Impaired Deemed
to reject Plan;
Claims not
entitled to vote
7A Dan River Dan River Interests Impaired Deemed
to reject Plan;
Interests will be cancelled not
entitled to vote
and fully extinguished
under the Plan
7B Bibb Interests Interests will be Unimpaired Deemed
to accept Plan;
retained but no not
entitled to vote
distributions
will be received
under the Plan
7C Dan River Interests will be Unimpaired Deemed
to accept Plan;
International retained but no not
entitled to vote
Interests distributions
will be received
under the Plan
7D Dan River Interests will be Unimpaired Deemed
to accept Plan;
Factory retained but no not
entitled to vote
Stores Interests distributions
will be received
under the Plan
</Table>
Pursuant to section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims against the
Debtors are not classified for purposes of voting on, or receiving
Distributions under, the Plan. Similarly, Claims of the DIP Lender
under the DIP Loan Facility are not classified for purposes of voting
on, or receiving Distributions under, the Plan. Holders of such
Claims are not entitled to vote on the Plan. All such Claims are
instead treated separately in accordance with Article IV of the Plan
and in accordance with the requirements set forth in section
1129(a)(9)(A) of the Bankruptcy Code. A more complete description of
the treatment of Administrative Expense Claims and Priority Tax Claims
is provided in Article IV of the Plan and Section V.B of the
Disclosure Statement.
During the Bankruptcy Case, the Holders of Prepetition Lender
Claims received in full and final satisfaction of their Claims Cash
equal in amount to one hundred percent (100%) of their Claims and, as
a result, Prepetition Lender Claims are not classified or otherwise
provided for in this Plan and the Holders of Prepetition Lender Claims
are not entitled to vote to accept or reject the Plan.
C. VOTING AND CONFIRMATION PROCEDURES
Accompanying this Disclosure Statement are copies of the
following documents: (1) the Plan, which is annexed to this
Disclosure Statement as Exhibit A; (2) a Notice to Voting Classes; and
(3) a Ballot to be executed by Holders of Claims in Classes 3-5 to
accept or reject the Plan.
This Disclosure Statement, the form of Ballot, and the related
materials delivered together herewith (collectively, the "Solicitation
Package"), are being furnished to Holders of Claims in Classes 3-5 for
the purpose of soliciting votes on the Plan.
If you did not receive a Ballot in your Solicitation Package, and
believe that you should have received a Ballot, please contact the
Claims Agent, Bankruptcy Management Corporation, 1330 E. Franklin
Avenue, El Segundo, CA 90245-0949; or by telephone at (888) 909-0100.
1. Who May Vote
Pursuant to the provisions of the Bankruptcy Code, only classes
of Claims or Interests that are "impaired" and that are not deemed as
a matter of law to have rejected a plan of reorganization under
section 1126(g) of the Bankruptcy Code are entitled to vote to accept
or reject the Plan. Any class that is "unimpaired" is not entitled to
vote to accept or reject a plan of reorganization and is conclusively
presumed to have accepted the Plan. As set forth in section 1124 of
the Bankruptcy Code, a class is "impaired" if legal, equitable, or
contractual rights attaching to the claims or equity interests of that
class are modified or altered. For purposes of the Plan only, Holders
of Claims in Classes 3-5 are impaired and are entitled to vote on the
Plan.
A Claim must be "allowed" for purposes of voting in order for
such creditor to have the right to vote. Generally, for voting
purposes a Claim is deemed "allowed" absent an objection to the Claim
if (i) a proof of claim was timely filed, or (ii) if no proof of claim
was filed, the Claim is identified in the Debtors' Schedules as other
than "disputed," "contingent," or "unliquidated," and an amount of the
Claim is specified in the Schedules, in which case the Claim will be
deemed allowed for the specified amount. In either case, when an
objection to a Claim is filed, the creditor holding the Claim cannot
vote unless the Bankruptcy Court, after notice and hearing, either
overrules the objection, or allows the Claim for voting purposes.
Accordingly, if you did not receive a Ballot and believe that you are
entitled to vote on the Plan, you must file a Motion pursuant to
Federal Bankruptcy Rule 3018 with the Bankruptcy Court for the
temporary allowance of your Claim for voting purposes by [ ], 2004,
or you will not be entitled to vote to accept or reject the Plan.
THE DEBTORS IN ALL EVENTS RESERVE THE RIGHT THROUGH THE CLAIM
RECONCILIATION PROCESS TO OBJECT TO OR SEEK TO DISALLOW ANY CLAIM FOR
DISTRIBUTION PURPOSES UNDER THE PLAN.
2. Voting Instructions and Voting Deadline
All votes to accept or reject the Plan must be cast by using the
Ballot enclosed with this Disclosure Statement. No votes other than
ones using such Ballots will be counted, except to the extent the
Court orders otherwise. The Court has fixed [ ], 2004 as the date
(the "Voting Record Date") for the determination of the Holders of
Claims who are entitled to (a) receive a copy of this Disclosure
Statement and all of the related materials and (b) vote to accept or
reject the Plan. After carefully reviewing the Plan and this
Disclosure Statement, including the annexed exhibits, please indicate
your acceptance or rejection of the Plan on the Ballot and return such
Ballot in the enclosed envelope by no later than [ ] to:
By mail: By hand delivery or courier:
------ --------------------------
Dan River Inc. Dan River Inc.
c/o BMC c/o BMC
P.O. Box 949 1330 E. Franklin Avenue
El Segundo, CA 90245-0949 El Segundo, CA 90245
BALLOTS MUST BE COMPLETED AND RECEIVED NO LATER THAN 5:00 P.M.
(EASTERN TIME) ON [ ], 2004 (THE "VOTING DEADLINE"). ANY
BALLOT THAT IS NOT EXECUTED BY A DULY AUTHORIZED PERSON SHALL NOT BE
COUNTED. ANY BALLOT THAT IS EXECUTED BY THE HOLDER OF AN ALLOWED
CLAIM BUT THAT DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE
PLAN WILL BE DEEMED TO BE AN ACCEPTANCE. ANY BALLOT THAT IS FAXED
SHALL NOT BE COUNTED IN THE VOTING TO ACCEPT OR REJECT THE PLAN,
UNLESS THAT BALLOT IS ACCEPTED IN THE DEBTORS' DISCRETION.
3. Whom to Contact for More Information
If you have any questions about the procedure for voting your
Claim or the packet of materials you received, please contact the
Claims Agent at the address indicated above or by telephone at (888)
909-0100. If you wish to obtain additional copies of the Plan, this
Disclosure Statement, or the exhibits to those documents, at your own
expense, unless otherwise specifically required by Bankruptcy Rule
3017(d), please contact King & Spalding LLP, 191 Peachtree Street,
Atlanta, Georgia, 30303 Attn: Davida Steinberg; or by facsimile at
(404) 572-5149, Attn: Davida Steinberg; or by electronic mail, at
dsteinberg@kslaw.com.
4. Acceptance or Rejection of the Plan
The Bankruptcy Code defines "acceptance" of a plan by a class of
claims as acceptance by Holders of at least two-thirds in dollar
amount and more than one-half in number of the Allowed Claims in that
class that cast ballots for acceptance or rejection of the plan.
Assuming that at least one Impaired Class votes to accept the Plan,
the Debtors will seek to confirm the Plan under section 1129(b) of the
Bankruptcy Code, which permits the confirmation of a plan
notwithstanding the non-acceptance by one or more Impaired classes of
Claims or Interests. Under section 1129(b) of the Bankruptcy Code, a
plan may be confirmed if (a) the plan has been accepted by at least
one Impaired class of claims and (b) the Court determines that the
plan does not discriminate unfairly and is "fair and equitable" with
respect to the non-accepting classes. A more detailed discussion of
these requirements is provided in Section XV of this Disclosure
Statement.
5. Time and Place of the Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Court, after
notice, to hold a confirmation hearing. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to
confirmation of the Plan.
Pursuant to section 1128 of the Bankruptcy Code and Bankruptcy
Rule 3017(c), the Court has scheduled the Confirmation Hearing to
commence on [ ], 2004 at [ ] a.m. (Eastern time), before the
Honorable W. Homer Drake, Jr., of the United States Bankruptcy Court
for the Northern District of Georgia, in the Second Floor Courtroom,
Lewis R. Morgan Federal Building, 18 Greenville Street, Newnan,
Georgia. A notice setting forth the time and date of the Confirmation
Hearing has been included along with this Disclosure Statement. The
Confirmation Hearing may be adjourned from time to time by the Court
without further notice, except for an announcement of such adjourned
hearing date by the Court in open court at such hearing.
6. Objections to the Plan
Any objection to confirmation of the Plan must be in writing;
must comply with the Bankruptcy Code, Bankruptcy Rules, and the Local
Rules of the Court; and must be filed with the United States
Bankruptcy Court for the Northern District of Georgia, Newnan Division
Lewis R. Morgan Federal Building, 18 Greenville Street, Newnan,
Georgia, and served upon the following parties, so as to be received
no later than [ ], 2004 at 4:00 p.m. (Eastern time): (a) James A.
Pardo, Jr., King & Spalding LLP, 191 Peachtree Street, Atlanta,
Georgia 30303 (counsel for Debtors); (b) R. Jeneane Treace, Office of
the United States Trustee, 75 Spring Street, S.W., Atlanta, Georgia
30303; (c) Michael S. Stamer, Akin Gump Strauss Hauer & Feld LLP, 590
Madison Avenue, New York, NY 10022 (counsel for the Committee); and,
(d) Robert J. Rosenberg, Latham & Watkins, 885 Third Avenue, Suite
1000, New York, NY 10022-4834 (Counsel for Deutsche Bank Trust Company
Americas).
II.
HISTORY OF THE DEBTORS AND
EVENTS LEADING TO THE CHAPTER 11 FILING
A. FORMATION, BUSINESS, DEBT STRUCTURE, AND OTHER PRE-PETITION
OBLIGATIONS OF THE DEBTORS
1. Formation and History of the Debtors
Dan River is a Georgia corporation with principal offices located
at 2291 Memorial Drive, Danville, Virginia 24541. The remaining
Debtors, Bibb, Dan River Factory Stores and Dan River International
are wholly-owned subsidiaries of Dan River.
Founded in 1882, the Debtors are a leading designer, manufacturer
and marketer of products for the home fashions and apparel fabrics
markets. The Debtors design, manufacture and market a coordinated
line of value-added home fashions products consisting of bedroom
furnishings such as comforters, sheets, pillowcases, shams, bed
skirts, decorative pillows and draperies. As the pioneer of the
complete bed ensemble concept, the Debtors market their "Bed-in-a-Bag"
ensembles to retailers in all trade classes. The Debtors believe the
complete bed ensemble has achieved wide acceptance with both retailers
and consumers as a highly efficient and convenient way of purchasing
in one convenient package all of the components required to dress a
bed. The Debtors believe they are a leading provider of home fashions
products for the juvenile market using a variety of well-known
licensed names and trademarks, including their own "Dan River" name.
During fiscal 2003, sales of their complete bed ensembles and juvenile
products comprised 72% of the net sales in their home fashions
business.
The Debtors also design, manufacture and market a broad range of
high quality woven cotton and cotton-blend apparel fabrics. The
Debtors market their apparel fabrics to a diverse group of customers
which use their fabrics in a wide array of finished products,
including career apparel, sportswear, dress shirts, home textiles and
upholstery. Additionally, the Debtors manufacture and sell specialty
engineered yarns and woven fabrics for use in making high-pressure
hoses and other industrial products, which the Debtors refer to as
engineered products.
In February 1997, the Debtors acquired substantially all of the
assets and assumed certain liabilities of The New Cherokee Corporation
("Cherokee"), for an aggregate purchase price of approximately $65
million. Cherokee, which was a supplier of yarn-dyed fabrics to men's
and women's shirting manufacturers and of sportswear fabrics to the
converting trade, was the Debtors' primary competitor for these
fabrics. In connection with the Cherokee acquisition, the Debtors
acquired woven fabrics manufacturing facilities located in Spindale,
North Carolina and Sevierville, Tennessee, and a finishing facility
located in Harris, North Carolina.
In October 1998, the Debtors purchased all the outstanding
capital stock of The Bibb Company through a merger transaction for an
aggregate purchase price of approximately $240 million. The purchase
price consisted of $86 million of cash and 4.3 million shares of Dan
River Class A Common Stock. In connection with the acquisition, the
Debtors also assumed or repaid an aggregate of $95 million of Bibb's
debt. Bibb, which was founded in 1876, was a leading domestic
manufacturer of home fashions textile products. Bibb had net sales of
$249 million and a net loss of $28 million during its last fiscal year
prior to the acquisition.
The Bibb acquisition broadened the Debtors' home fashions
products to include juvenile products and products for the hospitality
and health care markets. As a result of the Bibb acquisition, the
Debtors believe that they are a leading manufacturer of bedding
products for the juvenile market under a number of well-known licensed
names, as well as their own "Dan River" brand. The Bibb acquisition
expanded the Debtors' home fashions products manufacturing operations
by approximately 50%, adding spinning and weaving operations located
in Greenville, South Carolina, finishing operations located in
Brookneal, Virginia, and sewing facilities located in Fort Valley and
Newnan, Georgia, and in Brookneal, Virginia. The Debtors also
acquired their engineered products business, located in Porterdale,
Georgia, from Bibb.
In December 1998, the Debtors purchased a 315,000 square foot
sewing facility located in Morven, North Carolina, for an aggregate
purchase price of approximately $2.4 million. The Debtors purchased
this facility to reduce their dependence on outside manufacturers for
the fabrication of home fashions products.
In January 2000, the Debtors entered into joint venture
agreements with Grupo Industrial Zaga, S.A. de C.V. ("Zaga") for the
purpose of building and operating textile and garment manufacturing
plants in Mexico. The Debtors invested approximately $750,000 in land
designated for the construction of the textile operation. Subsequent
analysis suggested, however, that certain costs, such as plant
construction and utilities, were higher than originally anticipated.
These higher costs, together with generally weak apparel fabrics
market conditions, reduced anticipated returns from the textile
manufacturing plant to a level the Debtors considered unacceptable.
As a result, the Debtors suggested to Zaga that they should not
proceed with construction of the Mexican textile manufacturing plant.
The Debtors did, however, proceed with the construction of the
garment manufacturing plant at Jilotepec in the State of Mexico. This
facility was engaged in manufacturing shirts primarily for sale to the
career apparel and retail trades and included laundry facilities to
complement the sewing operations. The Debtors produced most of the
apparel fabrics used by the plant. The plant has not operated
profitably, and accordingly, the Debtors have decided to close the
plant during the third quarter of fiscal 2004.
The Debtors held approximately a 50% interest in the textile and
garment joint ventures at the time they were formed. The Debtors and
Zaga negotiated an amicable termination of both joint ventures in
February 2001, at which time the Debtors bought Zaga's interest in the
garment joint venture for $3.2 million in cash and the transfer of the
land previously acquired for the textile plant. The Debtors'
international subsidiaries include the following Mexican entities:
Dan River de Mexico, S. de R.L. de C.V. ("DRMEX"), Maquilas Pinnacle,
S. de R.L. de C.V. and Adsercorp, S. de R.L. de C.V. (collectively,
the "Mexico Companies"). Dan River International is the holding
company for the Debtors' international operations. The Mexico
Companies are the equivalent of limited liability companies. However,
Mexico does not allow single member limited liability companies.
Therefore, Dan River owns a one peso interest in DRMEX. The remaining
Mexico Companies own a one peso interest in each other. Dan River
International owns all remaining interests in the Mexico Companies.
Dan River B.V. is a Netherlands corporation that was formed in 2000 as
a wholly-owned subsidiary of Dan River International to hold Dan River
International's interests in the Mexico Companies. However, those
interests were never transferred to Dan River B.V., and Dan River B.V.
has nominal assets. Neither Dan River B.V. nor any of the Mexico
Companies are debtors in these proceedings.
In April 2000, the Debtors purchased substantially all of the
assets of Import Specialists, Inc. ("ISI") for $15.4 million in cash
and the assumption of certain operating liabilities. ISI, an importer
of home fashions products complementary to the Debtors' customer base,
including doormats, throws, and rugs manufactured primarily in China
and India, became a part of the Debtors' home fashions business.
In May 2000, the Debtors acquired an additional 301,200 square
foot warehouse and distribution facility adjacent to their Riverpointe
distribution facility in Danville, Virginia for $4.3 million. This
facility was necessary to service increased demand for the Debtors'
home fashions products which the Debtors were experiencing at that
time.
The Debtors closed their Riverside Plant in the fourth quarter of
fiscal 1997 and their Spindale Plant in January 1999. This
consolidation reduced the number of apparel fabrics weaving plants
from four to two.
In 2002, the Debtors completed a consolidation which included the
closure of the Newnan, Georgia home fashions sewing plant and
consolidation of its capacity primarily into the Debtors' Brookneal
and Danville, Virginia sewing operations. Additionally, the Debtors
reduced their apparel fabrics weaving capacity by relocating certain
looms from their weaving facility in Danville to the Sevierville,
Tennessee plant and replacing those looms with newer, modern looms
utilized primarily for weaving home fashions products. In connection
with the installation of the newer home fashions looms in Danville,
the Debtors closed a portion of their home fashions weaving operation
at the Greenville, South Carolina plant, resulting in a modest
reduction in home fashions weaving capacity.
In 2003, the Debtors further consolidated their home fashions and
apparel fabrics manufacturing operations by closing their home
fashions sewing plant in Fort Valley, Georgia, their home fashions
distribution facility in Juliette, Georgia, and their remaining home
fashions weaving operations in Greenville, South Carolina. The
Debtors also announced that the Debtors would close their Sevierville,
Tennessee weaving facility in fiscal 2004. Certain of these
operations are being consolidated in the Debtors' remaining
manufacturing and distribution facilities. As a result of these
changes, the Debtors eliminated over 850 employees for an estimated
annual savings of $13.6 million.
