Sep 17, 2021

First Name * Submit September 16, 2021 – The Debtors filed a Second Amended Joint Chapter 11 Plan of Reorganization and separately filed a redline showing changes to the version filed on August 18, 2021 [Docket Nos. 430 and 431, respectively]. The amendments to the Plan almost exclusively relate to the removal of terms made redundant by the Debtors' failed sale process. Also on September 16, 2021, the Debtors filed a first amended Plan Supplement [Docket No. 427] which attached key exit governance and finance documents including disclosure as to the composition of the emerged Debtors' new Board which is set to include (amongst its five members) Mark Geragos and two representatives of Lion Capital. On September 2, 2021, the Debtors, creators of “eco-conscious jewelry and accessories [that] positively empower and connect humanity,” notified the Court that absent the receipt of any qualified bids prior to an August 31, 2021 bid deadline, the Debtors’ September 7th auction had been cancelled [Docket No. 396]. With the failure of the auction/sale process, the Debtors were left with the “Stand-Alone Restructuring” contemplated by the Debtors’ June 2021 restructuring support agreement (the “RSA”) and a related comprehensive settlement agreement. As envisaged by the Plan, RSA and settlement agreement, the Debtors will be controlled at emergence by Lion Capital and The Bathing Club LLC, an entity controlled by celebrity lawyer and tabloid regular Mark Geragos. In February 2021, Lion Capitol purchased the “lion’s share” of the Debtors’ prepetition debt (see below on the three prepetition facilities totalling $127.4mn) from first lien lenders led by Bank of America Subsequently each of Lion Capital and the Debtors' founder Carolyn Rafaelian sold 35% of their holdings (Lion Capital selling 35% of the First Lien and Third Lien Facilities acquired from BoA and Ms. Rafaelian parting with a like percentage of the Second Lien Facility) to The Bathing Club with the result being that Lion Capital and The Bathing Club (together the holders of claims in Class 3 (Secured Credit Facility Secured Claims)) are set to own 65% and 35%, respectively, of the emerged Debtors. General unsecured creditors, who in had at one point been slated to split a TBD cash pool, are now to receive nothing more than releases in exchange for their votes in favor of the Plan. Plan Overview The Amended Disclosure Statement [Docket No. 321, which was drafted prior to the collapse of the sale process and reflected the possibility of a "toggle"] notes, “The Debtors contemplate two different possible paths forward under their Plan, the Stand-Alone Restructuring or the Sale Transaction [with the latter path now abandoned]. The Plan includes a ’toggle’ feature which will determine whether the Debtors complete the Stand-Alone Restructuring or the Sale Transaction. On the Effective Date, the applicable Debtors or the Reorganized Debtors, as applicable, shall enter into any transaction and shall take any actions as may be necessary or appropriate to effectuate the Sale Transaction or the Stand-Alone Restructuring, including, as applicable, entry in to the Exit Facility, consummation of the Sale Transaction, the issuance of all securities, notes, instruments, certificates, and other documents required to be issued pursuant to the Plan, and one or more intercompany mergers, consolidations, amalgamations, arrangements, continuances, restructurings, conversions, dispositions, dissolutions, transfers, liquidations, spinoffs, intercompany sales, purchases, or other corporate transactions (collectively, the ‘Restructuring Transactions’). The Plan thus provides the Debtors with the necessary latitude to negotiate the precise terms of their ultimate emergence from chapter 11. The Plan contemplates the following transactions under the Stand-Alone Restructuring: The issuance of the New Common Equity; Except to the extent the holder of an Allowed Secured Credit Facility Secured Claim agrees to less favorable treatment, the holders of an Allowed Secured Credit Facility Secured Claims will receive its Pro Rata share of 100 percent of the New Common Equity; The entrance by the Reorganized Debtors into the Exit Facility to make distributions under the Plan and to provide incremental liquidity; and Existing Equity Interests in the Debtors being canceled and extinguished.” The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below): Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 100%. Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $466,249 and expected recovery is 100%. Class 3 (“Secured Credit Facility Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $0-$127,812,649; NB: This amount includes the Secured Credit Facility Deficiency Claim, the exact amount of which remains subject to ongoing negotiation and discussion and expected recovery is 44.67 ‒ 52.26%. Each holder of an Allowed Secured Credit Facility Secured Claim shall receive its Pro Rata share of 100 percent of the New Common Equity. The Prepetition Agents shall also receive payment in full in Cash of all unpaid Agent Expenses. Class 4 (“Go-Forward Vendor Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,274,385 and expected recovery is [19.62]%. Each holder shall receive its Pro Rata share of the Go-Forward Vendor Claim Recovery [ie $250k]. Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $24,974,714 ‒ 176,150,476 and expected recovery is 0 ‒ 0%. Each Holder shall receive a complete waiver and release of any and all claims, Causes of Action, and other rights against the holders of Allowed Class 5 Claims based on claims pursuant to chapter 5 of the Bankruptcy Code or under similar or related state or federal statutes and common law including fraudulent transfer laws from the Debtors, the Reorganized Debtors, and their Estates, in each case on behalf of themselves and their respective successors, assigns, and representatives, and any and all other entities who may purport to assert any Cause of Action, directly or derivatively, by, through, for, or because of the foregoing entities, subject to and in accordance with Article VIII of the Plan (such treatment, the “General Unsecured Claims Treatment”). Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. Class 7 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. Class 8 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. On September 16, 2021, the Debtors filed a first amended Plan Supplement to their first Amended Joint Plan of Reorganization [Docket No. 427] and attached the following exhibits: Exhibit A: New Organizational Documents Exhibit B: Identities of the Members of the New Board Exhibit C: Schedule of Assumed Executory Contracts and Unexpired Leases Exhibit C-1: Redline to Version in Initial Plan Supplement Exhibit D: Schedule of Rejected Executory Contracts and Unexpired Leases Exhibit D-1: Redline to Version in Initial Plan Supplement Exhibit F: Exit Facility Documents Exhibit F-1: Redline to Version in Initial Plan Supplement  Background In a June 10th press release announcing their Chapter 11 filings, Alex and Ani  stated: "[t]he Company has entered into a Restructuring Support Agreement ('RSA') with its debt holders and equity sponsors regarding a comprehensive financial and operational restructuring. Contemporaneously with the Chapter 11 filing, the Company commenced a marketing process, pursuant to which parties will have the opportunity to submit competing bids for the purchase of the Company's assets. At the same time, the Company's lenders and equity sponsors have agreed to the terms of a comprehensive standalone restructuring that will serve to ensure go-forward operations remain intact. Alex and Ani has taken significant steps toward financial health through realignment of sales channels, reducing retail footprint, and reductions in capital expenditures and working capital. Alex and Ani intends to continue operating its currently open stores and its website as usual during the court-supervised process." Restructuring Support Agreement and Settlement The Debtors, majority shareholder Lion Capital and the Debtors' founder Carolyn Rafaelian (through entities controlled by her, the "Rafaelian Entities") have entered into a restructuring support agreement (the “RSA,” attached to Docket No. 17 as Exhibit A) which contemplates, inter alia, a standalone restructuring and dual-track marketing process, supported by consensual access to cash collateral. During the course of negotiating the RSA, the Debtors, Lion Capital, and Ms. Rafaelian (collectively, the “Support Parties”) negotiated a comprehensive settlement agreement of all outstanding disputes (the “Settlement”). The Settlement, as incorporated into the RSA, provides for, inter alia: (a) Ms. Rafaelian’s sale of her 35 percent interest under the Second Lien Credit Facility to The Bathing Club LLC (the “Purchaser”); (b) Lion Capital’s sale to Purchaser of 35 percent of the face amount of the first lien obligations under the First and Third Lien Credit Agreement; (c) the dismissal and withdrawal of certain outstanding litigation with prejudice; and (d) mutual releases. So, who is the Purchaser? The RSA stipulates that notices are to be sent to Mark Geragos at law firm Geragos & Geragos, a litigation boutique renowned for its representation of celebrity clients (he is quoted in respect of client/rapper Chris Brown  "[he is] like a son and an annuity [to me]") and which formerly represented Ms Rafaelian and the Rafaelian Entities. Ms Rafaelian is also, thanks to introductions by Mr Geragos, involved in a number of projects/investments with rap/hip-hop entrepreneurs (eg partnership with with Ice Cube's BIG3 ). In the beginning of July, Mr. Geragos was again testing the adage "there's no such thing as bad publicity" so favored by celebrity lawyers; with his name earning supporting role billing during the sentencing of Stormy Daniels' lawyer Michael Avenatti for his attempted extortion of Nike. From the Washington Post : "The judge