================================================================= LEVITZ BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2005 (ISSN XXXX-XXXX) October 14, 2005 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- LEVITZ BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's cases. New issues are prepared by Patrick I. Abing, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of LEVITZ BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO LEVITZ BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF LEVITZ HOME FURNISHINGS [00002] LEVITZ' CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 2005 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] LEVITZ & AFFILIATES CHAPTER 11 DATABASE [00005] LIST OF DEBTORS' 40-LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL [00008] DEBTORS' MOTION TO OBTAIN $90,000,000 OF DIP FINANCING [00009] LEVITZ PREPARES FOR SEC. 363 SALE TO PRENTICE CAPITAL KEY DATE CALENDAR ----------------- 10/11/05 Levitz's Voluntary Petition Date 10/26/05 Deadline for Levitz's Schedules of Assets & Liabilities 10/26/05 Deadline for Levitz's Statements of Financial Affairs 10/26/05 Deadline for Levitz's Lists of Leases and Contracts 10/31/05 Deadline for Levitz to provide Utility Deposits 10/31/05 Deadline for Levitz to Ink Sale Agreement with Prentice 12/10/05 Levitz's Deadline to make Lease Disposition Decisions 01/09/06 Levitz's Deadline to remove actions under FRBP 9027 02/08/06 Expiration of Levitz's Exclusive Plan Proposal Period 04/09/06 Expiration of Levitz's Exclusive Solicitation Period 07/11/06 Expiration of $90 Million DIP Financing Facility 10/11/07 Deadline for Levitz to Commence Avoidance Actions Organizational Meeting to form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim against Levitz ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO LEVITZ BANKRUPTCY NEWS ----------------------------------------------------------------- LEVITZ BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtor's chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of LEVITZ BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) LEVITZ BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtor's chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of LEVITZ BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF LEVITZ HOME FURNISHINGS ----------------------------------------------------------------- Levitz Home Furnishings Inc. 300 Crossway Park Drive Woodbury, NY 11797 http://www.levitz.com/ Levitz Home Furnishings, Inc., is one of the largest specialty retailers of furniture in the United States, with approximately 121 stores in 11 states. LHFI was created as a legal entity on December 2, 2000, by Resurgence Asset Management LLC and certain of its affiliates, the majority stockholders of Seaman Furniture Company, Inc. LHFI was formed to serve as the parent company of both Seaman and Levitz Furniture Corporation and their subsidiaries to facilitate emergence from Levitz's prior bankruptcy on February 26, 2001. Seaman was a specialty furniture retailer, which, as of June 30, 2005, operated 40 stores in the greater New York, New Jersey, and Philadelphia, Pennsylvania area. On April 8, 2005, LHFI's Board of Directors approved a restructuring plan to, among other things, close all Seaman and Seaman Kids' stores and to re-open 23 of those showrooms under the Levitz brand. The Restructuring Plan also included closing the two Levitz stores in the Minnesota market, along with the Minnesota distribution center, and a warehouse facility in the Northeast. A. Merchandising Levitz offers a broad array of furniture to its customers. Levitz utilizes a "lifestyle environment" selling approach in which it displays merchandise in a furnished room setting format and includes suggestions of coordinating accessories, lamps, and wall art. Levitz also offers packaged savings to customers who buy the entire room of furniture as opposed to individual furniture pieces. These "lifestyle environment" furniture packages are focused on the main purchases consumers will make, including living room, dining room, and bedroom packages. Levitz offers a wide variety of national brand products, including sofas, armchairs, coffee and end tables, lamps, dining room tables and chairs, bed frames, mattresses and box springs, dressers, armoires, and nightstands. Levitz has over 30 product categories, which have been combined into the following general product categories: upholstery/seating, bedroom, occasional furniture, formal dining room and casual dining, bedding products and kids' bedroom accessories, lamps, home entertainment, and home office. B. Distribution Levitz operates 11 distribution centers that utilize an advanced distribution system. Among other things, the distribution system provides an integrated, real-time flow of information throughout all phases of the order entry and distribution process to all operational areas of business. Using a combination of radio- frequency and bar code scanners, all inventory transactions are tracked and updated online at each stage, from receipt of merchandise to delivery of the merchandise at its final destination. Orders are routed to a distribution facility