2. The Debtors' Business Operations
The Debtors operate in three business segments: home fashions,
apparel fabrics and engineered products.
(a) Home Fashions Division.
The Debtors' home fashions products include bedroom furnishings
such as comforters, sheets, pillowcases, shams, bed skirts, decorative
pillows and draperies that are marketed under the "Dan River" name, as
well as under private labels of major retail customers and under
licenses from, among others, "Carribean Joe", "Colours by Alexander
Julian", "Country Living" and "Lilly Pulitzer." The Debtors also
market home fashions products for the juvenile market under the "Dan
River" name, as well as a number of licensed names and trademarks,
including among others:
.. "Barbie," . "Powerpuff Girls,"
.. "Bob the Builder," . "Power Rangers,"
.. "Hummer," . "Robots,"
.. "I Spy," . "Rubbadubbers,"
.. "Lego," . "Scooby-Doo,"
.. "Lionel Trains," . "So Girly,"
.. "Lockheed Martin," . "Spider-Man 2,"
.. "Looney Tunes," . "Spongebob Squarepants,"
.. "Major League Baseball," . "Star Wars,"
.. "NASCAR," . "Stuart Little 2,"
.. "NBA," . "The Wiggles," and
.. "NFL," . "Thomas and Friends."
.. "NHL,"
The Debtors have also utilized their expertise in juvenile
licensing to introduce licensed products in the young adult market.
Through a licensing agreement with Seventeen magazine, the Debtors
have made in-roads into the teenage markets.
The Debtors had net sales attributable to home fashions products
of:
. $342.1 million in fiscal 2003,
. $441.2 million in fiscal 2002, and
. $469.9 million in fiscal 2001.
(b) Apparel Fabrics Division.
The Debtors manufacture a broad range of high quality woven
cotton and cotton-blend fabrics, which the Debtors market primarily to
manufacturers of men's, women's and children's clothing. The specific
markets are career apparel, government and military, sportswear and
dress shirts. The Debtors' yarn-dyed and piece-dyed apparel fabrics
include:
. oxford cloth,
. pinpoint oxford cloth,
. fancy broad cloth,
. seersuckers,
. mid and light weight denim,
. twills,
. chambrays, and
. pant fabrics.
The Debtors believe that they have a reputation as a leader in
creating new fabric styles and designs within the apparel fabrics
market. The Debtors' product development professionals work
independently as well as directly with customers to develop new fabric
styles and constructions to respond to retailers' and consumers' needs
and direction. The Debtors' development strategy is focused on a
variety of novel, functional fabrics and finishes.
The Debtors also manufacture and market fabrics utilizing
"Tencel" lyocell, an innovative natural fiber which had been used
primarily in manufacturing women's sportswear. Product development
efforts involve fabrics which incorporate new product finishes for end
uses such as stain defense, antimicrobial and odor control, and
comfort stretch and other innovative fabrics for use in pants and
other product categories outside of the traditional shirting lines.
The Debtors also manufacture and distribute (1) fabrics for use
in decorating, crafts and garment sewing, (2) 100% cotton and cotton-
blend upholstery fabrics and (3) greige (unfinished) fabrics to
converters. The Debtors had net sales attributable to apparel fabrics
products of:
. $101.8 million in fiscal 2003,
. $131.5 million in fiscal 2002, and
. $118.9 million in fiscal 2001.
(c) Engineered Products Division.
The Debtors' engineered products consist of coated yarns and
woven fabrics that are manufactured to customer specification for use
in such products as high pressure hoses for the automotive industry,
conveyer belts and other industrial applications. The Debtors are the
only U.S. producer to provide both water- and solvent-based adhesive
systems. The Debtors had net sales attributable to engineered
products of:
. $33.6 million in fiscal 2003,
. $40.3 million in fiscal 2002, and
. $42.3 million in fiscal 2001.
3. Competitive Factors Affecting The Debtors' Businesses
The Debtors' competitive position varies by product line.
Competitive factors include:
. price,
. product styling and differentiation,
. quality,
. flexibility of production and finishing,
. delivery time, and
. customer service.
The Debtors sell their products primarily to domestic customers
and compete with both large, vertically integrated textile
manufacturers and numerous smaller companies specializing in limited
segments of the market. The Debtors' competitors include both
domestic and foreign companies, a few of which are larger in size
and/or have significantly greater financial resources than the
Debtors. The Debtors are one of several domestic manufacturers of
home fashions products. Certain of their competitors have a
significantly greater share of the domestic market than the Debtors
do, including WestPoint Stevens Inc. and Springs Industries, Inc.,
which the Debtors believe collectively account for over 50% of the
home fashions bedding products market. The Debtors believe that over
70% of the apparel fabrics, much of which are imported in the form of
garments, and over 50% of the home fashions products sold in the U.S.
are manufactured overseas. Most sport shirts sold in the U.S. are
manufactured outside of the U.S. Due in significant part to the
competitive environment, the U.S. textile industry has experienced
significant consolidation over the past several years. The Debtors
nevertheless have sought and continue to seek opportunities under
these circumstances to focus their operations on various value-added
businesses that, by their nature, are resistant to imports.
Additionally, to supplement the Debtors' own manufacturing
capabilities and product lines, the Debtors seek to obtain low cost
finished products and product components from a variety of foreign and
domestic sources.
The Debtors have made significant investments in state of the art
business management computer systems, such as the SAP enterprise
resource planning and i2 production planning systems. The Debtors are
currently utilizing their design and product development expertise and
their state of the art systems, in cooperation with their customers,
to integrate their internal manufacturing capabilities with outside
sourcing initiatives in an effort to supply complex, value-added
products at attractive price points, with reduced lead times and lower
inventory risk.
The Debtors believe that they are the largest producer of
finished light weight yarn-dyed woven cotton and cotton-blend apparel
fabrics in the U.S. With respect to men's shirtings, based on net
sales, the Debtors believe they are the largest producer of oxford
cloth and pinpoint oxford cloth and the leading producer of light
weight yarn-dyed shirting fabrics in the Western Hemisphere. In the
sportswear and upholstery fabrics markets, the Debtors are one of a
number of domestic producers. In the sport shirt market, the Debtors
are one of many world-wide producers.
The Debtors believe they are in a unique position to service the
core demand for fabrics by garment manufacturers desiring to maintain
a manufacturing base in the Western Hemisphere. The NAFTA and CBI
trade initiatives, described below, as well as the Debtors' proximity
and ability to respond promptly to their needs, help make the Debtors'
products attractive to these core customers in comparison to imported
fabrics from other parts of the world. Additionally, certain of the
Debtors' customers, such as career apparel manufacturers, remain
focused on a domestic source of supply and are a significant part of
the Debtors' apparel fabrics business. The Debtors seek to enhance
their core product offerings through their product development efforts
as the Debtors create new product finishes for special end uses such
as stain defense, antimicrobial and odor control, and as the Debtors
develop comfort stretch and other innovative products for use in pants
and other fabric categories outside of their traditional shirting
lines. Additionally, the Debtors believe their design expertise and
their emphasis on shortening production and delivery times allow the
Debtors to respond quickly to changing fashion trends and to their
domestic customers' delivery schedules.
4. Regulatory Factors Affecting The Debtors' Businesses
(a) Trade Regulation.
The trade initiatives described below are very complex,
especially in the way in which they interact with each other. This
complexity is exacerbated by the high degree of variability and
unpredictability displayed by the regulatory agencies of each country
in interpreting and enforcing the applicable laws. Additionally,
governmental monetary and tax policies of U.S. trading partners can
have substantial impact on the Debtors' ability to compete with
imports from those countries. The Debtors believe that collectively,
international trade laws and policies, and particularly the
interpretation and enforcement policies adopted by the U.S. and its
trading partners, have had an adverse effect on the textile and
apparel industries in the U.S. The Debtors can provide no assurance
that this situation will improve, or that such laws and policies, and
the interpretation and enforcement thereof, will not have a further
adverse impact on the Debtors' business in the future.
The extent of import protection afforded by the U.S. government
to domestic textile producers has been, and continues to be, subject
to considerable domestic political deliberation. NAFTA, which was
entered into by the U.S., Canada and Mexico, has created the world's
largest free-trade zone. The agreement contains safeguards sought by
the U.S. textile industry, including a rule of origin requirement that
products be processed in one of the three countries in order to
benefit from NAFTA. NAFTA phases out all trade restrictions and
tariffs on textiles and apparel among the three countries. In
addition, NAFTA requires merchandise to be made from yarns and fabrics
originating in North America in order to avoid trade restrictions.
Thus, not only must apparel be made from North American fabric, but
the fabric must be woven from North American spun yarn. Similar
protections are afforded to apparel manufacturers based in certain
Caribbean and Central American countries which ship finished garments
into the U.S. under Item 9802.00.80 of the Harmonized Tariff Schedule
of the U.S. as authorized by the Caribbean Basin Recovery Act (the
"CBI"). Item 9802.00.80 reduces certain tariffs which would otherwise
apply to apparel garments manufactured outside the U.S. and shipped
into the U.S., provided that the garments are manufactured from fabric
produced and cut domestically. The Caribbean Basin Trade Partnership
Act (the "CBTPA"), became law in 2000. The CBTPA expands the current
CBI program by allowing duty-free and quota-free treatment for imports
of certain apparel from the Caribbean Basin, and by extending NAFTA-
equivalent tariff treatment to a number of other products previously
excluded from the CBI program. Specifically, under the CBTPA,
garments assembled in one or more CBTPA designated countries from
fabrics wholly formed in the U.S. from yarns wholly formed in the
U.S., would be eligible for such favorable treatment. The Debtors
believe that collectively NAFTA and CBI, as modified by CBTPA, should
be beneficial for them and other domestic producers of apparel
fabrics, because they create an attractive manufacturing base for
apparel in close proximity to the U.S.
In 1995, the World Trade Organization, or WTO, established
mechanisms to progressively liberalize world trade in textiles and
clothing by eliminating quotas and reducing duties over a 10-year
period beginning in January 1995. The selection of products at each
phase is made by each importing country and must be drawn from each of
the four main textile groups: tops and yarns, fabrics, made-up textile
products and apparel. In 2000, Congress passed and the President
signed the African Growth and Opportunity Act (the "AGOA"), which is
intended to promote growth and economic prosperity of certain sub-
Saharan African countries through, among other things, greater duty-
free access to U.S. markets. The elimination of quotas and the
reduction of tariffs under the WTO, together with the effects of the
AGOA, have resulted in increased imports of certain textile products
and apparel into North America. These factors have made the Debtors'
products less competitive against low cost imports from developing
countries. Additionally, macroeconomic factors such as the strength
of the dollar versus foreign currencies (particularly Asian
currencies) have had and could continue to have an adverse effect on
the Debtors' ability to compete with foreign imports.
(b) Environmental Regulation.
The Debtors must comply with various federal, state and local
environmental laws and regulations limiting the discharge of
pollutants and the storage, handling and disposal of a variety of
substances. In particular, the Debtors' dyeing and finishing
operations result in the discharge of substantial quantities of
wastewater and emissions to the atmosphere. The Debtors must comply
with the federal Clean Water and Clean Air Acts, and related state and
local laws and regulations. The Debtors' operations also are governed
by laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and
regulations thereunder, which, among other things, establish cotton
dust, formaldehyde, asbestos and noise standards, and regulate the use
of hazardous chemicals in the workplace. The Debtors believe that
they currently comply in all material respects with applicable
environmental or health and safety laws and regulations.
The Debtors are currently evaluating recent regulatory
initiatives under the Clean Air Act which pertain to nitrogen oxide
air emissions and hazardous air pollutant emissions. These
initiatives could potentially require some combination of process
changes or limitations, or additional air emissions monitoring or
control equipment at certain of the Debtors' facilities which, in
turn, could require capital expenditures, increase operating costs or
limit their operations. Based on the information presently available,
the Debtors do not believe that the cost of, or any operational
constraints or modifications required to, assure future compliance
with the above-described laws, regulations and initiatives, or to
remediate existing environmental contamination, will have a material
adverse effect on their results of operations or financial condition.
However, there can be no assurance that:
. upon further evaluation, the Debtors will not
determine that the Clean Air Act initiatives
described above will be more costly or more
restrictive to their operations than they now
believe,
. environmental requirements will not become more
stringent in the future,
. the position taken by various regulatory agencies in
respect of regulatory matters or allegedly
contaminated sites will not change in a manner
materially adverse to the Debtors,
. claims in material amounts will not be brought by
regulatory agencies or third parties,
. additional sites which are alleged to have been
contaminated by the Debtors or their predecessors
will not be discovered,
. assessments as to extent or nature of contamination
or need for clean-up of sites will not change, or
. the Debtors will not incur material costs in order to
address any such matters.
5. Debtors' Assets, Debt Structure, and Other Pre-Petition
Obligations
Information concerning the assets and liabilities of the Debtors
is found in the Schedules filed by the Debtors with the Court. As
reflected in the Debtors' Schedules, as of April 3, 2004, the Debtors
had estimated assets totaling approximately $426,000,000, at book
value, and estimated liquidated secured liabilities of approximately
$121,000,000.
On April 15, 2003, the Debtors completed the refinancing of
substantially all of their outstanding long-term debt. The
refinancing included the sale, at 95.035 percent of par, of 12-3/4
percent senior notes due 2009 in the aggregate principal amount of
$157 million. In addition, the Debtors entered into the Prepetition
Credit Agreement dated April 15, 2003 with Deutsche Bank Trust Company
Americas, as Agent for the Prepetition Lenders. The Prepetition
Credit Agreement provided for a five-year $40 million term loan and a
$160 million revolving credit facility.
As of the Petition Date, the principal and interest outstanding
under the term loan was approximately $34.42 million, and the
principal and interest outstanding under the revolving credit facility
was approximately $79.25 million. In addition, letters of credit in
the approximate amount of $4.53 million were outstanding under the
terms of the Prepetition Credit Agreement, for a total amount
outstanding under the Prepetition Credit Agreement of approximately
$118.20 million as of the Petition Date. The Debtors' obligations
under the Prepetition Credit Agreement were secured by substantially
all of the Debtors' assets. During the Bankruptcy Case, and as a
result of the DIP Loan Facility, described in more detail in
Section IV.C of this Disclosure Statement, the Holders of Prepetition
Lender Claims previously received, in full and final satisfaction of
their Claims Cash equal in amount to one hundred percent (100%) of
their Claims and, as a result, Prepetition Lender Claims are not
classified or otherwise provided for in this Plan and the Holders of
Prepetition Lender Claims are not entitled to vote to accept or reject
the Plan.
B. EVENTS LEADING TO, AND CIRCUMSTANCES SURROUNDING, THE CHAPTER 11
FILING
In fiscal 2003, the Debtors experienced a significant drop in
revenues beginning in the second quarter. Retail sales of the
Debtors' products began to weaken in the second quarter due to a
lackluster retail environment in general and inventory adjustments by
some of their customers, including their largest customer, Kmart. For
fiscal 2003, total revenues were down 22.1 percent compared to the
previous year. During the second, third and fourth quarters of fiscal
2003, in response to the drop in sales, the Debtors initiated plans to
eliminate approximately $18 million in annual expenses through the
closure and consolidation of manufacturing facilities and a reduction
of workforce. Four manufacturing facilities were closed, which
eliminated over 850 positions for a total estimated annual savings of
$13.6 million. Approximately 80 managerial and administrative
positions were eliminated which reduced annual expenses by over $4
million. The benefits of these cost-cutting efforts were not expected
to be realized until fiscal 2004, too late to mitigate a continued
reduction in gross profit caused by the poor economic environment.
The Debtors' gross profit for fiscal 2003 was approximately $61
million less than their gross profit for the previous year.
As a result of the Debtors' financial performance, they failed to
meet the maximum leverage ratio covenant contained in the Prepetition
Credit Agreement for the third quarter of 2003. The Debtors and the
Prepetition Lenders entered into an amendment of the Prepetition
Credit Agreement that waived the covenant violation and imposed new
requirements for minimum levels of excess availability and monthly
operating EBITDA. An additional amendment and waiver to the
Prepetition Credit Agreement was executed in December 2003, waiving
certain anticipated defaults resulting from the Debtors' financial
performance and imposing additional requirements on the Debtors.
Another amendment was executed in January 2004 modifying certain terms
of the Prepetition Credit Agreement. Among other things, the
Prepetition Credit Agreement, as amended, required the Debtors to
deliver to the Prepetition Agent on March 31, 2004 satisfactory
evidence that the Debtors would be in compliance with the financial
covenants in the Prepetition Credit Agreement for the fiscal quarter
ending April 3, 2004. The Debtors' sales and profitability did not
sufficiently improve to be in compliance with all of the Prepetition
Credit Agreement's financial covenants. As a result, commencing April
1, 2004, the Debtors would have been in default under the Prepetition
Credit Agreement. Accordingly, the Debtors no longer had access to
the funds necessary to meet their operating expenses and were faced
with a loss of enterprise value if they did not restructure their debt
and obtain additional financing. Therefore, the Debtors concluded,
after consultation with their advisors, that their interests and the
interests of their creditors and employees were best served by a
reorganization under Chapter 11 of the Bankruptcy Code.
III
CORPORATE GOVERNANCE OF THE
DEBTORS DURING THE CHAPTER 11 CASES
A. BOARDS OF DIRECTORS
The board of directors of Dan River has five members. Joseph L.
