Item 1.01 Entry into a Material Definitive Agreement
The information provided in Item 1.03 of this Current Report on Form 8-K
regarding the DIP Financing (as defined below) is incorporated by reference in
this Item 1.01.
Item 1.03 Bankruptcy or Receivership.
On June 18, 2014, Kid Brands, Inc. (the "Company") and certain of its U.S.
subsidiaries (collectively with the Company, the "Debtors") each filed a
voluntary petition for relief (the "Bankruptcy Filing") under chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The
Debtors have proposed to jointly administer their chapter 11 cases under the
caption In re Kid Brands, Inc. Case No. 14-22582 (the "Chapter 11 Case"). All
documents filed with the Bankruptcy Court are available for inspection at the
Office of the Clerk of the Bankruptcy Court or online at www.omnimgt.com.
Each of the Debtors remains in possession of its respective assets and will
continue to operate its respective business as a "debtor in possession" under
the jurisdiction of the Bankruptcy Court, and in accordance with the applicable
provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
In connection with the Chapter 11 Case, the Debtors filed motions seeking
Bankruptcy Court approval of, among other things, Debtor-in-Possession financing
on the terms set forth in the Debtor-in-Possession Credit Agreement, dated as of
June 18, 2014 (the "DIP Credit Agreement"), by and among the Company and the
other Debtors, each a Debtor and a Debtor-in-Possession under Chapter 11 of the
Bankruptcy Code (collectively, the "Borrowers"), the guarantors from time to
time party thereto, the lenders from time to time party thereto and Salus
Capital Partners, LLC (the "Agent"), as administrative agent and collateral
agent (the "DIP Financing"). The DIP Financing provides for senior secured
superpriority debtor-in-possession financing facilities in an aggregate amount
of up to $49 million, consisting of a $27 million asset based revolving credit
facility, subject to a borrowing base based upon receivables and inventory (the
"Receivables/Inventory ABL"), and a $22 million asset based revolving credit
facility, subject to a borrowing base based upon intellectual property assets
(the "IP ABL"). The Debtors have requested of the Bankruptcy Court subject to
satisfaction of conditions to borrowing that the entire Receivables/Inventory
ABL and IP ABL will be available upon entry of the interim order of the
Bankruptcy Court. The proceeds of the DIP Financing will be immediately used in
part to repay the lender amounts outstanding under the pre-petition credit
facility provided by Salus Capital Partners, LLC, as administrative agent, and a
group of lenders party thereto, as to which there is approximately $44.4 million
in borrowings outstanding.
The maturity date of the loans made under the DIP Credit Agreement is the
earliest to occur of (i) June 15, 2015, (ii) the date on which Agent provides
notice that an event of default has occurred, (iii) the effective date of the
Debtor plan of reorganization or liquidation and (iv) the date on which a sale
of substantially all of the assets of the Company shall have occurred. Loans
under the Receivables/Inventory ABL bear interest at the rate of LIBOR plus 10%
and loans under the IP ABL bear interest at a rate of LIBOR plus 15%. The
obligations of the Borrowers under the DIP Credit Agreement are required to be
unconditionally guaranteed by future active subsidiaries of the Company. Subject
to certain exceptions, the obligations of the Borrowers and the guarantors under
the DIP Credit Agreement and the other loan documents are secured by first
priority liens on substantially all of the assets of the Borrowers and the
guarantors, if any, and 100% pledge of the equity interests of certain of the
Borrowers' direct and indirect subsidiaries. The DIP Credit Agreement requires
the Borrowers to comply with a financial covenant relating to a maximum variance
of results from projections that are delivered to the Agent.
Events of default under the DIP Credit Agreement include, among others, failure
to pay any principal, interest or other amounts due under the DIP Credit
Agreement, breach of specific covenants and a change of control of the Company.
Upon an event of default, the Agent may declare the outstanding obligations
under the DIP Credit Agreement to be immediately due and payable and exercise
other rights and remedies provided for thereunder.
The Debtors currently intend to seek approval of the Bankruptcy Court of an
auction and sale of substantially all of their assets under section 363 of the
The foregoing description of the DIP Credit Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
DIP Credit Agreement, a copy of which is filed with this Current Report on Form
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.03 of this Current Report on Form 8-K
regarding the DIP Financing is incorporated by reference in this Item 2.03.
Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial
Obligation or an Obligation Under an Off-Balance Sheet Arrangement.
The Bankruptcy Filing described in Item 1.03 above, which is incorporated by
reference into this Item 2.04, constituted an event of default under certain
agreements to which the Company and/or its subsidiaries are a party, including
the Company's pre-petition credit facility described below, and triggered
repayment obligations of the Company and certain of its subsidiaries and/or gave
rise to certain other rights and remedies, including termination rights, of the
counterparties. The event of default under the pre-petition credit facility
resulting from the Bankruptcy Filing was in addition to other events of default
under the pre-petition credit facility previously disclosed by the Company. The
Company believes that any efforts to enforce any payment obligations or rights
and remedies under any such agreements are subject to limitation by, and
automatically stayed as a result of, the Bankruptcy Filing and the applicable
provisions of the Bankruptcy Code. The Bankruptcy Filing and/or related
circumstances constituted an event of default or otherwise triggered rights and
remedies of counterparties under the Credit Agreement, dated as of December 21,
2012, among the Company, specified domestic subsidiaries party thereto, Salus
Capital Partners, LLC, as Administrative Agent and Collateral Agent, and the
other lenders from time to time party thereto with respect to approximately
$44.4 million principal amount, together with accrued and unpaid interest
outstanding. The proceeds of the DIP Financing described above under Item 1.03
will be immediately used in part to repay this outstanding amount.
As a result of the filing of the Chapter 11 Case, the Company believes that the
ability of the Debtors' creditors to seek remedies to enforce their rights
against the Debtors under these and other agreements are stayed and creditor
rights of enforcement against the Debtors are subject to the applicable
provisions of the Bankruptcy Code.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Appointment of Chief Restructuring Officer
On June 17, 2014, the Board of Directors approved the appointment of Glenn
Langberg, 54, as the Chief Restructuring Officer of the Company. Since 1989,
Mr. Langberg has served as the Chief Executive Officer of GRL Capital Advisors,
LLC, which, through a prior name, he founded in 1989. During such time,
Mr. Langberg has served as the Chief Executive Officer, Chief Financial Officer,
Chief Restructuring Officer, as well as a director and an advisor to more than
20 companies, most recently, Big M Inc., (2012-2014) and Dots Inc. (since 2014),
where he has provided business advisory services, operational analysis, due
diligence support and financial restructuring advice to such companies.
Mr. Langberg received his B.A. from Brandeis University.
On June 17, 2014, GRL entered into an engagement letter with the Company under
which (i) Glen Langberg will serve as the Chief Restructuring Officer of the
Company and (ii) GRL and Mr. Langberg will assist the Company and the other
Debtors with all phases of the Chapter 11 Case and will provide advisory
services as set forth in the engagement letter. Under the terms of the
engagement letter, GRL received a retainer of $75,000 and, subject to approval
of the Bankruptcy Court, will receive compensation on an hourly basis based on
the billing rates set forth in engagement letter, including $595 per hour for
Mr. Langberg, and reimbursement for expenses reasonably incurred in connection
with the services provided. The $75,000 retainer will be applied toward the
invoices received by the Company.
The foregoing is qualified in its entirety by reference to the full text of the
engagement letter, a copy of which is filed as Exhibit 10.2 attached hereto.
Item 8.01 Other Events.
As has been previously disclosed, the Company's subsidiary, LaJobi, Inc.
("LaJobi") was selected by U.S. Customs and Border Protection ("U.S. Customs")
for a "Focused Assessment" of its import practices and procedures, which
commenced in January 2011. In preparing for this "Focused Assessment," the
Company found certain potential issues with respect to LaJobi's import practices
and submitted a preliminary voluntary prior disclosure to U.S. Customs due to
issues regarding customs duty paid on products imported into the U.S. Upon
becoming aware of these issues, the board of directors of the Company initiated
an investigation, which found instances at LaJobi in which incorrect
anti-dumping duties were applied on certain wooden furniture imported from
vendors in the PRC, resulting in a violation of anti-dumping laws.
