UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant to
Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of
report (Date of earliest event reported):
March
26,
2008
|
THE
CHILDREN’S PLACE RETAIL STORES, INC.
|
|
(Exact
Name of Registrants as Specified in
Their Charters)
|
|
Delaware
|
|
(State
or Other Jurisdiction of
Incorporation)
|
|
0-23071
|
31-1241495
|
|
(Commission
File Number)
|
(IRS
Employer Identification
No.)
|
|
915
Secaucus Road, Secaucus, New
Jersey
|
07094
|
|
(Address
of Principal Executive
Offices)
|
(Zip
Code)
|
|
(201)
558-2400
|
|
(Registrant’s
Telephone Number, Including Area
Code)
|
|
Not
Applicable
|
|
(Former
Name or Former Address, if Changed Since Last
Report)
|
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General
Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.02 Termination
of a Material Definitive Agreement.
On
March
26, 2008, The Children’s Place Retail Stores, Inc. (the “Company”) provided
notice (the “Notice”) that it is discontinuing the Guaranty and Commitment,
dated as of November 21, 2004, by the Company and Hoop Holdings, LLC in favor
of
Hoop Retail Stores, LLC and Hoop Canada, Inc. (as successors to The Disney
Store, LLC and The Disney Store (Canada) Ltd.) and TDS Franchising, LLC
(“TDSF”), an affiliate of Disney Enterprises, Inc. (together with its
affiliates, “Disney”) (as amended, modified and supplemented from time to time,
the “Guaranty and Commitment”), as further described below in Item 2.04. The
Company anticipates that such Notice will terminate some but not all of its
obligations under the Guaranty and Commitment. See the Company’s Annual Report
on Form 10-K for the year ended February 3, 2007, filed with the Securities
and
Exchange Commission (the “SEC”) on December 5, 2007, for a brief description of
the terms and conditions of the Guaranty and Commitment. A copy of the Guaranty
and Commitment is filed with the SEC as Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q for the period ended October 30, 2004.
Item
2.04 Triggering
Events That Accelerate or Increase a Direct Financial Obligation or an
Obligation Under an Off-Balance Sheet Arrangement.
(a)
On
March
26, 2008, Hoop Holdings, LLC, Hoop Retail Stores, LLC and Hoop Canada Holdings,
Inc. each filed a voluntarily petition for relief under Chapter 11 of the United
States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for
the District of Delaware (the “US Bankruptcy Court”) (Case Nos. 08-10544,
08-10545, and 08-10546, respectively), and Hoop Canada, Inc. expects to file
for
protection pursuant to the Companies’
Creditors Arrangement Act
(the
“CCAA”) in the Ontario Superior Court of Justice (Commericial List) (“Canadian
Bankruptcy Court”). Each of the foregoing entities are collectively referred to
herein as the “Hoop Entities” and are subsidiaries of the Company; Hoop Retail
Stores, LLC and Hoop Canada, Inc. are collectively referred to herein as “Hoop.”
The Hoop Entities currently manage, and will continue to manage, their
properties and operate their businesses as “debtors-in-possession” under the
jurisdiction of the US Bankruptcy Court or Canadian Bankruptcy Court, as
applicable, and in accordance with the applicable provisions of the Bankruptcy
Code or the CCAA, as applicable.
As
a
result of the filing of the bankruptcy cases (the “Filings”), Hoop’s obligations
under various agreements may be accelerated. Further, the Notice that the
Company is discontinuing the Guaranty and Commitment will constitute an event
of
default under such agreement. The Filings also constituted an event of default
under the Guaranty and Commitment. As previously disclosed, under the Guaranty
and Commitment, the Company agreed to guarantee Hoop’s royalty payments and
other obligations to TDSF, subject to a maximum guaranty liability of $25
million, plus expenses. Additionally, the Company made an initial investment
of
$50 million in Hoop and agreed to invest, under certain conditions, up to an
additional $50 million to ensure Hoop’s ability to pay its obligations under its
license agreement with TDSF and to fund Hoop’s operating losses. As of March 26,
2008, the Company has funded at least $8.25 million of this additional
$50 million capital commitment to Hoop. This event of default may
give
rise to various claims under the Guaranty and Commitment by Disney or trigger
other obligations under agreements to which the Company is a party that, if
enforced, could include the payment of substantial amounts.