excoriated Avenatti for his conduct, but gave him a big break on what could have been a nine-to-11-year sentence. In explaining his decision, Gardephe questioned the Justice Department's decision not to charge another lawyer from California, Mark Geragos. The two attorneys, once staples of cable television news, played a 'good cop, bad cop' routine on Nike, Gardephe said." The Settlement Agreement notes: " All Parties represent and warrant that they have been informed that Mark J. Geragos, controlling member of The Bathing Club LLC, previously represented and currently represents certain Parties to this Agreement in matters unrelated to this Agreement." Events Leading to the Chapter 11 Filing In a declaration in support of the Chapter 11 filing (the “Trabucco Declaration ”), Robert Trabucco, the Debtors’ Chief Restructuring Officer, detailed the events leading to Alix and Ani’s Chapter 11 filing, essentially the confluence of operational issues pre-COVID and then the COVID pandemic. The Trabucco Declaration  provides: “Alex and Ani has recently suffered from adverse macro-trends driving customers away from brick-and-mortar retail, like many other retailers. Moreover, Alex and Ani’s explosive growth in the early 2010s resulted in certain operational challenges as the Company’s existing infrastructure struggled to keep up with demand for its products, and significant turnover in management disrupted key business relationships. Despite the Company’s growth between 2010 and 2015, it ran into a series of operational challenges beginning in 2016, including surplus inventory and burdensome long-term leases. The Company also  faced challenges with respect to inventory management, which inhibited its ability to fulfill a large percentage of wholesale orders. As a result, the Company’s wholesale business declined from 59 percent of total revenue in 2015 to 19 percent of total forecasted revenue for 2021. Additionally, the general shift in consumer preferences away from brick-and-mortar stores led to a decrease in foot traffic and sales in the Company’s stores and at authorized retailers. These operational challenges were compounded by significant overturn in the Company’s executive management team. …prior to the 2019 Restructuring, the Company’s revenue dropped from its peak of approximately $340 million in 2015 to approximately $224 million in 2018 due to operational difficulties. Moreover, tensions within the Company exacerbated the effects of these challenges as the Company experienced significant management turnover, which in turn impacted its customer and vendor relationships. In late 2018, the Company, its then-existing lenders, Ms. Rafaelian (the then-majority equity owner), and Lion Capital (the then-minority equity owner) engaged in restructuring negotiations in the face of the default and acceleration of its credit facility and the suspension of access to its revolving credit facility. The lenders, led by then-administrative agent Bank of America, ultimately agreed to waive all outstanding defaults and subordinate a portion of the secured facility to a new $20 million second lien facility provided by Lion Capital and an entity owned by Ms. Rafaelian. In connection with the transactions, which closed in September 2019 (the '2019 Restructuring'), Ms. Rafaelian stepped down as Chief Executive Officer and I was subsequently appointed Chief Restructuring Officer and Interim Chief Executive Officer. Lion Capital became the Company’s majority shareholder. Shortly after closing the 2019 Restructuring, the COVID-19 pandemic forced the Company to close all of its stores in the spring of 2020, resulting in a massive drop in revenue. The Company took immediate steps in response, including furloughing employees and otherwise minimizing operating expenses. Continued depressed revenues, however, coupled with the Company’s ongoing lease obligations throughout the pandemic, placed significant stress on the Company’s ability to operate and service its debt obligations. In 2020 and 2021, the Company once again defaulted under the Bank of America-led credit facilities. Following discussions with the Company’s lenders, it became clear that the lenders were unwilling to continue supporting the Company as a going concern. As a result, Lion Capital engaged in discussions with the lenders that ultimately led to the consummation of a transaction to acquire all of the Company’s outstanding first and third lien obligations.” Prepetition Indebtedness The Debtors have approximately $127.4mn in the aggregate principal amount of outstanding funded debt obligations, including capitalized interest, consisting of approximately $20.4mn under the First Lien Credit Facility, approximately $25.2mn under the Second Lien Credit Facility, and approximately $81.8mn under the Third Lien Credit Facility. The current capital structure results from the Company’s 2019 out-of-court restructuring, which subordinated a portion of its existing debt to the new Second Lien Credit Facility, thereby