for fulfillment based on the store location from which the item was purchased, as well as the delivery location. Once assigned to a distribution center, orders are processed through a proprietary radio-frequency-based warehouse management system and integrated into a "just-in-time" inventory availability system. Orders are processed in the order received with expedited orders available upon customer request. C. Information Systems All of Levitz's operational business functions are integrated under one common system, a highly modified GERS retail system. This system supports specific business needs, including a radio- frequency-based warehouse management system, a comprehensive customer service system, a delivery calendar system integrated with the "just-in-time" inventory availability feature, a delivery routing system, and a delivery driver "scorecard" to assess driver productivity and efficiency. The system also provides feeds to several other systems, including payroll, warehouse and showroom time-card monitoring, and warehouse productivity and performance management systems. Additionally, in-store sales terminals are linked to a point-of-purchase system, which gives Levitz's sales force access to pertinent customer data, including sales order and repair history, and also interfaces with a third-party credit provider to provide immediate approval for customer credit. For customers with pre- approved store credit, the sales terminal informs the sales associate of that customer's available credit for purchases. This system is linked to Levitz's radio-frequency warehouse system to provide real-time inventory updates. D. Vendors Levitz sources its merchandise from approximately 200 domestic and international vendors. Approximately 30% of all merchandise is sourced overseas. During fiscal 2005, no single vendor represented greater than 7% of total purchases, and the top 20 vendors accounted for approximately 67% of total purchases. Levitz is not dependent on any single vendor for merchandise, and it is diversified in all product categories, with a minimum of at least three suppliers in all primary categories. Levitz works closely with its vendors to select and develop furniture based on what it believes will have the broadest appeal at a competitive price. E. Advertising and Promotion Advertising and sales promotions are an important aspect of the overall merchandising strategy, which emphasizes Levitz's reputation as a quality retailer, along with competitive pricing and prompt delivery. Levitz advertises through three primary channels: print, radio, and television. Levitz uses color inserts as the focus of print advertising efforts. These inserts are distributed in newspapers and by a zip-code precise direct mailing to potential customers within a certain distance of each store location. The campaigns generated by these inserts are supported with radio, television, and black and white print advertisements. The "package" concepts are the focal points of Levitz's merchandising and promotional efforts. Levitz also utilizes a direct mail campaign that targets consumers in a structured monthly effort. Utilizing specific consumer data, mailers go directly to select groups of consumers, targeting recent movers and new homebuyers in addition to highlighting purchase anniversary dates, birthdays, and successful completion of proprietary credit card payment programs. In addition, an association with Furniture.com since July 2002 has enabled Levitz to market its products to new customers who have visited the website but have yet to make a purchase. Further, the collection and use of e-mail addresses is an effective and efficient medium to advertise to prospective and existing customers. Levitz also uses e-mail to inform people of upcoming events and sales. By tracking customer data, Levitz can analyze the effectiveness of these efforts by cross-referencing sales and offers. Customers may also make purchases online. Advertising and promotion are handled primarily in-house. All creative and pre-production activities are handled internally, while all printing functions are bid out to obtain competitive pricing. Levitz retains a production company, to develop, create and produce television and radio commercials. Agents, who work on a commission basis, are employed for purchasing broadcast media time for Levitz. F. Employees As of June 30, 2005, Levitz had approximately 2,792 employees -- 2,549 full-time employees and 243 part-time employees -- of which 1,604 were in sales and sales management, 282 in office and administrative capacities, and 906 in warehouse, service, and delivery functions. As of June 30, 2005, Levitz had 231 unionized employees at the Robbinsville distribution facility. All union employees are members of the International Brotherhood of Teamsters under a single collective bargaining agreement. G. Competition The retail furniture industry is a highly competitive and fragmented market. In 2004, the top 10 furniture retailers in the United States accounted for only 21.0% of national sales, and the top 100 furniture retailers accounted for only 53.3% of national furniture store sales. During the same period, Levitz's