2
In
addition, the bankruptcy proceedings may give rise to other material obligations
of the Company and exit costs as described below.
Item
8.01 Other
Events.
As
described above, on March 26, 2008 (the “Petition Date”), each of the Hoop
Entities (other than Hoop Canada, Inc.) filed a bankruptcy case in the US
Bankruptcy Court, and Hoop Canada, Inc. expects to file a bankruptcy case in
Canadian Bankruptcy Court. In connection with the filings, Hoop intends to
pursue the transfer of a substantial portion of the Disney Store North America
(“DSNA”) business and assets to Disney (the “Private Sale), subject to court
approval. In connection with the proposed Private Sale, the Hoop Entities filed,
or expect to file in Canada, motions for orders that grant authority to sell
their assets to Disney pursuant to section 363 of the Bankruptcy Code (and
a
similar provision under the CCAA) and that request the courts to set a hearing
date for the proposed Private Sale.
The
proposed Private Sale would be subject to the satisfaction of certain
conditions, including approval of the US Bankruptcy Court and Canadian
Bankruptcy Court, and would be targeted for completion by April 30, 2008. The
Company continues to expect the pre-tax cash costs to exit the DSNA business
to
be within the previously stated range of $50 million to $100 million, payable
over a period of time, including estimated severance and other employee costs
for the Company’s employees servicing Hoop, legal and other costs the Company
may incur during the Hoop Entities’ bankruptcy cases, as well as claims that
might be asserted against the Company in the bankruptcy
proceedings.
In
the
event of a transfer of all or a portion of the DSNA business to Disney during
the ongoing bankruptcy proceedings and subject to the satisfaction of other
conditions, the Company would be released from liabilities and claims that
have
been or might be asserted by Disney, including those described above in Item
2.04.
A
copy of
a press release relating to the foregoing is attached hereto as Exhibit 99.1
and
is incorporated by reference herein.
As
a
result of the Filings, outstanding indebtedness, in the amount of approximately
$10.4 million, under the Loan and Security Agreement, dated November 21, 2004,
among Wells Fargo Retail Finance, LLC (“Wells Fargo”), The Disney Store, LLC and
Hoop Retail Stores, LLC (as amended, modified and supplemented from time to
time, the “Hoop Credit Facility”) will be frozen and capped as of the Petition
Date. In order to fund the bankruptcy proceedings and all projected working
capital needs of Hoop and subject to US Bankruptcy Court approval, Wells Fargo
and Hoop Retail Stores, LLC entered into a Debtor-In-Possession Loan and
Security Agreement, dated March 26, 2008, consisting of a $35 million revolving
credit facility, $30 million of which will be available on an interim basis
(the
“DIP Credit Facility”). In addition, all letters of credit issued under the Hoop
Credit Facility shall be deemed by the US Bankruptcy Court to be issued under
the DIP Credit Facility.
3
Forward-Looking
Statements
This
Current Report on Form 8-K may contain certain forward-looking statements
regarding future circumstances. These forward-looking statements are based
upon
the Company’s current expectations and assumptions and are subject to various
risks and uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties are described in the Company's filings
with the Securities and Exchange Commission, including in the “Risk Factors”
section of its reports on Forms 10-K and 10-Q. Risks and uncertainties relating
to the exit of the DSNA business, including the risk that the proposed
transaction with Disney may not be approved or may not occur, the risk that
any
plan or reorganization may not be approved, the risk that claims may be asserted
against the Company or its subsidiaries other than the Hoop Entities, whether
or
not such claims have any merit, and that the Company will need to devote
substantial resources to defend such claims, the risk that Disney may bring
litigation against the Company and assert various claims under the Guaranty
and
Commitment and other agreements relating to the Company's operation of the
DSNA
business, the risk that the Company may not be able to access, if necessary,
additional sources of liquidity or obtain financing on commercially reasonable
terms or at all, as well as risks and uncertainties relating to other elements
of the Company’s strategic review, could cause actual results, events and
performance, including aggregate estimated exit costs, to differ materially.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made. The Company
undertakes no obligation to release publicly any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
Item
9.01 Financial
Statement and Exhibits.
| (d) |
Exhibits.
|
Exhibit
99.1 Press
release issued by the Company dated March 26, 2008.