Lanier, Jr., the chairman of the board of Dan River, also serves as
the sole director of Dan River Factory Stores and Dan River
International and is the sole manager of Bibb. The directors of Dan
River are divided into three classes with the directors in each class
serving a term of three years. Directors for each class are elected at
the annual meeting of shareholders held in the year in which the term
for their class expires. Additionally, directors newly elected by the
Board must stand for re-election by the shareholders at the next
annual meeting following their election by the Board. Directors serve
until the annual meeting held during the year their term expires,
until their successors are elected and qualified, or until their
death, resignation or removal. Certain information concerning Dan
River's directors is provided below.
The following table sets forth information concerning Dan River's
directors:
<Table>
Name Age Expiration of Term
- ---- --- ------------------
Donald J. Keller 72 2004
Joseph L. Lanier, Jr. 72 2004
Edward J. Lill 72 2006
John F. Maypole 65 2006
Rainer H. Mimberg 62 2005
</Table>
Donald J. Keller has been a director of Dan River since 1998. Mr.
Keller was non-executive chairman of Vlasic Foods, International from
1998 until 2001. From 1993 until 1998 he was chairman of B.
Manischewitz Company, a food manufacturer, and was co-chief executive
officer of B. Manischewitz Company from 1992 until 1993. From 1995
until 1997 he was chairman of the board of Prestone Products
Corporation, an automotive chemicals manufacturer.
Joseph L. Lanier, Jr. has been chairman of the board of directors
and chief executive officer of Dan River since 1989. Mr. Lanier is
also a director of Flowers Foods, Inc., a food company, Torchmark
Corporation, an insurance company, and Dimon Incorporated, a tobacco
products company.
Edward J. Lill has been a director of Dan River since 1997. Mr.
Lill was a senior partner and vice chairman of the accounting firm
Deloitte & Touche from 1988 until his retirement in 1995.
John F. Maypole has been a director of Dan River since 1992. Mr.
Maypole has for the past 20 years served as a consultant to and/or
director of various corporations and providers of financial services,
prior to which he served in various financial and general management
capacities with two publicly owned companies. Mr. Maypole also serves
as a director of MassMutual Financial Group, a life insurance and
financial services company, and Church and Dwight Co., Inc., a
household consumer product and specialty chemical company.
Rainer H. Mimberg has been a director of Dan River since 2002.
Mr. Mimberg spent most of his career at Bestfoods, an international
food company, until his retirement in 2000. He was Vice President-
Investor Relations of Bestfoods from 1998 until 2000 and Vice
President-Finance from 1997 until 1998. Prior to 1997 he served in a
number of management capacities, primarily involving Bestfoods'
international operations.
B. SENIOR MANAGEMENT
The following table sets forth information concerning Dan River's
executive officers:
<Table>
Name Age Position Held
- ---- --- -------------
Joseph L. Lanier, Jr. 72 Chairman, Chief Executive
Officer and Director
Thomas L. Muscalino 53 President and Chief
Operating Officer
Barry F. Shea 55 Executive Vice President-
Chief Financial Officer
Gregory R. Boozer 49 Executive Vice President-
Manufacturing
Harry L. Goodrich 53 Vice President, Secretary
and General Counsel
Denise Laussade 46 Vice President-Finance
Gary D. Waldman 48 Vice President-Controller
</Table>
Joseph L. Lanier, Jr. has been chairman of the board of directors
and chief executive officer of Dan River or its predecessor since
1989. Mr. Lanier is also a director of Flowers Foods, Inc. (a food
company), Torchmark Corporation (an insurance company) and Dimon
Incorporated (a tobacco products company).
Thomas L. Muscalino was president of Dan River's home fashions
division from 1993 until he was promoted to president and chief
operating officer effective August 29, 2003.
Barry F. Shea was vice president-finance, chief financial officer
and assistant secretary of Dan River from 1989 until 1996 and was vice
president-chief financial officer from 1996 until October 1998, when
he was elected executive vice president-chief financial officer.
Gregory R. Boozer was vice president-manufacturing services of
Dan River from 1989 until October 1998, when he was elected executive
vice president-manufacturing.
Harry L. Goodrich has been secretary and general counsel of Dan
River since 1989 and has been vice president since 1995.
Denise Laussade has been vice president-finance of Dan River
since October 1999 and was assistant treasurer of Darden Restaurants,
Inc. from 1995 to 1999. From July to October 1999, Ms. Laussade served
as director-marketing analysis for a subsidiary of Darden Restaurants,
Inc.
Gary D. Waldman has been controller of Dan River since 1996. He
was assistant controller from 1992 until 1996, and director of taxes
from 1990 until 1992. He was elected vice president-controller in
February 2001.
Dan River's executive officers are elected by the board of
directors and generally hold office until the next annual meeting of
Dan River's directors or until their successors are elected and
qualified.
IV.
SIGNIFICANT DEVELOPMENTS IN THE CHAPTER 11 CASES
A. "FIRST DAY" ORDERS AND RETENTION OF PROFESSIONALS
On the Petition Date, the Debtors filed "first day" motions and
applications with the Court seeking certain relief to aid in the
efficient administration of the Bankruptcy Cases and to facilitate the
Debtors' transition to debtor-in-possession status. These motions and
applications were granted at the "first day" hearing held on April 1,
2004. Pursuant to the Court's first-day orders and subsequent
retention orders, King & Spalding LLP was retained as counsel to the
Debtors; Conway, Del Genio, Gries & Co. was retained as the Debtors'
restructuring advisor; and Bankruptcy Management Corporation was
retained as the Claims Agent for the Bankruptcy Cases. In addition,
the Debtors sought and obtained several orders from the Bankruptcy
Court that were intended to enable the Debtors to operate to the
extent possible in the normal course of business during the Chapter 11
process. Among other things, these orders:
. authorized the Debtors to operate their consolidated cash
management system during the Chapter 11 cases in
substantially the same manner as it was operated prior to
the commencement of the Chapter 11 cases;
. authorized payment of certain prepetition employee salaries,
wages, and benefits and reimbursement of prepetition
employee business expenses;
. authorized payment of prepetition sales, payroll, and use
taxes owed by the Debtors; and,
. authorized payment of certain prepetition obligations to
customers and certain customs brokers, common carriers and
warehousemen.
In addition, at the "first day" hearing, the Debtors obtained
interim approval to enter into the DIP Loan Facility. The DIP Loan
Facility is described in Section IV.C of the Disclosure Statement.
B. APPOINTMENT OF COMMITTEE
On April 12, 2004, the United States Trustee appointed the
Official Committee of Unsecured Creditors pursuant to section 1102(a)
of the Bankruptcy Code. The members of the Committee that were
appointed are: L.C. Capital Master Fund, Ltd., Progressive Screen
Engraving, Inc., Wellman, Inc., HSBC Bank, USA, Singer Children's
Management Trust & Affiliates, Sandler Capital Management, and Teijan
Akra, USA. Progressive Screen Engraving, Inc. subsequently resigned
from the Committee. By orders entered on May 11, 2004, the Committee
was authorized to retain Akin, Gump, Strauss, Hauer and Feld, LLP as
counsel to the Committee and Alston & Bird, LLP as co-counsel to the
Committee. By order dated May 20, 2004 the Committee was authorized
to retain Houlihan Lokey Howard & Zukin as financial advisors to the
Committee.
C. DEBTOR-IN-POSSESSION FINANCING
As part of the "first day" hearing in the Bankruptcy Case the
Debtors sought authorization to enter into the DIP Loan Facility that
would provide financing of $145 million consisting of $110 million in
the form of revolving loans and $35 million in the form of a single
term loan. On April 1, 2004, the Bankruptcy Court entered an order
(the "Interim Order") that authorized the Debtors to enter into the
DIP Loan Facility on an interim basis and authorized the Debtors to
borrow up to $40 million under the DIP Loan Facility. A final hearing
on the Debtors' motion to enter into the DIP Loan Facility was
conducted on April 27, 2004. After the final hearing, a stipulation
(the "First Stipulation") was entered that extended the effect of the
Interim Order until May 7, 2004 to allow the Debtors, the Committee
and the DIP Lenders time to resolve remaining issues regarding the DIP
Loan Facility. The First Stipulation also increased the amount that
the Debtors could borrow under the DIP Loan Facility on an interim
basis from $40 million to $45 million. A second stipulation (the
"Second Stipulation") was entered on May 7, 2004 that extended the
effect of the Interim Order until May 28, 2004. The Second
Stipulation also increased the amount that the Debtors could borrow
under the DIP Loan Facility to $75 million. On May 28, 2004, a final
order was entered that authorized the Debtors to enter into the DIP
Loan Facility.
Borrowings under the DIP Loan Facility were used to refinance in
full the Prepetition Lender Claims. The DIP Loan Facility is secured
by a first priority priming lien on substantially all of the Debtors'
assets subject to a carve-out of $1 million for payment of
professional expenses. The DIP Loan Facility contains financial
covenants requiring the Debtors to maintain minimum levels of earnings
before certain corporate items, interest, taxes, depreciation, and
amortization ("Operating EBITDA"), as defined. In addition, the DIP
Loan Facility imposes restrictions relating to, among other things,
capital expenditures, asset sales, incurrence or guarantee of debt,
acquisitions, sale of receivables, certain payments and investments,
affiliate and subsidiary transactions, payment of dividends and
repurchases of stock, derivatives, and excess cash. The DIP Loan
Facility also requires that proceeds from sales of certain assets be
used to repay specified borrowings and permanently reduce the
commitment amount under the facility. Availability under the revolving
credit of the DIP Loan Facility is based upon a borrowing base
determined by reference to eligible accounts receivable and inventory,
as defined. The DIP Loan Facility requires strict adherence with a
weekly cash flow budget.
D. DISSEMINATION OF INFORMATION ABOUT THE CASE
The Debtors have been actively engaged in providing information
about the Debtors' businesses and proceedings in these Cases to
various parties-in-interest. The Debtors provided extensive
information about the Debtors' financial, corporate, and operational
status to creditors at the initial meeting of creditors held pursuant
to section 341 of the Bankruptcy Code. The Debtors also have provided
regular updates to the Committee through its counsel. In addition,
the Debtors have provided formal and informal updates to various
creditors in hundreds of unscheduled calls over the course of the
Cases.
E. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
As part of the review of their ongoing business operations, the
Debtors reviewed certain of their executory contracts and unexpired
leases to determine those contracts that were no longer beneficial to
their business operations. As a result of this analysis, the Debtors
obtained approval from the Bankruptcy Court to reject certain of their
executory contracts and unexpired leases. The contracts that have
been rejected include two equipment leases with Boeing Capital
Corporation, a music service contract with Muzak, LLC, and a trademark
license agreement with Sesame Workshop. The Debtors have also sought
approval for the rejection of a contract with AT&T Corp. The Debtors
also rejected leases for their former outlet store locations in
Destin, Florida, Commerce, Georgia, and Surfside Beach, South
Carolina. The Debtors also rejected the lease for their former Arnco
plant in Newnan, Georgia.
Similarly the Debtors have sought to assume contracts where such
contracts are beneficial to their ongoing business operations or could
be amended such that they would be beneficial to the Debtors' business
operations. Specifically, the Debtors have sought approval to assume
certain trademark license agreements with Warner Bros. Consumer
Products subject to amendments that were agreed upon by the parties.
These amendments include delaying the due date for certain "minimum
guarantee" payments due under the license agreements, extending the
term for certain of the license agreements, and establishing the cure
amount that would be paid for the assumption of the license agreements
upon the effective date of the Plan.
The Debtors are continuing to review their executory contracts
and unexpired leases. The proposed treatment for executory contracts
and leases that are not assumed or rejected prior to confirmation of
the Plan is discussed in Section VIII of the Disclosure Statement.
F. SEVERANCE AND KEY EMPLOYEE RETENTION
To ensure the retention of employees critical to the Debtors'
continued operations, the Debtors filed a motion on June 7, 2004 to
obtain authority to implement a key employee retention plan (the
"KERP"). The KERP provides for a variety of incentives and benefits
to certain of the Debtors' critical employees, including senior
executives, vice-presidents, and other key managers (the "Covered
Employees"). Under the KERP, the Covered Employees are divided into
five (5) categories based upon each Covered Employee's position with
the Debtors, and, in management's business judgment, the relative
importance and indispensability of that employee's contribution to the
Debtors' business operations. Employee Tier 1 consists of the
Debtors' Chairman and Chief Executive Officer. Employee Tier 2
consists of four (4) senior executives. Employee Tier 3 consists of
ten (10) key executives. Employee Tier 4 consists of fifteen (15) key
members of middle management. Employee Tier 5 consists of seventeen
(17) key members of middle management and production staff.
Participation in the Key Employee Retention Plan is voluntary for the
Covered Employees, some of whom may be parties to prepetition
employment contracts with one or more of the Debtors. By "opting in"
to the Key Employee Retention Plan, the Covered Employees will be
deemed to agree that the terms and conditions of the Key Employee
Retention Plan supersede any contractual obligations related to
compensation or severance in their employment contracts.
On July 2, 2004, the Bankruptcy Court entered an order approving
the KERP with respect to Covered Employees in Tiers 3 through 5. The
KERP as approved by the Bankruptcy Court granted Covered Employees in
Tiers 3 through 5 stay bonuses ranging from 20% to 60% of the Covered
Employees' salary and also established a program for severance
payments. The Debtors are continuing to resolve issues related to the
KERP for Covered Employees in Tiers 1 and 2 and expect to file a
motion shortly to obtain approval of the KERP for such employees.
However, as of the date of this Disclosure Statement, the KERP has not
yet been approved for Covered Employees in Tiers 1 and 2.
G. POST-PETITION FINANCIAL PERFORMANCE
The Debtors' financial performance since the Petition Date is
summarized in monthly operating reports that the Debtors have filed
with the Bankruptcy Court.
H. CLAIMS BAR DATE AND CLAIMS SUMMARY
On, May 18, 2004, the Bankruptcy Court entered an order (the "Bar
Date Order") fixing August 10, 2004 as the deadline by which all
creditors other than governmental units must file proofs of claim in
the Bankruptcy Cases. The Bar Date Order established September 27,
2004 as the deadline by which governmental units must file proofs of
claim in the Bankruptcy Cases. The Bar Date Order also approved the
form and manner of notice of the Bar Date. On June 9, 2004 through
June 12, 2004, notice of the Bar Date Order was sent to all known
holders of claims against the Debtors, all counterparties to executory
contracts or unexpired leases with the Debtors, and other parties in
interest as required by the Bar Date Order. Notice of the Bar Date
Order was also published in The Wall Street Journal (National
Edition), The New York Times (National Edition), the Atlanta Journal-
Constitution, the Danville Register and Bee, and the Greensboro News
and Record.
According to the Debtors' Schedules, the total amount of General
Unsecured Claims is approximately $214 million. As of July 21, 2004,
813 claims have been filed in the Bankruptcy Case totaling in the
aggregate approximately $21 million. This amount includes claims that
have been characterized by the purported holders of the claims as
claims that are Administrative Claims, Priority Claims, Secured Claims
and Unsecured Claims. The Debtors have not yet had an opportunity to
review these filed claims to determine whether they are properly
classified, duplicative, or invalid for any other reason. The Debtors
will have a more accurate assessment of their liabilities after the
deadlines for filing proofs of claim established by the Bar Date Order
have passed.
V.
SUMMARY OF THE PLAN
A. CLASSIFICATION OF CLAIMS AND INTERESTS
1. Introduction
The categories of Claims and Interests set forth below classify
all Claims against and Interests in the Debtors for all purposes of
the Plan. A Claim or Interest shall be deemed classified in a
particular Class only to the extent the Claim or Interest qualifies
within the description of that Class and shall be deemed classified in
a different Class to the extent that any remainder of such Claim or
Interest qualifies within the description of such different Class. A
Claim or Interest is in a particular Class only to the extent that
such Claim or Interest is Allowed in that Class and has not been paid
or otherwise settled prior to the Effective Date. The treatment with
respect to each Class of Claims and Interests provided for in the Plan
shall be in full and complete satisfaction, release and discharge of
such Claims and Interests.
2. Classification
For purposes of classification and treatment under the Plan,
Claims against Dan River, Bibb, Dan River International, and Dan River
Factory Stores, respectively, are classified in a single class
regardless of whether such Claims are assertable against one or more
of Dan River, Bibb, Dan River International, and Dan River Factory
Stores. The Debtors do not believe that such classification or
treatment adversely impacts upon the rights of any Holder of a Claim.
The Debtors do not intend, by so classifying Claims, to effect a
substantive consolidation of any of the Debtors or their respective
Estates. Rather, the separate corporate existence of each of the
Debtors is preserved under the Plan in accordance with Article 6.1 of
the Plan. Notwithstanding the single classification and treatment,
the Claims against Dan River, Bibb, Dan River International, and Dan
River Factory Stores, respectively, shall be deemed to be in a
separate and distinct subclass for each respective Debtor for purposes
of voting on, and determining acceptance of, the Plan.
For purposes of classification and treatment under the Plan,
Interests against Dan River, Bibb, Dan River International, and Dan
River Factory Stores, respectively, are classified in four subclasses.
The classification of Claims under the Plan is as follows:
<Table>
Entitled
Class Designation Impairment to Vote
- ----- ----------- ---------- --------
1 Other Secured Claims Unimpaired No
2 Priority Claims Unimpaired No
3 American National Bank Claim Impaired Yes
4 General Unsecured Claims Impaired Yes
5 Unsecured Convenience Claims Impaired Yes
6 Subordinated Claims Impaired No
The classification of Interests under this Plan are as follows:
7A Dan River Interests Impaired No
7B Bibb Interests Unimpaired No
7C Dan River International Unimpaired No
Interests
7D Dan River Factory Stores Unimpaired No
Interests
</Table>
The Classes of Claims and Interests, as well as their treatment
and an analysis of whether they are impaired or unimpaired, are
described in more detail as follows:
(a) Class 1 -- Other Secured Claims. Class 1 consists
of Secured Claims under section 506 of the Bankruptcy Code other than
the Prepetition Lender Claims or the American National Bank Claim.
