EXHIBIT 10.14
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT (the "Settlement Agreement") is entered into as
of July __, 1995 by and between PHAR-MOR, INC. together with its fifteen
affiliated debtor entities (collectively, the "Debtors") and Salomon Brothers
Inc. ("Salomon").
RECITALS
A. Debtors and Salomon are parties to, or assignees of rights under, those
certain loan and security agreements set forth on Schedule A hereto (the "Loan
Agreements") regarding certain prepetition loans to the Debtors secured by
security interests in certain of the Debtors' furniture, fixtures and equipment
("FF&E"). On the petition date, the aggregate principal and accrued and unpaid
interest on the loans was $10,342,223.
B. Pursuant to United States Bankruptcy Code (S)506(a), an allowed claim
arising from Debtors' obligations under the Loan Agreements constitutes a
secured claim to the extent of the value of the FF&E collateral (a "Secured
Claim") and a general unsecured claim to the extent the allowed claim exceeds
the value of the FF&E collateral.
C. Salomon, as assignee of the Dollar Savings and Trust Company, also
asserts an allowed administrative priority expense in the amount of
$5,402,952.33 as more fully set forth in that certain Order Approving Agreement
Concerning Use Of Funds, dated August 28, 1992 (the "Prior Order"), and Motion
of Salomon Brothers Inc, as Assignee of The Dollar Savings and Trust Company,
for payment of Allowed Administrative Priority Expense, filed with the Court on
February 23, 1995.
D. The Debtors and Salomon have not heretofore agreed on (i) the value of,
or the correct valuation methodology for, the FF&E collateral, (ii) the
appropriate treatment of the resulting Secured Claim, or (iii) Salomon's
entitlement to an administrative priority expense and, in the absence of an
agreement between the parties, such valuation and treatment issues and the
administrative priority expense issue are likely to be the subject of dispute
and extensive, costly and time consuming litigation.
E. On May 25, 1995, the Debtors filed their Trust Amended Joint Plan of
Reorganization dated May 25, 1995 (as it may be amended or modified, the
"Debtors' Plan") with the United States Bankruptcy Court for the Northern
District of Ohio (the "Bankruptcy Court").
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F. The Debtors and Salomon wish to resolve the value and treatment of
Holders' Secured Claim and administrative priority expense claim for purposes of
the Debtors' Plan.
AGREEMENT
In consideration of the foregoing, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Debtors and Salomon hereby agree as follows.
1. The Debtors and Salomon agree that:
(a) Salomon shall have an allowed Secured Claim, the amount and
treatment of which shall be as set forth on Schedule B hereof, as the same may
be amended pursuant to paragraph 4 hereof, or otherwise, with the mutual written
consent of the Debtors and Salomon (the "Agreed Plan Treatment");
(b) the Debtors' Plan shall reflect such Agreed Plan Treatment for
Salomon's Secured Claim;
(c) Salomon shall have an (i) authorized and allowed entitlement to the
payment of an administrative expense under 11 U.S.C. (S)503(b) in the amount of
$1,525,000.00 payable in cash upon the effective date of this Settlement
Agreement and (ii) and allowed unsecured claim in the amount of $7,233,096;
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(d) The Debtors and Salomon hereby fully release and discharge each other,
their successors and assigns, from all rights, claims and actions which either
party now or may hereafter have against the other party arising from or
relating to the FF&E collateral, the Loan Agreements, the Secured Claim, the
Prior Order and any action taken by either of them with respect to the foregoing
(including, without limitation, any adequate protection or other payments paid
to Salomon or Dollar in connection therewith, and including, without limitation,
any rights, claims and actions arising under Sections 544 through 551 of the
Bankruptcy Code or any state fraudulent conveyance law of similar import arising
with respect to the Loan Agreement, Secured Claim, the Prior Order or the FF&E
Collateral); provided, however, that the Debtors and Salomon retain all rights
under the Settlement Agreement; and
(e) this Settlement Agreement shall become effective upon entry of an
order of the Court approving this Settlement (the "Approval Order"). Without
affecting the generality of the foregoing, the Debtors shall file, within two
(2) business days of the execution of the Settlement Agreement, an application
to the court for the Approval Order.