sales represented approximately 1.8% of all U.S. furniture store sales, and Levitz was the seventh largest specialty retailer of furniture in the United States. Furniture retailers primarily compete based on geography, target customer demographics and breadth and depth of merchandise offerings. Because few furniture retailers have created a national footprint, the majority of furniture retailers are regional or local enterprises. Some very successful furniture retailers operate in only one market. The primary elements in the U.S. furniture retail industry are merchandise (quality, style, selection, price, and display), consumer credit offers, customer service, image and product oriented advertising, and store location and design. Levitz's competition varies significantly according to the geographic areas in which it operates. Levitz's principal competitors consist of local independent specialty furniture retailers due to the fragmented nature of the retail furniture industry. Levitz also competes with other regional specialty furniture retailers including Wickes and Raymour & Flanigan, department stores such as Macy's and, in certain limited categories, Internet and "800" number-based retailers such as 1-800-Mattress. H. Organizational Structure Currently, there are 14 subsidiaries of LHFI. A free copy of Levitz's Organizational Chart is available at: http://bankrupt.com/misc/levitzstructure.pdf LHFI has two non-Debtor foreign affiliates: (a) Levitz Furniture Reinsurance, Ltd. is a Turks and Caicos entity; and (b) Levitz Furniture Company of Canada, Ltd. is a Canadian corporation. Both are inactive corporate entities, and neither have assets or operations in the United States. The primary operating entity is Levitz Furniture LLC. Road to Bankruptcy According to Coleen Colreavy, the company's chief financial officer, Levitz has experienced -- and continues to experience -- financial difficulties. Net delivered sales for the fiscal year ended March 31, 2005, were $917.9 million, a decrease of $52.9 million, or 5.5%, compared to net sales of $970.8 million for the prior year. "This trend has continued into the 2006 fiscal year, with an approximate net sales decrease of 12.5% for the first three months of 2006 as compared against the first three months of 2005. The net loss for the three months ended June 30, 2005, was $45.3 million." Ms. Colreavy relates that among other factors, liquidity issues have significantly contributed to Levitz's financial difficulties, as the terms of the company's Prepetition Credit Facility severely restrict its ability to access sufficient funds to operate its business. Specifically, Ms. Colreavy says, the Prepetition Credit Facility requires certain reserves, and, as a result of a specified borrowing base formula, the Prepetition Credit Facility limits access below the full $80 million facility. Ms. Colreavy discloses that Levitz has routinely approached or reached its liquidity limits and, thus, has had difficulty assuring its vendors that they will receive timely and complete payment. Levitz implemented the Restructuring Plan to stop its declining performance. In addition to streamlining operations under the Levitz brand and consolidating markets, the Restructuring Plan also included: (a) cost reduction and head count reduction initiatives aimed at aligning Levitz's ongoing operating costs with its expected revenues, and (b) aggressive marketing efforts aimed at increasing store traffic and on-site sales. While the Restructuring Plan has provided Levitz with a framework within which it can begin to address the problem of underperformance at certain stores and in certain markets, the underlying capital structure still needs repair. Without fundamental changes to its capital structure, Levitz will continue to have insufficient working capital and recurrent liquidity crises, and it will remain unable to provide its vendors with regular and timely payments. Projected Cash Flow For the 30-day period following the Petition Date, Levitz expects negative cash flows: Cash Receipts $60,000,000 Cash Disbursements 64,400,000 ----------- Net Cash Loss $4,400,000 =========== Levitz projects, a month from now, that its Unpaid Obligations will total $7,200,000 it there will be $2,000,000 of Unpaid Receivables on its books. Levitz expect to pay its employees $9,600,000 and its officers, directors and stockholders $157,500 during the next 30 days. ----------------------------------------------------------------- [00002] LEVITZ' CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 2005 ----------------------------------------------------------------- Levitz Home Furnishings, Inc. and its Consolidated Subsidiaries Unaudited Consolidated Balance Sheet As of August 31, 2005 ASSETS CURRENT ASSETS: Cash and cash equivalents $7,739,000 Net Receivables 4,236,000 Merchandise inventories 101,479,000 Prepaid expenses and other current assets 7,723,000 Deferred financing fees 2,865,000 ------------ Total current assets 124,042,000 PROPERTY AND EQUIPMENT - NET 52,156,000 CAPITAL LEASES, NET 13,321,000 DEFERRED FINANCING FEES 6,996,000 OTHER ASSETS 6,080,000 LEASEHOLD INTERESTS 42,797,000 ------------ TOTAL