STIPULATION AND MUTUAL RELEASE
EXHIBIT
99.1
THIS
STIPULATION AND MUTUAL RELEASE (the "Stipulation") is made and entered into by
and among the Mississippi State Tax Commission (the "Claimant"), and Xxxxxxx
Fabrics, Inc., Xxxxxxx Fabrics of MI, Inc., HF Resources, Inc.,
Xxxxxxxxxxxxxx.xxx, Inc., HF Merchandising, Inc., HF Enterprises, Inc., and
Xxxxxxx Fabrics, LLC, debtors and debtors-in-possession (collectively, the
"Debtors"), and the Official Committee of Unsecured Creditors and the Official
Committee of Equity Security Holders (collectively, the "Committees"); as of
this 16th day of April, 2008. The Claimant, the Debtors and the Committees are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party."
RECITALS
WHEREAS,
on March 21, 2007 (the "Petition Date"), the Debtors commenced their respective
bankruptcy cases by filing voluntary petitions for relief under chapter 11 of
the Bankruptcy Code. The Debtors are operating their respective businesses as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code;
and
WHEREAS,
in January and February 2007, the Claimant issued a number of corporate income
and franchise tax assessments against the Debtors. In August 2007, after the
Petition Date, the Claimant issued additional corporate income, franchise,
sales, and use tax assessments against some of the Debtors, and in November 2007
issued amended corporate income and franchise tax assessments against some of
the Debtors; and
WHEREAS,
on September 12, 2007, the Claimant filed claims 2129 and 2142 (together, the
"Tax Claims") in the case of Xxxxxxx Fabrics, Inc. The Tax Claims assert
identical partially liquidated claims consisting of three parts: (a) an
unsecured non-priority claim in the amount of $344,371, (b) an unsecured
priority claim in the amount of $3,474,254, and (c) a claim for certain
additional unliquidated amounts; and
WHEREAS,
on December 21, 2007, the Debtors filed the Objection to Claims of Mississippi
State Tax Commission pursuant to 11 U.S.C. § 101, et seq., including 105, 502,
505, 507 and Fed. R. Bankr. P. 3007 (D.I. 2070) (the "Claims Objection"),
seeking to reduce and/or reclassify the Tax Claims; and
WHEREAS,
on January 15, 2008, the Tax Commission filed the Response to Debtors' Objection
to Claims of Mississippi State Tax Commission (D.I. 2165) (the "Response"). In
the Response, the Tax Commission: (a) responded to the Debtors' request to
reduce and/or reclassify the Tax Claims and (b) requested that the Court (i)
abstain pursuant to 28 U.S.C § 1334(c)(1) and section 505 of the Bankruptcy
Code; or (ii) if the Court refused to abstain, to transfer venue to the United
States Bankruptcy Court for the Northern District of Mississippi;
and
WHEREAS,
on January 23, 2008, the Debtors filed the Response to the Request by the
Mississippi State Tax Commission for Abstention and Transfer (D.I. 2206) (the
"Procedural Objection"); and
WHEREAS,
on January 23, 2008, the Official Committee of Unsecured Creditors filed the
Joinder Of The Official Committee Of Unsecured Creditors To The Debtors'
Procedural Objection To Request By Mississippi State Tax Commission For
Abstention And Transfer (D.I. 2205) and the Official Committee of Equity
Security Holders filed the Joinder Of The Official Committee Of Equity Security
Holders In Support Of The Debtors' Response To Request By Mississippi State Tax
Commission For Abstention And Transfer (D.I. 2208) (together, the "Joinders");
and
WHEREAS,
on January 30, 2008, the United States Bankruptcy Court for the District of
Delaware (the "Delaware Bankruptcy Court") held a hearing on the Claimant's
request for abstention and transfer, the Procedural Objection and the Joinders
(the "Hearing"); and
WHEREAS,
the Parties desire to avoid the expense and uncertainty of litigation over the
Tax Claims; and
WHEREAS,
the Parties have worked to negotiate a consensual resolution of the Tax
Claims.
NOW,
THEREFORE, the Parties wish to resolve their disputes arising under the Tax
Claims for the mutual promises and undertakings set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged. The Parties agree as follows:
1. Incorporation of
Recitals. The foregoing recitals are incorporated herein by reference as
if fully set forth.