In the fourth quarter of 2012, the Company completed LaJobi's voluntary prior
disclosure to U.S. Customs, including the Company's final determination of
amounts it believes are owed for all relevant periods. The Company estimated
that LaJobi will owe an aggregate of approximately $7.0 million relating to
anti-dumping duties to U.S. Customs for the period commencing April 2, 2008 (the
date of purchase of the LaJobi assets by the Company) through March 31, 2014,
and the Company is fully accrued for all such amounts. In addition, the Company
has accrued approximately $1.2 million for possible interest owed. The completed
voluntary prior disclosure submitted to U.S. Customs in the fourth quarter of
2012 included proposed settlement amounts and proposed payment terms with
respect to the anti-dumping duties owed by LaJobi (the "Settlement Submission"),
as well as a payment of $0.3 million, to be credited against the amount that
U.S. Customs determines is to be paid in satisfaction of LaJobi's Customs duty
On June 13, 2014, the Company received a pre-penalty notice (the "Pre-Penalty
Notice") from U.S. Customs in response to the Prior Disclosure. U.S. Customs
determined that LaJobi's actions resulted in an actual loss of revenue of
$7,050,626.28, of which $7,005,618.00 U.S. Customs determined to still be
outstanding. In the pre-penalty notice, U.S. Customs states that it is also
contemplating the issuance of a claim for monetary penalty against LaJobi and
the Company in the amount of $7,050,626.28, based on a proposed culpability
level of fraud, equal to 100 percent of the lawful duties, taxes, and fees of
which U.S. Customs has determined it was deprived as a result of the violations.
The pre-penalty notice also indicates that the penalty could be reduced to
interest from the dates the import entries liquidated if it is ultimately
determined that the level of culpability was negligence or gross negligence, and
not fraud. The Company has until June 20, 2014 to make an oral and written
presentation to U.S. Customs as to why the monetary penalty should not be issued
as proposed. If U.S. Customs issues the Notice of Penalty, it will demand
immediate payment of $7,005,618.00. The Company intends to respond to the
Pre-Penalty Notice in an attempt to mitigate the amounts claimed. The Company
intends to continue pursuing a global settlement that would incorporate any U.S.
Customs claims related to this matter.
Item 9.01 Financial Statements and Exhibits.
10.1 Debtor-In-Possession Credit and Security Agreement, dated June 18,
2014 by and among Kid Brands, Inc. and the other debtors, each a
debtor and a Debtor-in-Possession under Chapter 11 of the Bankruptcy
Code, the guarantors from time to time party thereto, the lenders from
time to time party thereto and Salus Capital Partners, LLC, as
administrative agent and collateral agent
10.2 Engagement Letter dated June 17, 2014 between the Company and GRL
Capital Advisors, LLC
99.1 Press Release dated June 18, 2014 announcing a Voluntary Chapter 11
Cautionary Note Regarding Forward-Looking Statements:
To the extent that statements in this Current Report on Form 8-K are not
strictly historical, including the outcome of the Chapter 11 filing and the
outcome of the U.S. Customs action, such statements are forward-looking, and are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Additional written and oral forward-looking statements may
be made by us from time to time in Securities and Exchange Commission
filings and otherwise. The Private Securities Litigation Reform Act of 1995
provides a safe-harbor for forward-looking statements. These forward-looking
statements include statements that are predictive in nature and depend upon or
refer to future events or conditions, and include, but are not limited to,
information regarding the status and progress of our operating activities, the
plans and objectives of our management and assumptions regarding our future
performance. Forward-looking statements include, but are not limited to, words
such as "believe," "plan," "anticipate," "estimate," "project", "may",
"planned", "potential", "should", "will, "would", "could", "might", "possible",
"contemplate", "continue", "expect," "intend," "seek" or the negative of or
other variations on these and other similar expressions. We caution readers that
results predicted by forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Specific risks and uncertainties
include, but are not limited to, those contained in the Current Report on Form
8-K and those set forth under Item 1A, "Risk Factors", of our most recent Annual
Report on Form 10-K, and subsequent filings with the SEC
statements are not guarantees of future performance. Forward-looking statements
speak only as of the date the statements are made. Except as required under the
federal securities laws and rules and regulations of the SEC
, we undertake no
obligation to publicly update any forward-looking statement, whether as a result
of new information, future events or otherwise.