ASSETS $245,392,000 ============ LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable - trade $78,936,000 Accrued expenses and non-trade payables 110,475,000 Customer deposits 35,924,000 Deferred revenue 3,227,000 Current portion of long-term debt 1,058,000 ------------ Total current liabilities 229,620,000 LONG TERM DEBT 203,008,000 DEFERRED REVENUE AND OTHER 2,401,000 MINIMUM PENSION LIABILITY 20,935,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock at $0.01 par value; 3,000,000 and 1,000,000 shares authorized; 992,413 and 792,413 shares issued and outstanding at June 30 and March 31, 2005, respectively 10,000 Common stock at $0.01 par value; 100,000,000 shares authorized; 24,962,496 shares issued; 51,365 shares reserved; 24,911,131 shares outstanding at June 30 and March 31, 2005, respectively 231,000 Additional paid-in capital 180,918,000 Capital Stock Un-issued and Reserved for Class 5 Claims 18,000 Equity Receivable (500,000) Warrants 35,090,000 Dividends distributable 11,996,000 Accumulated other comprehensive loss (12,736,000) Accumulated deficit (425,599,000) ------------ Total stockholders' equity (deficiency) (210,572,000) ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $245,392,000 ============ ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- * Company obtains $90 million debtor-in-possession credit facility led by GE Commercial Finance, including an incremental credit facility of $25 million arranged by Prentice Capital Management LP * Retail Operations Continue as Usual WOODBURY, New York -- October 11, 2005 -- Levitz Home Furnishings, Inc. today announced that it has filed for protection under chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York. The company will continue to operate its retail furniture stores in the ordinary course of business while it restructures. The company has arranged and sought Bankruptcy Court approval for a $90 million debtor-in- possession credit facility led by GE Commercial Finance, which includes an incremental credit facility of $25 million arranged by Prentice Capital Management LP and provided by its affiliates. These facilities will provide the company with sufficient liquidity to operate its business on an ongoing basis. "Today's steps are part of an important process to strengthen Levitz Home Furnishings," said C. Mark Scott, President and acting Chief Executive Officer of Levitz Home Furnishings, Inc. "With the commitment of financing from an experienced retail specialist like Prentice Capital Management in place, we are able to implement a restructuring plan that will provide us a platform for future success. Our stores are open for business, and we appreciate the support of our valued customers, vendors, lenders and employees." The company stated that its filing was commenced in order to complete the cost-saving and other initiatives that began in April 2005 and to provide customers, vendors and employees with the certainty of performance that they deserve. The company will reap the benefits of these initiatives through the infusion of $25 million in near-term financing and the opportunity to raise additional capital through a chapter 11 reorganization or sale as a going concern. These initiatives have already reduced costs by almost $40 million through the rebranding of certain Seaman's stores under the Levitz name, the elimination of supply chain inefficiencies, and the reduction of general overhead expense. The filing will also allow the company to rationalize its capital structure, review its operations and make market decisions that maximize value for all parties and ensure that the company remains a leading furniture retailer for years to come. To ensure a smooth transition into bankruptcy and minimize the effects on its ordinary business operations, the company also has filed for Bankruptcy Court approval of various "first-day" motions. In order to ensure that customers are not adversely affected by the company's transition into chapter 11, the company has requested that the Bankruptcy Court approve its plans to continue all customer programs, including fulfillment of existing orders and honoring of deposits. The company has also asked the Court to authorize it to maintain payroll and employee benefits, and implement a severance program in the event that any employees are laid off in the course of its restructuring. The company will provide updates regarding ongoing operations plans as they become available. The case number for Levitz's filing with the U.S. Bankruptcy Court for the Southern District of New York is #05-45189, and the Court's Web site is http://www.nysb.uscourts.gov About Levitz Home Furnishings, Inc. Levitz Home Furnishings, Inc. is a leading specialty retailer of furniture in the United States with 121 locations in major metropolitan areas principally the Northeast and on the West Coast of the United States. Additional information about the company and its brands is available at http://www.levitz.com/ ----------------------------------------------------------------- [00004] LEVITZ & AFFILIATES CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: Levitz Home Furnishings, Inc. a.k.a. LHFI 300 Crossways