**EXHIBIT 99.1**

**IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MARYLAND(Baltimore Division)**
|                                         | *          |                             |
|-----------------------------------------|------------|----------------------------------|
| **In re:**                              | *****      | ** **                       |
| ** **                              | *****      | **Case No. **               | **05-43793DK** |
| **The Boyds Collection, Ltd.,*et al.*** | *****      | ** **                       | **05-43805DK** |
| ** **                              | *****      | ** **                       | **05-43816DK** |
| ** **                              | *****      | ** **                       | **05-43824DK** |
| ** **                              | *****      | ** **                       | **05-43833DK** |
| ** **                              | *****      | ** **                       | **05-43838DK** |
| ** **                              | *****      | ** **                       | **05-43848DK** |
| ** **                              | *****      | ** **                       | **05-43857DK** |
| **Debtors**                             | ** ** | *****                            | ** ** | **05-43863DK** |
| ** **                              | *****      | **Chapter 11**              |
| ** **                              | *****      | **(Jointly Administered under)** |
| ** **                              | *****      | **Case No. 05-43793DK**     |
|                                         |            |                                  |  |  |

*              *              *              *              *              *              *              *              *              *              *              *              *              *

**DISCLOSURE STATEMENTFOR DEBTORS’ SECOND AMENDED JOINT PLAN OF REORGANIZATION**

| ** **                                                                                                                                                            | ** **                                                                                                                                     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
| **KIRKLAND & ELLIS LLP  Matthew A. Cantor  Lisa G. Laukitis  Ryan Blaine Bennett  Citigroup Center  153 East 53****rd Street  New York, NY 10022-4611** | **ORRICK,  HERRINGTON & SUTCLIFFE LLP  Monique D. Almy   The Washington Harbour   3050 K Street, N.W.   Washington, D.C. 20007-5135** |
| ** **                                                                                                                                                            | ** **                                                                                                                                     |
| **Tel:  212-446-4800**                                                                                                                                                | **Tel:  202-339-8400**                                                                                                                         |
| **Fax:  212-446-4900**                                                                                                                                                | **Fax:  202-339-8500**                                                                                                                         |
| ** **                                                                                                                                                            | ** **                                                                                                                                     |
| **Co-Counsel  to Debtors and Debtors in Possession**                                                                                                                  |
| ** **                                                                                                                                                            | ** **                                                                                                                                     |

 

**Dated:  April 25, 2006**

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**PREPENDIX A TO DISCLOSURE STATEMENT**

**IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MARYLAND(Baltimore Division)**
|                                         | *          |                             |
|-----------------------------------------|------------|----------------------------------|
| **In re:**                              | *****      | ** **                       |
| ** **                              | *****      | **Case No. **               | **05-43793DK** |
| **The Boyds Collection, Ltd.,*et al.*** | *****      | ** **                       | **05-43805DK** |
| ** **                              | *****      | ** **                       | **05-43816DK** |
| ** **                              | *****      | ** **                       | **05-43824DK** |
| ** **                              | *****      | ** **                       | **05-43833DK** |
| ** **                              | *****      | ** **                       | **05-43838DK** |
| ** **                              | *****      | ** **                       | **05-43848DK** |
| ** **                              | *****      | ** **                       | **05-43857DK** |
| **Debtors**                             | ** ** | *****                            | ** ** | **05-43863DK** |
| ** **                              | *****      | **Chapter 11**              |
| ** **                              | *****      | **(Jointly Administered under)** |
| ** **                              | *****      | **Case No. 05-43793DK**     |
|                                         |            |                                  |  |  |

 

**NOTICE OF SOLICITATION OF VOTESAND HEARING ON CONFIRMATION OF PLAN**

**TO ALL CREDITORS, SECURITY HOLDERSAND OTHER PARTIES IN INTEREST OF:  (a) TheBoyds Collection, Ltd.**; **(b) TheBoyds Collection, Ltd., LP**; **(c) BoydsOperations Inc.**; **(d) TheBoyds Collection — Pigeon Forge, LLC**;**(e) The Boyds Collection — Myrtle Beach,LLC**; **(f) The BoydsCollection — Branson, LLC**; **(g) J&T Designs and Imaginations, Inc.**; **(h) HC Accents & Associates, Inc.**;and **(i) Boyds Bear and Company, LP**(collectively, the “Debtors”) — with each of the Debtors having itsprincipal place of business at 350 South Street, McSherrystown, Pennsylvania17344.

PLEASE TAKE NOTICE that, on October 16, 2005 (the“Commencement Date”), each of the Debtors filed a voluntary petition for reliefunder chapter 11 of title 11 of the United States Code in the UnitedStates Bankruptcy Court for the District of Maryland (BaltimoreDivision) (the “Bankruptcy Court”).

PLEASE TAKE FURTHER NOTICE that, on April 27,2006, the Bankruptcy Court entered an order (the “Solicitation and DisclosureStatement Order”) (i) approving the form and content of thedisclosure statement (as may be amended from time to time, the “DisclosureStatement”) for the Debtors’ Second Amended Joint Plan of Reorganization,dated April 25, 2006 (as may be further amended from time to time, the “Plan”);(ii) approving the form of ballots and solicitation and tabulationprocedures for the Plan; (iii) fixing the voting deadline with respect tothe Plan; (iv) fixing the last day for filing objections to the Plan; (v) schedulinga hearing to consider the confirmation of the Plan; and (vi) approving andprescribing the form and manner of notice thereof.

PLEASE TAKE FURTHER NOTICE, that the Bankruptcy Courthas authorized the Debtors to give this *Noticeof Solicitation of Votes and Hearing on Confirmation of Plan* (this “Notice”) toall of their known creditors, security holders and parties in interest. ThisNotice summarizes some, but not all, of the provisions in the Solicitation andDisclosure Statement Order and Plan that may affect your rights, such as:

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(i)                                     TheBankruptcy Court has approved the Disclosure Statement for the Plan and authorizedthe Debtors to solicit acceptances of the Plan.

(ii)                                  TheBankruptcy Court has determined (a) that certain classes of creditors areentitled to vote and certain classes are not, (b) which claims will beallowed for voting purposes and which claims will not be allowed for votingpurposes, and (c) how votes will be tabulated. See description below underheading “*Parties Entitled to Vote*.”

(iii)                               TheBankruptcy Court has fixed May 13, 2006 as the deadline for any person whowants a vote to be counted (or not counted) differently than as provided in theSolicitation and Disclosure Statement Order to file a motion seeking directionhow such vote shall be counted. The Bankruptcy Court has fixed May 19,2006 as the deadline for any person who wants to object to a claim and havethat claim disallowed from voting on account of the objection to file such anobjection.

(iv)                              TheBankruptcy Court has fixed June 1, 2006 as the deadline by which allballots casting votes to accept or reject the Plan must be delivered to theSolicitation Agent.

(v)                                 TheBankruptcy Court has fixed June 1, 2006 as the deadline for filing anyobjections to confirmation of the Plan or to the proposed assumptions andrejections of executory contracts and unexpired leases pursuant to the Plan.

(vi)                              TheBankruptcy Court has scheduled a hearing to consider confirmation of the Planand on the proposed assumptions and rejections of executory contracts andunexpired leases pursuant to the Plan for June 8, 2006 at 10:00 a.m.

If you would like to learn more, or think your rightsmay be affected, you should read the Solicitation and Disclosure StatementOrder, the Plan, and the Disclosure Statement — all of which are availableto you as set forth in this Notice under the heading “*Obtaining Information and Documents*.”

PLEASE TAKE FURTHER NOTICE OF THE FOLLOWING:

**Debtors’Solicitation of Votes on Debtors’ Second Amended Joint Plan of Reorganization**

The Debtors are seeking confirmation of their Plan. TheBankruptcy Court has authorized the Debtors to solicit acceptances of the Planfrom persons and entities entitled under the Bankruptcy Code to vote on thePlan. The Debtors have been authorized to solicit such votes by distributing a “SolicitationPackage,” comprised of:  (a) theDisclosure Statement; (b) the Plan (as an exhibit to the DisclosureStatement); (c) the Solicitation and Disclosure Statement Order (as anexhibit to the Disclosure Statement); and (d) a Ballot(1), asappropriate for the party to whom the Solicitation Package is sent.

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(1)             Allcapitalized terms used but not defined in this Notice but defined (directly orby reference to another document) in the Solicitation and Disclosure StatementOrder shall have the same meanings given to them by the Solicitation andDisclosure Statement Order.

**DisclosureStatement**

The Bankruptcy Court has approved the DisclosureStatement as containing adequate information for use in soliciting acceptancesof the Plan. The Disclosure Statement provides information to assist creditors,security holders and parties in interest to make an informed judgment about thePlan. Approval of the Disclosure Statement by the Bankruptcy Court does notindicate approval of the Plan by the Bankruptcy Court. If you do not have theDisclosure Statement, you may obtain it at the Debtors’ expense by making awritten request to the Debtors or to the solicitation agent, The Garden CityGroup, 

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Inc. (the “SolicitationAgent”), in the manner set forth in this Notice under the heading “ObtainingInformation and Documents.”

**BindingEffect of Plan**

The terms of the Plan, if confirmed by the Court, willbe binding on all creditors, security holders, and parties in interest, whetheror not such persons or entities vote (or are entitled to vote) to acceptthe Plan or not. Creditors, security holders and other parties in interestshould read the Disclosure Statement and the Plan carefully and in theirentirety, as their rights may be affected. Examples of some, but not all, ofthe provisions of the Plan that may affect your rights are:

·                                          ThePlan provides that after confirmation and on the effective date of the Plan,the Debtors’ executory contracts and unexpired leases will be either assumed orrejected by the Debtors, and establishes a “bar date” of 30 days afterconfirmation as the deadline by which proofs of claim arising from rejectionmust be filed or be forever barred.

·                                          ThePlan provides that after confirmation, the Debtors reserve and retain all oftheir causes of action.

·                                          ThePlan provides that after confirmation, all persons and entities shall besubject to certain injunctions, discharges, exculpations and releases.

If you would like to learn more, or think your rightsmay be affected, you should read the Solicitation and Disclosure StatementOrder, the Plan, and the Disclosure Statement — all of which are available toyou as set forth in this Notice under the heading “*Obtaining Information and Documents*.”

