Huffy has reached an agreement in principle on a Plan of Reorganization with the China Export & Credit Insurance Corporation and Huffy's primary suppliers, referred to as the “Sinosure Group,” and the Official Unsecured Creditors Committee.
The agreement in principle provides that substantially all of Huffy's pre- petition liabilities will be discharged in exchange for notes and new voting common equity of the reorganized company. Initial distributions to the unsecured creditors will be 30% of the new voting common equity of the Company (in the form of new Class A shares) and a $3 million note to the Sinosure Group and 70 percent of the new common equity (in the form of new Class B shares) and a $9 million note to the other unsecured creditors. The Sinosure Group as holders of Class A shares will elect a majority of Huffy's Board of Directors and, through the provision of trade credit to Huffy on favorable terms, have the ability to earn over 5 years up to 51% of the aggregate new common voting stock of the reorganized entity. The notes and post-confirmation trade credit will be secured by a first lien on Huffy's intangible assets and a second lien on Huffy's other assets. Under the agreement in principle, the reorganized company will emerge as a private company. It is presently expected that current equity holders will not receive any distributions and their equity interests would be cancelled.
John A. Muskovich, Chief Executive Officer and President, stated: “I am pleased to be able to announce this agreement as a positive step towards a consensual Plan of Reorganization which will result in Huffy emerging from bankruptcy later this year. This agreement is a continuing indication of the strong support that Huffy is receiving from its suppliers and the confidence that they have in the long-term viability of this business. We are particularly appreciative of the leadership role of Sinosure (China Export & Credit Insurance Corporation) and our suppliers in China which are members of the Sinosure Group for their support of the Company during the bankruptcy period, and we look forward to working closely with them in the future as shareholders.”
China Export & Credit Insurance Corporation (also known as Sinosure) is an agency of the Chinese government providing export credit insurance to Chinese exporters, including many of Huffy's suppliers. Zhidong Liang, Executive Vice President of Sinosure, said in Beijing: “We look forward to Huffy's emergence from bankruptcy and its future growth as one of America's leading bicycle brands and as a significant golf supplier. Sinosure and Huffy's suppliers in China have played a critical role in Huffy's reorganization, based on the strong business relationship between Huffy and its suppliers and their mutual interest in Huffy's future.”
This announcement of the agreement in principle should not be deemed a solicitation for acceptance of a plan of reorganization.
Huffy is working closely with its key constituencies to finalize and subsequently file its proposed Plan of Reorganization and Disclosure Statement with the Bankruptcy Court in July 2005. Subject to approval by the Court as to the adequacy of the Disclosure Statement, Huffy plans to begin soliciting acceptances of the Plan of Reorganization from its creditors in August 2005 and for the Bankruptcy Court to conduct a confirmation hearing for the Plan in September 2005.
As a key component of the Plan of Reorganization, Huffy will also be filing next week a motion with the Bankruptcy Court to terminate the Huffy Corporation Retirement Plan (the “Pension Plan”).
Huffy has approximately 3,600 retirees and about 130 current employees. Ninety-nine percent of Plan participants and beneficiaries would see no change in their pension benefits if the court approves the request, because the Pension Benefit Guaranty Corporation (PBGC) would take over responsibility for paying out the benefits. The PBGC is a unit of the federal government that insures pension plans. It is funded through premiums paid by companies such as Huffy.
“Although pension benefits for the vast majority of employees and retirees will not be affected, nevertheless, this was still a difficult decision to make and one we made only after considering all possible alternatives,” said Mr. Muskovich. “We have made important progress on Huffy's turnaround by selling underperforming assets, streamlining operations, and solidifying relationships with key customers. Having the PBGC assume these pension obligations will clear the way for Huffy to be a stronger, healthier company.”
On October 20, 2004, Huffy Corporation and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Ohio, Western Division. The bankruptcy cases are being jointly administered under Case No. 04-39148. Huffy Corporation and its subsidiaries continue to operate their businesses and manage their properties as debtors in possession.