Park Drive Woodbury, New York 11797 Bankruptcy Case No.: 05-45189 Debtor affiliates filing separate Chapter 11 petitions: Entity Case No. ------ -------- Paralax Development Industries, Inc. 05-45143 Levitz Furniture Corporation 05-45194 Levitz Furniture, LLC 05-45198 Levitz Shopping Service, Inc. 05-45200 RHM, Inc. 05-45204 John M. Smyth Company 05-45207 Levitz Furniture Company of Delaware, Inc. 05-45211 Levitz Furniture Company of Midwest, Inc. 05-45212 Levitz Furniture Company of Washington, Inc. 05-45213 Seaman Furniture Company, Inc. 05-45214 Seaman Furniture Company of Pennsylvania, Inc. 05-45216 Seaman Furniture Company of Union Square, Inc. 05-45217 Chapter 11 Petition Date: October 11, 2005 Bankruptcy Court: United States Bankruptcy Court Southern District of New York One Bowling Green New York, New York 10004 Telephone (212) 668-2870 Bankruptcy Judge: The Honorable Burton R. Lifland Debtors' Counsel: Richard Engman, Esq. Jones Day 222 East 41st Street New York, New York 10017 Tel: (212) 326-3939 Fax: (212) 755-7306 -- and -- David G. Heiman, Esq. Nicholas M. Miller, Esq. Jones Day North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Tel: (216) 586-3939 Debtors' Financial Advisor: Paul P. Huffard Senior Managing Director The Blackstone Group L.P. 345 Park Avenue New York, New York 10154 Tel: (212) 583 5000 Debtors' Noticing and Claims Agent: Christopher R. Schepper Chief Operating Officer Kurtzman Carson Consultants LLC 12910 Culver Blvd., Suite I Los Angeles, California 90066-6709 Tel: (310) 823-9000 Fax: (310) 823-9133 United States Trustee: Deirdre A. Martini, Esq. Office of the United States Trustee 33 Whitehall Street, 21st Floor New York, New York 10004 Attn: Greg Zipes, Esq. Tel: (212) 510-0500 Fax: (212) 668-2255 E-mail: grep.zipes@usdoj.gov ----------------------------------------------------------------- [00005] LIST OF DEBTORS' 40-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Levitz Home Furnishings, Inc., and its debtor-affiliates delivered a list of the creditors holding the 40 largest unsecured claims on a consolidated basis to the U.S. Bankruptcy Court for the Southern District of New York. The list is prepared in accordance with Rule 1007(d) of the Federal Rules of Bankruptcy Procedure. This list does not include (1) persons who come within the definition of an "insider" set forth in 11 U.S.C. Sec. 101(31), or (2) secured creditors, unless the value of the collateral is such that the unsecured deficiency places the creditor among the holders of the 40 largest unsecured claims. Entity Claim Amount ------ ------------ US Bank $130,000,000 100 Wall Street, Suite 1600 New York, NY 10005 Tel: (212) 361-6184 Decoro USA Ltd. $7,727,929 1403 Eastchester Drive Suite 104 High Point, NC 27265 Klaussner-Hukla $6,754,327 P.O. Box 60475 Charlotte, NC 28260 Tel: (336) 625-6175 ext. 8208 Palliser Furniture Corp. $6,706,868 P.O. Box 33020 Detroit, MI 48232 Tel: (204) 988-5600 Berkline, LLC $5,788,184 P.O. Box 6003 Morristown, TN 37815 Tel: (423) 585-4473 Sealy Mattress Company $4,205,677 P.O. Box 13709 Newark, NJ 01788-0709 Tel: (336) 861-3570 Steve Silver Company $3,748,683 P.O. Box 1709 Forney, TX 75126 Tel: (888) 400-8113 ext. 112 CARAT $3,625,341 Three Park Avenue New York, NY 10016 Tel: (212) 591-9196 Serta Matt/ $3,462,866 National Bedding Co. LLC 5401 Trillium Blvd Suite 250 Hoffman Estates, IL 60192 Tel: (630) 285-9300 Life Style Furniture Manufacturing Inc. $2,911,223 P.O. Box 146 Okolona, MA 38860 Tel: (800) 677-3878 ext. 102 Racanelli Construction Co. Inc. $2,803,897 1895 Walt Whitman Road, Suite 1 Melville NY 11747 Tel: (631) 454-1010 John Turano & Sons, Inc. $2,247,754 1532 South Washington Avenue Piscataway, NJ 08854 Tel: (732) 424-7000 Legacy Classic Furniture $2,192,947 6530 Judge Adams Road Whitsett, NC 27377 Tel: (336) 449-4600 ext. 222 The Valspar Corporation $2,131,699 4999 36th Street, Southeast P.O. Box 88010, 49518 Grand Rapids, MI 49512 Tel: (616) 285-7830 Klaff-Realty L.P. $2,002,767 122 South Michigan Avenue, Suite 1000 Chicago, IL 60603 Tel: (312) 360-1234 Douglas Furniture of California $1,823,216 2559 Paysphere Circle Chicago, IL 60674-2559 Tel: (310) 643-7200 Joseph Eletto Transfer Inc. $1,314,389 600 West John Street, Suite 200 Hicksville, NY 11801 Tel: (516) 487-3950 Mike Cims Inc. $1,262,003 2300 East Curry Street Long Beach, CA 90805 Tel: (562) 428-8390 Brookwood Furniture Co. $1,195,687 P.O. Box 540 Pontotoc, MS 38863 Tel: (770) 664-6112 Benchcraft LLC $956,208 P.O. Box 6003 Morristown, TN 37815 Universal Furniture International $943,448 P.O. Box 751558 Charlotte, NC 28275-1558 Prime Resources/Harbor Home Int. $933,206 1805 Elmdale Avenue Glenview, IL 60025 Adplex Rhodes $849,368 P.O. Box 99888 Tacoma, WA 98499 Progressive Furniture Inc. $811,456 P.O. Box 633833 Cincinnati, OH 45263-3833 Good Bedroom $762,848 1118 East 223rd Street Carson, CA 90745 Bush Industries, Inc. $752,165 One Mason Drive P.O. Box 460 Jamestown, NY 14702-0129 Sofatrend $728,486 1790 Dornoch Court San Diego, CA 92154 Samuel Lawrence Furniture Co. $637,441 SDS 12-1432 P.O. Box 86 Minneapolis, MN 55486-1432 Kellermeyer Building Services $618,570 1575 Henthorne Maumee, OH 43537 Sofa Art