Item 1.03. Bankruptcy or Receivership.
As previously reported, on September 9, 2019, Fred's, Inc. (the "Company") and
certain of its subsidiaries (collectively with the Company, the "Debtors") each
filed a voluntary petition in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court") seeking relief under chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code") (collectively, the
"Chapter 11 Cases"). The Chapter 11 Cases are being jointly administered under
the caption and case number, Fred's, Inc., et al., Case No. 19-11984 (Jointly
Administered). All documents filed with the Bankruptcy Court are available for
inspection at https://dm.epiq11.com/Freds. Additionally, the Company has
established a toll-free Restructuring Information Hotline for employees,
suppliers, landowners, investors, and other interested parties, at (855)
543-5393.
Confirmation of Plan
On June 4, 2020, following a confirmation hearing held on June 1, 2020, the
Bankruptcy Court entered Findings of Fact, Conclusions of Law, and Order
Confirming the Modified Amended Joint Chapter 11 Plan for the Debtors (the
"Confirmation Order"). The Confirmation Order confirmed the Modified Amended
Joint Chapter 11 Plan for the Debtors (as amended, supplemented or otherwise
modified, the "Plan of Liquidation"). Copies of the Plan of Liquidation and
Confirmation Order are filed as Exhibit 2.1 and Exhibit 99.1, respectively, to
this Current Report on Form 8-K, and are incorporated by reference into this
Item 1.03.
Summary of Plan of Liquidation
The Plan of Liquidation, as confirmed by the Bankruptcy Court, provides for the
appointment of a liquidating trustee (the "Liquidation Trustee") and for the
transfer of substantially all of the Debtors' remaining assets to a liquidating
trust (the "Liquidating Trust"). The Liquidating Trustee will administer the
Plan of Liquidation and the Liquidating Trust. The Plan of Liquidation also
provides for a liquidating trust advisory committee to provide input to the
Liquidating Trustee on certain matters, and to have certain rights and authority
as set forth in the liquidating trust agreement contemplated by the Plan of
Liquidation. Among other things, the Liquidating Trustee will (i) liquidate and
dissolve the Debtors that remain in existence on and after the effective date of
the Plan of Liquidation (the "Effective Date"), (ii) resolve all disputed
claims, (iii) make distributions to holders of allowed claims in accordance with
the terms of the Plan of Liquidation, (iv) pursue, abandon or settle causes of
action of the estates, which causes of action will be transferred to the
Liquidating Trust upon the Effective Date, and (v) otherwise implement the Plan
of Liquidation.
The Plan of Liquidation creates six classes of claims against and interests in
the Debtors. Holders of allowed claims in Class 1 (Other Secured Claims),
Class 2 (Other Priority Claims) and Class 3 (General Unsecured Claims) are
entitled to receive certain distributions under the Plan of Liquidation. Holders
of claims in Class 4 (Intercompany Claims) and Class 5 (Section 510(b) Claims)
and holders of interests in Class 6 (Equity Interests) will not receive any
distributions or receive or retain any property under the Plan of Liquidation on
account of such claims and interests. In addition, the Plan of Liquidation
provides for the payment of Administrative Expense Claims, Priority Tax Claims
and Professional Fee Claims. The Plan of Liquidation also implements the terms
of certain settlements among various creditor constituencies, without which the
Debtors believe recoveries to creditors would be materially reduced. Certain
reserves may be created by the Liquidating Trustee for purposes of resolving
disputed claims and ongoing disputes, and funding various costs and expenses
associated with the administration of the Plan of Liquidation and the wind down
of the Debtors' businesses.
The Effective Date will be the business day selected by the Debtors on which:
(a) no stay of the Confirmation Order is in effect; (b) all conditions precedent
specified in Article XI of the Plan of Liquidation have been satisfied or waived
(in accordance with Article XI of the Plan of Liquidation); and (c) the Plan of
Liquidation is declared effective. The Effective Date is anticipated to be on or
around June 19, 2020.
The foregoing description is a summary of the material terms of the Plan of
Liquidation and does not purport to be complete, and is qualified in its
entirety by reference to the full text of the Plan of Liquidation filed as
Exhibit 2.1 to this Current Report on Form 8-K. Capitalized terms used but not
otherwise defined herein shall have the meanings given to such terms in the Plan
of Liquidation or Confirmation Order, as appropriate.
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Cautionary Note Regarding the Company's Common Stock
As of June 10, 2020, the Company had 39,060,971 shares of Class A common stock
outstanding. Under the Plan of Liquidation confirmed by the Bankruptcy Court,
the holders of the Company's Class A common stock will not receive a
distribution on account of their equity interests and the Company's Class A
common stock will be cancelled on the Effective Date. Even though the Company's
Class A common stock may continue to be quoted on the OTC Pink Market, under the
Plan of Liquidation it has no underlying asset value and the Company's
stockholders should not view the trading activity of the Class A common stock on
the OTC Pink Market or any other market or trading platform as being indicative
of the value the Company's stockholders will receive in connection with the
liquidation of the Company.
No shares of the Company's Class A common stock are being reserved for future
issuance in respect of claims and interests filed and allowed under the Plan of
Liquidation.
Assets and Liabilities
In the Company's most recent monthly operating report filed with the Bankruptcy
Court on May 29, 2020 and furnished as Exhibit 99.1 to the Company's Current
Report on Form 8-K filed with the SEC on June 2, 2020, the Company reported
total assets of $44,450,000 and total liabilities of $101,912,000 as of May 2,
2020.
Item 3.03. Material Modification to Rights of Security Holders.