4
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| Date: March 27, 2008 | THE CHILDREN’S PLACE RETAIL STORES, INC. | |
| |
|
|
| By: | /s/ Susan J. Riley | |
|
Name: Susan J. Riley |
||
|
Title: Executive
Vice President, Finance and
Administration
|
||
Exhibit
99.1
FOR
IMMEDIATE RELEASE
THE
CHILDREN’S PLACE RETAIL STORES, INC. PROVIDES UPDATE ON
EXIT
OF DISNEY STORE NORTH AMERICA BUSINESS
| - |
Hoop
Holdings, LLC and its Subsidiaries D/B/A Disney Store North America
Pursuing Transfer of Substantial Portion of Disney Store Business
to The
Walt Disney Company Under Chapter 11 Case
-
|
-
Chapter 11 Filing Does Not Apply to Parent Company, The Children’s Place Retail
Stores, Inc. -
Secaucus,
New Jersey - March 26, 2008 - The Children’s Place Retail Stores, Inc. (Nasdaq:
PLCE),
today
provided an update on its plans to exit the Disney Store North America (“DSNA”)
business in order to focus on its core namesake brand. The
Company conducts the DSNA business through its subsidiary Hoop Holdings,
LLC and
its subsidiaries (“Hoop”) under a license agreement with The Walt Disney
Company.
As
previously announced on March 20, 2008, The Children’s Place Retail Stores, Inc.
(“the Company”)
decided
to exit the DSNA business as
part
of the Company's review of strategic alternatives. As part of the review,
the
current management team determined that the license agreement, originated
in
2004, requires substantial investments that are not expected to deliver economic
returns. The Company also took into account the losses incurred by DSNA’s
operations, DSNA’s current earnings prospects as a licensee, and the
restrictions imposed by the license agreement on the sale of the business
to a
party other than The Walt Disney Company. It
was
therefore concluded that the Company will be in a better position to maximize
value by focusing on its namesake Children’s Place brand. Importantly, this
action is only one component of a broader strategy to maximize shareholder
value. As announced last week, the management team is undertaking a number
of
initiatives to reduce expenses, streamline operations, and lower inventories
and
capital expenditures.
Also,
as
previously announced, the Company and Hoop have been engaged in advanced
negotiations concerning the transfer of a substantial portion of the DSNA
business to The Walt Disney Company. In
connection with these negotiations, Hoop’s Board of Directors has determined
that with limited strategic and financial options available under the license
agreement, Hoop’s only alternative was to file bankruptcy proceedings.
In
a
separate press release today, Hoop announced that it commenced a Chapter
11 case
for the reasons described above. It also intends to pursue the transfer of
a
substantial portion of the DSNA business to an affiliate of The Walt Disney
Company in order to maximize proceeds available to its stakeholders. By filing
such a case, Hoop also expects to complete an orderly wind-down of the rest
of
its affairs. The transaction under negotiation is subject to the satisfaction
of
certain conditions, including approval of the U.S. Bankruptcy Court and is
targeted for completion by April 30, 2008. In the event that the transaction
as
agreed to by the parties is approved by the Court, the Company would be released
from any liabilities and all claims that have been or might be asserted by
The
Walt Disney Company. The
Company continues to expect the pre-tax cash costs to exit the DSNA business
to
be within the previously stated range of $50 million to $100 million, payable
over a period of time.
Neither
Hoop’s parent company, The Children’s Place Retail Stores, Inc., nor any of its
other subsidiaries, filed for bankruptcy.
