Opinion
Case No. 00-34533, Jointly Administered.
August 25, 2004
Bruce H. Matson (Va. Bar No. 22874), Vernon E. Inge, Jr. (Va. Bar No 32699), Troy Savenko (Va. Bar No. 44516), LeCLAIR RYAN, A Professional Corporation, Richmond, Virginia, Counsel for the Debtors.
David C. Albalah, Adam D. Ford, McDERMOTT WILL EMERY, New York, New York, Counsel to Rhodes Holdings, Inc. and Rhodes Holdings II, Inc.
Scott L. Alberino, AKIN GUMP STRAUSS HAUER FELD LLP, Washington, D.C., Michael S. Stamer, AKIN GUMP STRAUSS HAUER FELD LLP, New York, New York, Counsel to the Official Committee Of Unsecured Creditors.
Kevin R. Huennekens (Va. Bar No. 18557), KUTAK ROCK LLP, Richmond, Virginia, David S. Walls, Gregory J. Murphy, Moore VAN ALLEN, PLLC, Charlotte, NC, Counsel to Wachovia Bank, N.A. as Collateral Agent.
ORDER APPROVING SETTLEMENT OF RHODES ADVERSARY PROCEEDING
This matter came before the Court upon the Debtors' Motion To Approve Settlement of Rhodes Adversary Proceeding And Memorandum Of Law In Support Thereof (the "Motion") of the above-captioned Debtors (the "Debtors") for the entry of an order pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rule"), authorizing and approving a settlement agreement attached hereto as Exhibit A (the "Settlement"); and due and sufficient notice of the Motion having been given to the parties identified in the Motion; and it appearing that no other further notice need be given; and it appearing that such notice constitutes due and sufficient notice for purposes of Bankruptcy Rule 2002(a)(3); and it appearing that the Settlement is in the best interests of the Debtors, their estates and creditors; and after due deliberation and sufficient cause appearing therefor; it is hereby
ORDERED as follows:
1. The Motion is granted.
2. All capitalized terms used but not defined herein shall have the meaning ascribed to them in the Motion.
3. The Settlement is hereby approved.
4. The Settlement shall be binding on any and all parties in interest in Debtors' Case No. 00-34533 before the Court, including but not limited to all creditors' committees, affiliates, assigns, successors in interest and trustees of the Debtors.
5. Nothing about the approval of the Settlement shall affect adversely any and all rights that the Pre-Petition Secured Lenders may have to or in the Heilig Note, the Consent Judgment Order, and the Amended Heilig Note, all of which rights as set forth in the Final Order Pursuant to Sections 361 and 363 of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure Providing the Pre-Petition Secured Lenders Supplemental Adequate Protection.
6. The Debtors are authorized, empowered and directed to take all such actions necessary to enter into and effectuate the Settlement.
7. This Court shall retain jurisdiction over all affected parties with respect to any matters, claims or rights arising from or related to the Motion and/or the Settlement Agreement.
8. Upon entry, the Clerk shall serve a copy of this Order on those parties on the attached Service List.
EXHIBIT A SETTLEMENT AGREEMENT
The Settlement Agreement is entered into this 1st day of August 2004 among Heilig-Meyers Company ("Heilig"), HMY Room Store, Inc. ("RoomStore"), Heilig-Meyers Furniture Company, Inc., Heilig-Myers Furniture West, Inc., HMY Star, Inc., and MacSaver Financial Services, Inc. (collectively, the "Debtors"), Rhodes Holdings, Inc. ("Holdings"), Rhodes Holdings II, Inc. ("Holdings II") (Holdings and Holdings II are sometimes referred to collectively as, the "Defendants"), Rhodes, Inc. ("Rhodes"), and Wells Fargo Retail Finance, LLC ("Wells Fargo").
Recitals:
A. Holdings and Holdings II are each a Delaware corporation, and Rhodes is a Georgia corporation. Each of Holdings, Holdings II, and Rhodes have its principal place of business located at 4370 Peachtree Road, N.E., Atlanta, Georgia. Holdings owns one hundred percent (100 %) of the issued and outstanding common stock of Holdings II. Holdings II owns one hundred percent (100 %) of the issued and outstanding common stock of Rhodes.