According to the Debtors' Schedules, the amount of the Other Secured
Claims is no more than $116,000. Under the Plan, the legal,
equitable and contractual rights of the Holders of Class 1 Other
Secured Claims are unaltered by the Plan. Unless the Holder of such
Claim and the Debtors agree to a different treatment, at the option
of the Debtors disclosed in the Plan Supplement each Holder of an
Allowed Class 1 Other Secured Claim shall receive, in full and final
satisfaction of such Allowed Class 1 Other Secured Claim, one of the
following alternative treatments: (a) the legal, equitable and
contractual rights to which such Claim entitles the Holder thereof
shall be reinstated and the Holder paid in accordance with such
legal, equitable and contractual rights; (b) the Debtors shall
surrender all collateral securing such Claim to the Holder thereof,
in full satisfaction of such Holder's Allowed Class 1 Other Secured
Claim, without representation or warranty by or recourse against the
Debtors or Reorganized Debtors; or (c) such Allowed Class 1 Other
Secured Claim will be otherwise treated in any other manner so that
such Claim shall otherwise be rendered Unimpaired pursuant to section
1124 of the Bankruptcy Code.
Voting: Class 1 is an Unimpaired Class, and the
Holders of Allowed Class 1 Other Secured Claims
are conclusively deemed to have accepted the Plan
pursuant to section 1126(f) of the Bankruptcy
Code. Therefore, the Holders of Claims in Class 1
are not entitled to vote to accept or reject the
Plan.
(b) Class 2 -- Priority Claims. Class 2 consists of
all Priority Claims entitled to priority under section 507(a) of the
Bankruptcy Code other than an Administrative Expense Claim or a
Priority Tax Claim. The Debtors believe that all such claims have
been paid in full pursuant to First Day Orders entered in the
Bankruptcy Cases. Under the Plan, the legal, equitable and
contractual rights of the Holders of Class 2 Priority Claims, if any,
are unaltered by the Plan. Unless the Holder of such Claim and the
Debtors agree to a different treatment, at the option of the Debtors
disclosed in the Plan Supplement each Holder of an Allowed Class 2
Priority Claim shall receive, in full and final satisfaction of such
Allowed Class 2 Priority Claim, one of the following alternative
treatments: (a) to the extent then due and owing on the Effective
Date, such Claim will be paid in full in Cash by the Debtors or the
Reorganized Debtors on the Effective Date; (b) to the extent not due
and owing on the Effective Date, such Claim will be paid in full in
Cash by the Debtors or the Reorganized Debtors when and as such Claim
becomes due and owing in the ordinary course of business; or (c) such
Claim will be otherwise treated in any other manner so that such
Claims shall otherwise be rendered Unimpaired pursuant to section
1124 of the Bankruptcy Code.
Voting: Class 2 is an Unimpaired Class, and the
Holders of Class 2 Priority Claims are
conclusively deemed to have accepted the Plan
pursuant to section 1126(f) of the Bankruptcy
Code. Therefore, the Holders of Claims in Class 2
are not entitled to vote to accept or reject the
Plan.
(c) Class 3 -- American National Bank Claim. Class 3
consists of all Secured Claims arising under or pursuant to the
American National Bank Credit Documents. According to the Debtors'
Schedules, the amount of the American National Bank Claim is
approximately $3 million. The Plan provides that in full and final
satisfaction of the Allowed American National Bank Claim, on the
Effective Date the Holder of such Allowed American National Bank
Claim shall receive an amended, modified and restated promissory note
that (i) shall continue to be secured by the Lien of the American
National Bank Deed of Trust (ii) shall provide for the payment by Dan
River to the holder of such amended, modified and restated promissory
note of one hundred fifty (150) equal monthly Cash payments
commencing on the first Business Day of the calendar month
immediately following the Effective Date and continuing on the first
Business Day of calendar month thereafter, and (iii) provides for the
level monthly amortization of the Allowed American National Bank
Claim over such one hundred fifty (150) month period at a fixed
interest rate of nine percent (9%) per annum.
Voting: Class 3 is an Impaired Class, and pursuant
to section 1126 of the Bankruptcy Code, each
Holder of an Allowed American National Bank Claim
is entitled to vote to accept or reject the Plan.
(d) Class 4 -- General Unsecured Claims. Class 4
consists of all Unsecured Claims against the Debtors other than an
Unsecured Convenience Claim or a Subordinated Claim. According to
the Debtors' schedules, the amount of these claims, which include
Prepetition Notes Claims, is approximately $214 million. Under the
Plan, each Holder of an Allowed Class 4 General Unsecured Claim shall
receive, in full and final satisfaction of such Allowed Class 4
General Unsecured Claim, on (i) the Initial Distribution Date or (ii)
the first Distribution Date after the date on which such General
Unsecured Claim becomes an Allowed Claim, such Holder's Pro-Rata
share of the Class 4 Share of New Common Stock.
Voting: Class 4 is an Impaired Class, and pursuant
to section 1126 of the Bankruptcy Code, each
Holder of an Allowed Class 4 General Unsecured
Claim is entitled to vote to accept or reject the
Plan.
(e) Class 5 -- Unsecured Convenience Claims. Class 5
consists of any Allowed Unsecured Claim in an amount that is equal to
or less than $2,500 other than a Prepetition Notes Claim or a
Subordinated Claim. The Plan provides that on the later of (i) the
Initial Distribution Date, and (ii) the date on which its Unsecured
Convenience Claim becomes an Allowed Claim, each Holder of an Allowed
Class 5 Unsecured Convenience Claim shall receive, in full and final
satisfaction of such Holder's Allowed Class 5 Unsecured Convenience
Claim, a Cash payment in an amount equal to thirty percent (30%) of
such Holder's Allowed Class 5 Unsecured Convenience Claim.
Voting: Class 5 is an Impaired Class. Pursuant to
section 1126 of the Bankruptcy Code, the Holders
of Allowed Class 5 Unsecured Convenience Claims
are each entitled to vote to accept or reject the
Plan.
(f) Class 6 -- Subordinated Claims. Class 6 consists
of any Unsecured Claim that is subordinated in priority to Allowed
General Unsecured Claims pursuant to the provisions of section 510 of
the Bankruptcy Code or other applicable law, including, without
limitation, Claims, if any, (a) arising from rescission of a purchase
or sale of Existing Securities or Prepetition Notes, (b) for damages
resulting from the purchase or sale of such securities, or (c) for
reimbursement or contribution on account of such Claims. The Debtors
have not yet filed any proceedings to subordinate any claims, but the
Plan makes provision for Subordinated Claims in the event that any
Unsecured Claims are ultimately found to be Subordinated Claims.
Under the Plan, the Holders of Subordinated Claims will receive no
distributions on account of their respective Claims and all rights
with respect thereto will be cancelled and fully extinguished
pursuant to, and on the Effective Date of, the Plan.
Voting: Class 6 is an Impaired Class. Pursuant to
section 1126(g) of the Bankruptcy Code, Holders of
Class 6 Subordinated Claims are conclusively
deemed to reject the Plan and are not entitled to
vote to accept or reject the Plan.
(g) Class 7 -- Interests. Class 7 is divided into
four sub-classes. Class 7A consists of all Interests in Dan River;
Class 7B consists of all Interests in Bibb; Class 7C consists of all
Interests in Dan River International; and Class 7D consists of all
Interests in Dan River Factory Stores. Under the Plan, Reorganized
Dan River shall retain its Interests in Bibb, Dan River
International, and Dan River Factory Stores. The Holders of Class 7A
Interests in Dan River will receive no distributions on account of
such Interests and such Interests will be cancelled and fully
extinguished pursuant to, and on the Effective Date of, the Plan.
Voting: With respect to Dan River, Class 7A is an
Impaired Class. Pursuant to section 1126(g) of
the Bankruptcy Code, Holders of Class 7A Interests
in Dan River are deemed to reject the Plan and are
not entitled to vote to accept or reject the Plan.
With respect to Bibb, Dan River International, and
Dan River Factory Stores, Classes 7B, 7C and 7D
are Unimpaired Classes, and the Holder of Class
7B, 7C and 7D Interests are conclusively deemed to
have accepted the Plan pursuant to section 1126(f)
of the Bankruptcy Code. Therefore, the Holder of
Interests in Classes 7B, 7C and 7D are not
entitled to vote to accept or reject the Plan.
B. TREATMENT OF UNCLASSIFIED CLAIMS.
1. Summary. Pursuant to section 1123(a)(1) of the Bankruptcy
Code, Administrative Expense Claims and Priority Tax Claims against
the Debtors are not classified for purposes of voting on, or receiving
Distributions under, the Plan. Similarly, Claims of the DIP Lender
under the DIP Loan Facility are not classified for purposes of voting
on, or receiving Distributions under, the Plan. Holders of such
Claims are not entitled to vote on the Plan. All such Claims are
instead treated separately in accordance with Article IV of the Plan
and in accordance with the requirements set forth in section
1129(a)(9)(A) of the Bankruptcy Code. In addition, during the
Bankruptcy Case the Holders of Prepetition Lender Claims previously
received in full and final satisfaction of their Claims Cash equal in
amount to one hundred percent (100%) of their Claims and, as a result,
Prepetition Lender Claims are not classified or otherwise provided for
in this Plan and the Holders of Prepetition Lender Claims are not
entitled to vote to accept or reject the Plan.
2. Administrative Expense Claims. Administrative Expense
Claims are claims for payment of administrative expenses of a kind
specified in section 503(b) of the Bankruptcy Code and entitled to
priority pursuant to section 507(a)(1) of the Bankruptcy Code. Such
claims include the actual, necessary expenses of preserving the
Debtors' assets incurred after the Petition Date, including post-
petition trade payables, equipment and real estate leases, wages,
salaries or commissions for services rendered after the Petition Date,
amounts necessary to cure defaults under executory contracts or
unexpired leases to be assumed, and Claims for Professional
Compensation. Subject to the provisions of sections 330(a) and 331 of
the Bankruptcy Code that apply to Claims for Professional
Compensation, the Plan provides that each Holder of an Allowed
Administrative Expense Claim will be paid the full unpaid amount of
such Allowed Administrative Expense Claim in Cash on the latest of (i)
the Effective Date, (ii) the date such Claim becomes an Allowed
Administrative Expense Claim, or (iii) upon such other terms as may be
agreed upon by such Holder and Reorganized Debtors or otherwise upon
order of the Bankruptcy Court; provided, however, that Allowed
Administrative Expense Claims representing obligations incurred by the
Debtors in the ordinary course of business, or otherwise assumed by
the Debtors on the Effective Date pursuant to the Plan, including any
tax obligations arising after the Filing Date, will be paid or
performed by Reorganized Debtors when due in accordance with the terms
and conditions of the particular agreements or governing non-
bankruptcy law governing such obligations.
3. Bar Date for Filing Administrative Expense Claims. Except
as otherwise provided in the Plan, any Person holding an
Administrative Expense Claim, other than (i) an Administrative Expense
Claim arising from the purchase by the Debtors of goods and services
in the ordinary course of business or (ii) the DIP Lender for any
Claim arising under the DIP Loan Facility, shall file a proof of such
Administrative Expense Claim with the Claims Agent within thirty (30)
days after the Reorganized Debtors provide notice by mail or by
publication, in a form and manner approved by the Court, of the entry
of the Confirmation Order. Any such Person who fails to timely file a
proof of such Administrative Expense Claim with the Claims Agent shall
be forever barred from seeking payment of such Administrative Expense
Claim by the Debtors, the Estates, or the Reorganized Debtors. Any
Person seeking an award by the Bankruptcy Court of Professional
Compensation shall file a final application with the Bankruptcy Court
for allowance of Professional Compensation for services rendered and
reimbursement of expenses incurred through the Effective Date within
sixty (60) days after the Effective Date or by such other deadline as
may be fixed by the Bankruptcy Court. The provisions of this
paragraph shall not apply to any professional providing services
pursuant to and subject to the limits contained in the Order
Authorizing Debtors to Retain and Compensate Professionals Used in the
Ordinary Course of Business entered in the Bankruptcy Cases on or
about April 1, 2004.
4. Priority Tax Claims. Priority Tax Claims include Unsecured
Claims of governmental units for unpaid taxes entitled to priority
under section 507(a)(8) of the Bankruptcy Code. At the option of the
Debtors disclosed in the Plan Supplement each Holder of an Allowed
Priority Tax Claim due and payable on or prior to the Effective Date
either (a) will be paid the full unpaid amount of such Allowed
Priority Tax Claim in Cash on the Effective Date, or upon such other
terms as may be agreed upon by such Holder and the Reorganized
Debtors, (b) will receive deferred Cash payments, over a period not
exceeding six years after the date of assessment of such claim, of a
value, as of the Effective Date, equal to the amount of such Allowed
Priority Tax Claim, or (c) otherwise will be paid as provided for in
an order of the Bankruptcy Court. The Debtors shall specify how they
elect to treat Priority Tax Claims in the Plan Supplement. The amount
of any Priority Tax Claim that is not an Allowed Claim or that is not
otherwise due and payable on or prior to the Effective Date, and the
rights of the Holder of such Claim, if any, to payment in respect
thereof shall (i) be determined in the manner in which the amount of
such Claim and the rights of the Holder of such Claim would have been
resolved or adjudicated if the Bankruptcy Cases had not been
commenced, (ii) survive after the Effective Date as if the Bankruptcy
Cases had not been commenced, and (iii) not be discharged pursuant to
section 1141 of the Bankruptcy Code. In accordance with section 1124
of the Bankruptcy Code, the Plan leaves unaltered the legal,
equitable, and contractual rights of each Holder of a Priority Tax
Claim.
5. DIP Lender Claims. All amounts owed to the DIP Lender under
the DIP Loan Facility shall be paid in full and in Cash on and as a
condition precedent to the occurrence of the Effective Date.
VI.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. SOURCES OF FUNDING FOR DISTRIBUTIONS UNDER THE PLAN
On the Effective Date, the Reorganized Debtors shall obtain the
Exit Financing from the Exit Financing Lender. A term sheet relating
to the Exit Financing is contained in the Plan Supplement. The
Committee has reviewed the term sheet, and the Committee has consented
to the terms of the Exit Financing as reflected in the term sheet.
The operative documents relating to the Exit Financing shall be filed
on or prior to the date of the Confirmation Hearing; provided,
however, that the Debtors may modify the operative documents relating
to the Exit Financing prior to the Effective Date without further
notice so long as such documents as executed on the Effective Date are
substantially in conformance with the term sheet contained in the Plan
Supplement. All Cash necessary for the Reorganized Debtors to make
payments required by the Plan shall be obtained from existing Cash
balances, the operations of the Debtors or Reorganized Debtors, the
Exit Financing, or any proceeds from the Retained Causes of Action.
B. POOLING OF CLAIMS
The Plan provides for the pooling of Claims asserted against any
of the Debtors for purposes of distributions under the Plan and not
for voting purposes. For such limited purposes, on the Effective Date,
(a) any obligation of any Debtor and all guaranties with respect to
any Class of Claims or Interests executed by one or more of the other
Debtors and any joint or several liability of any of the Debtors shall
be treated as a single obligation, and any obligation of two or more
Debtors, and all multiple Impaired Claims against Debtors on account
of such joint obligations, shall be treated and Allowed only as a
single Claim against the Debtors, and; (b) each Claim filed in the
Bankruptcy Cases of any Debtor shall be deemed a Claim against and an
obligation of each of the Debtors. Such pooling will not (other than
for purposes related to the Plan) (a) affect the legal and corporate
structures of the Debtors or Reorganized Debtors, (b) affect
intercompany Claims of Debtors against Debtors which intercompany
Claims shall survive after entry of the Confirmation Order
notwithstanding Article 8.2 of the Plan, and (c) affect Interests held
by Dan River in Bibb, Dan River Factory Stores, or Dan River
International, which Interests shall be retained by Dan River.
C. CORPORATE STRUCTURE AND GOVERNANCE OF THE REORGANIZED DEBTORS
1. Continued Corporate Existence.
Each of the Debtors will continue to exist after the Effective
Date as a separate corporate entity, with all the powers of a
corporation or limited liability company, as applicable, under
applicable law in the jurisdiction in which each applicable Debtor is
incorporated or otherwise formed and pursuant to its certificate or
articles of incorporation and by-laws or other organizational
documents in effect prior to the Effective Date, except to the extent
such certificate or articles of incorporation and by-laws or other
organizational documents are amended by this Plan, without prejudice
to any right to terminate such existence (whether by merger or
otherwise) under applicable law after the Effective Date.
2. Amended Certificates of Incorporation and By-Laws.
The Amended Certificate of Incorporation and Amended By-Laws of
each of the Reorganized Debtors shall be in form and substance
reasonably acceptable to the Committee and shall be adopted as may be
required in order that they are consistent with the provisions of this
Plan and the Bankruptcy Code. The Amended Certificate of
Incorporation of Dan River shall, among other things (a) authorize the
issuance of New Common Stock; and (b) provide, pursuant to section
1123(a)(6) of the Bankruptcy Code, for (i) a provision prohibiting the
issuance of non-voting equity securities for a period of two (2) years
from the Effective Date and, if applicable, (ii) a provision setting
forth an appropriate distribution of voting power among classes of
equity securities possessing voting power, including, in the case of
any class of equity securities having a preference over another class
of equity securities with respect to dividends, adequate provisions
for the election of directors representing such preferred class in the
event of default in the payment of such dividends. The Amended
Certificate of Incorporation and Amended By-Laws of the Debtors is
contained in the Plan Supplement.