2. The Debtors shall use their best efforts to obtain confirmation of the
Debtors' Plan, including the Agreed Plan Treatment for Salomon's Secured Claim.
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3. Upon entry of the Approval Order, Salomon's receipt of its
administrative expense in the amount of $1,525,000.00 in accordance with
paragraph 1(c), and so long as the Debtors' Plan incorporates the Agreed Plan
Treatment (unless Salomon consents in writing to different treatment), Salomon
agrees that it will not object to confirmation of the Debtors' Plan (it being
understood that prior to the occurrence of the foregoing events Salomon reserves
its right to vote against the Plan in order to preserve its rights and any such
vote by Salomon shall not be deemed to be a breach by Salomon of this Settlement
Agreement for any purpose provided Salomon cooperates with the Debtors to change
any such vote to a favorable vote upon the occurrence of the foregoing events
pursuant to Bankruptcy Rule 3018).
4. In the event that another party holding a prepetition debt instrument
with a petition date balance in excess of $1 million secured by store furniture,
fixtures and equipment of one or more of the Debtors (an "Equipment Lender")
enters into an agreement with the Debtors pursuant to which their Secured Claim
would under the Debtors' Plan be valued or treated materially differently from
Salomon's Agreed Plan Treatment hereunder, the Debtors shall offer substantially
the same valuation and treatment to Holder for Holder's Secured Claim.
Notwithstanding the foregiong, the Debtors shall not be required to offer Holder
valuation and treatment substantially similar to that accorded an Equipment
Lender pursuant to (a) a negotiated
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agreement or settlement reached following the earlier of (x) the commencement of
depositions or the service of responses to discovery requests by the Debtors or
such Equipment Lender in connection with any contested motion or adversary
proceeding (including without limitation a plan of reorganization confirmation
hearing) relating to the valuation or treatment of such Equipment Lender's
Secured Claim, or (y) the introduction of evidence by the Debtors or such
Equipment Lender at an evidentiary hearing or trial on the same issues, or (b)
litigation resulting in a judgement or order on the merits (i.e., not resulting
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in a negotiated settlement or agreement).
5. The Debtors' agreements and obligations under this Settlement Agreement
shall terminate immediately upon any breach by Salomon of its agreements and
obligations herein. Salomon's agreements and obligations under this Settlement
Agreement shall terminate immediately upon any breach by the Debtors of their
agreements and obligations herein. If (a) the Approval Order shall not have
been entered on or prior to August 15, 1995 or (b) the Debtors' Plan is not
confirmed by one year from the date hereof, then either party may, by written
notice to the other party, terminated this Settlement Agreement, in which case
the Settlement Agreement shall become null and void.
6. Until and unless this Settlement Agreement is terminated pursuant to
Paragraph 5 hereof, any transferee of all or any portion of Salomon's rights
under the Loan Agreements or
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the Prior Order (collectively, "Salomon's Claim"), and any person who acquires
any participation or other direct or indirect interest in or control or
authority over the voting or disposition of any portion of Salomon's Claim,
shall continue to be bound by the terms of this Settlement Agreement. Salomon
agrees not to transfer, assign, participate or pledge any interest in or control
or authority over all or any part of Salomon's Claim, in any manner, without the
express written assumption by such transferee of Salomon's agreements and
obligations hereunder.
7. Nothing contained in this Settlement Agreement is intended or shall be
deemed to be the solicitation of an acceptance or rejection of the Debtors'
plan.
8. Notices given under this Settlement Agreement shall be to the parties
at the addresses set forth on the signature page(s) hereof.
9. This Settlement Agreement may be executed by one or more of the parties
hereto in any number of counter-parts, each of which shall be deemed to be an
original, but all such counter-parts shall together constitute one and the same
instrument. No modification, amendment or waiver of any provision of this
Settlement Agreement shall be effective unless the same shall be in writing and
signed by the parties hereto. This Settlement Agreement shall be binding upon
and inure to the
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benefit of the parties hereto and their respective successors and assigns.