**EFFECT OF THE PLAN ON CLAIMS AND INTERESTS**

**A.**                                    DISCHARGE OFALL CLAIMS AND INTERESTS AND RELEASES

**1.             EXCEPTAS OTHERWISE SPECIFICALLY PROVIDED BY THE PLAN, CONFIRMATION OF THE PLAN(SUBJECT TO THE OCCURRENCE OF THE EFFECTIVE DATE) SHALL DISCHARGE ANDRELEASE THE DEBTORS, THE REORGANIZED DEBTORS, THEIR SUCCESSORS AND ASSIGNS ANDTHEIR RESPECTIVE ASSETS AND PROPERTIES FROM ANY DEBT, CHARGE, CAUSE OF ACTION,LIABILITY, LIEN, ENCUMBRANCE, SECURITY INTEREST, CLAIM, INTEREST, OR OTHERCAUSE OF ACTION OF ANY KIND, NATURE OR DESCRIPTION (INCLUDING ANY CLAIM OFSUCCESSOR LIABILITY) THAT AROSE BEFORE THE CONFIRMATION DATE, AND ANY DEBT OFTHE KIND SPECIFIED IN SECTION 502(g), 502(h) OR 502(i) OF THEBANKRUPTCY CODE, WHETHER OR NOT A PROOF OF CLAIM OR INTEREST IS OR COULD HAVEBEEN FILED, OR IS DEEMED FILED, WHETHER OR NOT SUCH CLAIM OR INTEREST IS ORCOULD HAVE BEEN ALLOWED, AND WHETHER OR NOT THE HOLDER OF SUCH CLAIM ORINTEREST VOTED OR COULD HAVE VOTED TO ACCEPT OR REJECT THE PLAN.**

**2.             EXCEPTAS OTHERWISE SPECIFICALLY PROVIDED BY THE PLAN OR THE CONFIRMATION ORDER,EFFECTIVE AS OF THE EFFECTIVE DATE, NONE OF THE DEBTOR RELEASEES SHALL HAVE ANYRESPONSIBILITY, OR HAVE OR INCUR ANY LIABILITY, TO ANY ENTITY WHATSOEVER (I) FORANY MATTER EXPRESSLY APPROVED OR DIRECTED BY THE CONFIRMATION ORDER OR (II) UNDERANY THEORY OF LIABILITY (EXCEPT FOR ANY CLAIM BASED UPON WILLFUL MISCONDUCT ORGROSS NEGLIGENCE) FOR ANY ACT TAKEN OR OMISSION MADE IN GOOD FAITH DIRECTLYRELATED TO FORMULATING, IMPLEMENTING, CONFIRMING, OR CONSUMMATING THE PLAN, THEDISCLOSURE STATEMENT, OR ANY PLAN**

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**DOCUMENT; PROVIDED THAT NOTHING INARTICLE 12.1 OF THE PLAN SHALL LIMIT THE LIABILITY OF ANY ENTITY FORBREACH OF ANY EXPRESS OBLIGATION IT HAS UNDER THE PLAN, THE PLAN DOCUMENTS, ORANY OTHER DOCUMENTS EXECUTED IN CONNECTION THEREWITH OR PURSUANT THERETO, ORUNDER ANY OTHER AGREEMENT OR DOCUMENT ENTERED INTO BY SUCH ENTITY IN ACCORDANCEWITH OR PURSUANT TO THE TERMS OF THE PLAN, EXCEPT TO THE EXTENT EXPRESSLYPROVIDED IN THE PLAN, OR FOR ANY BREACH OF A DUTY OF CARE OWED TO ANY OTHERENTITY OCCURRING AFTER THE EFFECTIVE DATE. DEBTOR RELEASEES ARE THE DEBTORS’OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, MANAGERS, EMPLOYEES, CONSULTANTS,ATTORNEYS, ACCOUNTANTS, FINANCIAL ADVISORS AND OTHER REPRESENTATIVES (SOLELY INTHEIR CAPACITY AS SUCH), AS OF THE CONFIRMATION DATE.**

**3.             EXCEPTAS OTHERWISE SPECIFICALLY PROVIDED BY THE PLAN OR THE CONFIRMATION ORDER, ONTHE EFFECTIVE DATE, EACH OF THE DEBTORS SHALL RELEASE UNCONDITIONALLY, ANDHEREBY IS DEEMED TO RELEASE UNCONDITIONALLY EACH OF THE DEBTOR RELEASEES FROMANY AND ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSES OFACTION AND LIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, FORESEEN ORUNFORESEEN, EXISTING OR HEREAFTER ARISING, IN LAW, EQUITY OR OTHERWISE, BASEDIN WHOLE OR IN PART UPON ANY ACT OR OMISSION, TRANSACTION, EVENT OR OTHEROCCURRENCE TAKING PLACE ON OR AFTER THE COMMENCEMENT DATE AND UP TO ANDINCLUDING THE EFFECTIVE DATE IN ANY WAY RELATING TO THE CHAPTER 11 CASES,THE PLAN OR THE DISCLOSURE STATEMENT; PROVIDED, HOWEVER, NOTHING IN THE PLANSHALL LIMIT ANY RIGHT TO OBJECT TO ANY PROFESSIONAL FEE CLAIM.**

**4.             NOTWITHSTANDINGANYTHING IN THE PLAN TO THE CONTRARY, AND SOLELY WITH RESPECT TO THE UNITEDSTATES (WHICH TERM SHALL INCLUDE FOR PURPOSES OF THE PLAN, ALL AGENCIES OF THEUNITED STATES), THE DISCHARGE PROVISIONS SET FORTH IN THE PLAN SHALL NOTOPERATE TO EXPAND THE DEBTORS’ DISCHARGE BEYOND THOSE ESTABLISHED BY THEBANKRUPTCY CODE, UNLESS OTHERWISE AGREED TO IN WRITING BY THE UNITED STATES ANDTHE DEBTORS OR THE REORGANIZED DEBTORS, AS THE CASE MAY BE. THE DISCHARGEPROVISIONS SET FORTH IN THE PLAN ARE NOT INTENDED, AND SHALL NOT BE CONSTRUED,TO BAR THE UNITED STATES FROM PURSUING ANY POLICE OR REGULATORY ACTION AGAINSTTHE DEBTORS TO THE EXTENT EXCEPTED FROM THE AUTOMATIC STAY PROVISIONS OFSECTION 362 OF THE BANKRUPTCY CODE.**

**B.**                                    INJUNCTION

**THE RELEASE AND DISCHARGEPURSUANT TO ARTICLE 12 OF THE PLAN SHALL ACT AS AN INJUNCTION AGAINST ANYENTITY COMMENCING OR CONTINUING, AGAINST THE DEBTORS, REORGANIZED DEBTORS,THEIR SUCCESSORS, OR THE PROPERTIES OF ANY OF THE FOREGOING, ANY ACTION,EMPLOYMENT OF PROCESS, OR ACT TO COLLECT, OFFSET OR RECOVER ANY CLAIM OR CAUSEOF ACTION SO RELEASED OR DISCHARGED. THE INJUNCTION, DISCHARGE AND RELEASESDESCRIBED IN ARTICLE 12 OF THE PLAN SHALL APPLY REGARDLESS OF WHETHER ORNOT A PROOF OF CLAIM OR INTEREST BASED ON ANY CLAIM, DEBT, LIABILITY ORINTEREST IS FILED OR WHETHER OR NOT A CLAIM OR INTEREST BASED ON SUCH CLAIM,DEBT, LIABILITY OR INTEREST IS ALLOWED, OR WHETHER OR NOT SUCH ENTITY VOTED TOACCEPT OR REJECT THE PLAN. WITHOUT IN ANY WAY LIMITING THE FOREGOING, ALLINJUNCTIONS OR STAYS ENTERED IN THESE CHAPTER 11 CASES AND EXISTINGIMMEDIATELY PRIOR TO THE CONFIRMATION DATE SHALL REMAIN IN FULL FORCE ANDEFFECT UNTIL THE EFFECTIVE DATE.**

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**C.**                                    RELEASE/EXCULPATION

**AS OF THE CONFIRMATIONDATE, BUT SUBJECT TO THE OCCURRENCE OF THE EFFECTIVE DATE, AND IN CONSIDERATIONOF THE DISTRIBUTIONS TO BE RECEIVED UNDER THE PLAN, EXCEPT AS OTHERWISESPECIFICALLY PROVIDED BY THE PLAN OR THE CONFIRMATION ORDER, (I) EACHHOLDER OF A CLAIM OR INTEREST WHO HAS VOTED TO ACCEPT THE PLAN SHALL BE DEEMEDTO HAVE UNCONDITIONALLY RELEASED THE DEBTOR RELEASEES FROM ANY AND ALL CLAIMS,OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSES OF ACTION ANDLIABILITIES WHATSOEVER WHICH ANY SUCH HOLDER MAY BE ENTITLED TO ASSERT,WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR HEREAFTERARISING, IN LAW, EQUITY OR OTHERWISE, BASED IN WHOLE OR IN PART UPON ANYACT OR OMISSION, TRANSACTION, EVENT OR OTHER OCCURRENCE TAKING PLACE FROM THEBEGINNING OF TIME UP TO AND INCLUDING THE EFFECTIVE DATE IN ANY WAY RELATING TOTHE CHAPTER 11 CASES, THE PLAN OR THE DISCLOSURE STATEMENT, EXCEPTING,HOWEVER, FROM SUCH RELEASE ANY OBLIGATION OWING TO A HOLDER OF AN ALLOWED CLAIMOR INTEREST ARISING UNDER THE PLAN, AND FURTHER EXCEPTING ANY ACT OF GROSSNEGLIGENCE OR WILLFUL MISCONDUCT; AND (II) EACH HOLDER OF A CLAIM ORINTEREST SHALL BE DEEMED TO HAVE UNCONDITIONALLY RELEASED THE DEBTOR RELEASEESFROM ANY AND ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSESOF ACTION AND LIABILITIES WHATSOEVER WHICH ANY SUCH HOLDER MAY BE ENTITLEDTO ASSERT, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING ORHEREAFTER ARISING, IN LAW, EQUITY OR OTHERWISE, BASED IN WHOLE OR IN PART UPONANY ACT OR OMISSION, TRANSACTION**, EVENT OR OTHEROCCURRENCE TAKING PLACE ON OR AFTER THE COMMENCEMENT DATEAND UP TO AND INCLUDING THEEFFECTIVE DATE FOR WHICH RELEASED RIGHTS THE HOLDER IS ENTITLED TO A CLAIM THATRECEIVES OR RETAINS VALUE AS PROVIDED IN THE PLAN, PROVIDED, HOWEVER, THATNOTHING IN THE PLAN SHALL LIMIT ANY RIGHT TO OBJECT TO ANY PROFESSIONAL FEECLAIM.