3. New Boards of Directors and Officers.
(a) Directors.
The initial Board of Directors of Reorganized Dan River shall
consist of 5 directors, the identity of whom are disclosed in a
schedule contained in the Plan Supplement. The initial Boards of
Directors for the Reorganized Debtors (or in the case of Bibb, the
initial manager or managing member), other than Reorganized Dan River,
shall consist of the number of Persons specified in the Plan
Supplement, the identity of whom are disclosed in the Plan Supplement.
To the extent any such Person is an Insider (as defined in section
101(31) of the Bankruptcy Code), the nature of any compensation for
such Person is also disclosed. Each of the Persons on the initial
Boards of Directors (or, in the case of Bibb, the initial manager or
managing member) of the respective Reorganized Debtors shall serve in
accordance with the Amended Certificate of Incorporation and Amended
By-Laws of the respective Reorganized Debtor, as the same may be
amended from time to time. The initial directors of the Reorganized
Debtors identified in the Plan Supplement have either been designated
or approved by the Committee.
(b) Officers.
The initial officers of each of the Reorganized Debtors is
disclosed in a schedule contained in the Plan Supplement. To the
extent any such Person is an Insider (as defined in section 101(31) of
the Bankruptcy Code), the nature of any compensation for such Person
is also disclosed. The initial officers shall serve in accordance
with the Amended Certificate of Incorporation and Amended By-Laws of
the applicable Reorganized Debtor, as the same may be amended from
time to time. The initial officers of the Reorganized Debtors
identified in the Plan Supplement have either been designated or
approved by the Committee.
4. Long-Term Incentive Plan.
A percentage of the New Common Stock that will be issued by
Reorganized Dan River pursuant to the Plan will be distributed to the
management and certain employees of Reorganized Dan River pursuant to
the Long-Term Incentive Plan. The Long-Term Incentive Plan is
contained in the Plan Supplement. The Committee has reviewed the
Long-Term Incentive Plan, and the Committee has consented to the terms
of the Long-Term Incentive Plan that is contained in the Plan
Supplement.
5. Cancellation of Existing Securities of Dan River and
Agreements.
On the Effective Date, except as otherwise specifically provided
for herein, (a) the Existing Securities and any Certificates
evidencing or creating any indebtedness or obligation of or ownership
interest in the Debtors, except for the Interests of Dan River in
Bibb, Dan River Factory Stores, and Dan River International, will be
deemed to be fully and finally cancelled, and (b) the obligations of,
Claims against, and/or Interests in the Debtors under, relating, or
pertaining to any agreements, indentures, certificates of designation,
by-laws, or certificate or articles of incorporation or similar
documents governing the Existing Securities and any other Certificate
evidencing or creating any indebtedness or obligation of the Debtors,
will be released and discharged; provided, however, that the
Prepetition Notes Indenture and other agreements that governs the
rights of the holders of the Prepetition Notes shall continue in
effect solely for the purposes of allowing the Indenture Trustee,
agent or servicer thereunder to make the distributions to be made on
account of such Claims under the Plan. All reasonable compensation,
fees, expenses, and disbursements incurred by the Indenture Trustee
prior to the Effective Date in its capacity as trustee under the
Prepetition Notes Indenture shall be paid in Cash on or as soon as
practicable after the Effective Date by the Reorganized Debtors as an
Administrative Expense, without the need for application to, or
approval of, any court; provided, however, that any dispute as to the
reasonableness of such fees shall be determined by the Bankruptcy
Court after notice and hearing. To the extent that the Indenture
Trustee in its capacity as trustee under the Prepetition Notes
Indenture provides services related to the Distributions pursuant to
the Plan, the Indenture Trustee will be paid by the Reorganized
Debtors, without court approval, the reasonable compensation for such
services and reimbursement of reasonable expenses incurred in
connection therewith, with such payments to be made on terms agreed to
between the Indenture Trustee and the Reorganized Debtors.
6. Issuance of New Common Stock and Other Equity Interests.
(a) New Common Stock. On the Effective Date, Dan River will
authorize the issuance of Five Hundred Million (500,000,000) shares of
New Common Stock to be distributed pursuant to the terms of the Plan.
(b) Preferred Stock. The Amended Certificate of Incorporation
for Reorganized Dan River will authorize the future issuance of up to
Ten Million (10,000,000) shares of preferred stock upon terms to be
designated from time to time by the board of directors of Reorganized
Dan River following the Effective Date. No preferred stock shall be
issued pursuant to the Plan.
(c) Warrants. The Amended Certificate of Incorporation for
Reorganized Dan River will authorize the issuance of Warrants for the
purchase of New Common Stock for future issuance upon terms to be
designated from time to time by the board of directors of Reorganized
Dan River following the Effective Date. No Warrants shall be issued
pursuant to the Plan.
D. PRESERVATION OF CAUSES OF ACTION
In accordance with section 1123(b)(3) of the Bankruptcy Code the
Reorganized Debtors will retain and may (but are not required to)
enforce all Retained Actions. After the Effective Date, the
Reorganized Debtors, in their sole and absolute discretion, shall have
the right to bring, settle, release, compromise, or enforce such
Retained Actions (or decline to do any of the foregoing), without
further approval of the Bankruptcy Court. The Reorganized Debtors or
any successors may pursue such litigation claims in accordance with
the best interests of the Reorganized Debtors or any successors
holding such rights of action. The failure of the Debtors to
specifically list any claim, right of action, suit, proceeding or
other Retained Action in the Plan or Plan Supplement does not, and
will not be deemed to, constitute a waiver or release by the Debtors
of such claim, right of action, suit, proceeding or other Retained
Action, and the Reorganized Debtors will retain the right to pursue
such claims, rights of action, suits, proceedings and other Retained
Actions in their sole discretion and, therefore, no preclusion
doctrine, collateral estoppel, issue preclusion, claim preclusion,
estoppel (judicial, equitable or otherwise) or laches will apply to
such claim, right of action, suit, proceeding or other Retained Action
upon or after the confirmation or consummation of the Plan.
VII.
PROVISIONS REGARDING DISTRIBUTIONS
A. DISBURSING AGENT
All Distributions under the Plan shall be made by the Reorganized
Debtors. Notwithstanding the foregoing, all Distributions of New
Common Stock to the Holders of Prepetition Notes Claims shall be made
by the Reorganized Debtors to such Holders through the Indenture
Trustee.
B. DISTRIBUTIONS OF CASH
Any Distribution of Cash made by the Reorganized Debtors pursuant
to the Plan shall, at the Reorganized Debtor's option, be made by
check drawn on a domestic bank or by wire transfer from a domestic
bank.
C. NO INTEREST ON CLAIMS OR INTERESTS
Unless otherwise specifically provided for in the Plan, the
Confirmation Order, or a postpetition agreement in writing between the
Debtors and a Holder, postpetition interest shall not accrue or be
paid on Claims, and no Holder shall be entitled to interest accruing
on or after the Filing Date on any Claim. Additionally, and without
limiting the foregoing, interest shall not accrue or be paid on any
Disputed Claim in respect of the period from the Effective Date to the
date a Final Distribution is made when and if such Disputed Claim
becomes an Allowed Claim.
D. SURRENDER OF SECURITIES OR INSTRUMENTS
On or before the Effective Date, or as soon as practicable
thereafter, each Holder of a Certificate shall surrender such
Certificate to the Reorganized Debtor (or, in the case of Certificates
evidencing Prepetition Notes Claims, to the Indenture Trustee for
ultimate surrender to Reorganized Dan River), and such Certificate
shall be cancelled solely with respect to the Debtors and such
cancellation shall not alter the obligations or rights of any non-
Debtor third parties vis-a-vis one another to such instruments;
provided, however, that this provision shall not apply to any Other
Secured Claim reinstated pursuant to the terms of this Plan. No
Distribution of property hereunder shall be made to or on behalf of
any such Holder unless and until such Certificate is received by the
Reorganized Debtors (or, in the case of Certificates evidencing
Prepetition Notes Claims, to the Indenture Trustee for ultimate
surrender to Reorganized Dan River) or the unavailability of such
Certificate is reasonably established to the satisfaction of the
Reorganized Debtors. Any Holder who fails to surrender or cause to be
surrendered such Certificate, or fails to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to the
Reorganized Debtors prior to the second anniversary of the Effective
Date, shall be deemed to have forfeited all rights and Claims in
respect of such Certificate and shall not participate in any
Distribution hereunder, and all property in respect of such forfeited
Distribution, including any dividends or interest attributable
thereto, shall revert to the Reorganized Debtors notwithstanding any
federal or state escheat laws to the contrary.
E. DELIVERY OF DISTRIBUTIONS
The Distribution to a Holder of an Allowed Claim shall be made by
the Reorganized Debtors (a) at the address set forth on the proof of
claim filed by such Holder, (b) at the address set forth in any
written notices of address change delivered to the Debtors or
Reorganized Debtors after the date of any related proof of claim, (c)
at the addresses reflected in the Schedules if no proof of claim has
been filed and the Debtors or Reorganized Debtors have not received a
written notice of a change of address, (d) if the Holder's address is
not listed in the Schedules, at the last known address of such Holder
according to the Debtor's books and records, or (e) or in the case of
Prepetition Notes Claims to the Indenture Trustee for ultimate
distribution to the Record Holders of such Prepetition Notes Claims.
If any Holder's Distribution is returned as undeliverable, no further
Distributions to such Holder shall be made unless and until the
Reorganized Debtors are notified of such Holder's then-current
address, at which time all missed Distributions shall be made to such
Holder without interest. Amounts in respect of undeliverable
Distributions made in Cash shall be retained by the Reorganized
Debtors until such Distributions are claimed. All Cash Distributions
returned to the Reorganized Debtors and not claimed within six months
of return shall be irrevocably retained by the Reorganized Debtors
notwithstanding any federal or state escheat laws to the contrary.
All Distributions of New Common Stock returned to the Debtors and not
claimed within one year of return shall irrevocably revert to
Reorganized Dan River. Upon such reversion, the claim of any Holder
or their successors with respect to such property shall be discharged
and forever barred notwithstanding any federal or state escheat laws
to the contrary.
F. DISTRIBUTIONS TO HOLDERS AS OF THE RECORD DATE
All Distributions on Allowed Claims shall be made to the Record
Holders of such Claims. As of the close of business on the Record
Date, the Claims register maintained by the Claims Agent shall be
closed, and there shall be no further changes in the Record Holder of
any Claim. The Record Date shall be established in the Confirmation
Order or other order entered by the Bankruptcy Court. The Reorganized
Debtors shall have no obligation to recognize any transfer of any
Claim occurring after the Record Date. The Reorganized Debtors shall
instead be entitled to recognize and deal for all purposes under the
Plan with the Record Holders as of the Record Date.
G. DEMINIMIS DISTRIBUTIONS
The Reorganized Debtors shall have no obligation to make a
Distribution if the amount to be distributed to the specific Holder of
the Allowed Claim is or has a value less than $50.00.
H. FRACTIONAL SECURITIES; FRACTIONAL DOLLARS
Payments of fractions of shares of New Common Stock will not be
made and shall be deemed to be zero. The Reorganized Debtors shall
not be required to make Distributions or payments of fractions of
dollars. Whenever any payment of a fraction of a dollar under this
Plan would otherwise be called for, the actual payment shall reflect a
rounding of such fraction to the nearest whole dollar (up or down),
with half dollars or less being rounded down.
I. WITHHOLDING TAXES
The Debtors or the Reorganized Debtors, as the case may be, shall
comply with all withholding and reporting requirements imposed by any
federal, state, local, or foreign taxing authority, and all
Distributions under the Plan shall be subject to any such withholding
and reporting requirements.
VIII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. REJECTION OF CONTRACTS AND LEASES
On the Effective Date, all Executory Contracts and Unexpired
Leases of any of the Debtors will be deemed assumed in accordance with
the provisions and requirements of sections 365 and 1123 of the
Bankruptcy Code, except those Executory Contracts or Unexpired Leases
that (1) have been previously rejected by any Debtor pursuant to an
order of the Bankruptcy Court, (2) are the subject of a motion filed
by any Debtor to reject which is pending on the Effective Date, (3)
are identified as being rejected on Schedule 5.1 to the Plan which
will be filed by the Debtors with the Bankruptcy Court and served on
the non-debtor parties under the agreements listed thereon, no later
than 20 (twenty) Business Days prior to the last date for filing
objections to confirmation of the Plan, or (4) are assumed pursuant to
the terms of the Plan, provided, however, that the Debtors may amend
Schedule 5.1 at any time prior to the Confirmation Hearing. Entry of
the Confirmation Order by the Bankruptcy Court shall constitute
approval of such assumptions and rejections pursuant to sections
365(a) and 1123 of the Bankruptcy Code. Each Executory Contract or
Unexpired Lease that is assumed by any Debtor hereunder or pursuant to
any order entered by the Bankruptcy Court shall be deemed to be
assigned to the Reorganized Debtors on the Effective Date.
B. CLAIMS BASED ON REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
All proofs of claim with respect to Claims arising from the
rejection pursuant to the Plan of any Executory Contract or Unexpired
Lease, if any, must be filed with the Bankruptcy Court and served upon
counsel for the Reorganized Debtors within thirty (30) days after the
date of entry of the Confirmation Order. Any Claims arising from the
rejection of Executory Contracts or Unexpired Leases that become
Allowed Claims are classified and shall be treated as General
Unsecured Claims. Any Claims arising from the rejection of an
Executory Contract or Unexpired Lease not filed within the time
required by this section will be forever barred from assertion against
the Debtors or Reorganized Debtors, the Estate and property of the
Debtors or Reorganized Debtors unless otherwise ordered by the
Bankruptcy Court or provided in this Plan.
C. CURE OF DEFAULTS FOR EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Debtors shall include on Schedule 5.1 the Cure Amount for any
Executory Contract or Unexpired Lease to be assumed under the Plan.
Any party to an Executory Contract or Unexpired Lease to be assumed
shall have twenty (20) days after service of Schedule 5.1 to file with
the Court and serve on counsel for the Debtors an objection to the
Cure Amount listed on Schedule 5.1, an objection to the adequacy of
assurance of future performance by the Reorganized Debtors, or any
other objection to the assumption of such Executory Contract or
Unexpired Lease. Any such objection shall be resolved by the Court at
the Confirmation Hearing or at such other time as may be agreed to by
the affected parties. If the Court determines that the Cure Amount
with respect to an Executory Contract or Unexpired Lease is greater
than the amount listed by the Debtors, the Debtors may elect to reject
the Executory Contract or Unexpired Lease at issue. For each
Executory Contract or Unexpired Lease assumed by the Debtors and
assigned to the Reorganized Debtors, the Reorganized Debtors will pay
the Cure Amount as set forth on Schedule 5.1, or as determined by the
Bankruptcy Court, on the Initial Distribution Date, or if the Cure
Amount has not been determined on the Initial Distribution Date,
within thirty (30) days after the Cure Amount has been determined by
the Bankruptcy Court.
D. SURVIVAL OF CERTAIN CORPORATE INDEMNITIES
Unless such obligations are the subject of a motion filed by the
Debtors on or prior to the Effective Date that would provide for
treatment different than that provided by this paragraph, any
obligations of the Debtors pursuant to their corporate charters and
by-laws, or pursuant to any agreements entered into at any time prior
to the Effective Date, to indemnify current or former directors,
officers, and/or employees with respect to all present and future
actions, suits and proceedings against the Debtors or such directors,
officers, and/or employees shall not be discharged or impaired by
confirmation of the Plan. Such indemnity obligations shall be deemed
and treated as executory contracts and shall, on the Effective Date,
be deemed assumed by the Debtors in accordance with sections 365(a)
and 1123(b)(2) of the Bankruptcy Code and shall continue as
obligations of the Reorganized Debtors notwithstanding any
modification, amendment, or rejection of the charter, by-law, or
agreement in which such indemnity obligation is contained.
E. COMPENSATION AND BENEFIT PROGRAMS
Unless such obligations are the subject of a motion filed by the
Debtors on or prior to the Effective Date that would provide for
treatment different than that provided by this paragraph, all savings
plans, retirement plans, health care plans, severance plans,
performance-based incentive plans, retention plans, vacation plans,
workers' compensation programs, and life, disability, directors' and
officers' liability and other insurance plans, whether or not
qualified under ERISA, shall be deemed and treated as executory
contracts and shall, on the Effective Date, be deemed assumed by the
Debtors in accordance with sections 365(a) and 1123(b)(2) of the
Bankruptcy Code and shall continue as obligations of the Reorganized
Debtors in accordance with the terms of such plans, as modified and
amended to date including, without limitation, as modified and amended
by orders (if any) of the Bankruptcy Court entered in the Bankruptcy
Case.
F. RETIREE BENEFITS
On and after the Effective Date, pursuant to section 1129(a)(13)
of the Bankruptcy Code, the Reorganized Debtors shall continue to pay
all retiree benefits of the Debtors (within the meaning of section
1114 of the Bankruptcy Code), at the level established in accordance
with section 1114 of the Bankruptcy Code, at any time prior to the
Confirmation Date, for the duration of the period for which the
Debtors had obligated themselves to provide such benefits.
IX.
PROCEDURES FOR TREATING AND RESOLVING DISPUTED CLAIMS
A. OBJECTIONS TO CLAIMS
The Reorganized Debtors shall be entitled to object to Claims.
Any objections to Claims shall be filed by the Claims Objection
Deadline. The Claims Objection Deadline shall be the later of (i) 120
days after the Effective Date (ii) 60 days after such Claim was filed
or (iii) such other time as may be ordered by the Bankruptcy Court.
