Mrs. Fields makes pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, Aug. 25 - Mrs. Fields' Original Cookies, Inc. made its pre-packaged Chapter 11 bankruptcy filing Sunday in the U.S. Bankruptcy Court for the District of Delaware.

According to a company news release, the pre-packaged bankruptcy will significantly improve the company's balance sheet by exchanging roughly $195 million in bondholder debt for cash, new bonds and a controlling equity stake in the reorganized company.

"We see the filing of the pre-packaged bankruptcy as a largely administrative matter since the bondholders holding the majority of our bonds have already agreed to the restructuring," interim co-chief executive officers Michael Ward and John Lauck said in the release.

"Business will continue as usual throughout this process, and we have every confidence that the company will emerge from Chapter 11 a more vital company ready to achieve strong growth in the future."

As previously reported, the company is trying to reorganize its capital structure in order to bring it into alignment with present and future operating prospects and to provide it with greater liquidity.

Mrs. Fields and some of its affiliates have entered into a binding restructuring term sheet and related restructuring support agreements with the members of an informal committee of unaffiliated investors holding more than 78% in outstanding principal amount of Mrs. Fields' 9% and 11½% senior secured notes due 2011.

Under the term sheet, the company has offered to exchange the notes for $90 million in cash, $50 million in new 10% secured notes due 2014 and 87.5% of the equity in the company.

The notes will be issued in an amount of $50 million plus the amount by which the noteholder cash is less than $90 million.

Capricorn Investors III, LP will serve as the equity sponsor.

The holders of more than two-thirds of the outstanding principal amount of the notes and each of the holders of Mrs. Fields Original Cookies notes and Mrs. Fields Original Cookies equity have agreed to vote in favor of the pre-packaged plan.

The restructuring support agreement requires the pre-packaged plan to take effect within 60 days of the bankruptcy filing.

In conjunction with the filing, Mrs. Fields has requested court approval to use cash collateral through Oct. 18 to provide enough working capital to operate its businesses during the reorganization.

Plan creditor treatment

Treatment of creditors under the pre-packaged plan will include:

• Holders of administrative expense claims, priority claims, general unsecured claims and priority tax claims will be paid in full in cash;

• Holders of other secured claims will be paid in full either in cash or through the return of the collateral securing the claim;

• Holders of $195.75 million in secured note claims will receive a share of noteholder cash, new notes and 87.5% of the equity in the reorganized company;

• Holders of $6.48 million in Mrs. Fields Original Cookies note claims will receive 12.5% of the new equity in the reorganized company, a two-year warrant and $1.05 million in cash.

The exercise price with respect to each share of common stock issuable upon exercise of the warrant will be an initial sum plus 10.47% interest on the initial sum. The initial sum will be the principal amount outstanding on the old notes plus interest, minus $140 million, divided by 18.875%, divided by the total number of warrant shares initially issuable;

• Holders of intercompany claims and section 510(b) claims will receive no distribution under the plan; and

• Mrs. Fields Holding, as the holder of the Mrs. Fields Original Cookies equity interest, will receive no recovery; Mrs. Fields Original Cookies, as the holder of the MFOC subsidiary interests, will have those interests reinstated and will remain the 100% parent company of Mrs. Fields Famous Brands; and Mrs. Fields Famous Brands, as the holder of the MFFB subsidiary interests, will have the interests reinstated and will remain the 100% parent company of each of its debtor subsidiaries.

According to court documents, Mrs. Fields had $132.1 million in assets and $250.24 million in debt as of June 30.

The company did not list any unsecured creditors with a claim of $1 million or more.

Recent improvements

The company said it has seen significant improvements in each of its businesses for the 26 weeks ended June 26 over the previous year, including a 20.2% increase in revenues for Mrs. Fields Branded Retail; a 5.3% increase in revenues for the combined Mrs. Fields Cookies business units; a 1% increase in year-over-year sales during the second quarter for Mrs. Fields franchise stores; and a 2.2% increase in year-over-year sales during the second quarter for TCBY.

Mrs. Fields, based in Salt Lake City, has 2,100 franchised and licensed concept locations worldwide. Its subsidiaries include franchisors of the Mrs. Fields Cookies and TCBY franchise systems. Its Chapter 11 case number is 08-11953.

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