Chuck
Crovitz, Interim Chief Executive Officer of The Children’s Place Retail Stores,
Inc., stated, “This
exit
strategy is consistent with the corporate actions and strategic priorities
we
outlined last week. This will enable the Company to transition away from
the
Disney Store business in an orderly and expeditious manner so that we can
concentrate exclusively on The Children’s Place, our core brand and business. We
have the utmost respect for the Disney Store brand, however, the cost of
running
the Disney Store was no longer an acceptable use of Company’s resources. We were
left with no other choice but to find a reasonable way to exit the operations
within the confines of the existing license agreement.”
“We
believe this is the right decision for The Children’s Place and its shareholders
as we move forward with our plans to strengthen operations, a process which
is
well underway. We are pleased with recent sales trends in the core business
and
continue to believe that The Children’s Place brand is strong and
well-positioned for the future.”
As
previously disclosed, the Company has been conducting an ongoing review of
strategic and financial alternatives to accelerate
improvement of The Children’s Place business and deliver enhanced shareholder
value.
The
management team has outlined a number of specific initiatives including reducing
expenses and streamlining operations and is also seeking additional funding
to
strengthen its capital position. There can be no assurance that the Company
will
be able to obtain such funding. As
the
Company’s review is ongoing, management will continue to provide updates and
report on progress throughout 2008.
The
Children’s Place Retail Stores, Inc. will host a conference call to discuss this
announcement tomorrow morning at 9 a.m. Eastern Time. Interested parties
are
invited to listen to the call by dialing 800-895-0198 and providing the
Conference ID, PLCE. The call will also be webcast live and can be accessed
via
the Company’s web site, www.childrensplace.com.
A
replay of the call will be available approximately one hour after the conclusion
of the call, until midnight on April 2, 2008. To access the replay, please
dial
800-688-9445, or you may listen to the audio archive on the Company’s website,
www.childrensplace.com.
The
Children’s Place Retail Stores, Inc. is a leading specialty retailer of
children's merchandise. The Company designs, contracts to manufacture and
sells
high-quality, value-priced merchandise under the proprietary “The Children’s
Place brand name. As of March 1, 2008, the Company owned and operated 906
The
Children’s Place stores and its online store at www.childrensplace.com.
This
press release (and above referenced call) may contain certain forward-looking
statements regarding future circumstances. These forward-looking statements
are
based upon the Company's current expectations and assumptions and are subject
to
various risks and uncertainties that could cause actual results to differ
materially. Some of these risks and uncertainties are described in the Company's
filings with the Securities and Exchange Commission, including in the “Risk
Factors” section of its reports on Forms 10-K and 10-Q. Risks
and uncertainties
relating to the exit of the DSNA business, including the risk that the
transaction with The Walt Disney Company may not be approved or may not occur,
the risk that any plan or reorganization may not be approved, the risk that
claims may be asserted against the Company or its subsidiaries other than
Hoop,
whether or not such claims have any merit, and the Company's ability to
successfully defend such claims, the risk that Disney may bring litigation
against the Company and assert various claims under the Guaranty Agreement
and
other agreements relating to the Company's operation of the DSNA business
,the
risk that the Company may not be able to access, if necessary, additional
sources of liquidity or obtain financing on commercially reasonable terms
or at
all, as well as risks and uncertainties relating to other elements of the
Company’s strategic review, could cause actual results, events and performance,
including aggregate estimated exit costs, to differ materially. Readers (or
listeners on the call) are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date they were made.
The
Company undertakes no obligation to release publicly any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
The
inclusion of any statement in this release does not constitute an admission
by
the Company or any other person that the events or circumstances described
in
such statement are material.
CONTACT:
The Children’s Place Retail Stores, Inc.
Investors:
Susan
Riley, EVP, Finance & Administration
(201)
558-2400
Rich
Paradise, SVP, Chief Financial Officer
(201)
558-2400
Heather
Anthony, Investor Relations
(201)
558-2865
Media:
Diane Zappas/Evan Goetz of FD, (212) 850-5600