B. Prior to June 15, 1999, Rhodes was a wholly-owned subsidiary of Heilig, operating a retail furniture business.
C. Heilig and Holdings executed that certain Stock Purchase Agreement dated June 15, 1999 (the "Stock Purchase Agreement") pursuant to which Holdings purchased and acquired from Heilig all of the then outstanding capital stock of Rhodes in exchange for $60,000,000 in cash, a $40,000,000 10% Subordinated PIK Note due November 15, 2004 (the "Heilig Note"), and certain options to purchase stock in Rhodes (the entire transaction, the "Rhodes Acquisition").
D. On July 13, 1999, Heilig and Holdings executed that certain First Amendment to Stock Purchase Agreement (collectively with the Stock Purchase Agreement, the "Amended Agreement"). Pursuant to the Amended Agreement, among other changes, Holdings II replaced Holdings as the "Buyer," although Holdings remained a party thereto.
E. On July 13, 1999, and as part of the consideration for the Rhodes Acquisition, Holdings II executed and delivered the Heilig Note pursuant to which Holdings II agreed to pay Heilig the principal amount of forty million dollars ($40,000,000) by November 15, 2004, plus interest at a rate of ten percent (10%) per annum, payable in kind.
F. On or about August 16, 2000 (the "Petition Date"), the Debtors filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Eastern District of Virginia (the "Court"). Since the Petition Date, the Debtors have remained in possession of their assets.
G. On or about July 16, 2001, Holdings filed proofs of claim in the Debtors' cases (the "Rhodes Claim") asserting a secured claim by virtue of setoff right against amounts due under the Heilig Note.
H. On or about January 9, 2004, Heilig filed an adversary proceeding (the "Adversary Proceeding") in the Court in which Heilig objected to the Rhodes Claim.
I. Wells Fargo has made loans to Rhodes, claims an interest in Holdings II, and asserts certain rights against Heilig in connection with an intercreditor agreement (the "Intercreditor Agreement" as defined further in provision 5).
J. The Parties have negotiated this matter and now, in an effort to avoid the expenses and uncertainties of litigation, desire to compromise and resolve the Adversary Proceeding, as set forth below (the "Settlement").
Agreement:
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
Consent Judgment. Upon execution of this Agreement, Holdings II shall execute a consent judgment in the amount of forty-eight million one hundred nineteen thousand nine hundred and forty-seven dollars ($48,119,947.00) substantially in the form of the Consent Judgment Order attached hereto as Exhibit A. Counsel for Heilig shall hold the executed Consent Judgment Order in escrow pending approval of the Settlement and this Agreement by the Court by entry of an order substantially in the form of the Order Approving Settlement of Rhodes Adversary Proceeding attached hereto as Exhibit B. Upon (or simultaneous with) entry of the Order Approving Settlement of Rhodes Adversary Proceeding, counsel for Heilig shall submit the Consent Judgment Order for entry by the Court in the Adversary Proceeding. As provided in the Consent Judgment Order, Heilig, the Debtors, their affiliates and their successors (or assigns) shall be prohibited from taking any action whatsoever (other than steps to domesticate the Consent Judgment Order) to enforce or collect upon the Consent Judgment Order until March 15, 2005.
Amended Heilig Note. Upon execution of this Agreement, Heilig and Holdings II shall execute an Allonge to the Heilig Note (i) reducing the principal amount thereof to twenty million dollars ($20,000,000.00), (ii) providing that the Heilig Note as amended by the Allonge (the "Amended Heilig Note") shall be due on March 15, 2005, and (iii) providing that interest shall accrue on the unpaid principal amount of the Amended Heilig Note beginning on November 16, 2004 at a rate per annum equal to ten percent (10 %) until paid in full, all substantially in the form of the Allonge attached hereto asExhibit C. The Amended Heilig Note shall constitute "Junior Debt" and a "Junior Debt Document" as set forth in provision 5 below.
Reservation of Certain Defenses. The Defendants and Rhodes shall retain all of their defenses to payment under the Amended Heilig Note that they possessed prior to execution of this Settlement Agreement, provided, however, that the Defendants and Rhodes shall not have any allowed claim in any of the Debtors' bankruptcy cases. No part of this provision or agreement is intended to inure to the Defendants or Rhodes any rights, setoffs, or defenses that the Defendants or Rhodes did not already possess prior to the execution of the Agreement. The Debtors reserve the right to object, for any reason, to any claim filed or asserted by Rhodes or Holdings in the Debtors' bankruptcy cases.