by Nicoletti $541,203 816 North Elm Street, Suite 101 Highpoint, NY 27282 Bassett Mirror Co. $497,895 P.O. Box 60756 Charlotte, NC 28260 Viewpoint Leather Works $490,282 1590 South Milwaukee Avenue Libertyville, IL 60048 R B & G Construction Co. Inc. $472,957 3760 Orange Avenue Long Beach, CA 90807 Matrix/PR I LLC $468,100 Forsgate Drive CN 4000 Cranbury, NJ 08512 Louise Partners $466,750 919 Conestoga Road Building Two Suite 106 Rosemont, PA 19010-0000 New Generations $462,576 The CIT Group P.O. BOX 1036 Charlotte, NC 28201 Newsday Inc. $456,286 235 Pinelawn Road Melville, NY 11747-4250 Direct Marketing Worldwide $448,474 28000 Meadow Drive Evergreen, CO 80439 LJL Marketing $443,346 495 Main Street Hamden, CT 06514 Schnading Corp. $440,150 1111 East Touhy, Suite 500 Des Plaines, IL 60018 ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Levitz Home Furnishings, Inc., and 12 of its direct and indirect subsidiaries seek joint administration of their bankruptcy cases for procedural purposes only. Joint administration will eliminate the need for duplicative notices, applications, and orders, thereby saving the Debtors from time and expense that would otherwise be far too burdensome on the Debtors' estates, David G. Heiman, Esq., at Jones Day, in Cleveland, Ohio, explains. The Court also will be relieved of the burden of entering duplicative orders and maintaining redundant files in thousands of cases. Joint administration will also simplify supervision of the administrative aspects of the Chapter 11 cases by the Office of the United States Trustee. Mr. Heiman clarifies that the Debtors are not seeking substantive consolidation of their cases. Hence, the rights of creditors will not be adversely affected, Mr. Heiman says. Each creditor may still file its claim against a particular estate. Judge Lifland approved the Debtors' request. Judge Lifland directs that all pleadings and papers filed in the Debtors' cases be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------x : In re : Chapter 11 : Levitz Home Furnishings, Inc., et al., : Case No. 05-45189 (BRL) : Debtors. : (Jointly Administered) : ----------------------------------------x ----------------------------------------------------------------- [00007] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL ----------------------------------------------------------------- Prior to the Petition Date, the Debtors had obtained two primary forms of secured financing: (a) Pre-Petition Credit Agreement Levitz Furniture, LLC, and Seaman Furniture Company, Inc., were borrowers under an Amended and Restated Credit Agreement dated as of May 20, 2005. General Electric Capital Corporation served as agent, Fleet Retail Group, LLC, served as documentation agent, and Wells Fargo Retail Finance, LLC, served as syndication agent for a consortium of financial institutions. (b) Pre-Petition Secured Indenture LHFI entered into an Indenture dated as of November 9, 2004, with Wells Fargo Bank National Association as trustee and collateral agent, who was subsequently replaced by U.S. Bank National Association, pursuant to which LHFI issued 12% Senior Secured Class A Notes due 2011 and 15% Senior Secured Class B Notes due 2011. To secured their obligations, the Debtors grants liens and security interests to the lenders and agents, in substantially all of their assets. As of October 6, 2005, the Debtors had outstanding borrowings under the Pre-Petition Credit Agreement of $55,266,212. As of the Petition Date, the Debtors had outstanding borrowings under the Senior Secured Indenture of $130,000,000. In the months before the Petition Date, the Debtors used borrowings under the Credit Agreement to fund their working capital needs. The Debtors are now in dire need of cash to pay their insurance policies, their employees, their landlords, and buy new furniture from their vendors. Because the Debtors filed for bankruptcy, absent court authority pursuant to 11 U.S.C. Sec. 363(c), the Debtors can't touch their lenders' cash collateral. The Debtors must use the Cash Collateral to continue operating their business, according to Coleen Colreavy, the company's chief financial officer. The Debtors propose to provide replacement liens as adequate protection in connection with their use of the cash collateral. * * * At yesterday's hearing in Manhattan, Judge Lifland permitted the Debtors on an interim basis to use their prepetition lenders' cash collateral in accordance with a budget introduced into evidence at the Interim Hearing. Judge Lifland didn't send his copy to the file room for public access. The Debtors will use the Cash Collateral to meet their payroll obligations and pay expenses essential to the preservation of their estates. To the extent that their prepetition lenders' interest in the Cash Collateral, the Debtors will provide adequate protection in the form of additional and replacement security interests and liens. The Court will convene a final cash collateral hearing on November 8, 2005, at 10:00 a.m. ----------------------------------------------------------------- [00008] DEBTORS' MOTION TO OBTAIN $90,000,000 OF DIP FINANCING ----------------------------------------------------------------- Without