2. Disallowance of Claim
2142. Claim 2142 is hereby disallowed as duplicative of Claim
2129.
3. Reduction of Claim
2129. Claim 2129 is hereby reduced and reclassified from a claim
consisting of: (a) a priority claim in the amount of $3,474,254, (b) a general
non-priority unsecured claim in the amount of $344,371, and (c) a claim for
certain additional unliquidated amounts as set forth in claim 2129 to an 11
U.S.C. Section 507(a)(8) priority unsecured claim in the amount of $1,500,000
(the "Revised Claim") and is allowed in this amount and in this
priority.
4. Distributions. Any
distribution made on the Revised Claim shall be made in accordance with the
terms and conditions of any plan of reorganization confirmed in the Debtors'
bankruptcy cases ("Plan"), or consistent with the priorities of the Bankruptcy
Code, but with the condition that if the Revised Claim is paid in accordance
with a Plan, such Plan shall provide that the Revised Claim be paid in full, and
if not paid in full on the effective date of the plan, to be paid in full on a
schedule of equal payments that is to be made no later than the date(s) provided
for payment of general unsecured creditors under the Plan, but with such equal
payments to be made within five (5) years from March 21, 2007. If payment in
full is not made on the effective date of the Plan, interest at the statutory
rate of one percent (1%) per month, beginning on the
calendar month on which the Plan is confirmed, shall accrue on any unpaid
balance of the Revised Claim and be paid in addition to the Revised Claim amount
of $1,500,000.00 in accordance with the Plan.
5. Payment of Tax Only.
Any distributions made in accordance with paragraph 4 of this Stipulation,
except that made for interest accruing after the effective date of the Plan,
shall be characterized solely as a payment of Mississippi income, franchise,
sales and/or use taxes. No portion of any distributions made by the Debtors
under paragraph 4 of this Stipulation, except that made for interest accruing
after the effective date of the Plan, represents the payment of any penalties or
interest, and the Debtors shall owe no penalties or interest on the Assessments,
the Tax Claims, or the Revised Claim, except any interest that accrues on the
Revised Claim after the effective date of the Plan.
6. Consent to Entry of
Order. The Parties hereby agree to the entry of an order by the Delaware
Bankruptcy Court approving this Stipulation.
7. Mutual
Releases.
7.1. Release by the
Claimant. Except for the right to receive distributions on account of the
Revised Claim, the Claimant hereby releases and forever discharges each of the
Debtors and its respective agents, professionals, directors, officers,
employees, representatives and estate (collectively, the "Debtor Released
Parties") from any and all claims, debts, liabilities, demands, obligations,
costs, expenses, actions, causes of action and claims for relief of every kind
and nature, whether known or unknown, suspected or unsuspected, that are now
held, have at any time been held, or may at any time be held against any of the
Debtor Released Parties by reason of any act, omissions to act, circumstances,
or transactions occurring from the beginning of time through and including March
21, 2007 (the "Stipulation Period"). Payment in full1 of the Revised Claim as provided under
paragraph 4 of this Stipulation shall constitute the full and complete
satisfaction of the Tax Claims and the Assessments against the Debtor Released
Parties. This stipulation shall forever bar the Claimant from making any
additional income, franchise, sales, use or other tax assessments, demands,
claims or adjustments of any type, kind or nature against any of the Debtor
Released Parties for any tax liability attributable to the Stipulation Period,
and further bars the Claimant from issuing or making any adjustments to the
income, franchise, sales, use or any other returns heretofore or hereafter filed
by the Debtors with respect to any tax liability attributable to the Stipulation
Period.
1 As used in this paragraph
7.1, "payment in full" means the Claimant's receipt of distributions of the
total amount due under the Plan.