**D.**                                    SETOFFS

**UNLESS THE BANKRUPTCYCOURT ORDERS OTHERWISE, ANY HOLDER OF A PRE-PETITION CLAIM OR INTEREST AGAINSTANY OF THE DEBTORS WHO ASSERTS A RIGHT OF SETOFF AGAINST ANY DEBT OWING TO ANYOF THE DEBTORS THAT AROSE BEFORE THE COMMENCEMENT DATE MUST ASSERT SUCH RIGHTOF SETOFF IN A TIMELY FILED PROOF OF CLAIM OR, TO THE EXTENT SUCH PROOF OFCLAIM IS NOT REQUIRED TO PRESERVE SUCH RIGHT OF SETOFF UNDER APPLICABLE LAW,WITHIN NINETY DAYS OF THE EFFECTIVE DATE, OR SUCH RIGHT OF SETOFF SHALL BEFOREVER BARRED.**

**PartiesEntitled to Vote**

The Debtors have been directed to provide theSolicitation Package to all persons and entities entitled to vote on the Plan. Ifyou have received this Notice, but not the Solicitation Package, then the Courtand/or the Debtors may have determined that you are not entitled to vote (andare hereby so notified), provided however, you may seek an order from theBankruptcy Court allowing you to vote, in the manner set forth in this Noticeunder the heading “*Deadline for TemporaryAllowance of Claims for Voting Purposes*.”

*Unimpaired Classes not Entitled toVote*. Other Priority Claims (Class 1) andMiscellaneous Secured Claims (Class 2B) are not impaired by the Plan, andthe holders of such claims are conclusively presumed to accept the Plan, andtherefore not entitled to vote on the Plan.

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*Impaired Classes Entitled to Vote*.Senior Secured Claims (Class 2A), General Unsecured Claims (Class 3),Qualifying Noteholder Claims (Class 4A), Non-Qualifying Noteholder Claims(Class 4B), and Interests (Class 5A) and Equity Convenience Class Interests(Class 5B) are impaired under the Plan and the holders of claims in suchclasses are entitled to vote to accept or reject the Plan, subject to theprovisions of the Solicitation and Disclosure Statement Order.

The Bankruptcy Court has ordered that creditors whoare not holders of record (or in the case of beneficial owners whose SeniorSubordinated Notes or Interests are held by a nominee, then their nominee) asof 4:00 p.m., prevailing Eastern Time, on April 3, 2006, (the “VotingRecord Date”) of claims or securities with respect to the Debtors (including,without limitation, transferees of record holders acquiring such claims orsecurities after the Voting Record Date) shall not be entitled to vote toaccept or reject the Plan.

Any person or entity who believes it is entitled tovote to accept or reject the Plan, notwithstanding the foregoing, may obtainthe Solicitation Package in the manner set forth in this Notice under theheading “*Obtaining Information and Documents*”and may vote by returning a ballot in accordance with the Solicitation andDisclosure Statement Order, providedhowever, such votes shall becounted (if it all) only in accordance with the provisions of Solicitation andDisclosure Statement Order. Any Person or Entity seeking to have its votecounted or counted differently than as provided by the Solicitation andDisclosure Statement Order, must deliver its ballot by the Voting Deadline andfile a motion seeking temporary allowance of its vote pursuant to Bankruptcy Rule 3018(a) beforethe Rule 3018(a) Bar Date in the manner specified in the Solicitationand Disclosure Statement Order, described in this Notice under the heading “*Deadline for Temporary Allowance of Claims for VotingPurposes*.”

**VotingRecommendation**

**The Plan has the support of theCreditors’ Committee and Laminar, the Debtors’ principal secured lender. TheDebtors, the Creditors’ Committee, and Laminar recommend that parties entitledto vote on the Plan, vote to accept the Plan.**

**Deadlinefor Voting Objections**

If the Debtors or other party in interest has filedand served an objection to a claim or interest on or before 4:00 p.m.,prevailing Eastern Time, on May 19, 2006 (the “Voting Objection Deadline”),the claim or interest objected to will be disallowed for voting purposes unlessthe Bankruptcy Court temporarily allows such claim or interest for votingpurposes. Objections to claims or interests not filed and served before thisdeadline will not have the effect of disallowing the claim or interest forvoting purposes. The holder of a disputed claim or interest who wants to votenotwithstanding an objection must file and serve a motion seeking temporaryallowance of its claim or interest for voting purposes on or before the Rule 3018(a) BarDate (see below).

**DeadlineFor Temporary Allowance of Claims and Interests for Voting Purposes**

A person or entity who wants to vote, but is notentitled to under the Plan or the Solicitation and Disclosure Statement Order,or who wants a vote (whether its own or another creditor’s) treated differently(*i.e.,* for the vote to be countedin a higher or lower claim amount than it would otherwise be counted; or forthe vote to be counted in a different class than the claim would otherwisebe classified), or who wants the vote to be counted notwithstanding adisqualifying objection or defect that would otherwise cause the vote not to becounted, must file, in accordance with the Solicitation and Disclosure StatementOrder, a motion seeking temporary allowance of the claim or interest for votingpurposes 

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pursuant to Bankruptcy Rule 3018(a) (a“Rule 3018(a) Motion”). Any timely ballot submitted by a creditor orequity security holder that timely files and serves a Rule 3018(a) Motionshall be counted or not counted, as the case may be, in accordance with theother applicable provisions of the Solicitation and Disclosure Statement Order,unless and until the underlying claim or interest is temporarily allowed by theBankruptcy Court for voting purposes in a different amount or classification,after notice and a hearing.

The deadline for filing a Rule 3018(a) Motion(the “Rule 3018(a) Bar Date”) is May 13, 2006 at 4:00 p.m.,prevailing Eastern Time. Rule 3018(a) Motions must conform to theFederal Rules of Bankruptcy Procedure and the Local Rules of theBankruptcy Court for the District of Maryland, and in writing:  (a) state the name of the creditor orinterest holder and amount of the claim or interest held or asserted by theparty against the Debtors’ estates or property; (b) state withparticularity the legal and factual bases for the motion; and (c) statethe evidence that will be presented in support thereof. Rule 3018(a) Motionsmust be filed before the Rule 3018(a) Bar Date with the Clerk of theUnited States Bankruptcy Court for the District of Maryland, BaltimoreDivision, Edward A. Garmatz Federal Building and United States Courthouse, Suite 8308,101 West Lombard Street, Baltimore, Maryland 21201, and be served on Debtors’co-counsel, (i) Kirkland & Ellis LLP, Citigroup Center, 153 East53rd Street, New York, New York 10022, Attn:  Lisa Laukitis, Esq., and (ii) Orrick,Herrington & Sutcliffe LLP, The Washington Harbour, 3050 K Street,N.W., Washington, D.C. 20007-5135, Attn: Monique D. Almy, Esq., so as to be actually received byDebtors’ co-counsel on or before the Rule 3018(a) Bar Date.Rule 3018(a) Motions not filed and served by the Rule 3018(a)  BarDate in the manner required by the Solicitation and Disclosure Statement Ordermay not be considered by the Bankruptcy Court and may be overruled.

A ballot delivered to the Solicitation Agent beforethe Voting Deadline by a creditor or equity security holder that also files andserves a Rule 3018(a) Motion before the Rule 3018(a) BarDate shall be counted or not counted, as the case may be, in accordance withthe provisions of the Solicitation and Disclosure Statement Order, unless anduntil the underlying claim or interest is temporarily allowed by the BankruptcyCourt for voting purposes in a different amount or classification, after noticeand a hearing.

**VotingDeadline**

All ballots accepting or rejecting the Plan must beproperly executed, completed and delivered to the Solicitation Agent, either byhand delivery or courier at The Garden City Group, Inc., Attn:  Boyds Balloting Agent, 105 Maxess Road,Melville, New York 11747, or by mail at The Garden City Group, Inc.,Attn:  Boyds Balloting Agent, P.O. Box9000 #6361, Merrick, New York 11566-9000, so that the ballot is actuallyreceived by the Solicitation Agent on or before June 1, 2006 at 4:00 p.m.,prevailing Eastern Time (the “Voting Deadline”).

The method of delivery of completed ballots is at theelection and risk of each creditor and interest holder and such delivery willbe deemed made only when the original is actuallyreceived by theSolicitation Agent. Completed ballots may not be transmitted by facsimile,e-mail or other electronic means. No completed ballot should be sent to any ofthe Debtors, the Creditors’ Committee, the Clerk of the Court, the IndentureTrustee, or any of the Debtors’ or Creditors’ Committee’s financial or legaladvisors. No person or entity to whom a completed ballot is improperly sentshall be responsible for timely forwarding such ballot to the SolicitationAgent or the Nominee holder, as the case may be.

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**Deadlinefor Objections to Confirmation of Plan**

June 1, 2006, at 4:00 p.m., prevailingEastern Time, is the deadline for filing and serving objections to confirmationof the Plan or to the proposed assumption and rejection of executory contractsand unexpired leases as provided in the Plan (the “Objection Deadline”). Objectionsmust conform to the Federal Rules of Bankruptcy Procedure and the Local Rules ofthe Bankruptcy Court for the District of Maryland, and in writing:  (a) set forth the name of the objectorand the nature and amount of the claims or equity interests held or asserted bythe objector and against the Debtors’ estates or property; and (b) statethe basis for the objection and the specific grounds therefor. Objections mustbe filed before the Objection Deadline with the Clerk of the United StatesBankruptcy Court for the District of Maryland, Baltimore Division, Edward A.Garmatz Federal Building and United States Courthouse, Suite 8308, 101West Lombard Street, Baltimore, Maryland 21201 (the “Clerk of the Court”) andbe served on the following persons and entities so as to be actually receivedby them on or before the Objection Deadline: Debtors’ Co-Counsel:  (i) Kirkland &Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York 10022, Attn:  Lisa Laukitis, Esq., and (ii) Orrick,Herrington & Sutcliffe LLP, The Washington Harbour, 3050 K Street,N.W., Washington, D.C. 20007-5135, Attn: Monique D. Almy, Esq.; the Office of the United StatesTrustee:  Edward A. Garmatz FederalBuilding and United States Courthouse, 101 West Lombard Street, Baltimore,Maryland 21201, Attn:  Sandra A. Manocchio, Esq.;Counsel to the Creditors’ Committee: Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue ofthe Americas, New York, New York 10019-6064, Attn:  Andrew N. Rosenberg, Esq.; Counsel toBank of America, N.A.:  Mayer Brown Rowe &Maw LLP, 1675 Broadway, New York, New York 10019, Attn:  Frederick Hyman, Esq.; Counsel to D. E.Shaw Laminar Portfolios, L.L.C. and D. E. Shaw Laminar Lending, Inc.:  Willkie, Farr & Gallagher LLP, 787Seventh Avenue, New York, New York 10019-6099, Attn:  Steven Wilamowsky, Esq.  Objections not filed and served by the ObjectionDeadline in the foregoing manner may not be considered by the Bankruptcy Courtand may be overruled.