B. NO DISTRIBUTIONS PENDING ALLOWANCE
No Distributions will be made with respect to any portion of a
Disputed Claim unless and until such Disputed Claim has become an
Allowed Claim.
C. DISTRIBUTION RESERVE
The Reorganized Debtors shall withhold shares of New Common Stock
in such amount as the Reorganized Debtors reasonably determine is
necessary to enable them to make the Distributions required to be made
to Holders of General Unsecured Claims in the Bankruptcy Cases, when
the allowance or disallowance of each Disputed Claim or other
contingent claim, including any Claims arising from the rejection of
any Executory Contract or Unexpired Lease, is ultimately determined.
The Reorganized Debtors also shall place in the Distribution Reserve
any dividends, payments, or other Distributions made on account of, as
well as any obligations arising from, the property initially withheld
in the Distribution Reserve, to the extent that such property
continues to be withheld in the Distribution Reserve at the time such
Distributions are made or such obligations arise. The Holder shall not
be entitled to receive or recover any amount in excess of the amount
provided in the Distribution Reserve to pay such Claim. Nothing in
this Plan or the Disclosure Statement will be deemed to entitle the
Holder of a Disputed Claim to postpetition interest on such Claim. No
Distribution Reserve shall be required to be established with regard
to those Class 6 Unsecured Convenience Claims that, on the Effective
Date, are Disputed Claims.
D. ESTIMATION OF CLAIMS
The Debtors or the Reorganized Debtors, as the case may be, may,
at any time, request that the Bankruptcy Court estimate any contingent
or unliquidated Claim pursuant to section 502(c) of the Bankruptcy
Code regardless of whether the Debtors or the Reorganized Debtors have
previously objected to such Claim or whether the Bankruptcy Court has
ruled on any such objection, and the Bankruptcy Court will retain
jurisdiction to estimate any Claim at any time during litigation
concerning any objection to any Claim, including during the pendency
of any appeal relating to any such objection. In the event that the
Bankruptcy Court estimates any contingent or unliquidated Claim, that
estimated amount will constitute either the Allowed amount of such
Claim or a maximum limitation on such Claim, as determined by the
Bankruptcy Court. If the estimated amount constitutes a maximum
limitation on such Claim, the Debtors (and after the Effective Date,
the Reorganized Debtors) may elect to pursue any supplemental
proceedings to object to any ultimate payment on such Claim. All of
the aforementioned Claims objection, estimation and resolution
procedures are cumulative and are not necessarily exclusive of one
another.
E. RESOLUTION OF CLAIMS OBJECTIONS
On and after the Effective Date, the Reorganized Debtors shall
have the authority to compromise, settle, otherwise resolve, or
withdraw any objections to Claims without approval of the Bankruptcy
Court.
F. DISTRIBUTIONS AFTER ALLOWANCE
As soon as practicable after a Disputed Claim becomes an Allowed
Claim, the Reorganized Debtors, with respect to all Distributions
other than to Holders of General Unsecured Claims, will distribute to
the Holder thereof all Distributions to which such Holder is then
entitled under the Plan. After a Disputed General Unsecured Claim
becomes an Allowed Claim, the Holder of such Claim shall receive the
Distribution to which such Holder is entitled on the next Distribution
Date; provided, however, that if the date such Disputed General
Unsecured Claim becomes an Allowed Claim is less than twenty (20)
Business Days prior to the next Distribution Date, the Distribution
with respect to such Claim will be made on the first Distribution Date
that occurs more than twenty (20) Business Days after the Claim
becomes an Allowed Claim. In the event that the New Common Stock or
other Property being held in the Distribution Reserve with respect to
a Disputed Claim is greater than the Distribution that is made to a
Holder once the Disputed Claim becomes an Allowed Claim, the excess
remaining New Common Stock or other Property in the Distribution
Reserve will revert to and be irrevocably retained by Reorganized Dan
River. All Distributions made under the Plan on account of an Allowed
Claim will be made together with any dividends, payments, or other
Distributions made on account of, as well as any obligations arising
from, the distributed property as if such Allowed Claim had been an
Allowed Claim on the dates Distributions were previously made to
Allowed Holders included in the applicable Class.
G. NO RECOURSE
No Holder of any Disputed Claim shall have any recourse against
the Debtors, the Estates, or the Reorganized Debtors, or any
professionals employed by any of them, in the event any reserve
established herein is insufficient to pay an Allowed Claim.
X.
CONDITIONS PRECEDENT TO THE EFFECTIVE DATE
A. CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of this
Plan that may be satisfied or waived in accordance with Article 11.3
of the Plan: (a) the Bankruptcy Court shall have approved by Final
Order a Disclosure Statement with respect to this Plan in form and
substance that is acceptable to the Debtors in their sole and
absolute discretion and in form and substance that is reasonably
acceptable to the Committee; and, (b) the Confirmation Order in form
and substance acceptable to the Debtors in their sole and absolute
discretion and in form and substance reasonably acceptable to the
Committee shall have been signed by the Bankruptcy Court and entered
on the docket of the Bankruptcy Cases.
B. CONDITIONS TO EFFECTIVE DATE
The following are conditions precedent to the occurrence of the
Effective Date, each of which may be satisfied or waived in accordance
with Article 11.3 of the Plan:
(a) The Confirmation Order shall be a Final Order.
(b) All documents and agreements to be executed on the Effective
Date or otherwise necessary to implement the Plan (including documents
relating to the Exit Financing) shall be in form and substance
reasonably acceptable to the Debtors and shall have been executed;
(c) Any document that is required by the Plan to be in form and
substance reasonably acceptable to the Committee is in form and
substance reasonably acceptable to the Committee;
(d) The Exit Financing shall have been closed and funded,
subject to its terms; and
(e) The Debtors shall have received any authorization, consent,
regulatory approval, ruling, letter, opinion, or document that may be
necessary to implement the Plan and that is required by law,
regulation, or order.
Under Section 11.3 of the Plan, with the exception of the
condition described in subpart (c) of the foregoing paragraph, each of
the conditions set forth above may be waived, in whole or in part, by
the Debtors without any notice to any other parties in interest or the
Bankruptcy Court and without a hearing. The condition set forth in
subpart (c) of the foregoing paragraph may be waived, in whole or in
part, by the Debtors with the Committee's consent without any notice
to any other parties in interest or the Bankruptcy Court and without a
hearing. The failure to satisfy or waive any condition to the
Confirmation Date or the Effective Date may be asserted by the Debtors
in their sole discretion regardless of the circumstances giving rise
to the failure of such condition to be satisfied (including any action
or inaction by the Debtors in their sole discretion). The failure of
the Debtors to exercise any of the foregoing rights shall not be
deemed a waiver of any other rights, and each such right shall be
deemed an ongoing right, which may be asserted at any time.
C. NON-WAIVEABLE CONDITIONS
The payment in full of all amounts owed to the DIP Lender under
the DIP Loan Facility shall be a condition precedent to the occurrence
of the Effective Date that may not be waived in whole or in part by
the Debtors without the written consent of the DIP Lender or an order
of the Bankruptcy Court after notice and hearing.
XI.
CERTAIN EFFECTS OF CONFIRMATION
A. VESTING OF THE DEBTORS' ASSETS
Except as otherwise explicitly provided in the Plan, on the
Effective Date, all property comprising the Estates (including
Retained Actions, but excluding property that has been abandoned
pursuant to an order of the Bankruptcy Court) shall revest in each of
the Debtors that owned such property or interest in property as of the
Filing Date, free and clear of all Claims, Liens, charges,
encumbrances, rights and Interests of creditors and equity security
holders, except as specifically provided in the Plan. As of the
Effective Date, the Reorganized Debtors may operate their businesses
and use, acquire, and dispose of property and settle and compromise
Claims or Interests without supervision of the Bankruptcy Court, free
of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other
than those restrictions expressly imposed by this Plan and
Confirmation Order.
B. DISCHARGE OF THE DEBTORS
Pursuant to section 1141(d) of the Bankruptcy Code, except as
otherwise specifically provided in the Plan or in the Confirmation
Order, the Distributions and rights that are provided in this Plan
shall be in complete satisfaction, discharge, and release of all
Claims and Causes of Action, whether known or unknown, against,
liabilities of, Liens on, obligations of, rights against, and
Interests in the Debtors, the Reorganized Debtors or their Estates
that arose prior to the Effective Date.
C. RELEASE BY DEBTORS OF CERTAIN PARTIES
Except as otherwise specifically provided in the Plan, pursuant
to section 1123(b)(3) of the Bankruptcy Code, as of the Effective
Date, each Debtor, in its individual capacity and as a debtor-in-
possession for and on behalf of its Estate, shall release and
discharge and be deemed to have conclusively, absolutely,
unconditionally, irrevocably and forever released and discharged all
Released Parties for and from any and all claims or Causes of Action
existing as of the Effective Date in any manner arising from, based on
or relating to, in whole or in part, the Debtors, the subject matter
of, or the transactions or events giving rise to, any Claim or
Interest that is treated in this Plan, the business or contractual
arrangements between any Debtor and any Released Party, any act,
omission, occurrence or event in any manner related to service with or
for or on behalf of the Debtors or the Estates, or any act or omission
related to the Bankruptcy Cases or the Plan. The Reorganized Debtors
shall be bound, to the same extent the Debtors are bound, by all of
the releases set forth above.
The Released Parties include all officers, directors, employees,
consultants, agents, financial advisors, attorneys and other
representatives of the Debtors who served in such capacity on or prior
to the Effective Date, in each case in their capacity as such.
D. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS
The Plan contains the following language regarding releases of
claims by Holders of Claims and Interests:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS PLAN, ON THE
EFFECTIVE DATE, (a) EACH PERSON THAT VOTES TO ACCEPT THIS PLAN; AND
(b) TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, AS SUCH
LAW MAY BE EXTENDED OR INTERPRETED SUBSEQUENT TO THE EFFECTIVE DATE,
EACH ENTITY (OTHER THAN A DEBTOR), THAT HAS HELD, HOLDS OR MAY HOLD A
CLAIM OR INTEREST, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS
AND THE REORGANIZED DEBTORS UNDER THIS PLAN AND THE CASH, NEW COMMON
STOCK, AND OTHER CONTRACTS, INSTRUMENTS, RELEASES, AGREEMENTS OR
DOCUMENTS TO BE DELIVERED IN CONNECTION WITH THIS PLAN (EACH, A
"RELEASE OBLIGOR"), SHALL HAVE CONCLUSIVELY, ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND FOREVER, RELEASED AND DISCHARGED EACH
RELEASED PARTY FROM ANY CLAIM OR CAUSE OF ACTION EXISTING AS OF THE
EFFECTIVE DATE ARISING FROM, BASED ON OR RELATING TO, IN WHOLE OR IN
PART, THE SUBJECT MATTER OF, OR THE TRANSACTION OR EVENT GIVING RISE
TO, THE CLAIM OF SUCH RELEASE OBLIGOR, AND ANY ACT, OMISSION,
OCCURRENCE OR EVENT IN ANY MANNER RELATED TO SERVICE WITH OR FOR OR ON
BEHALF OF THE DEBTORS, THE ESTATES, OR ANY ACT OR OMISSION RELATED TO
THE BANKRUPTCY CASES OR THE PLAN; PROVIDED, HOWEVER, THAT THIS ARTICLE
10.4 SHALL NOT RELEASE ANY RELEASED PARTY FROM ANY CAUSE OF ACTION
HELD BY A GOVERNMENTAL ENTITY EXISTING AS OF THE EFFECTIVE DATE, BASED
ON (i) THE INTERNAL REVENUE CODE OR OTHER DOMESTIC STATE, CITY OR
MUNICIPAL TAX CODE, (ii) THE ENVIRONMENTAL LAWS OF THE UNITED STATES
OR ANY DOMESTIC STATE, CITY OR MUNICIPALITY, (iii) ANY CRIMINAL LAWS
OF THE UNITED STATES OR ANY DOMESTIC STATE, CITY OR MUNICIPALITY, (iv)
THE EXCHANGE ACT, THE SECURITIES ACT, OR OTHER SECURITIES LAWS OF THE
UNITED STATES OR ANY DOMESTIC STATE, CITY, OR MUNICIPALITY, OR (v)
SECTIONS 1104-1109 AND 1342(d) OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED.
E. SETOFFS
The Debtors may, but shall not be required to, set off against
any Claim, and the payments or other Distributions to be made pursuant
to this Plan in respect of such Claim, claims of any nature whatsoever
that the Debtors may have against such Holder; but neither the failure
to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Debtors or the Reorganized Debtors of any
such claim that the Debtors or the Reorganized Debtors may have
against such Holder.
F. EXCULPATION AND LIMITATION OF LIABILITY
The Debtors, the Reorganized Debtors, the Committee, the members
of the Committee in their capacities as such, the Indenture Trustee in
its capacity as such, and any of such parties' respective present or
former members, officers, directors, employees, advisors, attorneys,
representatives, financial advisors, investment bankers, or agents and
any of such parties' successors and assigns, shall not have or incur,
and are hereby released from, any claim, obligation, Cause of Action,
or liability to one another or to any Holder, or any other party-in-
interest, or any of their respective agents, employees, representa-
tives, financial advisors, attorneys or Affiliates, or any of their
successors or assigns, for any act or omission in connection with,
relating to, or arising out of the Debtors' Bankruptcy Cases,
negotiation and filing of the Plan, filing the Bankruptcy Cases, the
pursuit of confirmation of the Plan, the consummation of the Plan, or
the administration of the Plan or the property to be distributed under
the Plan, except for their willful misconduct or gross negligence, and
in all respects shall be entitled to reasonably rely upon the advice
of counsel with respect to their duties and responsibilities under the
Plan. No Holder, or other party in interest, none of their respective
agents, employees, representatives, financial advisors, attorneys or
Affiliates, and no successors or assigns of the foregoing, shall have
any right of action against the parties listed in this Article for any
act or omission in connection with, relating to or arising out of the
Bankruptcy Cases, the pursuit of confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the
property to be distributed under the Plan.
G. INJUNCTION
The satisfaction, release, and discharge pursuant to Article X of
the Plan shall act as an injunction against any Person commencing or
continuing any action, employment of process, or act to collect,
offset, or recover any Claim or Cause of Action satisfied, released,
or discharged under this Plan to the fullest extent authorized or
provided by the Bankruptcy Code, including, without limitation, to the
extent provided for or authorized by sections 524 and 1141 thereof.
H. MISCELLANEOUS PLAN PROVISIONS
1. Plan Supplement
The Plan Supplement that contains the Amended By-Laws, Amended
Certificates of Incorporation, Long-Term Incentive Plan, Registration
Rights Agreement, Confirmation Order, schedules of the officers,
directors, managers and managing members of the Reorganized Debtors,
and elections by the Debtors made pursuant to Articles 3.1(b), 3.2(b)
and 4.3 of the Plan is attached as Exhibit B to this Disclosure
Statement. Notwithstanding the foregoing, the Debtors may amend the
Plan Supplement, and any attachments thereto, through and including
the Confirmation Date; provided, however, where the Plan requires a
document to be in form and substance reasonably acceptable to the
Committee, the Debtors may not modify such document unless such
modified document is also in form and substance reasonably acceptable
to the Committee.
2. Modification of Plan
The Debtors may modify the Plan pursuant to section 1127 of the
Bankruptcy Code and to the extent applicable law permits; provided,
however, where the Plan requires a document to be in form and
substance reasonably acceptable to the Committee, the Debtors may not
modify such document unless such modified document is also in form and
substance reasonably acceptable to the Committee. The Debtors may
modify the Plan in accordance with Section 13.1 of the Plan, before or
after confirmation, without notice or hearing, or after such notice
and hearing as the Bankruptcy Court deems appropriate, if the
Bankruptcy Court finds that the modification does not materially and
adversely affect the rights of any parties in interest which have not
had notice and an opportunity to be heard with regard thereto. In the
event of any modification on or before confirmation, any votes to
accept or reject the Plan shall be deemed to be votes to accept or
reject the Plan as modified, unless the Bankruptcy Court finds that
the modification materially and adversely affects the rights of
parties in interest which have cast said votes.
3. Retention of Jurisdiction
Subsequent to the Effective Date, the Bankruptcy Court shall have
or retain jurisdiction for the following purposes:
(a) To adjudicate objections concerning the allowance, priority
or classification of Claims and any subordination thereof, and
to establish a date or dates by which objections to Claims must
be filed to the extent not established herein;
(b) To liquidate the amount of any disputed, contingent or
unliquidated claim, to estimate the amount of any disputed,
contingent or unliquidated claim, to establish the amount of any
reserve required to be withheld from any distribution under the
Plan on account of any disputed, contingent or unliquidated
claim.
(c) To resolve all matters related to the rejection, and
assumption and/or assignment of any Executory Contract or
Unexpired Lease of the Debtors;
(d) To hear and rule upon all Retained Actions, Avoidance
Actions and other Causes of Action commenced and/or pursued by
the Debtors and/or the Reorganized Debtors;
(e) To hear and rule upon all applications for Professional
Compensation;
(f) To remedy any defect or omission or reconcile any
inconsistency in the Plan, as may be necessary to carry out the
intent and purpose of the Plan;
(g) To construe or interpret any provisions in the Plan and to
issue such orders as may be necessary for the implementation,
execution and consummation of the Plan, to the extent authorized
by the Bankruptcy Code;
(h) Adjudicate controversies arising out of the administration
of the Estates or the implementation of the Plan;
(i) Make such determinations and enter such orders as may be
necessary to effectuate all the terms and conditions of the Plan,
including the Distribution of funds from the Estates and the
payment of claims;
(j) To determine any suit or proceeding brought by the Debtors
and/or the Reorganized Debtors to recover property under any
provisions of the Bankruptcy Code;
(k) To hear and determine any tax disputes concerning the
Debtors and to determine and declare any tax effects under the
Plan;
(l) To determine such other matters as may be provided for in
the Plan or the Confirmation Order or as may be authorized by or
under the provisions of the Bankruptcy Code;
(m) To determine any controversies, actions or disputes that may
arise under the provisions of the Plan, or the rights, duties or
obligations of any Person under the provisions of the Plan; and
(n) To enter a final decree.