7.2. Release by the
Debtors. Except for the specific obligations set forth herein, Debtors,
on behalf of themselves and their respective estates, hereby release and forever
discharge: (a) the Claimant and its agents, professionals, employees and
representatives (collectively, the "Claimant Released Parties") from any and all
claims, debts, liabilities, demands, allegations, costs, expenses, actions,
causes of action and claims for relief of every kind and nature, whether known
or unknown, or suspected or unsuspected, that are now held, have at any time
been held or may at any time be held by the Debtors against the Claimant
Released Parties that have been, could have been, or could be asserted by reason
of any acts, omissions to act, circumstances or transactions occurring within
the Stipulation Period relating to the Tax Claims and/or from the filing of the
Tax Claims.
7.3. Release by the
Committees. The Committees, on behalf of themselves hereby release and
forever discharge: (a) the Claimant Released Parties from any and all claims,
debts, liabilities, demands, allegations, costs, expenses, actions, causes of
action and claims for relief of every kind and nature, whether known or unknown,
or suspected or unsuspected, that are now held, have at any time been held or
may at any time be held by either of the Committees against the Claimant
Released Parties that have been, could have been, or could be asserted by reason
of any acts, omissions to act, circumstances or transactions occurring within
the Stipulation Period relating to the Tax Claims and/or from the filing of the
Tax Claims.
8. Covenant Not to Xxx on
Matters Released. Subject to the satisfaction of the Parties' obligations
herein, the Parties covenant that they will not make, assert, or maintain
against any person or entity that they have released in this Stipulation, any
claim, demand, action, cause of action, suit or proceeding arising out of or in
connection with the matters herein released. The Parties represent and warrant
that they have not
assigned or transferred, purported to assign or transfer, and will not assign or
transfer any right, claim or objection herein described and/or
released.
9. Miscellaneous.
9.1. Binding Effect. This
Stipulation shall be binding upon and inure to the benefit of the Claimant, the
Debtors, the Committees and to all trustees, liquidators, employees, agents,
servants, predecessors, heirs, executors, administrators, successors, assigns,
spouses, owners, officials, officers, directors, shareholders, managers,
members, general partners and limited partners of the Claimant, and the Debtors,
including, without limitation, any trustee or examiner appointed in connection
with any of the Debtors' Chapter 11 cases or any subsequent Chapter 11
proceedings involving the Debtors.
9.2. Entire Agreement.
Each Party represents and warrants that no promise, inducement, or agreement not
expressed herein has been made to such Party in connection with this
Stipulation, and that this Stipulation constitutes the entire agreement between
the Parties and supersedes all prior or contemporaneous written or oral
communications, understandings, and agreements with respect to the subject
matter hereof. It is expressly understood and agreed that this Stipulation may
not be altered, amended, modified or otherwise changed in any respect whatsoever
except by a writing duly executed by each Party or the authorized
representatives of each of the Parties. Each Party hereby agrees that such Party
will make no claim at any time or place that this Stipulation has been orally
altered or modified or otherwise changed by oral communication of any kind or
character.
9.3. Manner of Execution.
This Stipulation may be executed in multiple counterparts, including by
facsimile, each of which will be deemed an original document, but all of which
will constitute a single document.
9.4. No Admissions. Each
Party acknowledges that nothing in this Stipulation constitutes an admission or
concession of any legal issue raised in the Claims Objection, the Response, the
Debtors' Procedural Objection, the Joinders to the Procedural Objection by the
Committees or of any fact. Additionally, each Party acknowledges that nothing in
this Stipulation constitutes a concession of the accuracy or inaccuracy,
validity or invalidity, enforceability or unenforceability of the Tax Claims,
the Assessments, any adjustments underlying the Tax Claims, any defenses or
causes of action raised by the Debtors in the Claims Objection or the Procedural
Objection, the legality or illegality of any actions taken by the Claimant
and/or its employees with respect to the Debtors, or the validity or invalidity
of any Mississippi income, franchise, sales and/or use tax, or procedural
statutes or regulations.
9.5. Representation by
Counsel. Each Party warrants that such Party has been represented and
advised by counsel or has had full opportunity to be represented and advised by
counsel with respect to this Stipulation and all matters covered by
it.
9.6. Costs and Expenses.
Each Party agrees to be responsible for and to bear its own costs, expenses and
attorneys' fees incurred in connection with the negotiations related to and
preparation of this Stipulation and not to seek from each other reimbursement of
any such costs, expenses or attorneys' fees.