Forbearance. Notwithstanding any provision of the Amended Agreement, the Heilig Note, the Consent Judgment Order, the Allonge, the Amended Heilig Note or this Settlement Agreement, no action to enforce the Consent Judgment Order (except for efforts taken to domesticate the Consent Judgment Order) or to collect on the Amended Heilig Note may be taken until March 15, 2005, and, on or after such date, any collection action must be conducted in accordance with the terms of the Intercreditor Agreement and provision 5 below.
5. Intercreditor Issues. Reference is made to that certain Loan and Security Agreement dated as of February 5, 2002 (as amended from time to time, the "Loan Agreement") by and among Rhodes, Wells Fargo Retail Finance, LLC as Agent (the "Agent") and the lenders that are signatories thereto (collectively, the "Lenders"). Reference is further made to that certain Subordination and Intercreditor Agreement dated as of July 13, 1999 (as amended from time to time, the "Intercreditor Agreement") by and among Heilig, Holdings II and Heller Financial, Inc. ("Heller") which, inter alia, subordinated the obligations of Holdings II to Heilig under the Heilig Note to the obligations of Holdings, Holdings II and Rhodes in respect of Senior Debt (as such term is defined in the Intercreditor Agreement). The Intercreditor Agreement defines Senior Debt to include Rhodes' then existing loan agreement with Heller, together with (without limitation), "all complete or partial refinancings of the Obligations" (as defined in the Intercreditor Agreement). Certain proceeds of loans from the Lenders under the Loan Agreement were used to refinance such "Obligations," and amounts outstanding under the Loan Agreement constitute "Senior Debt" for all purposes of the Intercreditor Agreement, all as set forth in a notice dated February 19, 2002 from the Agent to Heilig. In order to induce the Agent (and the Lenders) to consent to the execution of this Settlement Agreement, Heilig and the other Debtors covenant and agree with and for the benefit of the Agent and the Lenders as follows:
(i) all payment and performance obligations of Rhodes and the Defendants to the Agent and the Lenders under the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement) constitute Senior Debt (as defined in the Intercreditor Agreement) for all purposes of the Intercreditor Agreement;
(ii) all payment and performance obligations of Holdings II under the Consent Judgment Order and the Amended Heilig Note constitute Junior Debt, and the Amended Heilig Note constitutes a Junior Debt Document (as each such term is defined in the Intercreditor Agreement), for all purposes of the Intercreditor Agreement;
(iii) neither Heilig nor any of its affiliates, successors or assigns will challenge, oppose or contest (or join in any challenge, opposition or contest by any third party) the validity, perfection, priority, or enforceability of the Senior Debt, the Senior Debt Documents, or the liens and security interests granted to the Agent and Lenders in connection therewith; and this paragraph (iii) shall remain effective in any proceeding initiated pursuant to paragraph (vi)(B).