immediate access to fresh financing, the Debtors say they will be forced to cease business operations. "This cessation of operations would likely destroy the going-concern value of the Debtors' businesses and result in it being impossible for administrative or unsecured creditors to experience any meaningful recovery in [the Debtors'] cases," Coleen Colreavy, Levitz's chief financial officer, relates. The Debtors surveyed various sources of postpetition financing. No entity the Debtors contacted was willing to provide postpetition financing on an unsecured basis. The Debtors ultimately selected a financing proposal made by General Electric Capital Corporation and Prentice Capital Management, LP. These negotiations culminated in an agreement under which the DIP Lenders will provide postpetition financing to the Debtors. The salient terms of the DIP Credit Agreement are: Borrowers: Levitz Furniture and Seaman Furniture Guarantors: Each of the other Debtors Administrative Agents: GE Capital as DIP Agent and PCM as Tranche C Agent Loan Amount: The DIP Credit Facility will consist of: (i) a $60,000,000 senior revolving credit facility, which includes: (A) a sublimit for letters of credit of up to $5,000,000, and (B) a sublimit for swingline loans of $10,000,000; (ii) a $20,000,000 senior Tranche B term loan; and (iii) a $25,000,000 senior Tranche C facility, to be provided by PCM or its assigns. The DIP Term Loan, the outstanding DIP Revolving Loans and $15,000,000 of the Tranche C DIP Facility will be available on an interim basis. The remaining $10,000,000 of the Tranche C DIP Facility will be available upon entry of a Final Order. Maturity Date: The DIP Facility matures on the earliest of July 11, 2006, the effective date of a Chapter 11 plan for any of the Debtors, or consummation of a sale of all or substantially all of the Debtors' assets. Priority and Liens: Subject to the Carve-Out, all amounts owed under the DIP Credit Facility, will: (i) be administrative claims entitled to superiority administrative claim status; and (ii) be secured by first priority, continuing, valid, binding, enforceable, non-avoidable, and automatically perfected postpetition security interests in and liens, senior and superior in priority to all other secured and unsecured creditors of the Debtors' estates, provided, however, that those liens will be subject to Prior Liens, and the liens of the Senior Noteholders in any Pre-Petition Indenture Collateral. Carve-Out:. The DIP Lenders agree to a $1,000,000 carve-out from their lien to permit payment of fees owed to the professionals, the U.S. Trustee and the bankruptcy court clerk. Pre-Petition Agent's Consent to Priming Liens: The Pre-Petition Agent has consented and agreed to the priming of its liens in the Pre-Petition Credit Collateral. DIP Lenders' Consent to Pre-Petition Agent's Subordinated Lien: The DIP Lenders have agreed that the subordinated and junior lien in favor of the Pre-Petition Agent upon the Pre-Petition Credit Collateral is a permitted lien under the DIP Credit Agreement. Repayment and Termination of Pre-Petition Debt; Adequate Protection: As adequate protection in connection with the priming of the Pre-Petition Agent's Liens: (i) the Debtors will use a portion of the proceeds from the DIP Facility to repay the Pre-Petition Lender Debt in full; and (ii) the Pre-Petition Agent will continue to hold Pre-Petition Agent Junior Liens on Pre-Petition Credit Collateral, which liens will be junior and subordinate in right of payment to all Obligations under the DIP Credit Agreement. Interest Rate: The Debtors will pay interest monthly in arrears on the DIP Loan at a rate equal to: (i) for DIP Revolving Loans which constitute swingline loans an interest rate equal to, at the borrower's option, either: (A) the base rate on corporate loans quoted by at least 75% of the nation's 30 largest banks plus 1.50%, or (B) the offered rate for the applicable LIBOR Period on Telerate Page 3750 divided by a number equal to 1.0 minus the aggregate of the rates of reserve requirements in effect two LIBOR Business Days prior to the beginning of that LIBOR Period for Eurocurrency funding plus 3.25%; (ii) for DIP Revolving Loans which are included in the letter of credit facility, 3.25% plus the applicable Base Rate or LIBOR Rate; (iii) for the DIP Term Loan, the applicable LIBOR Rate plus 6.00%; and (iv) 20% for loans under the Tranche C DIP Facility. The relevant Applicable Margins are: Applicable Revolver Index Margin 1.50% Applicable Revolver LIBOR Margin 3.25% Applicable Tranche B Loan LIBOR Margin 6.00% Applicable L/C Margin 2.00% Applicable Unused Line Fee Margin 0.375% Fees: The Debtors are required to pay: (i) to GE Capital a revolving credit facility closing fee equal to $225,000 and a $200,000 Tranche B loan closing fee; (ii) to PCM a $750,000 commitment fee; (iii) to PCM a $750,000 facility fee; (iv) to GE Capital an administrative agent fee equal to $50,000; (v) an unused facility fee on the Tranche C DIP Facility of 5.00% per annum; and (vi) $1,000,000 expense deposit to cover the reimbursement of reasonable out-of- pocket expenses of the Administrative Agent