9.7. Governing Law;
Jurisdiction. MISSISSIPPI LAW SHALL GOVERN THE CONSTRUCTION OF
NON-BANKRUPTCY TAX PROVISIONS, IF ANY AND TO THE EXTENT APPLICABLE, RELEVANT TO
THIS STIPLUATION, WITHOUT REGARD TO THE CONFLICTS OF LAWS OR PRINCIPLES THEREOF.
THE PARTIES ACKNOWLEDGE AND AGREE THAT THE DELAWARE BANKRUPTCY COURT SHALL HAVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE PARTIES
WITH RESPECT TO THIS STIPULATION.
9.8. Non-Severability.
Each and every term of this Stipulation is contingent upon the validity of every
other provision. Should any court determine that any portion of this Stipulation
is invalid or unenforceable, then this Stipulation shall be null, void and of no
further effect, and each party shall be returned to the status quo immediately
before the execution of this Stipulation.
9.9. Representative
Capacity. Each person executing this Stipulation in a representative
capacity represents and warrants that he or she is empowered to do
so.
9.10. Participation In
Drafting. Each Party represents and warrants that it has participated in
the drafting and preparation of this Stipulation. In any construction of this
Stipulation, the Stipulation shall not be construed for or against any Party,
but the same shall be construed fairly according to its plain
meaning.
9.11. Covenant of Good
Faith. Each Party hereto covenants that it has entered into this
Stipulation in good faith, and agrees to do all things necessary or convenient
to carry out and effectuate the terms of this Stipulation, including, without
limitation, the execution of all further and additional documents, and not to do
or fail to do anything, directly or indirectly, that will interfere with the
terms or conditions hereof or adversely affect any of the rights provided for
herein.
9.12. Court Approval. All
provisions of this Stipulation are subject to the approval of the Delaware
Bankruptcy Court, pursuant to final orders in a form acceptable to the Parties
hereto, which the Parties hereto will seek to obtain as soon as
practicable.
[Remainder
of page intentionally left blank – signature page to follow]
IN
WITNESS WHEREOF, the Parties have executed this Stipulation as of the date first
above written.
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MISSISSIPPI
STATE TAX COMMISSION
__________________________________
Xxxxxx
X. Xxxxxx, Chairman
X.X.
Xxx 0000
Xxxxxxx,
Xxxxxxxxxxx 00000
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XXXXXXX
FABRICS, INC., XXXXXXX
FABRICS
OF MI, INC., HF RESOURCES,
INC.,
XXXXXXXXXXXXXX.XXX, INC., HF
MERCHANDISING,
INC., HF ENTERPRISES,
INC.,
XXXXXXX FABRICS, LLC
________________________________
Xxxx
Xxxxxxx
Executive
Vice President
Xxxxxxx
Fabrics, Inc.
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OFFICIAL
COMMITTEE OF
UNSECURED
CREDITORS IN THE
CHAPTER
11 BANKRUPTCY CASES OF
XXXXXXX
FABRICS, INC. AND
SUBSIDIARIES,
JOINTLY
ADMINISTERED
IN THE UNITED
STATES
BANKRUPTCY COURT FOR
THE
DISTRICT OF DELAWARE,
CASE
NO. 07-10353 (BLS)
____________________________________
XXXXXX
GODWARD KRONISH LLP
Xxx
X. Xxxxxx
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
(212)
479-6000
Counsel
for the Official Committee
of Unsecured
Creditors
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OFFICIAL
COMMITTEE OF EQUITY
SECURITITIES
HOLDERS IN THE CHAPTER
11
BANKRUPTCY CASES OF XXXXXXX
FABRICS,
INC. AND SUBSIDIARIES,
JOINTLY
ADMINISTERED IN THE UNITED
STATES
BANKRUPTCY COURT FOR THE
DISTRICT
OF DELAWARE,
CASE
NO. 07-10353 (BLS)
_______________________________________
XXXXXXXXXXXX
XXXX & XXXXXXXXX LLP
Xxxx
X. Xxxxx
1221
Avenue of the Americas
Xxx
Xxxx, Xxx Xxxx 00000-0000
(000)
000-0000
Counsel
for the Official Committee of Equity
Security
Holders
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