(iv) without limiting the foregoing, Heilig, for itself and its successors and assigns, acknowledges and agrees that the payment of any and all Junior Debt shall be subordinate and subject in right of payment, to the extent and in the manner set forth in the Intercreditor Agreement, to the prior payment in full in cash of the Senior Debt;
(v) in the event the Consent Judgment Order and/or the Amended Heilig Note are not repaid when due (in both instances on March 15, 2005), Heilig shall issue to the Agent, at Wells Fargo Retail Finance, LLC, One Boston Place, 18th Floor, Boston, Massachusetts 02108, Attention: Director of Portfolio Management, the Junior Default Notice required by the Intercreditor Agreement; and
(vii) notwithstanding any other provision of this Settlement Agreement or the Intercreditor Agreement, the Agent (and the Lenders) agree with and for the benefit of the Heilig and the other Debtors as follows:
(A) notwithstanding any Collection Action blockage (or similar) provisions of the Intercreditor Agreement, the Debtors may domesticate the Consent Judgment Order, and after March 15, 2005, Heilig shall be permitted to take any and all action it deems necessary and/or appropriate to collect or enforce collection of the Consent Judgment Order and/or the Amended Heilig Note and engage in any Collection Action (as defined in the Intercreditor Agreement), in all instances subject to the payment priority provisions of the Intercreditor Agreement, provided that if there shall occur or exist a Default or Event of Default under the Loan Agreement on March 15, 2005 (other than the giving of the Junior Default Notice), the Agent may insist upon and enforce the Collection Action blockage provisions through May 15, 2005 upon the provision of written notice to Heilig; and
(B) the Agent shall not take any action to enforce its rights against the capital stock of Rhodes without giving the Debtors not less than thirty (30) days notice of such intention and, in the event the Agent (on behalf of the Lenders) notifies any of the Debtors of its intention to exercise any rights with respect to the capital stock of Rhodes, Inc. pledged to the Agent by Holdings II as collateral security for the Senior Debt, Heilig shall be entitled, unless otherwise permitted herein or under the Intercreditor Agreement, to initiate (and/or join other parties in initiating) a proceeding involving Holdings II solely for the purpose of seeking to prevent the Agent (or the Lenders) from exercising its rights with respect to the capital stock of Rhodes, provided that this provision shall not prohibit the Agent (or the Lenders) from seeking relief to exercise its rights with respect to such capital stock in any proceeding.
(C) Heilig shall be permitted to take any and all steps or actions it deems necessary and/or appropriate to domesticate the Consent Judgment Order in any court selected by Heilig.
In the event that any of the Debtors exercise any of the remedies or actions permitted in this paragraph 5(vi), the other provisions of this Settlement Agreement shall survive for the benefit of the holders of Senior Debt, and the terms of the Intercreditor Agreement (which is hereby reaffirmed and ratified) shall continue in full force and effect, as provided herein.
For purposes of this Agreement and any notice requirement hereunder, notice shall be given to the Debtors by sending a writing addressed to Heilig-Meyers Company, 12501 Patterson Avenue, Richmond, Virginia 23233, Attention: Ronald L. Barden, and a copy to LeClair Ryan at 707 East Main Street, Richmond, Virginia 23219, Attention: Bruce H. Matson.
6. No Default. Rhodes and the Defendants hereby represent and warrant that as of the date of this Agreement, and with the implementation of the provisions of this Agreement that neither of the Defendants or Rhodes are in default of any of the provisions of the Loan Agreement, and/or any agreement related to or supplemental to the Loan Agreement, and further, neither of the Defendants or Rhodes are in default of any other lending agreements that may exist between the Defendants and any third party.
7. The Rhodes Leases. In connection with approval of this Settlement, the parties acknowledge that the Debtors, pursuant to 11 U.S.C. section 365 of the Bankruptcy Code, will request that the Court also approve their rejection of (i) the assignment agreement related to that certain lease of real property located at 1365 Car Mia Way in Midlothian, Virginia (the "Richmond Property"); and (ii) the assignment agreement related to that certain lease of real property located at 365 Chatham Drive, Newport News, Virginia (the "Newport News Property") (collectively, the "Rhodes Assignment Agreements"). The leases relating to the Richmond Property and the Newport News Property collectively are the "Rhodes Leases." Each of the Parties hereto agree and they will not oppose in any way, directly or indirectly, the Debtors' efforts to reject the Rhodes Assignment Agreements and to obtain Court approval of the rejection of the Rhodes Assignment Agreements. Upon the entry of an order(s) approving rejection of the Rhodes Assignment Agreements, RoomStore and Rhodes shall enter into an agreement to modify assignment (substantially in the form of Exhibit D attached hereto) of the Richmond Property, which shall provide, among other terms, that RoomStore's rental payments (inclusive of any common-area-maintenance charges, taxes, or other charges) to Rhodes shall not exceed (i) $25,000 per month through November 2008, or (ii) $27,000 per month from November 2008 through November 2013. Similarly, upon the entry of an order(s) approving rejection of the Rhodes Leases, RoomStore and Rhodes shall enter into an agreement to modify assignment (substantially in the form of Exhibit E attached hereto) of the Newport News Property, which shall provide, among other terms, that RoomStore's rental payments (inclusive of any commonarea-maintenance charges, taxes, or other charges) to Rhodes shall not exceed (i) $30,000 per month through October 31, 2014. (If for any reason the Court fails or refuses to approve the rejection of either of the Rhodes Assignment Agreements, this Agreement shall be deemed modified to exclude consideration of the Rhodes Assignment Agreements and the Rhodes Leases without affecting the enforceability of the other provisions hereof.) Rhodes agrees to perform all of its obligations concerning the Rhodes Leases and shall not take any action (or fail to act in any way) that causes either of the Rhodes Leases to be in default or to be forfeited. To the extent that Rhodes fails to pay any of its obligations hereunder, RoomStore shall retain an independent right to seek recovery and/or reimbursement of any such amounts.