**Hearingto Consider Confirmation of Plan**

The hearing to consider confirmation of the Plan andthe hearing on the proposed assumptions and rejections of executory contractsand unexpired leases pursuant to Article 8.1 of the Plan (the “ConfirmationHearing”) will commence on June 8, 2006 at 10:00 a.m.,prevailing Eastern Time, or as soon thereafter as counsel can be heard, beforeThe Honorable Duncan W. Keir, Chief United States Bankruptcy Judge, UnitedStates Bankruptcy Court for the District of Maryland, Baltimore Division,Edward A. Garmatz Federal Building and United States Courthouse, 101 WestLombard Street, Baltimore, Maryland 21201. The Confirmation Hearing, and anycontinuation thereof, may be adjourned from time to time, including withoutfurther notice other than by announcement in the Bankruptcy Court on thescheduled date of such hearing. The Bankruptcy Court, in its discretion andprior to the Confirmation Hearing, may put in place additional proceduresgoverning the Confirmation Hearing.

The Plan may be modified pursuant to 11 U.S.C.§ 1127 before, during, or as a result of the Confirmation Hearing, withoutfurther notice to parties in interest, provided that such modifications oramendments do not materially and adversely affect any class of claims inthe Plan or otherwise comply with 11 U.S.C. § 1127.

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**Obtaining Information and Documents**

Written requests for the Solicitation Package, includingthe Plan and Disclosure Statement, a ballot, and the Solicitation andDisclosure Statement Order, may be directed to (a) the Solicitation Agent,either (i) by hand delivery or courier to The Garden City Group, Inc.,Attn:  Boyds Balloting Agent, 105 MaxessRoad, Melville, New York 11747, or (ii) or by mail to The Garden CityGroup, Inc., Attn:  Boyds BallotingAgent, P.O. Box 9000 #6361, Merrick, New York 11566-9000, or (b) theDebtors’ attorneys, Kirkland & Ellis LLP, Citigroup Center, 153 East53rd Street, New York, New York 10022, Attn:  Jill Baron. A creditor or interest holdershould consult its own attorney regarding any other inquiries. Telephoneinquiries for the Solicitation Package or regarding voting may be directed tothe Solicitation Agent at 1-800-916-4890.

Dated: Baltimore, Maryland, April 27, 2006

BY ORDER OF THE HONORABLEDUNCAN W. KEIR,CHIEF UNITED STATES BANKRUPTCY JUDGE

ORRICK, HERRINGTON &SUTCLIFFE LLP

Monique D. Almy, Esq.

3050 K Street,N.W.

Washington, D.C20007

Tel:  202-399-8400

and

KIRKLAND & ELLIS LLPMatthew A. Cantor, Esq.

Lisa G. Laukitis, Esq.Ryan Blaine Bennett, Esq.Citigroup Center

153 East 53rd Street

New York, New York10022-4611

Tel:  212-446-4800

Co-Counsel to the Debtorsand Debtors in Possession

9

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**TABLEOF CONTENTSFORDISCLOSURE STATEMENT**
| ARTICLE 1 INTRODUCTION AND  SUMMARY               |                                                              |
|---------------------------------------------------|-------------------------------------------------------------------|
| 1.1                                               | Recommendations                                                   |   |
| 1.2                                               | Definitions                                                       |   |
| 1.3                                               | Summary Of Key Provisions Of The Plan                             |   |
| 1.4                                               | Summary Of Classification And Treatment Of Claims  And Interests  |   |
| 1.5                                               | Summary of Terms of New Debt and Securities                       |   |
|                                              |                                                              |
| ARTICLE 2 PLAN VOTING INSTRUCTIONS AND PROCEDURES |                                                              |
| 2.1                                               | Notice To Holders Of Claims And Interests                         |   |
| 2.2                                               | The Solicitation                                                  |   |
| 2.3                                               | Voting Procedures, Ballots and Voting Deadline                    |   |
| 2.4                                               | Confirmation Hearing and Deadline for Objections to  Confirmation |   |
|                                              |                                                              |
| ARTICLE 3 BACKGROUND                              |                                                              |
| 3.1                                               | Introduction                                                      |   |
|                                              | 3.1.1                                                             | Corporate History |   |
|                                              | 3.1.2                                                             | Financial Information |   |
| 3.2                                               | Pre-Petition Capital Structure                                    |   |
|                                              | 3.2.1                                                             | Equity |   |
|                                              | 3.2.2                                                             | Debt |   |
| 3.3                                               | Business and Properties                                           |   |
| 3.4                                               | Competition                                                       |   |
| 3.5                                               | Events Leading to Chapter 11 Filing                          |   |
| 3.6                                               | Debtors’ Business Plan                                       |   |
|                                              |                                                              |
| ARTICLE 4 THE CHAPTER 11 CASES               |                                                              |
| 4.1                                               | Commencement of the Cases                                         |   |
| 4.2                                               | Appointment of Creditors’ Committee                          |   |
| 4.3                                               | Other Significant Chapter 11 Events                          |   |
|                                              | 4.3.1                                                             | The DIP Facility Agreement |   |
|                                              | 4.3.2                                                             | Schedules and Statements of Financial Affairs |   |
|                                              | 4.3.3                                                             | Bar Date |   |
|                                              | 4.3.4                                                             | Employee Claims |   |
|                                              | 4.3.5                                                             | Rejection of Executory Contracts |   |
|                                              | 4.3.6                                                             | Insurance |   |
|                                              | 4.3.7                                                             | Key Employee Retention Plan |   |
|                                              | 4.3.8                                                             | Events Leading To The Formulation Of The Plan |   |
|                                              | 4.3.9                                                             | Operations Since the Commencement Date |   |
|                                              |                                                              |
| ARTICLE 5 SUMMARY OF THE PLAN                     |                                                              |
| 5.1                                               | Brief Overview of Chapter 11                                 |   |
| 5.2                                               | Limited Substantive Consolidation for Plan  Administration        |   |
| 5.3                                               | Classification and Treatment of Claims and Interests              |   |
|                                              | 5.3.1                                                             | Generally |   |
|                                              | 5.3.2                                                             | Unclassified Claims |   |
|                                              | 5.3.3                                                             | Classified Claims and Interests |   |
| 5.4                                               | Terms of Debt and New Securities to be Issued under  the Plan     |   |
| 5.5                                               | Sources of Cash to Make Plan Distributions                        |   |
| 5.6                                               | Unexpired Leases and Executory Contracts                          |   |

 

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|                                                                          | 5.6.1                                                    | Generally                                                                        |   |
|--------------------------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------------------------|--------|
|                                                                     | 5.6.2                                                    | Assumption and Rejection of Executory Contracts and  Unexpired Leases            |   |
|                                                                     | 5.6.3                                                    | Bar Date for Rejection Damages                                                   |   |
|                                                                     | 5.6.4                                                    | Cure of Defaults                                                                 |   |
| 5.7                                                                      | Implementation of the Plan                               |                                                                             |
|                                                                     | 5.7.1                                                    | Vesting of Property                                                              |   |
|                                                                     | 5.7.2                                                    | Corporate or Other Action for Reorganized Debtors                                |   |
|                                                                     | 5.7.3                                                    | Implementation                                                                   |   |
|                                                                     | 5.7.4                                                    | Issuance of New Securities                                                       |   |
|                                                                     | 5.7.5                                                    | Cancellation of Existing Securities and Agreements                               |   |
|                                                                     | 5.7.6                                                    | Board of Directors and Officers of Reorganized  Debtors                          |   |
|                                                                     | 5.7.7                                                    | Survival of Indemnification and Contribution  Obligations                        |   |
|                                                                     | 5.7.8                                                    | Reorganized Debtors’ Retention of Claims Against  Other Persons or Entities |   |
|                                                                     | 5.7.9                                                    | Effective Date                                                                   |   |
| 5.8                                                                      | Provisions Covering Distributions                        |                                                                             |
|                                                                     | 5.8.1                                                    | Cash Payments                                                                    |   |
|                                                                     | 5.8.2                                                    | Payment of Statutory Fees                                                        |   |
|                                                                     | 5.8.3                                                    | No Interest                                                                      |   |
|                                                                     | 5.8.4                                                    | Fractional Securities                                                            |   |
|                                                                     | 5.8.5                                                    | De Minimis Distributions                                                         |   |
|                                                                     | 5.8.6                                                    | Withholding of Taxes                                                             |   |
|                                                                     | 5.8.7                                                    | Surrender of Instruments                                                         |   |
|                                                                     | 5.8.8                                                    | Undeliverable or Unclaimed Distributions                                         |   |
|                                                                     | 5.8.9                                                    | Effect of Foreign Proceedings                                                    |   |
|                                                                     | 5.8.10                                                   | Distribution Record Date                                                         |   |
|                                                                     | 5.8.11                                                   | Distributions to Holders of Claims in Class 4A  and Class 4B           |   |
|                                                                     | 5.8.12                                                   | Setoffs                                                                          |   |
| 5.9                                                                      | Procedures For Resolving Disputed Claims                 |                                                                             |
|                                                                     | 5.9.1                                                    | Objections to Claims                                                             |   |
|                                                                     | 5.9.2                                                    | Litigation and Settlement of Objections                                          |   |
|                                                                     | 5.9.3                                                    | Payments and Distributions With Respect to Disputed  Claims                      |   |
|                                                                     | 5.9.4                                                    | Disputed Claim Reserve                                                           |   |
|                                                                     | 5.9.5                                                    | Estimation                                                                       |   |
| 5.10                                                                     | EFFECT OF THE PLAN ON CLAIMS AND INTERESTS               |                                                                             |
|                                                                     | 5.10.1                                                   | DISCHARGE OF ALL CLAIMS AND INTERESTS AND RELEASES                               |   |
|                                                                     | 5.10.2                                                   | INJUNCTION                                                                       |   |
|                                                                     | 5.10.3                                                   | RELEASE/EXCULPATION                                                              |   |
|                                                                     |                                                     |
| ARTICLE 6 FINANCIAL PROJECTIONS AND VALUATION                            |                                                     |
| 6.1                                                                      | Financial Projections                                    |                                                                             |
| 6.2                                                                      | Valuation                                                |                                                                             |
|                                                                     |                                                     |
| ARTICLE 7 CONDITIONS PRECEDENT TO CONFIRMATION ORDER  AND EFFECTIVE DATE |                                                     |
| 7.1                                                                      | Conditions Precedent to Entry of the Confirmation  Order |                                                                             |
| 7.2                                                                      | Conditions Precedent to the Effective Date               |                                                                             |
| 7.3                                                                      | Effect of Failure of Conditions                          |                                                                             |
|                                                                     |                                                     |
| ARTICLE 8 MISCELLANEOUS PROVISIONS                                       |                                                     |
| 8.1                                                                      | Bankruptcy Court to Retain Jurisdiction                  |                                                                             |
| 8.2                                                                      | Nonvoting Stock                                          |                                                                             |
| 8.3                                                                      | Withdrawal of the Plan                                   |                                                                             |
| 8.4                                                                      | Dissolution of Creditors’ Committee                 |                                                                             |
| 8.5                                                                      | Amendments and Modifications of the Plan                 |                                                                             |
| 8.6                                                                      | Exemption from Securities Registration                   |                                                                             |