4. Dissolution of Creditors' Committee
The Committee shall not continue to exist following the Effective
Date, except for the limited purpose of filing any fee applications.
XII.
CERTAIN RISK FACTORS TO CONSIDER
The following disclosures are not intended to be inclusive and
should be read in connection with the other disclosures contained in
this Disclosure Statement and the Exhibits hereto. You should consult
your legal, financial, and tax advisors regarding the risks associated
with the Plan and the distributions you may receive thereunder.
Risks Relating to Future Business Performance: The Debtors'
future business performance is subject to business, economic,
legislative, and competitive risks and uncertainties. Such
uncertainties and other factors include approval by the Court of the
Plan and potential objections of third parties. Uncertainties also
include, but are not limited to: (i) general economic and political
conditions and the cyclicality of the textile industry; (ii)
competitive conditions in the textile industry; (iii) the Debtors'
ability to implement manufacturing cost reductions, efficiencies and
other improvements; (iv) fluctuations in the supply of raw materials
or shortages of the supply of raw materials; (v) the Debtors' ability
to maintain trademark licenses; (vi) the Debtors' ability to fund
capital expenditure requirements needed to maintain competitive
position; (vii) the effect of U.S. governmental policies regarding
imports; (viii) compliance with environmental, health and safety laws
and regulations; (ix) changes in relationships with large customers;
(x) business-related difficulties of the Debtors' customers; (xi)
ability to compete with foreign imports; and (xii) the effects of the
Chapter 11 process on the Debtors' ability to attract and retain key
management personnel.
Assumptions Regarding Value of Debtors' Assets: It has been
assumed in the preparation of the Plan that the historical book value
of the Debtors' assets generally approximates the fair value thereof,
except for specific adjustments discussed in the notes thereto. For
financial reporting purposes, the fair value of the assets of the
Debtors (including deferred tax assets) must be determined as of the
Effective Date. Although such valuation is not presently expected to
result in values that are materially different than the values assumed
in the preparation of the Plan, there can be no assurance with respect
thereto.
Leverage, Liquidity, and Capital Requirements: In addition to
Cash generated by operations, the Reorganized Debtors' principal
sources of liquidity following their emergence from bankruptcy will be
the Exit Financing. After the Effective Date of the Plan, the
Reorganized Debtors will face liquidity requirements, including
working capital requirements and repayment of the Reorganized Debtors'
obligations under the Exit Financing. While the Debtors believe that
they will have adequate liquidity to meet requirements following the
Effective Date of the Plan, no assurances can be made in this regard.
Furthermore, the ability of the Reorganized Debtors to gain access to
additional capital if needed, whether through equity offerings or debt
financing, cannot be assured. Any inability of the Reorganized
Debtors to service their indebtedness, obtain additional financing, as
needed, or comply with the financial covenants contained in the debt
instruments issued pursuant to the Plan could have a material adverse
effect on the Reorganized Debtors.
Market for New Common Stock: As described in more detail in
Section XIII of this Disclosure Statement, the New Common Stock to be
issued under the Plan has not been registered under the Securities
Act, any state securities laws or the laws of any other jurisdiction.
Absent such registration, the New Common Stock may be offered or sold
only in transactions that are not subject to or that are exempt from
the registration requirements of the Securities Act and other
applicable securities laws. There can be no assurance that an active
market for the New Common Stock will develop and no assurance can be
given as to the prices at which such securities might be traded.
The ultimate value of the Reorganized Debtors will not be
established until such time as an active market for the new Common
Stock develops and the securities begin to trade. The valuation of
the Reorganized Debtors could be adversely impacted over time if the
Reorganized Debtors' business plan does not meet expectations or if
factors beyond the Reorganized Debtors' control materialize.
Claims Estimation: There can be no assurance that the estimated
Claim amounts assumed for the purposes of preparing the Plan are
correct. The actual amount of Allowed Claims likely will differ in
some respect from the estimates. The estimated amounts are subject to
certain risks, uncertainties, and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, the actual Allowed Amount of Claims may
vary from those estimated for the purpose of preparing the Plan.
Certain Risks of Nonconfirmation: 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 Court will confirm the Plan. A rejecting creditor or
Interest holder might challenge the balloting procedures and results
as not being in compliance with the Bankruptcy Code or Bankruptcy
Rules. Even if the Court were to determine that the balloting
procedures and results were appropriate, the Court could still decline
to confirm the Plan if it were to find that any of the statutory
requirements for confirmation had not been met. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation and
requires, among other things, a finding by the Court that the
confirmation of the Plan is not likely to be followed by a liquidation
or a need for further financial reorganization and that the value of
distributions to nonaccepting holders of Claims and Interests within a
particular Class under the Plan will not be less than the value of
distributions such holders would receive if the Debtors were
liquidated under Chapter 7 of the Bankruptcy Code. The statutory
requirements are explained in more detail in Section XV of this
Disclosure Statement.
While there can be no assurance that the Court will conclude that
these requirements have been met, the Debtors believe that the Plan
will not be followed by a need for further financial reorganization
and that nonaccepting holders within each Class under the Plan will
receive distributions at least as great as would be received following
a liquidation pursuant to Chapter 7 of the Bankruptcy Code when taking
into consideration all Administrative Claims and costs associated with
any such Chapter 7 cases, as set forth further in Section XV.G of the
Disclosure Statement.
The confirmation and consummation of the Plan are also subject to
certain conditions. If the Plan were not to be confirmed, it is
unclear whether the restructuring could be implemented and what
holders of Claims ultimately would receive with respect to their
Claims. If an alternative plan of reorganization could not be agreed
to and confirmed, it is possible that the Debtors would have to
liquidate their assets, in which case the Debtors believe that it is
likely that holders of Claims would receive substantially less than
the treatment they will receive pursuant to the Plan.
XIII.
RESALE OF SECURITIES RECEIVED UNDER THE PLAN
A. ISSUANCE OF NEW COMMON STOCK
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 of 1933 (the "Securities Act")
and state laws if three principal requirements are satisfied: (i) the
securities must be offered and sold under a plan of reorganization and
must be securities of the debtor, of an affiliate participating in a
joint plan with the debtor, or of a successor to the debtor under the
plan; (ii) the recipients of the securities must hold prepetition or
administrative expense claims against the debtor or interests in the
debtor; and (iii) the securities must be issued entirely in exchange
for the recipient's claim against or interest in the debtor, or
principally in exchange for such claims or interests and partly for
cash or property. Except as noted below, the Debtors believe that the
offer and sale of the New Common Stock under the Plan to Holders
satisfy the requirements of section 1145(a)(1) of the Bankruptcy Code
and are, therefore, exempt from registration under the Securities Act
and state securities laws.
B. SUBSEQUENT TRANSFERS OF NEW COMMON STOCK
The New Common Stock to be issued pursuant to the Plan may be
freely transferred by most recipients following initial issuance under
the Plan, and all resales and subsequent transactions in the New
Common Stock or other securities so issued are exempt from
registration under federal and state securities laws, unless the
holder is an "underwriter" with respect to such securities. Section
1145(b) of the Bankruptcy Code defines four types of "underwriters":
1. persons who purchase a claim against, an interest in,
or a claim for an administrative expense against the
debtor with a view to distributing any security
received in exchange for such claim or interest;
2. persons who offer to sell securities offered under a
plan for the holders of such securities;
3. persons who offer to buy such securities from the
holders of such securities, if the offer to buy is:
a. with a view to distributing such securities; and
b. under an agreement made in connection with the
plan, the consummation of the plan, or with the
offer or sale of securities under the plan; or
4. a person who is an "issuer" with respect to the
securities as the term "issuer" is defined in section
2(11) of the Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes
any person directly or indirectly controlling or controlled by the
issuer, or any person under direct or indirect common control of the
issuer.
To the extent that Persons who receive New Common Stock pursuant
to the Plan are deemed to be "underwriters," resales by such persons
would not be exempted by section 1145 of the Bankruptcy Code from
registration under the Securities Act or other applicable law.
Persons deemed to be underwriters would, however, be permitted to sell
such New Common Stock or other securities without registration
pursuant to the provisions of Rule 144 under the Securities Act.
These rules permit the public sale of securities received by
"underwriters" if current information regarding the issuer is publicly
available and if volume limitations and certain other conditions are
met.
Additionally, the Plan provides that any Initial Holder receiving
Distributions of New Common Stock issued on the Effective Date that is
not entitled to an exemption from registration under applicable
securities laws pursuant to section 1145(a) of the Bankruptcy Code, or
whose resale of the New Common Stock is otherwise restricted, shall be
entitled to become a party to the Registration Rights Agreement, which
is in form and substance reasonably acceptable to the Committee and
which provides that Reorganized Dan River will provide certain
registration rights to such holders for the New Common Stock. The New
Common Stock Registration Rights Agreement is attached to the Plan
Supplement.
Whether or not any particular person would be deemed to be an
"underwriter" with respect to the New Common Stock or other security
to be issued pursuant to the Plan would depend upon various facts and
circumstances applicable to that person. Accordingly, the Debtors
express no view as to whether any particular Person receiving New
Common Stock or other securities under the Plan would be an
"underwriter" with respect to such New Common Stock.
Given the complex and subjective nature of the question of
whether a particular Holder maybe an underwriter, the Debtors make no
representation concerning the right of any person to trade in the New
Common Stock or other securities. The Debtors recommend that
potential recipients of the New Common Stock consult their own counsel
concerning whether they may freely trade New Common Stock without
compliance with the Securities Act or the Exchange Act.
XIV.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
THE DEBTORS HAVE NOT SOUGHT OR OBTAINED ANY RULING FROM THE
INTERNAL REVENUE SERVICE OR FROM ANY OTHER TAXING AUTHORITY WITH
RESPECT TO ANY OF THE TAX CONSEQUENCES OF THE PLAN, NOR HAVE THE
DEBTORS SOUGHT OR OBTAINED AN OPINION OF COUNSEL WITH RESPECT TO ANY
SUCH TAX CONSEQUENCES. NO REPRESENTATIONS OR ASSURANCES ARE MADE WITH
RESPECT TO THE FEDERAL INCOME TAX CONSIDERATIONS AS SUMMARIZED HEREIN.
CERTAIN TYPES OF CREDITORS MAY BE SUBJECT TO SPECIAL RULES NOT
ADDRESSED IN THIS SUMMARY OF FEDERAL INCOME TAX CONSIDERATIONS.
FURTHER, CREDITORS MAY BE SUBJECT TO STATE, LOCAL, OR FOREIGN TAX
CONSIDERATIONS THAT ARE NOT ADDRESSED HEREIN. BECAUSE THE TAX
CONSEQUENCES OF THE PLAN ARE COMPLEX AND MAY VARY BASED ON INDIVIDUAL
CIRCUMSTANCES, EACH CREDITOR SHOULD CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF ANY ASPECT OF THE
PLAN WITH RESPECT TO SUCH CREDITOR.
A. INTRODUCTION
A summary description of certain United States federal income tax
consequences of the Plan is provided below. This description is for
informational purposes only and, due to a lack of definitive judicial
or administrative authority or interpretation, substantial
uncertainties exist with respect to various tax consequences of the
Plan as discussed herein. Only the principal United States federal
income tax consequences of the Plan to the Debtors and to Holders who
are entitled to vote to accept or reject the Plan are described below.
No opinion of counsel has been sought or obtained with respect to any
tax consequences of the Plan. No rulings or determinations of the
Internal Revenue Service (the "IRS") or any other tax authorities have
been sought or obtained with respect to any tax consequences of the
Plan, and the discussion below is not binding upon the IRS or such
other authorities. No representations are being made regarding the
particular tax consequences of the confirmation and consummation of
the Plan to the Debtors or any Holder. No assurance can be given that
the IRS would not assert, or that a court would not sustain, a
different position from any discussed herein.
The discussion of United States federal income tax consequences
below is based on the Internal Revenue Code of 1986, as amended (the
"IRC"), Treasury Regulations, judicial authorities, published
positions of the IRS and other applicable authorities, all as in
effect on the date of this document and all of which are subject to
change or differing interpretations (possibly with retroactive
effect).
The following discussion does not address foreign, state or local
tax consequences of the Plan, nor does it purport to address the
United States federal income tax consequences of the Plan to special
classes of taxpayers (e.g., banks and certain other financial
institutions, insurance companies, tax-exempt organizations,
governmental entities, persons that are, or hold their Claims through,
pass-through entities, persons whose functional currency is not the
United States dollar, foreign persons, dealers in securities or
foreign currency, employees, and persons who received their Claims
pursuant to the exercise of an employee stock option or otherwise as
compensation). Furthermore, the following discussion does not address
United States federal taxes other than income taxes.
Each Holder is strongly urged to consult its own tax advisor
regarding the United States federal, state, and local and any foreign
tax consequences of' the transactions described herein and in the
Plan.
B. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
1. Cancellation of Indebtedness Income
Upon implementation of the Plan, the amount of the Debtors'
aggregate outstanding indebtedness will be substantially reduced. In
general, the discharge of a debt obligation in exchange for an amount
of cash and other property having a fair market value (or, in the case
of a new debt instrument, an "issue price") less than the "adjusted
issue price" of the debt gives rise to cancellation of indebtedness
("COD") income to the debtor. However, COD income is not taxable to
the debtor if the debt discharge occurs in a Title 11 bankruptcy case.
Rather, under the IRC, such COD income instead will reduce certain of
the Debtors' tax attributes, generally in the following order: (a) net
operating losses ("NOLs") and NOL carry forwards; (b) general business
credit carry forwards; (c) minimum tax credit carry forwards; (d)
capital loss carry forwards; (e) the tax basis of the Debtors'
depreciable and nondepreciable assets (but not below the amount of its
liabilities immediately after the discharge); and (f) foreign tax
credit carry forwards. A debtor may elect to alter the preceding order
of attribute reduction and, instead, first reduce the tax basis of its
depreciable assets (and, possibly, the depreciable assets of its
subsidiaries). The reduction in tax attributes occurs only after the
tax for the year of the debt discharge has been determined (i.e., such
attributes may be available to offset taxable income that accrues
between the date of discharge and the end of the Debtors' tax year).
Any excess COD income over the amount of available tax attributes is
not subject to United States federal income tax and has no other
United States federal income tax impact.
Because some of the Debtors' outstanding indebtedness will be
satisfied in exchange for New Common Stock, the amount of COD income,
and accordingly the amount of tax attributes required to be reduced,
will depend in part on the fair market value of the New Common Stock.
This value cannot be known with certainty until after the Effective
Date. Thus, although it is expected that the Debtors will be required
to reduce their tax attributes, the exact amount of such reduction
cannot be predicted.
2. Net Operating Losses - Section 382
The Debtors anticipate that they will experience an "ownership
change" (within the meaning of IRC section 382) on the Effective Date
as a result of the issuance of New Common Stock to Holders pursuant to
the Plan. As a result, the Debtors' ability to use any pre-Effective
Date NOLs or other tax attributes to offset their income in any post-
Effective Date taxable year (and in the portion of the taxable year of
the ownership change following the Effective Date) to which such a
carry forward is made generally (subject to various exceptions and
adjustments, some of which are described below) will be limited to the
sum of (a) a regular annual limitation (prorated for the portion of
the taxable year of the ownership change following the Effective Date)
and (b) the amount of the "recognized built-in gain" for the year
which does not exceed the excess of their "net unrealized built-in
gain," if any, over previously recognized built-in gains. IRC section
382 may also limit the Debtors' ability to use "net unrealized built-
in losses" to offset future taxable income. Moreover, the Debtors'
loss carry forwards will be subject to further limitations if the
Debtors experience additional future ownership changes or if they do
not continue their business enterprise for at least two years
following the Effective Date. As a result of such limitations, the
Debtors ability to use pre-Effective Date NOLs following the Effective
Date may be limited or eliminated.
A bankruptcy exception to the general section 382 limitations may
apply because the Debtors historic stockholders and creditors holding
"qualified indebtedness" (as defined for purposes of section 382),
prior to the implementation of the Plan, are anticipated to own at
least 50% of its stock (by vote and value) after its implementation.
Under this exception, the Debtors' ability to utilize pre-change NOLs
would not be limited as described above, but the amount of the pre-
change NOLs would be reduced by the amount of interest paid or
accrued, during the current and immediately preceding three years, on
the Prepetition Notes in respect of which stock was issued. The NOL
adjustment for interest expense would be made prior to the tax
attribute reductions described above. Under this exception, if Debtors
incur a second ownership change within two years of the change
incurred as a result of the Plan, Debtors would be unable to use any
of the pre-change NOLs. Debtors believe they qualify for the
bankruptcy exception and are analyzing whether it would be
advantageous to have it apply or to elect for it not to apply. Because
the Holders of Claims will hold a significant equity position in the
Reorganized Debtors following the consummation of the plan, if the
Holders of Claims dispose of all or a significant amount of this
position after the Effective Date, it could cause the Reorganized
Debtors to undergo an ownership change. This would generally limit (or
possibly eliminate) the Reorganized Debtors' ability to use NOLs and
other tax attributes.