8. Restructuring Efforts. Upon execution of this Agreement, the parties shall meet by conference call on or before August 30, 2004 to begin discussions concerning the possible restructuring of Holdings II and to schedule an in person meeting to be held prior to September 30, 2004 to continue such discussions. Representatives of the Official Committee of Unsecured Creditors shall be invited to participate in the initial call and any subsequent calls and/or meetings among the parties concerning Heilig claims and a restructuring of Holdings II.
9. No Admission. This Agreement constitutes a compromise settlement of disputed and contested matters between the Parties and shall not be construed as an admission of any sort by any of the Parties, nor shall it be used as evidence in a proceeding of any kind, except one in which one of the Parties alleges breach of the terms of this Agreement or one in which one of the Parties elects to use this Agreement as a defense to any claim barred by the Agreement.
10. Applicable Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of New York without regard to that State's choice of law provision.
11. Complete Agreement/Merger. This Agreement constitutes an integrated agreement, containing the entire understanding of the Parties with respect to the matters addressed herein and, except as set forth in this Agreement, no representations, warranties or promises have been made or relied on by the Parties. This Agreement shall prevail over any prior communications between the Parties or their representations relative to matters addressed herein. This Agreement may not be altered or terminated in any way except by a writing signed by the Parties hereto and approved by the Court. The Parties acknowledge that in signing this Agreement, they have not relied on any promises, representations or understandings, whether written or oral, that is not expressly stated in this Agreement.
12. Agreement Subject to Court Approval. Unless and until approved by the Court, this Agreement shall be of no force and effect and none of its provisions shall be deemed to prejudice or impair any of the rights or remedies of the Parties hereto. Following the Court's approval of the Agreement, the Court shall retain jurisdiction to resolve any and all disputes arising out of, or related in any way to, this Agreement.
13. Severability of Invalid Provisions. Except as provided herein, if any provision or portion of a provision of this Agreement is found to be unenforceable or invalid after approval by the Court, such unenforceability or invalidity shall not render this Agreement, or any other portion of it, unenforceable or invalid; rather, such provision or portion of a provision shall be changed or interpreted so as to best accomplish the objectives of such unenforceable or invalid provision within the limits of the applicable law or court decisions.
14. Counterparts Permitted. This Agreement may be signed by each party in a separate counterpart, each counterpart identical to all other counterparts and containing all of the terms herein set forth. All counterparts, when signed by all the Parties hereto, shall constitute a binding agreement.
15. Agreement Authorized/Advice of Counsel. The Parties warrant and represent that they have read and understand the foregoing provisions of this Agreement, that each has had the benefit of legal counsel of their choosing in analyzing this Agreement, and that they and their respective signatories are fully authorized and competent to execute this Agreement on their behalves.
IN WITNESS WHEREOF, the Parties have executed or caused this Agreement to be executed as of August 1, 2004. The Debtors:
HEILIG-MEYERS COMPANY, INC.
By: ____________________________
HMY ROOM STORE, INC.
By:____________________________
HEILIG-MEYERS FURNITURE COMPANY, INC.
By: ____________________________
HEILIG-MYERS FURNITURE WEST, INC.
By: ____________________________
HMY STAR, INC.
By: ____________________________
MacSAVER FINANCIAL SERVICES, INC.
By: ____________________________
The Defendants:
RHODES HOLDINGS, INC.
By: ____________________________
RHODES HOLDINGS, II, INC.
By: ____________________________
Rhodes, Inc.
RHODES, INC.
By: ____________________________
Wells Fargo:
WELLS FARGO RETAIL FINANCE, LLC, As Agent
By: ____________________________