 

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| ARTICLE 9 RISK FACTORS TO BE  CONSIDERED                                                              |                                                      |
|-------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
| 9.1                                                                                                   | Certain Risks of Non-Confirmation and  Non-Consummation   |   |
| 9.2                                                                                                   | Business Risk Factors                                     |   |
|                                                                                                  | 9.2.1                                                     | Competitive Conditions |   |
|                                                                                                  | 9.2.2                                                     | Customers |   |
|                                                                                                  | 9.2.3                                                     | New Product Development/Offerings |   |
|                                                                                                  | 9.2.4                                                     | New Customers/Distribution Systems |   |
|                                                                                                  | 9.2.5                                                     | International Operations |   |
|                                                                                                  | 9.2.6                                                     | Fluctuation in Operating Results |   |
|                                                                                                  | 9.2.7                                                     | Reliance on Key Personnel |   |
|                                                                                                  | 9.2.8                                                     | Adverse Publicity |   |
| 9.3                                                                                                   | Risks Associated with the New Common Stock                |   |
|                                                                                                  | 9.3.1                                                     | Debt and Common Stock |   |
|                                                                                                  | 9.3.2                                                     | Assets Subject to Security Interests |   |
|                                                                                                  | 9.3.3                                                     | Control by Laminar |   |
|                                                                                                  | 9.3.4                                                     | Absence of Public Market |   |
|                                                                                                  | 9.3.5                                                     | Exchange Act Listing — Reporting Obligations |   |
|                                                                                                  | 9.3.6                                                     | SEC Reporting Delinquencies |   |
|                                                                                                  | 9.3.7                                                     | Additional Financing Risk |   |
|                                                                                                  | 9.3.8                                                     | New Common Stock Dilution Risk |   |
|                                                                                                  |                                                      |
| ARTICLE 10 APPLICATION OF SECURITIES ACT TO THE  ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PLAN |                                                      |
|                                                                                                  | 10.1.1                                                    | New Securities |   |
| 10.2                                                                                                  | Section 1145 of the Bankruptcy Code                  |   |
|                                                                                                  |                                                      |
| ARTICLE 11 CERTAIN U.S. FEDERAL INCOME TAX  CONSEQUENCES                                              |                                                      |
| 11.1                                                                                                  | Certain U.S. Federal Income Tax Consequences of the  Plan |   |
|                                                                                                  | 11.1.1                                                    | Introduction |   |
| 11.2                                                                                                  | Tax Consequences to Holders of Claims and Interests       |   |
|                                                                                                  | 11.2.1                                                    | In General |   |
|                                                                                                  | 11.2.2                                                    | Recognition of Gain or Loss |   |
|                                                                                                  | 11.2.3                                                    | Consequences of Owning and Disposing of Instruments  Issued Pursuant to the Plan |   |
| 11.3                                                                                                  | Tax Consequences to the Debtors                           |   |
|                                                                                                  | 11.3.1                                                    | Cancellation of Indebtedness |   |
|                                                                                                  | 11.3.2                                                    | Attribute Reduction |   |
|                                                                                                  | 11.3.3                                                    | Utilization of Net Operating Loss Carryovers |   |
|                                                                                                  |                                                      |
| ARTICLE 12 REQUIREMENTS FOR CONFIRMATION OF PLAN                                                      |                                                      |
| 12.1                                                                                                  | Confirmation Hearing                                      |   |
| 12.2                                                                                                  | Feasibility of the Plan                                   |   |
| 12.3                                                                                                  | Best Interests Test                                       |   |
| 12.4                                                                                                  | Nonconsensual Confirmation                                |   |
|                                                                                                  | 12.4.1                                                    | No Unfair Discrimination |   |
|                                                                                                  | 12.4.2                                                    | Fair and Equitable Test |   |
|                                                                                                  |                                                      |
| ARTICLE 13 ALTERNATIVES TO CONFIRMATION AND  CONSUMMATION OF THE PLAN                                 |                                                      |
| 13.1                                                                                                  | Continuation of the Chapter 11 Cases                 |   |
| 13.2                                                                                                  | Liquidation Under Chapter 7 or Chapter 11       |   |
|                                                                                                  |                                                      |
| ARTICLE 14 VOTING AND CONFIRMATION OF THE PLAN                                                        |                                                      |
| 14.1                                                                                                  | Voting Deadline                                           |   |
| 14.2                                                                                                  | Holders Of Claims and Interests Entitled To Vote          |   |
| 14.3                                                                                                  | Vote Required for Acceptance by a Class                   |   |
| 14.4                                                                                                  | Voting Procedures                                         |   |

 

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| ARTICLE 15 CONCLUSION AND  RECOMMENDATION |   |
|-------------------------------------------|--------|

 

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**APPENDICES**
| APPENDIX A | Debtors’ Second Amended Joint Plan of  Reorganization, dated April 25, 2006 |
|------------|---------------------------------------------------------------------------------------|
|       |                                                                                  |
| APPENDIX B | Solicitation and Disclosure Statement Order                                           |

 

 

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**DISCLAIMER**

**ALLCREDITORS AND INTEREST HOLDERS ARE ADVISED AND ENCOURAGED TO READ THISDISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT ORREJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURESTATEMENT, INCLUDING THE FOLLOWING SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BYREFERENCE TO THE PLAN, THE PLAN SUPPLEMENT, ANY EXHIBITS ANNEXED TO THE PLAN,THE PLAN DOCUMENTS AND THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED INTHIS DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF, AND THERE CAN BENO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIMEAFTER THE DATE HEREOF.**

**THISDISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OFTHE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCYPROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIESLAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS NEITHER BEENAPPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THESECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THESTATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISEPURCHASING, SELLING OR TRANSFERRING SECURITIES OR CLAIMS OF THE BOYDSCOLLECTION, LTD. OR ANY OF THE OTHER DEBTORS SHOULD EVALUATE THIS DISCLOSURESTATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED.**

**THEINFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED HEREIN SOLELYFOR PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIEDUPON FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. NO PERSONMAY GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THEINFORMATION AND REPRESENTATIONS CONTAINED IN THIS DISCLOSURE STATEMENT,REGARDING THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN.**

**ASTO CONTESTED MATTERS, ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENEDACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS ANADMISSION OF ANY FACT OR LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS ASTATEMENT MADE IN SETTLEMENT NEGOTIATIONS.**

**THISDISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDINGINVOLVING THE DEBTORS OR ANY OTHER PARTY, NOR SHALL IT BE CONSTRUED TO BECONCLUSIVE ADVICE ON THE TAX, SECURITIES, OR OTHER LEGAL EFFECTS OF THE PLAN ASTO HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN, THE DEBTORS.**

**EXCEPTWHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED IN THISDISCLOSURE STATEMENT HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND MAY NOTHAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.**

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# **ARTICLE 1INTRODUCTION AND SUMMARY**

Pursuant to chapter 11 of title 11 of theUnited States Code, 11 U.S.C. §§ 101 et seq., The Boyds Collection,Ltd.; The Boyds Collection, Ltd., LP; Boyds Operations Inc.; The BoydsCollection — Pigeon Forge, LLC; The Boyds Collection — Myrtle Beach,LLC; The Boyds Collection — Branson, LLC; J&T Designs and Imaginations, Inc.;HC Accents & Associates, Inc.; and Boyds Bear and Company, LP,debtors and debtors in possession in the above-captioned and numberedjointly-administered chapter 11 cases, hereby respectfully submit and filethis Disclosure Statement (as amended, the “Disclosure Statement”) for usein the solicitation of votes on the Debtors’ Second Amended Joint Plan ofReorganization, filed along with the Disclosure Statement with the UnitedStates Bankruptcy Court for the District of Maryland (BaltimoreDivision) on April 25, 2006 (as may be further amended from time totime, the “Plan”). A copy of the Plan is annexed to this Disclosure Statementas Appendix A.

This Disclosure Statement sets forth certaininformation regarding the Debtors’ pre-petition history, the reasons behind theDebtors’ seeking chapter 11 protection, the significant developmentsduring the Chapter 11 Cases, and the anticipated organization andoperations of the Reorganized Debtors after consummation of the Plan. ThisDisclosure Statement also describes the Plan, certain effects of Confirmationof the Plan, certain risks that could affect the Reorganized Debtors goingforward, and the nature and manner of distributions to be made under the Plan. Inaddition, this Disclosure Statement discusses the confirmation process and thevoting procedures that holders of Claims and Interests in Impaired Classes mustfollow for their votes to be counted.

This Introduction andSummary is qualified in its entirety by, and should be read in conjunctionwith, the more detailed information and financial statements and notes theretoappearing elsewhere in this Disclosure Statement.

**THISDISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF THE PLAN,CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATED TO THE PLAN, CERTAINEVENTS THAT HAVE OCCURRED IN THE CHAPTER 11 CASES, AND CERTAIN FINANCIALINFORMATION. ALTHOUGH THE DEBTORS BELIEVE THAT THE SUMMARIES ARE FAIR ANDACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTHTHE ENTIRE TEXT OF SUCH DOCUMENTS, STATUTORY PROVISIONS, OR INFORMATION. EXCEPTWHERE OTHERWISE SPECIFICALLY NOTED, THE DEBTORS’ SENIOR MANAGEMENT HAS PROVIDEDFACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT. ALTHOUGH THEDEBTORS HAVE ENDEAVORED TO BE AS FACTUALLY ACCURATE AS POSSIBLE, THE DEBTORS DONOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDINGFINANCIAL INFORMATION, IS WITHOUT ANY INACCURACY OR OMISSION.**

## **1.1**          **Recommendations**

**THEDEBTORS BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO SUCCESSFULLYREORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCEOF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THE HOLDERS OF CLAIMS. THEPLAN HAS BEEN DEVELOPED THROUGH NEGOTIATIONS WITH D. E. SHAW LAMINARPORTFOLIOS, L.L.C. (TOGETHER WITH ITS AFFILIATE, D. E. SHAW LAMINAR LENDING,INC., “LAMINAR”), THE DEBTORS’ PRINCIPAL SECURED CREDITOR. LAMINAR HAS MADESIGNIFICANT CONCESSIONS IN ORDER TO ENABLE THE DEBTORS TO REORGANIZE AS A GOINGCONCERN AND TO PROVIDE DISTRIBUTIONS TO HOLDERS OF UNSECURED CLAIMS AND INTERESTS,WHICH THE DEBTORS BELIEVE WOULD BE UNAVAILABLE TO SUCH HOLDERS IF THE DEBTORSWERE LIQUIDATED.**

**THEDEBTORS, TOGETHER WITH THE CREDITORS’ COMMITTEE AND LAMINAR, RECOMMEND THATEACH ENTITY ENTITLED TO VOTE ON THE PLAN ACCEPT THE PLAN.**

2

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The Debtors believe that:

·                                          thePlan provides the best recovery possible for the holders of Claims andInterests;

·                                          withrespect to each Impaired Class of Claims and Interests, the Plancontemplates a greater potential recovery for such holders than would bereceived if the Debtors were liquidated either under chapter 7 orchapter 11 of the Bankruptcy Code;

·                                          acceptanceof the Plan is in the best interests of holders of Claims and Interests.

## **1.2          Definitions**

All capitalized termsused herein shall have the meanings set forth in the Plan, unless otherwisedefined.

## **1.3         ****Summary Of Key Provisions Of The Plan**

The Plan provides for the Debtors to continue toconduct their current business operations under a new capital structure. Itembodies the agreement of Laminar, the Debtors’ principal secured creditor(together with other lenders under the Credit Agreement, dated February 23,2005, the “Senior Secured Lenders”) to accept significant modifications totheir current secured debt positions. Specifically, the Senior Secured Lenderswill exchange their $57.7 million in Senior Secured Claims arising underthe Debtors’ pre-petition credit facility agreement for 48.5% of the New CommonStock in Reorganized Boyds and $30 million in post-Confirmation secureddebt securities of the Reorganized Debtors. This should afford the ReorganizedDebtors substantial breathing space to implement their business plan andthereby permit larger Distributions to holders of Allowed General UnsecuredClaims and to holders of Qualifying and Non-Qualifying Noteholder Claims (ifthe relevant Classes accept the Plan), as well as providing value to bedistributed to holders of Interests in Boyds Collection, Ltd. (“Boyds”) in theform of 46.5% of the New Common Stock in Reorganized Boyds.

The Plan will permit the Debtors to reorganize as agoing concern. This will result in a variety of advantages to the Debtors andtheir stakeholders that not only would be unavailable in a piecemealliquidation, but that likely could not be secured even through a “going concern”sale of the Debtors’ entire enterprise. Among other things, the Debtors believethe Plan will improve their financial position, help enhance relationships withsuppliers, customers, and other parties, preserve at least a portion of theDebtors’ tax attributes, and provide the opportunity for liquidity for futuregrowth.

The Debtors propose to be substantively consolidatedsolely for purposes of administering the Plan. All Claims against each of theDebtors will be classified and treated under the Plan. Under the Plan, theprincipal Classes of Claims and Interests will be treated as follows:

·                                          Holdersof Senior Secured Claims will receive for their claims of approximately$57.7 million:  senior securedpromissory notes in the aggregate principal amount of $30 million, to bedue in five years following the Effective Date; and New Common Stockrepresenting approximately 48.5% of the New Common Stock issued on theEffective Date.

·                                          Eachholder of an Allowed Qualifying Noteholder Claim shall receive Cash in theamount of 22% of the Allowed amount of such Allowed Qualifying NoteholderClaim, to be paid, if at all, on thedate upon which a Future Transaction is consummated; *plus* its Pro Rata Share of 5% of the NewCommon Stock, plus its Pro Rata Share of 50% of the Reallocated Shares.

·                                          Eachholder of an Allowed Non-Qualifying Noteholder Claim shall receive  Cashin the amount of 24% of the Allowed amount of such Allowed Non-QualifyingNoteholder Claim to be paid, if at all,on  the date upon which a FutureTransaction is consummated.

 

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·                                          Eachholder of an Allowed General Unsecured Claim or Claims will receive Cash equalto 28% of its Allowed General Unsecured Claim or Claims.

·                                          SecuredClaims other than those of the Senior Secured Claims (“Miscellaneous SecuredClaims”) will be treated either as agreed by the parties or in a mannerthat reinstates the Secured Claim or provides for payment to the creditor equalto the value of such creditor’s collateral.

·                                          Eachholder of an Allowed Other Priority Claim shall receive, on account of and infull and complete settlement, release and discharge of such Allowed OtherPriority Claim, (a) Cash equal to the amount of such Allowed OtherPriority Claim or (b) such other treatment as to which the ReorganizedDebtors and such holder shall have agreed upon in writing in an amountsufficient to render such Allowed Priority Claim not Impaired undersection 1124 of the Bankruptcy Code, to be paid on the latest of (a) theEffective Date (or as soon thereafter as is reasonably practicable), (b) fiveBusiness Days after the Allowance Date for such Other Priority Claim, or (c) thedate on which the Debtors and the holder of such Allowed Other Priority Claimotherwise agree.

·                                          AllowedPriority Tax Claims will either be paid, at the sole option of the Debtors, (a) onthe latter of (i) the Effective Date (or as soon thereafter as isreasonably practicable), (ii) five Business Days after the Allowance Datewith respect to such Allowed Priority Tax Claim; (b) beginning the firstanniversary following the Effective Date, Cash payments to be made in equalannual installments, with the final installment being payable no later than thesixth anniversary of the date of the assessment of such Allowed Priority TaxClaim, in an aggregate amount equal to such Allowed Priority Tax Claim,together with interest on the unpaid balance of such claim calculated from theEffective Date through the date of payment at the Applicable Rate; or (c) suchother treatment agreed to by the holder of such Allowed Priority Tax Claim andthe Debtors.

·                                          Interestsin, or consisting of, the current common stock of Boyds will be extinguished asof the Effective Date, and each holder of an Allowed Interest shall receive itsPro Rata Share of 46.5% of the New Common Stock.

## **1.4         ****Summary Of Classification And Treatment Of ClaimsAnd Interests**

The Plan categorizes the Claims against and Interestsin the Debtors that existed on the Commencement Date into Classes, as set forthbelow. In accordance with the Bankruptcy Code, the Plan does not classify, butdoes provide separately for, payment of Administrative Expense Claims andPriority Tax Claims.

The table below provides a summary of theclassification, treatment, and Distributions to be made in respect of, Claimsand Interests in each Class under the Plan. 
| **CLASS** | ** ** | **TYPE OF CLAIM   OR INTEREST** | ** ** | **TREATMENT**                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-----------|------------|---------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| None      |       | Administrative Expense Claims   |       | Each Allowed Administrative Expense Claim, other  than a Professional Fee Claim, will receive (a) Cash equal to the unpaid  portion of such Allowed Administrative Expense Claim, or (b) such other  treatment as to which the Debtors and the holder of the Claim shall have  agreed upon in writing, except that ordinary course expenses will be paid in  the ordinary course in accordance with any applicable agreements. |
| None      |       | Professional Fee Claims         |       | Allowed Professional  Fee Claims, less payments already received of interim compensation, to be  paid in Cash.                                                                                                                                                                                                                                                                                                                           |

 

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| **CLASS** | ** ** | **TYPE OF CLAIM   OR INTEREST**                                                                                 | ** ** | **TREATMENT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------|------------|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| None      |       | DIP Facility Claims                                                                                             |       | The lenders under the DIP Facility Agreement (on a  pro rata basis based on the amounts owed to them), and the DIP Agent, shall  be paid 100% of any unpaid non-contingent amount of any DIP Facility Claim  and any outstanding and unpaid fees and expenses owed to such lenders and  Agent.

 

