Haights Cross investors agree to exchange preferreds for common stock under recapitalization

By Caroline Salls

Pittsburgh, July 6 - Haights Cross Communications, Inc. entered into a recapitalization agreement, which is expected to simplify the company's capital structure through the elimination of three classes of preferred stock, a reconstitution of its board of directors and the dismissal of a lawsuit filed by investors in its series B senior preferred stock, according to a company news release.

The parties to the agreement include the company and key investors Media/Communications Partners III LP, M/C Investors LLC, Quadrangle Debt Recovery Income Fund LP, Quadrangle Debt Opportunities Fund LP, QDRF Master Ltd., Glenview Capital Master Fund, Ltd., Glenview Institutional Partners, LP, Glenview Capital Partners, LP, Deephaven Distressed Opportunities Trading Ltd., Columbia Funds Master Investment Trust-Columbia High Income Master Portfolio, Columbia Funds Variable Insurance Trust 1 - Columbia High Yield Fund, Variable Series, The Mainstay Funds on behalf of its High-Yield Corporate Bond Fund, The Mainstay Funds on behalf of its Diversified Income Fund and Mainstay VP Series Fund, Inc. on behalf of its High-Yield Corporate Bond.

Under the terms of the recapitalization agreement, holders of the company's series B senior preferred stock, series A preferred stock, series C preferred stock and series A warrants will convert all of their shares and warrants into common stock and warrants to purchase common stock, while all existing shares of common stock and common stock warrants and options will be eliminated.

In addition, some members of management will receive new shares of common stock under a management stock purchase agreement.

Stock exchange terms

Specifically, each share of outstanding series A preferred stock will be converted into common stock at the rate of one share of common stock for each $31.481 of accrued liquidation value of series A preferred stock as of June 30; each share of outstanding series B preferred stock will be converted into 4.09953 shares of common stock; and each share of series C preferred stock will be converted into shares of common stock at the rate of one share of common stock for each $31.481 of accrued liquidation value of series A preferred stock as of June 30, according to an 8-K filed with the Securities and Exchange Commission.

Haights Cross said current series B senior preferred stockholders would own roughly 82% of the outstanding shares of common stock, while current series A and series C preferred stockholders would collectively own 15% of the company's common stock. Management would own the remaining 3%.

Under the terms of a shareholders agreement that the company will enter into at the closing of the recapitalization, a new six member board of directors will be appointed, to be composed of current chairman and chief executive officer Peter J. Quandt and five members to be designated by various former series B and series A preferred stockholders.

Upon closing of the recapitalization, the company and some series B preferred stockholders will enter into a release agreement, under which the holders will dismiss a pending legal action seeking access to the company's books and records.

Haights Cross said closing of the recapitalization agreement is subject to obtaining waivers from the requisite holders of the company's senior secured term loans, senior notes and senior discount notes to modify change-of-control covenants.

According to an 8-K filed with the Securities and Exchange Commission, in connection with the recapitalization agreement, the company approved a plan providing for enhanced severance payments to be made to three employees.

Under this plan, participating employees will receive the enhanced severance benefit if their employment is terminated involuntarily without cause or voluntarily for good reason during the one year period following the sale of the company.

The company said the enhanced severance benefits for a participating employee will include salary and medical benefit continuation for a specified severance period, with the salary benefit to be payable in a lump sum.

The severance period will range from six to 18 months, depending on the participating employee's job classification.

Participating employees will include executive vice president and publisher Linda Koons, executive vice president and president of Triumph Learning Kevin M. McAliley, and vice president, account and finance and chief accounting officer Mark Kurtz.

Haights Cross is a White Plains, N.Y.-based publisher of books for the education and library markets.

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