and PCM. Purpose: The Borrowers are authorized to borrow the DIP Loan under the DIP Credit Facility solely for: (a) the repayment in full of the Pre-Petition Debt on Oct. 12, 2005, subject to disgorgement in connection with a successful lien challenge; (b) working capital and letters of credit; (c) other general corporate purposes of the Borrowers, including payment of prepetition sales tax; (d) payment of the costs of administration; (e) payment of fees and amounts due under the DIP Credit Agreement; and (f) payment of prepetition obligations as the Court will allow. Closing Date: October 12, 2005. Pursuant to the DIP Credit Agreement, the Debtors will seek Bankruptcy Court approval to employ: (a) The Blackstone Group, LP as restructuring advisers and Alix Partners LLC as business consultants and crisis managers; and (b) Paul Traub's Asset Disposition Group to assist with the marketing and liquidation of the Inventory Collateral. The Lenders require the Debtors to negotiate in good faith towards a purchase agreement with Prentice on or before October 31, 2005, in a form satisfactory to the Lenders. Prentice will, subject to the approval of the Bankruptcy Court, purchase substantially all of the Debtors' assets under Section 363 of the Bankruptcy Code. The Debtors will prepare bid packages with respect to the liquidation of the full chain of store locations. A full-text copy of the 155-page DIP Credit Agreement is available for free at: http://bankrupt.com/misc/levitzDIPAgreement.pdf According to Ms. Colreavy, the proposed DIP Credit Facility will provide adequate funds to insure the proper administration of the Debtors' cases and therefore protects the value of the Debtors' assets. The DIP Credit Facility therefore meets the standard of Section 364(c) of the Bankruptcy Code. Interim Approval Judge Lifland, at yesterday's hearing in Manhattan, authorized the Debtors to borrow under the DIP Credit Agreement up to $80,000,000 composed of three facilities, which may in aggregate principal amount exceed $80,000,000, but under which availability will never exceed $80,000,000, including: (1) a senior revolving credit facility not to exceed $60,000,000 in aggregate principal amount, which includes: (i) a sublimit for letters of credit up to $30,000,000, and (ii) a sublimit for swingline loans up to $10,000,000 to be provided by the DIP Agent and the DIP Lenders, (2) a senior Tranche B term loan not to exceed $20,000,000 in aggregate principal amount, and (3) a senior Tranche C facility not to exceed $25,000,000 in aggregate principal amount; provided, however, the aggregate principal amount borrowed under the Tranche C DIP Facility during the Interim Period will not exceed $15,000,000 outstanding at any one time. A copy of the Interim DIP Financing Order is available for free at http://bankrupt.com/misc/levitzDIPInterimOrder.pdf Judge Lifland will convene a Final DIP Financing Hearing on November 8, 2005, at 10:00 a.m. Objections, if any, must be filed and served not later than November 4, 2005, to: (i) the Borrowers c/o Richard H. Engman, Esq. Jones Day 222 E. 41st Street New York, NY 10017 -- and -- David Heiman, Esq. Jones Day 901 Lakeside Ave. Cleveland, OH 44114 (ii) the DIP Agent and the DIP Lenders c/o the DIP Agent's counsel Tina L. Brozman, Esq. Bingham McCutchen LLP 399 Park Avenue New York, NY 10022 Patrick J. Trostle, Esq. Bingham McCutchen LLP One State Street Hartford, CT 06103 -- and -- Robert A. J. Barry, Esq. Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 (iii) counsel for Prentice Capital Management, LP, as Tranche C Agent under the Tranche C DIP Facility D.J. Baker, Esq. Alexandra Margolis, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 (iv) the United States Trustee's Office 33 Whitehall Street, 21st Floor New York, New York 100040 Attn: Greg W. Zipes, Esq. ----------------------------------------------------------------- [00009] LEVITZ PREPARES FOR SEC. 363 SALE TO PRENTICE CAPITAL ----------------------------------------------------------------- Levitz Home Furnishings, Inc., and its debtor-affiliates have agreed to prepare bid packages with respect to the liquidation of the retail furniture store chain within the next ten days and negotiate in good faith to enter into a purchase agreement with Prentice Capital Management LP on or before October 31, 2005, that, subject to higher and better offers under the auspices of the U.S. Bankruptcy Court, provides for the sale of substantially all of Levitz's assets to Prentice under Section 363 of the Bankruptcy Code. No proposed purchase price is disclosed in the papers delivered to the U.S. Bankruptcy Court for the Southern District of New York. Levitz has said it will continue to operate its retail furniture stores in the ordinary course of business while these negotiations proceed. Prentice Capital can be reached at: Prentice Capital Management, LP 623 Fifth Avenue, 32nd Floor New York, NY 10022 Attention: Michael Zimmerman Prentice is represented by: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036-6522 Attention: Peter J. Neckles, Esq. Skadden Arps represented Levitz in its first chapter 11 restructuring. *** End of Issue No. 1 ***