creating the “synthetic” Third Lien Credit Facility. The following table summarizes the Company’s outstanding funded debt obligations as of the Petition Date: In addition to funded debt obligations, the Company has outstanding unsecured trade debts (e.g., amounts owed to trade vendors, suppliers, landlords) that total approximately $29.1mn as of the Petition Date and other contingent and unliquidated unsecured obligations related to outstanding litigation. Sale of Prepetition Debt to Lion Capital The Trabucco Declaration provides: "The Company defaulted under the First and Third Lien Credit Agreement in July 2020 and again in October 2020 as a result of its failure to comply with certain reporting and operational requirements and financial covenants. While the Company originally secured a waiver of these defaults, this prompted ongoing dialogue between the Company and Bank of America, as then-administrative agent, regarding a more comprehensive restructuring. It became clear as part of these conversations that the First Lien Lenders were not interested in supporting a comprehensive restructuring, and no longer intended to support the Company as a going concern. In February 2021, Bank of America declared another default and accelerated all obligations under the First and Third Lien Credit Agreement following the Company’s failure to remit certain amounts and comply with certain reporting requirements and financial covenants thereunder. At this time, the First Lien Lenders insisted on a sale of the Company that would allow for repayment of their outstanding debt. In light of this position, Lion Capital—who was interested in supporting the Company through a restructuring—entered into negotiations with the First Lien Lenders to purchase all outstanding debt under the First Lien Credit Facility and the Third Lien Credit Facility. On May 26, 2021, the First Lien Lenders sold and assigned all obligations under the First Lien Credit Facility and the Third Lien Credit Facility to Lion Capital and the Borrower permanently terminated the Revolver. Concurrently with the sale and assignment, Wilmington Trust, National Association was appointed as successor agent under the First and Third Lien Credit Agreement." Liquidation Analysis (see Exhibit F of Amended Disclosure Statement [Docket No. 321] for notes) About the Debtors According to the Debtors : “ALEX AND ANI creates meaningful, eco-conscious jewelry and accessories to positively empower and connect humanity. Carolyn Rafaelian, Founder, CEO, and Chief Creative Officer designs each piece. Carolyn believes that every individual has their own positive energy to share with the world. By incorporating powerful symbolism and personal meaning into each product, ALEX AND ANI provides a wearable and beautiful way for consumers to express their individuality. The company is passionate about the wellbeing of our planet, our communities, and our individual paths. ALEX AND ANI uses recycled materials with eco-conscious processes. Its CHARITY BY DESIGN division has strengthened non-profit organizations through innovative partnerships and collaborative experiences, resulting in donations of more than $52 million. An Inc. 500 Company, ALEX AND ANI has retail stores as well as retail partners worldwide. ALEX AND ANI products are proudly designed and crafted in America and made with love. The company's World Headquarters is located in the greater Providence, Rhode Island area. The Trabucco Declaration adds: "Founded in 2004 by Carolyn Rafaelian, Alex and Ani has become a premier jewelry brand, quickly gaining popularity because of the novel and customizable nature of its signature expandable wire bracelet. Alex and Ani has been headquartered in East Greenwich, Rhode Island since 2014. Since opening its first retail store in Newport, Rhode Island in 2009, Alex and Ani has expanded to over 100 retail store locations across the United States, Canada, and Puerto Rico. Alex and Ani also maintains a vibrant and growing e-commerce presence. With a loyal customer base, Alex and Ani operates as a symbol of spiritual wellness and connectivity that seeks to highlight the individuality of each of its customers." Corporate History and Structure Chart The Debtors were wholly owned by Ms. Rafaelian until 2012, at which time she sold a 40 percent interest to San Francisco-based private equity firm JH Partners. JH Partners sold its interest to LC A&A Holdings, Inc., an affiliate of London-based private equity firm Lion Capital LLC (together with its affiliates LC A&A Holdings, Inc. and LC A&A Intermediate Investors LLC, “Lion Capital”), approximately two years later. LC A&A Holdings, Inc. increased its ownership to approximately 58.75% in connection with the 2019 Restructuring. As of the Petition Date, the equity units of debtor A and A Shareholding Co., LLC (“A&A Shareholding”), the ultimate parent entity, are held 58.75 percent and 41.25 percent by LC A&A Holdings, Inc. and Ms. Rafaelian (through A&A Pledge Co.), respectively.