As provided in the Plan of Liquidation, the obligations of any Debtor under any
certificate, share, note, bond, indenture, purchase right, or other instrument
or document, directly or indirectly evidencing or creating any indebtedness or
obligation of or ownership interest, equity, or portfolio interest in the
Debtors or any warrants, options, or other securities exercisable or
exchangeable for, or convertible into, debt, equity, ownership, or profits
interests in the Debtors giving rise to any Claim or Interest shall be cancelled
and deemed surrendered as to the Debtors and shall not have any continuing
obligations thereunder. The registered securities to be cancelled on the
Effective Date include all of the Company's Class A common stock and related
share purchase rights.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The Plan of Liquidation provides that the Company's board of directors will be
dissolved and its officers will be dismissed on the Effective Date. As provided
in the Plan of Liquidation, each of the Company's directors, Heath B. Freeman,
Timothy A. Barton, Dana Goldsmith Needleman, Steven B. Rossi and Thomas E.
Zacharias and the Company's remaining officers, including Mark Renzi, Chief
Restructuring Officer, will cease to be directors and officers of the Company on
the Effective Date.
Forward Looking Statements
Comments in this Current Report on Form 8-K and the Monthly Operating Report
that are not historical facts are forward-looking statements within the meaning
of the safe harbor provisions of the U.S. Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements. A
reader can identify forward-looking statements because they are not limited to
historical facts or they use such words as "outlook," "guidance," "may,"
"should," "could," "believe," "anticipate," "project," "plan," "expect,"
"estimate," "objective," "forecast," "goal," "intend," "committed," "continue,"
or "will" and similar expressions that concern the Company's strategy, plans,
intentions or beliefs about future occurrences or results. Forward-looking
statements involve estimates, expectations, projections, goals, forecasts,
assumptions, risks and uncertainties. Forward-looking statements include, but
are not limited to, statements about future financial and operating results, the
Company's plans, objectives, business outlook, priorities, expectations and
intentions, expectations for sales growth, comparable sales, earnings and
performance, shareholder value, capital expenditures, cash flows, demand for
products, strategic initiatives, including those relating to store closures and
dispositions by the Company and the expected impact of such transactions on our
strategic and operational plans and financial results, and any statement of an
assumption underlying any of the foregoing and other statements that are not
historical facts. Although we believe that the expectations, opinions,
projections and
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comments reflected in these forward-looking statements are reasonable, such
statements involve risks and uncertainties and we can give no assurance that
such statements will prove to be correct. A wide variety of potential risks,
uncertainties and other factors could materially affect our ability to achieve
the results either expressed or implied by these forward-looking statements
including, but not limited to risks and uncertainties associated with: (i) the
competitive nature of the industries in which we operate; (ii) our store
closures and the related sales of inventory and real estate issues; (iii) our
divestitures; (iv) conditions affecting the retail sector as a whole;(v)
consolidation in the healthcare industry; (vi) our private brands;
(vii) operational, supply chain and distribution difficulties; (viii) consumer
demand and product mix; (ix) our employees; (x) risks relating to payment
processing; (xi) our computer systems, and the processes supported by our
information technology infrastructure; (xii) our ability to protect the personal
information of our customers and employees; (xiii) cyber-attacks; (xiv) changes
in governmental regulations; (xv) the outcome of legal proceedings, including
claims of product liability; (xvi) insurance costs; (xvii) tax assessments and
unclaimed property audits; (xviii) current economic conditions; (xix) the terms
of our indebtedness, including the covenants set forth in the documents
governing such indebtedness; (xx) our ability to remediate the material
weaknesses in our internal controls over financial reporting and otherwise
maintain effective internal controls over financial reporting; (xxi) our largest
stockholder holding a significant percentage of our outstanding equity;
(xxii) our ability to attract and retain talented executives; (xxiii) any
strategic alternatives that we decide to pursue, if any; (xxiv) the effects of
public health emergencies, including the COVID-19 pandemic; (xxv) risks related
to the trading of the Company's common stock on the OTC Pink Market; (xxvi) the
risks and uncertainties relating to the Company's Chapter 11 Cases, including
but not limited to, our ability to obtain Bankruptcy Court approval with respect
to motions in the Chapter 11 Cases, the effects of the Chapter 11 Cases on our
Company and on the interests of various constituents, Bankruptcy Court rulings
in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the
length of time we will operate under the Chapter 11 Cases, risks associated with
third-party motions in the Chapter 11 Cases, the potential adverse effects of
the Chapter 11 Cases on our liquidity or results of operations and increased
legal and other professional costs in connection with the Chapter 11 Cases;
(xxvii) the conditions to which our debtor-in-possession financing is subject
and the risk that these conditions may not be satisfied for various reasons,
including for reasons outside our control; and (xxviii) the factors listed under
Item 1A: "Risk Factors" in our Annual Report on Form 10-K, filed on May 3, 2019,
with the Securities and Exchange Commission, under Part II, Item 1A: "Risk
Factors" in our Quarterly Report on Form 10-Q for the quarter ended May 4, 2019
and in any subsequent quarterly filings on Form 10-Q filed with the Securities
and Exchange Commission. Forward-looking statements speak only as of the date
made. The Company undertakes no obligation to release revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unforeseen events, except as required to
be reported under the rules and regulations of the Securities and Exchange
Commission.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
2.1 Modified Amended Joint Chapter 11 Plan for the Debtors.
99.1 Findings of Fact, Conclusions of Law, and Order Confirming the Modified
Amended Joint Chapter 11 Plan for the Debtors.
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