Upon payment in full of  the DIP Facility Claims, such lenders and the DIP Agent shall release any and  all Liens against and security interests in the Debtors’ (and the  Estates’) property, the DIP Facility Agreement shall be deemed  terminated (except for customary provisions that by their terms  survive such termination) and  the Reorganized Debtors’ obligations thereunder shall be canceled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| None      |       | Priority Tax Claims                                                                                             |       | Each holder of an  Allowed Priority Tax Claim shall receive, on account of and in full and  complete settlement, release and discharge of such Allowed Priority Tax  Claim, at the sole option of the Reorganized Debtors (exercisable upon  written notice to the relevant Priority Tax Claim holder sent on or prior to  the Effective Date): (a) on the latter of (i) the Effective Date  (or as soon thereafter as is reasonably practicable), (ii) five Business  Days after the Allowance Date with respect to such Allowed Priority Tax  Claim, or (iii) the date on which the Debtors and the holder of such  Allowed Priority Tax Claim otherwise agree, Cash in an amount equal to such  Allowed Priority Tax Claim; (b) beginning on the first anniversary  following the Effective Date or such earlier date as the Bankruptcy Court may  order, Cash payments made in equal annual (or more frequent if the Bankruptcy  Court so orders or the Debtors, with the consent of Laminar,  agree) installments, with the final installment being payable no later  than the sixth anniversary of the date of the assessment of such Allowed  Priority Tax Claim, in an aggregate amount equal to such Allowed Priority Tax  Claim, together with interest on the unpaid balance of such Allowed Priority  Tax Claim calculated from the Effective Date through the date of payment at  the Applicable Rate; or (c) such other treatment agreed to by the holder  of such Allowed Priority Tax Claim and the Reorganized Debtors. |
| 1         |       | Other Priority Claims  (Claims entitled to priority under the Bankruptcy Code, other than Priority  Tax Claims) |       | Each Allowed Priority  Claim will be paid in full in Cash, unless the Reorganized Debtors and the  holder of such Claim agree otherwise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2A        |       | Senior Secured Claims                                                                                           |       | On the Effective Date  (or as soon thereafter as is reasonably practicable), on account of and in  full and complete settlement, release, and discharge, holders of Senior  Secured Claims shall receive, their Pro Rata Share of (A) 48.5% of the  New Common Stock, and (B) 100% of the New Senior Secured Notes in the  aggregate principal amount of $30 million. The New Senior Secured Notes  will be secured by Liens on all or substantially all of the assets of the  Reorganized Debtors and their domestic subsidiaries, including Cash, and  junior only to Liens granted under the Exit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 2B        |       | Miscellaneous Secured  Claims                                                                                   |       | Each holder of an  Allowed Miscellaneous Secured Claim will be entitled to receive one of the  following treatments, at the Debtors’ option: (A) the legal, equitable  and contractual rights to which the holder of such Allowed Miscellaneous  Secured Claim is entitled shall remain unaltered, (B) such holder’s  Allowed Miscellaneous Secured Claim shall be reinstated and rendered  Unimpaired in accordance with section 1124(2) of the Bankruptcy  Code, or (C) such other treatment as mutually agreed to by the Debtors  and such holder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3         |       | General Unsecured  Claims (Unsecured Claims not otherwise classified)                                           |       | On the later of  (i) the Effective Date (or as soon as reasonably practicable  thereafter), and (ii) the date on which such General Unsecured Claim  becomes an Allowed Claim, each holder of an Allowed General Unsecured Claim  shall receive, in Cash, 28% of the Allowed amount of such General Unsecured  Claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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| **CLASS** | ** ** | **TYPE OF CLAIM   OR INTEREST**         | ** ** | **TREATMENT**                                                                                                                                                                                                                                                                                                                                                         |
|-----------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4A        |       | Qualifying Noteholder Claims            |       | Each holder of an Allowed Qualifying Noteholder  Claim shall receive Cash in the amount of 22% of the Allowed amount of such  Allowed Qualifying Noteholder Claim, to be paid on the date, if any, upon which a Future Transaction is  consummated; plus its Pro Rata Share of 5% of the New Common Stock,  plus its Pro Rata Share of 50% of the Reallocated Shares. |
| 4B        |       | Non-Qualifying Noteholder Claims        |       | Each holder of an Allowed Non-Qualifying Noteholder  Claim shall receive Cash in the amount of 24% of the Allowed amount of such  Allowed Non-Qualifying Noteholder Claim to be paid, if at all, on  the date upon which a Future Transaction is consummated.                                                                                                    |
| 5A        |       | Interests                               |       | On the Effective Date, each holder of an Allowed  Interest that is not an Allowed Equity Convenience Class Interest shall  receive its Pro Rata Share of 46.5% of the New Common Stock, *plus* its Pro Rata Share of 50% of the  Reallocated Shares.                                                                                                             |
| 5B        |       | Equity Convenience Class Interests |       | On the Effective Date, each holder of an Allowed  Equity Convenience Class Interest shall receive Cash in the amount of 15  cents per share of Boyds’ common stock held by such holder.                                                                                                                                                                     |

 

## **1.5         ****Summary of Terms of New Debt and Securities**

Set forth below is a summary of the terms andconditions of the debt instruments and securities to be issued by theReorganized Debtors under the Plan.

*New Senior Secured Notes*.The New Senior Secured Notes will be senior secured notes of the ReorganizedDebtors, guaranteed by the other Reorganized Debtors, in substantially the formset forth in the Plan Supplement. The New Senior Secured Notes will be in theoriginal principal amount of $30 million and will bear Cash interest at arate based on LIBOR plus 5.0%. The New Senior Secured Notes will mature in fiveyears from the Effective Date and will be due and payable in full at maturityand will not require any scheduled interim principal payments. The New SeniorSecured Notes will be secured by Liens on all or substantially all of theassets of the Reorganized Debtors and their domestic subsidiaries, junior toLiens securing obligations under the Exit Facility.

Proposed forms of the New Senior Secured Notedocuments, together with the credit agreement for the Exit Facility, will beFiled with the Bankruptcy Court in the Plan Supplement, and served on counselfor the Creditors’ Committee by no later than the date that is ten calendardays prior to the Confirmation Hearing. Any party in interest wishing to obtaincopies of these documents prior to the Confirmation Hearing may do so by sorequesting either in writing to counsel to the Debtors, Kirkland &Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York 10022,Attention:  Jill Baron, or by email, sendto jbaron@kirkland.com.

*Exit Facility*. Toprovide the Reorganized Debtors with sufficient liquidity and working capitalon a go-forward basis, on the Effective Date, the Reorganized Debtors will,subject to final negotiation and execution with the new lenders, enter into theExit Facility in substantially the form set forth in the Plan Supplement. TheExit Facility will be comprised of an $11 million revolving creditfacility with a $4 million sub-limit for letters of credit, and providingfor over-advance borrowings for the months of July, August, September, andOctober. The Exit Facility will mature in three years and will bear Cashinterest at a rate based on LIBOR plus 3.0%. The Exit Facility will be securedby a first priority, perfected security interest in all or substantially all ofthe assets of the Debtors and their domestic subsidiaries.

*New Common Stock*. ReorganizedBoyds will have 10 million authorized shares of New Common Stock. At consummation,approximately 2 million shares are expected to be issued under the Plan.

#  

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# **ARTICLE 2PLAN VOTING INSTRUCTIONS AND PROCEDURES**

## **2.1         ****Notice To Holders Of Claims And Interests**

The general and master ballots (which arecollectively, and with their respective voting instructions, the “Ballots”)enclosed with this Disclosure Statement are for the use of Creditors andholders of Interests in voting on the Plan. **Yourvote is important. Non-acceptance of the Plan may lead to a chapter 7liquidation, dismissal of the Chapter 11 Cases or the confirmation ofanother plan. The Debtors believe that these alternatives will not likelyprovide for any Distributions to holders of Allowed Qualifying NoteholderClaims, Allowed Non-Qualifying Noteholder Claims, Allowed General UnsecuredClaims or Allowed Interests.**

All holders of Impaired Claims and against andInterests in the Debtors should read (1) the Notice of Solicitation ofVotes and Hearing on Confirmation of Plan, attached hereto as Prependix A(the “Confirmation Hearing Notice”); (2) the Disclosure Statement,together with the Plan, and (3) the applicable Ballot (including votinginstructions) (collectively, the “Solicitation Materials”), in theirentirety before voting on the Plan.

Pursuant to the provisions of the Bankruptcy Code,only Impaired Classes of Claims and Interests are entitled to accept or rejectthe Plan. The Debtors are seeking acceptance of the Plan from holders of theseClaims and Interests.

The Classes of Claims Impaired and entitled to voteunder the Plan consist of the Senior Secured Claims (Class 2A), GeneralUnsecured Claims (Class 3), Qualifying Noteholder Claims (Class 4A),Non-Qualifying Noteholder Claims (Class 4B), Interests (Class 5A) andEquity Convenience Class Interests (Class 5B).

Other Priority Claims (Class 1) and MiscellaneousSecured Claims (Class 2B) are not Impaired by the Plan. Holders ofClaims or Interests in Classes that are not Impaired are conclusively presumedto have accepted the Plan pursuant to section 1126(f) of theBankruptcy Code. See Article 14.4 below.

Unless otherwise directed by the Bankruptcy Court,only votes cast by or at the direction of holders of Claims and Interests inaccordance with the instructions set forth on the Ballot will be counted forpurposes of voting on the Plan. See Article 14, entitled “Voting andConfirmation of the Plan.”

**WHENCONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL HOLDERS OF CLAIMSAGAINST AND INTERESTS IN THE DEBTORS, WHETHER OR NOT THEY ARE ENTITLED TO VOTEOR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR RETAIN ANYDISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL HOLDERS OF IMPAIRED CLAIMSAND IMPAIRED INTERESTS ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND ITSSCHEDULES, EXHIBITS, ATTACHMENTS, AND APPENDICES CAREFULLY AND IN THEIRENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE PLAN. THIS DISCLOSURESTATEMENT CONTAINS IMPORTANT INFORMATION ABOUT THE PLAN, CONSIDERATIONSPERTINENT TO ACCEPTANCE OR REJECTION OF THE PLAN, AND DEVELOPMENTS CONCERNINGTHE CHAPTER 11 CASES.**

**AVOTE IN FAVOR OF THE PLAN WILL BE TREATED AS AGREEMENT TO CERTAIN RELEASESCONTAINED IN THE PLAN, REGARDLESS OF WHETHER OR NOT THE CLASS AS A WHOLECONTAINING SUCH CLAIMS ACCEPTS THE PLAN. SEE ARTICLE 5.10.3 BELOW ANDARTICLE 12.3 OF THE PLAN.**

**IF YOU DID NOT RECEIVE ABALLOT WITH THIS DISCLOSURE STATEMENT, OR IF YOU HAVE ANY QUESTIONS WITHRESPECT TO COMPLETING OR FILING YOUR BALLOT, YOU MAY CONTACT THE GARDENCITY GROUP, INC. AT (800) 916-4890 OR AT ITS WEBSITE,www.gardencitygroup.com/cases/bbc/. THE FOREGOING IS A PRELIMINARY STATEMENT. THISDISCLOSURE STATEMENT AND THE EXHIBITS HERETO, INCLUDING THE PLAN, SHOULD BE**

** **

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**READ IN THEIR ENTIRETY BY ALL CREDITORS ANDINTEREST HOLDERS BEFORE VOTING ON THE PLAN.**

## **2.2         ****The Solicitation**

On the Commencement Date, each of the Debtors filedseparate petitions under chapter 11 of the Bankruptcy Code. On March 14,2006, the Debtors filed the Plan with the Bankruptcy Court. On March 14,2006, the Debtors first Filed the Disclosure Statement with the BankruptcyCourt pursuant to section 1125 of the Bankruptcy Code and in connectionwith the solicitation of votes to accept or reject the Plan (the “Solicitation”).On April 17, 2006, and April 25, 2006, the Debtors filed amendedversions of the Plan and Disclosure Statement.