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS
The following discusses certain United States federal income tax
consequences of the transactions contemplated by the Plan to Holders
that are "United States holders," as defined below. The United States
federal income tax consequences of the transactions contemplated by
the Plan to Holders of Claims (including the character, timing and
amount of income, gain or loss recognized) will depend upon, among
other things, (1) whether the Claim and the consideration received in
respect thereof are "securities" for federal income tax purposes; (2)
the manner in which a holder acquired a Claim; (3) the length of time
the Claim has been held; (4) whether the Claim was acquired at a
discount; (5) whether the holder has taken a bad debt deduction with
respect to the Claim (or any portion thereof) in the current or prior
years; (6) whether the holder has previously included in its taxable
income accrued but unpaid interest with respect to the Claim; (7) the
holder's method of tax accounting; and (8) whether the Claim is an
installment obligation for federal income tax purposes. Therefore,
Holders should consult their own tax advisors for information that may
be relevant to their particular situations and circumstances and the
particular tax consequences to them of the transactions contemplated
by the Plan. This discussion assumes that the holder has not taken a
bad debt deduction with respect to a Claim (or any portion thereof) in
the current or any prior year and such Claim did not become completely
or partially worthless in a prior taxable year. Moreover, the Debtors
intend to claim deductions to the extent they are permitted to deduct
any amounts they pay in cash, stock or other property pursuant to the
Plan.
For purposes of the following discussion, a "United States
holder" is a Holder that is (1) a citizen or individual resident of
the United States, (2) a corporation (or other entity treated as a
corporation for United States federal income tax purposes) created or
organized in the United States or under the laws of the United States
or any political subdivision thereof, (3) an estate the income of
which is subject to United States federal income taxation regardless
of its source, or (4) a trust if (i) a court within the United States
is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust or (ii) the trust was
in existence on August 20, 1996 and properly elected to be treated as
a United States person. If a partnership (or other entity treated as a
partnership for United States federal income tax purposes) is a Holder
of Claims, the tax treatment of a partner as a beneficial owner
thereof will generally depend on the status of the partner and the
activities of the partnership.
1. Holders of Secured Claims
The Holders of Secured Claims may recognize income, gain or loss
for United States federal Income tax purposes with respect to the
discharge of their Claims, depending on whether their Claims are
reinstated or, if not reinstated, on the outcome of their negotiations
with the Debtors. A holder whose Secured Claim is reinstated pursuant
to the Plan will not recognize gain or loss unless either (i) such
holder is treated as having received interest, damages or other income
in connection with the reinstatement or (ii) such reinstatement is
considered a "significant modification" of the Claim. A holder who
receives cash or other property in exchange for its Claim pursuant to
the Plan will generally recognize income, gain or loss for United
States federal income tax purposes in an amount equal to the
difference between (1) the amount of cash or fair market value of
other property, if any, received in exchange for its Claim and (ii)
the holder's adjusted tax basis in its Claim. 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 Claim in such holder's hands, 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.
2. Holders of Priority Claims and Unsecured Convenience Claims
A Holder whose Claim is paid in full or otherwise discharged on
the Effective Date will recognize income, gain or loss for United
States federal income tax purposes in an amount equal to the
difference between (i) the amount of cash received by such holder in
respect of its Claim and (ii) the holder's adjusted tax basis in the
Claim. 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 Claim in
such Holder's hands, 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. A Holder
recognizing a loss as a result of the Plan may be entitled to a bad
debt deduction, either in the taxable year of the Effective Date or a
prior taxable year. In addition, the rules summarized above with
respect to accrued interest and market discount may also apply with
respect to the receipt of cash in discharge of a Holder's Priority
Claim or Convenience Unsecured Claim.
3. Accrued Interest
Under the Plan, cash or other property may be distributed or
deemed distributed to certain Holders with respect to their Claims for
accrued interest. Holders of Claims for accrued interest which
previously have not included such accrued interest in taxable income
will be required to recognize ordinary income equal to the amount of
cash or the fair market value of other property received with respect
to such Claims for accrued interest. Holders of Claims for accrued
interest which have included such accrued interest in taxable income
generally may take an ordinary deduction to the extent that such Claim
is not fully satisfied under the Plan (after allocating the
distribution between principal and accrued interest), even if the
underlying Claim is held as a capital asset. The adjusted tax basis
of any property received in exchange for Claim for accrued interest
will equal the fair market value of such property on the Effective
Date, and the holding period for the property will begin on the day
after the Effective Date. The extent to which consideration
distributable under the Plan is allocable to interest is not clear.
Holders are advised to consult their own tax advisors to determine the
amount, if any, of consideration received under the Plan that is
allocable to interest.
4. Market Discount
The market discount provisions of the IRC may apply to holders of
certain Claims. In general, a debt obligation other than a debt
obligation with a fixed maturity of one year or less that is acquired
by a holder in the secondary market (or, in certain circumstances,
upon original issuance) is a "market discount bond" as to that holder
if its stated redemption price at maturity (or, in the case of a debt
obligation having original issue discount, the revised issue price)
exceeds the adjusted tax basis of the bond in the holder's hands
immediately after its acquisition. However, a debt obligation will not
be a "market discount bond" if such excess is less than a statutory de
minimis amount. Gain recognized by a creditor with respect to a
"market discount bond" will generally be treated as ordinary interest
income to the extent of the market discount accrued on such bond
during the creditor's period of ownership, unless the creditor elected
to include accrued market discount in taxable income currently. A
holder of a market discount bond that is required under the market
discount rules of the IRC to defer deduction of all or a portion of
the interest on indebtedness incurred or maintained to acquire or
carry the bond may be allowed to deduct such interest, in whole or in
part, on disposition of such bond.
5. Holders of Unsecured Claims
A Holder of an Unsecured Claim that receives New Common Stock in
exchange for its Claim pursuant to the Plan will generally recognize
income, gain or loss for United States federal income tax purposes in
an amount equal to the difference between (1) the fair market value on
the Effective Date of the New Common Stock received and (2) the
holder's adjusted tax basis in its Claim. 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 Claim in such holder's hands, 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. A holder recognizing a loss as a result of the Plan may be
entitled to a bad debt deduction, either in the taxable year of the
Effective Date or a prior taxable year. In addition, the rules
summarized above with respect to accrued interest and market discount
may also apply with respect to the receipt of New Common Stock in
discharge of a Holder's Unsecured Claim. A Holder's aggregate tax
basis in the New Common Stock it receives pursuant to the Plan would
generally be equal to the aggregate fair market value on the Effective
Date of such stock. The holding period for the New Common Stock would
begin on the day after the Effective Date.
To the extent certain Holders reach an agreement with the Debtors
to have their Claims satisfied, settled, released, exchanged or
otherwise discharged in a manner other than as discussed above, such
holders should consult with their own tax advisors regarding the tax
consequences to them of such treatment.
6. Holders of Interests
A Holder of an Interest in Dan River that is cancelled under the
Plan will be allowed a "worthless stock deduction" in an amount equal
to the Holder's adjusted basis in such Interest. A "worthless stock
deduction" is a deduction allowed to a Holder of a corporation's stock
for the taxable year in which such stock becomes worthless (which year
may differ from the year the Plan is confirmed). If the Holder held
the Interest as a capital asset, the loss will be treated as a loss
from the sale or exchange of such capital asset on the last day of the
Holder's taxable year.
7. Information Reporting and Backup Withholding
Certain payments, including payments in respect of accrued
interest or market discount, are generally subject to information
reporting by the payer to the IRS. Moreover, such reportable payments
are subject to backup withholding under certain circumstances. Under
the IRC's backup withholding rules, a United States holder may be
subject to backup withholding at the applicable rate with respect to
certain distributions or payments pursuant to the Plan, unless the
holder (a) comes within certain exempt categories (which generally
include corporations) and, when required, demonstrates this fact or
(b) provides a correct United States taxpayer identification number
and certifies under penalty of perjury that the holder is a U.S.
person, 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. Amounts withheld
under the backup withholding rules may be credited against a holder's
United States federal income tax liability, and a holder may obtain a
refund of any excess amounts withheld under the backup withholding
rules by filing an appropriate claim for refund with the IRS.
XV.
CONFIRMATION AND CONSUMMATION PROCEDURE
A. GENERAL INFORMATION
All creditors whose Claims are impaired by the Plan (except those
creditors holding Class 6 Subordinated Claims or Class 7A Interests,
which are deemed to have rejected the Plan) may cast their votes for
or against the Plan. As a condition to confirmation of the Plan, the
Bankruptcy Code requires that one Class of Impaired Claims votes to
accept the Plan. Section 1126(c) of the Bankruptcy Code defines
acceptance of a plan by a Class of Impaired Claims as acceptance by
holders of at least two-thirds of the dollar amount of the class and
by more than one-half in number of Claims. Holders of Claims who fail
to vote are not counted as either accepting or rejecting a plan.
Voting is accomplished by completing, dating, signing and returning
the ballot form (the "Ballot") by the Voting Deadline. Ballots will
be distributed to all creditors entitled to vote on the Plan and is
part of the Solicitation Package accompanying the Disclosure
Statement. The Ballot indicates (i) where the Ballot is to be filed
and (ii) the deadline by which creditors must return their Ballots.
See Section I.C. of this Disclosure Statement for a more detailed
explanation of who will receive Ballots and voting procedures.
B. SOLICITATION OF ACCEPTANCES
This Disclosure Statement has been approved by the Court as
containing "adequate information" to permit creditors and equity
interest holders to make an informed decision whether to accept or
reject the Plan. Under the Bankruptcy Code, your acceptance of the
Plan may not be solicited unless you receive a copy of this Disclosure
Statement prior to, or concurrently with, such solicitation.
C. ACCEPTANCES NECESSARY TO CONFIRM THE PLAN
At the Confirmation Hearing, the Court shall determine, among
other things, whether the Plan has been accepted by the Debtors'
creditors. Classes 3-5 will be deemed to accept the Plan if at least
two-thirds in amount and more than one-half in number of the Claims in
each class vote to accept the Plan. Furthermore, unless there is
unanimous acceptance of the Plan by Classes 3-5, the Court must also
determine that any non-accepting Class members will receive property
with a value, as of the Effective Date of the Plan, that is not less
than the amount that such Class member would receive or retain if the
Debtors were liquidated as of the Effective Date of the Plan under
Chapter 7 of the Bankruptcy Code.
D. CONFIRMATION OF PLAN PURSUANT TO SECTION 1129(B)
The Bankruptcy Code provides that the Plan may be confirmed even
if it is not accepted by all impaired classes. To confirm the Plan
without the requisite number of acceptances of each Impaired Class,
the Court must find that at least one Impaired Class has accepted the
Plan without regard to the acceptances of insiders, and the Plan does
not discriminate unfairly against, and is otherwise fair and
equitable, to any Impaired Class that does not accept the Plan.
Classes 6 and 7A are deemed to reject the Plan. Accordingly, if any
Impaired Class votes to accept the Plan, the Debtors will seek to
confirm the Plan under the "cramdown" provisions of section 1129(b) of
the Bankruptcy Code.
E. CONSIDERATIONS RELEVANT TO ACCEPTANCE OF THE PLAN
The Debtors' recommendation that all Creditors should vote to
accept the Plan is premised upon the Debtors' view that the Plan is
preferable to other alternatives for liquidation of the Debtors'
Estates. It appears unlikely to the Debtors that an alternate plan of
reorganization or liquidation can be proposed that would provide for
payments in an amount equal or greater than the amounts proposed under
the Plan. If the Plan is not accepted, it is likely that the
interests of all creditors will be further diminished.
F. FEASIBILITY OF THE PLAN
The Bankruptcy Code requires that, for the Plan to be confirmed,
the Debtors must demonstrate that consummation of the Plan is not
likely to be followed by the liquidation or the need for further
financial reorganization of the Debtors.
For purposes of determining whether the Plan meets the
feasibility requirement, the Debtors have analyzed their ability to
meet their obligations under the Plan. Based upon (a) amounts to be
received through the Exit Financing, (b) Cash on hand, and (c)
estimated future revenues, the Debtors believe that the Plan is
feasible and that they will be able to make all payments required to
be made pursuant to the Plan.
HOLDERS OF CLAIMS AND INTERESTS ARE ADVISED TO REVIEW CAREFULLY
THE RISK FACTORS INCLUDED IN SECTION XII OF THIS DISCLOSURE STATEMENT
IN CONNECTION WITH THEIR REVIEW OF THE SAME.
G. BEST INTEREST OF CREDITORS TEST
In certain circumstances, to be confirmed, the Plan must pass the
"Best Interest Of Creditors Test" incorporated in section 1129(a)(7)
of the Bankruptcy Code. The test applies to individual creditors and
Interest holders (stockholders) that are both (i) in Impaired Classes
under the Plan, and (ii) do not vote to accept the Plan.
Section 1129(a)(7) Bankruptcy Code requires that such Creditors and
Interest holders receive or retain an amount under the Plan not less
than the amount that such Holders would receive or retain if the
Debtors were to be liquidated under Chapter 7 of the Bankruptcy Code.
In a typical Chapter 7 case, a trustee is elected or appointed to
liquidate the debtor's assets for distribution to creditors in
accordance with the priorities set forth in the Bankruptcy Code.
Secured creditors generally are paid first from the sales proceeds of
properties securing their liens. If any assets are remaining in the
bankruptcy estates after the satisfaction of secured creditors' claims
from their collateral, Administrative Claims generally are next to
receive payment. Unsecured creditors are paid from any remaining
sales proceeds, according to their respective priorities. Unsecured
creditors with the same priority share in proportion to the amount of
their allowed claims in relationship to the total amount of allowed
claims held by all unsecured creditors with the same priority.
Finally, equity interest holders receive the balance that remains, if
any, after all creditors are paid.
The Debtors believe that the Plan meets the "best interests" test
of section 1129(a)(7) of the Bankruptcy Code because members of each
Impaired Class will receive at least as much under the Plan than they
would in a liquidation in a hypothetical chapter 7 case. Creditors
will receive a better recovery through the distributions contemplated
by the Plan because the continued operation of the Debtors as going
concerns rather than a forced liquidation will allow the realization
of more value for the Debtors' assets. Moreover, creditors such as the
Debtors' employees would retain their jobs and most likely make few if
any other claims against the estate. Lastly, in the event of
liquidation, the aggregate amount of unsecured claims would no doubt
increase significantly, and such claims would be subordinated to
priority claims that would be created. For example, employees will
file claims for wages and other benefits, some of which would be
entitled to priority. Landlords would no doubt file large claims for
both unsecured and priority amounts. The resulting increase in both
general unsecured and priority claims would decrease percentage
recoveries to unsecured creditors of the Debtors.
XVI.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
The Debtors believe that the Plan affords Holders of Claims the
potential for the greatest realization on the Debtor' assets and,
therefore, is in the best interests of such Holders. If the Plan is
not confirmed, however, the theoretical alternatives include: (a)
continuation of the pending Chapter 11 Cases; (b) an alternative plan
or plans of reorganization; or (c) liquidation of the Debtors under
Chapter 7 or Chapter 11 of the Bankruptcy Code.
A. CONTINUATION OF THE BANKRUPTCY CASES
If the Debtors remain in Chapter 11, they could continue to
operate their businesses and manage their properties as debtors-in-
possession, but they would remain subject to the restrictions imposed
by the Bankruptcy Code, which would limit the Debtors' ability to
respond to the challenges of its competitors and change in the
marketplace. Moreover, the Debtors believe that they have
accomplished the goals that Chapter 11 has allowed them to achieve,
and therefore do not require that the Debtors remain in Chapter 11.
B. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtors, or, after the
expiration of the Debtors' exclusive period in which to propose and
solicit a reorganization plan, any other party in interest in the
Bankruptcy Cases, could propose a different plan or plans. Such plans
might involve either a reorganization and continuation of the Debtors'
businesses, or an orderly liquidation of their assets, or a
combination of both. Since the Petition Date, the Debtors and their
advisors have conducted an evaluation of the Debtors' operations and
financial condition that resulted in the development of the Plan and
the commitment from the Exit Financing Lender to provide the Exit
Financing. The Debtors do not believe that any alternate plan of
reorganization would provide a better recovery for Holders of Claims
than the Plan described in this Disclosure Statement.
C. LIQUIDATION UNDER CHAPTER 7
As discussed in more detail in Section XV.G of the Disclosure
Statement, the Debtors believe that the Plan, which provides for the
reorganization of the Debtors' remaining assets by individuals
familiar with the Debtors and the industry, provides a substantially
greater return to holders of Claims than would a liquidation by a new
Chapter 7 Trustee who is unfamiliar with these cases, the Debtors, or
the relevant industry.
XVII.
RECOMMENDATION
Based on the foregoing analysis of the Debtors, their remaining
assets, and the Plan, the Debtors believe that the best interests of
all parties would be served through confirmation of the Plan. ALL
CREDITORS ARE URGED TO VOTE TO "ACCEPT" THE PLAN.
Dated this 28th day of July, 2004.
Respectfully submitted,
DAN RIVER INC., on behalf of itself and
the other Debtors identified herein
By: /s/ Joseph L. Lanier, Jr.
---------------------------
Name: Joseph L. Lanier, Jr.
Title: Chief Executive Officer
KING & SPALDING LLP
/s/ James A. Pardo, Jr.
-------------------------------
James A. Pardo, Jr.
Georgia Bar No. 561206
Sarah Robinson Borders
Georgia Bar No. 610649
191 Peachtree Street
Atlanta, Georgia 30303-1763
(404) 572-4600
Fax: (404) 572-5149
ATTORNEYS FOR THE DEBTORS AND DEBTORS-
IN-POSSESSION
EXHIBITS TO DISCLOSURE STATEMENT
Exhibit A Joint Plan of Reorganization
Exhibit B Plan Supplement
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