10. This Settlement Agreement is entered as a settlement of disputes
among the parties hereto. Nothing herein shall be deemed an admission of any
sort. If the transactions contemplated herein are not consummated, if the order
approving this Settlement is vacated, reversed or modified in any way not
acceptable to the parties hereto on appeal, or if this Settlement Agreement is
terminated for any reason, the parties hereto fully reserve any and all rights
and the releases granted herein shall be deemed null and void. Any payments, if
any, made to Salomon pursuant to paragraph 1(c) of this Settlement Agreement
shall thereupon be returned to the Debtors, without offset, counterclaim or
reduction (with interest accruing thereon at the legal rate from the date of
payment). Pursuant to Federal Rule of Evidence 408 and any applicable state rule
of evidence, this Settlement Agreement shall not be admitted into evidence in
any proceeding other than a proceeding to enforce its terms.
11. This Settlement Agreement shall be governed by the laws of the State
of New York, without regard to principles of conflict of laws.
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IN WITNESS WHEREOF, each of the parties below have executed a
counter-part of this Agreement, the terms of which shall be effective upon
execution by each of the undersigned.
"Debtors" PHAR-MOR, INC.,
on behalf of itself and all of
its affiliated debtors
By /s/ Joseph A. Bondi
---------------------------
Joseph A. Bondi
Senior Vice President of
Administration
Phar-Mor, Inc.
20 Federal Plaza West
Youngstown, Ohio 44501-0400
Phone: (216) 740-2901
Fax: (216) 740-2985
"Salomon" SALOMON BROTHERS INC
By /s/ Robert Kleinart
----------------------------
Robert Kleinart
Salomon Brothers Inc.
7 World Trade Center
40th Floor
New York, New York 10048
Phone: (212) 783-3586
Fax: (212) 783-4080
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SCHEDULE A
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LOAN AGREEMENTS
---------------
Date of Promissory Note Original
Loan No. & Security Agreement Principal Amount
- -------- ------------------------ ----------------
50907 August 21, 1987 $3,574,085.18
60201 October 28, 1987 $2,903,982.93
60448 December 28, 1987 $2,521,931.89
60718 March 17, 1988 $2,002,617.34
61014 June 24, 1988 $1,250,000.00
61441 December 22, 1988 $1,250,000.00
62535 June 12, 1990 $4,000,000.00
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SCHEDULE B
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PHAR-MOR FF&E TERM DEBT
RESTRUCTURING TERMSHEET
JUNE 30, 1995
The following is a summary outline of certain material terms of the New
Equipment Notes to be issued to Salomon Brothers under Phar-Mor's Third Amended
Joint Plan of Reorganization, dated May 25, 1995 (the "Plan"), to holders of
claims secured by furniture, fixtures and equipment ("FF&E Collateral").
Issuer: Reorganized Phar-Mor, Inc.
Payee: Salomon Brothers
Principal: $1,750,000.00 (Subject to reduction (i) to the
extent of any adequate protection payments made
after September 1, 1995 in excess of $50,000 in
the aggregate and (ii) for any FF&E Collateral
made available to Payee from any store
determined to be closed after the date hereof
and prior to the Plan Effective Date in an
amount equal to the amounts allocated to such
FF&E on the attached schedule)
Interest: 7% per annum
Maturity: 8 years from Plan Effective Date
Payments: Interest in arrears payable semi annually until
the third anniversary of the Plan Effective
Date, thereafter interest and one sixteenth
(6.25%) of principal will be payable semi
annually in arrears with any unpaid principal
and accrued and unpaid interest payable at
Maturity
Prepayments: Optional
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At Phar-Mor's option at any time at 100% of the
principal amount outstanding plus accrued
interest to the date of payment
Mandatory
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100% of the outstanding principal amount
attributable to the FF&E Collateral in any store
Reorganized Phar-Mor after the Plan Effective
Date determines to close
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if a least 2/3 of such FF&E Collateral has not been relocated
to other Phar-Mor stores within 6 months following the
closing, plus accrued interest to the date of payment.
Other Terms: As set forth in the Plan concerning Classes 3a-3l
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