On April 27, 2006, the Bankruptcy Court enteredthe Solicitation and Disclosure Statement Order, in which it determined thatthis Disclosure Statement contains “adequate information” in accordance withsection 1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) ofthe Bankruptcy Code, “adequate information” is defined as “information of akind, and in sufficient detail, as far as is reasonably practicable in light ofthe nature and history of the debtor and the condition of the debtor’s booksand records, that would enable a hypothetical reasonable investor typical ofholders of claims or Interests of the relevant class to make an informedjudgment about the plan...” 11 U.S.C. §1125(a)(1).

## **2.3         ****Voting Procedures, Ballots and Voting Deadline**

After carefully reviewing the materials in theSolicitation Package, please indicate your acceptance or rejection of the Planby voting in favor of, or against, the Plan on the Ballot. Also, please notethat holders of Senior Subordinated Notes who are eligible to have their Claimsclassified in Class 4A are subject to certain certification requirementsand additional agreements, as set forth on the applicable Ballot, as aprecondition for their placement in such Class. Please complete and sign theapplicable Ballot and return the original in the manner directed in the votinginstructions accompanying the applicable Ballot (the “Voting Instructions”) sothat it is received by the Voting Deadline.

Pursuant to the Solicitation and Disclosure StatementOrder, the solicitation will expire on the Voting Deadline, unless the VotingDeadline is extended or waived by the Debtors. To be counted, Ballots to acceptor reject the Plan described herein must be submitted in accordance with theVoting Instructions (i.e., to The Garden City Group, or in the case of certainbeneficial owners of Senior Subordinated Notes, to their nominee holder). Aftercarefully reviewing this Disclosure Statement, the Plan and the otherapplicable materials in the Solicitation Package, each holder of a Claim orInterest in Class 2A, Class 3, Class 4A, Class 4B, Class 5Aand Class 5B should vote to accept or reject the Plan in accordance withthe Voting Instructions, and return the appropriate Ballot(s) inaccordance with the instructions set forth therein so they are received priorto the Voting Deadline. Pursuant to the Solicitation and Disclosure StatementOrder, the Solicitation will expire on the Voting Deadline, unless the VotingDeadline is extended or waived by the Debtors. **To be counted, your vote must be received at the applicable addresslisted below by 4:00 p.m., prevailing Eastern Time, on June 1, 2006(the “Voting Deadline”)**:

| If by hand  delivery/overnight courier | The Garden City Group, Inc.  Attention: Boyds Balloting Agent  105 Maxess Road  Melville, New York 11747       |
|----------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                   |                                                                                                                |
| If by mail:                            | The Garden City Group, Inc.  Attention: Boyds Balloting Agent  PO Box 9000 #6361  Merrick, New York 11566-9000 |

 

For further information, see Article 14, entitled“Voting and Confirmation of the Plan.”

##  

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## **2.4         ****Confirmation Hearing and Deadline for Objectionsto Confirmation**

Pursuant to section 1128 of the Bankruptcy Codeand Federal Rule of Bankruptcy Procedure 3017(c), the BankruptcyCourt has scheduled a hearing to consider confirmation of the Plan and thehearing on the proposed assumptions and rejections of executory contracts andunexpired leases pursuant to Article 8.1 of the Plan (the “ConfirmationHearing”) to commence on June 8, 2006 at 10:00 a.m., prevailingEastern Time, or as soon thereafter as counsel can be heard, before TheHonorable Duncan W. Keir, Chief United States Bankruptcy Judge, United StatesBankruptcy Court for the District of Maryland, Baltimore Division, Edward A.Garmatz Federal Building and United States Courthouse, 101 West Lombard Street,Baltimore, Maryland 21201. The Confirmation Hearing, and any continuationthereof, may be adjourned from time to time, including without further noticeother than by announcement in the Bankruptcy Court on the scheduled date ofsuch hearing. The Bankruptcy Court, in its discretion and prior to theConfirmation Hearing, may put in place additional procedures governing theConfirmation Hearing. See Solicitation and Disclosure Statement Order.

The Plan may be altered, amended or modified pursuantto 11 U.S.C. § 1127 before, during, or as a result of the ConfirmationHearing, with the consent of the Debtors, and the Senior Secured Lenders,without further notice to parties in interest; provided that such modificationsor amendments (1) do not materially and adversely affect any class ofclaims in the Plan or (2) otherwise comply with 11 U.S.C. § 1127.

Section l128(b) of the Bankruptcy Codeprovides that any party in interest may object to confirmation of the Plan. Pursuantto the Solicitation and Disclosure Statement Order, June 1, 2006 at 4:00 p.m.,prevailing Eastern Time, is the deadline for filing and serving objections toconfirmation of the Plan or to the proposed assumption and rejection ofexecutory contracts and unexpired leases as provided in the Plan (the “ObjectionDeadline”). Objections must conform to the Federal Rules of BankruptcyProcedure and the Local Rules of the Bankruptcy Court for the District ofMaryland, and in writing:  (a) setforth the name of the objector and the nature and amount of the claims orequity interests held or asserted by the objector and against the Debtors’estates or property; and (b) state the basis for the objection and thespecific grounds therefor. Objections must be filed before the ObjectionDeadline with the Clerk of the United States Bankruptcy Court for the Districtof Maryland, Baltimore Division, Edward A. Garmatz Federal Building and UnitedStates Courthouse, Suite 8308, 101 West Lombard Street, Baltimore,Maryland 21201 (the “Clerk of the Court”) and be served on the followingpersons and entities so as to be actually received by them on or before theObjection Deadline:

| Co-Counsel to the  Debtors:                                                                                     | United States Trustee:                                                                                                |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                            |                                                                                                                  |
| Kirkland &  Ellis LLP  Citigroup Center  153 East 53rd Street  New York, New York 10022-4611      | Office of the U.S. Trustee  Edward A. Garmatz Federal Bldg.  101 West Lombard Street  Baltimore, Maryland  21201 |
| Attn:                                                                                                           | Lisa G. Laukitis     Ryan Blaine Bennett                                                                    | Attn: | Sandra A. Manocchio |
|                                                                                                            |                                                                                                                  |
| and                                                                                                             |                                                                                                                  |
|                                                                                                            |                                                                                                                  |
| Orrick,  Herrington & Sutcliffe LLP  The Washington Harbour  3050 K Street, N.W.  Washington, DC 20007 |                                                                                                                  |
| Attn:                                                                                                           | Monique D. Almy                                                                                                       |   |

 

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| Co-Counsel to the Official  Committee of Unsecured Creditors:                                                                  |                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
|                                                                                                                           |                                                                               |
| Paul, Weiss,  Rifkind, Wharton & Garrison LLP  1285 Avenue of the Americas  New York, New York  10019-6064       |                                                                               |
| Attn:                                                                                                                          | Andrew N.  Rosenberg  Lori E. Kata                                                 |   |
|                                                                                                                           |                                                                               |
| and                                                                                                                            |                                                                               |
|                                                                                                                           |                                                                               |
| Tydings &  Rosenberg LLP  100 East Pratt Street  Baltimore, Maryland  21202  Attn:  Alan M. Grochal         |                                                                               |
|                                                                                                                           |                                                                               |
| Counsel to D. E.  Shaw Laminar Portfolios, L.L.C. and D. E. Shaw Laminar Lending, Inc.                                    | Counsel to Bank of America, N.A.:                                                  |
|                                                                                                                           | Mayer, Brown, Rowe & Maw LLP                                              |
| Willkie  Farr & Gallagher LLP  787 Seventh Avenue  New York, New York  10019-6099  Attn:  Steven Wilamowsky | 1675 Broadway  New York, New York  10019-5820  Attn:  Frederick D. Hyman |
|                                                                                                                                |                                                                                    |  |

 

**ARTICLE 3BACKGROUND**

**3.1**                               Introduction

**3.1.1****                                          CorporateHistory**

Boyds is a public corporation, incorporated in theState of Maryland, with its principal place of business located at 350 SouthStreet, McSherrystown, Pennsylvania 17344. Together with its Debtor affiliates,Boyds is a leading designer, importer and distributor of high-quality,hand-crafted collectibles, gift and other specialty products.

Boyds was founded in 1979 by Gary and JustinaLowenthal as a small antique business in Boyds, Maryland. By 1984, Boyds hadbegun to reproduce and sell miniature houses, duck decoys and merino wool teddybears to selected retail outlets. Boyds relocated from Maryland to southernPennsylvania in 1987, and expanded its product line to include other plushanimals and related accessories including miniature clothes, furniture andornaments. Boyds began distributing its plush animal lines to department storesand gift retailers, opting against selling to mass merchandisers and majordiscount stores. In 1993, Boyds began selling cast resin figurines with theintroduction of its *Bearstones*line. In 1998, Boyds acquired H.C. Accents, a home décor company. Also in 1998,Boyds was purchased by KKR Fund 1996 L.P. (“KKR”) and subsequently becamea public company, listed on the New York Stock Exchange (NYSE) (FOB). InJuly 2002, Boyds deployed its first field sales force, consisting of over 100field sales people. Prior to this change, Boyds made sales solely through itscatalog sales and a small internal telephone-based sales team. InSeptember 2002, Boyds opened its *BoydsBear Country — Gettysburg* retail store in Gettysburg,Pennsylvania, and in November of 2004, Boyds opened its second retaillocation, *Boyds Bear Country — PigeonForge*, in Pigeon Forge, Tennessee. In October 2004, Boyds onceagain restructured its sales organization to be comprised of a direct salesforce and third party telemarketing.

As the parent Debtor, Boyds holds direct or indirectownership interests in its eight domestic and co-Debtor affiliates, The BoydsCollection, Ltd., LP, Boyds Operations, Inc., The Boyds Collection —Pigeon Forge, LLC, The

 

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Boyds Collection — Myrtle Beach, LLC, The BoydsCollection — Branson, LLC, J&T Designs and Imaginations, Inc., HCAccents & Associates, Inc., and Boyds Bear and Company, LP.

Boyds also owns shares of the subsidiaries that arenot Debtors (the “Non-Debtor Subsidiaries”) through which the Debtors operatetheir international businesses. The principal Non-Debtor Subsidiaries of Boydsare The Boyds Collection, Corp. (Canada); The Boyds Collection, GMBH (Germany);The Boyds Collection BV (Netherlands), and The Boyds Collection, UK (UnitedKingdom). As of the Commencement Date, the Non-Debtor Subsidiaries owed Boydsapproximately $8.8 million. The Boyds Collection BV (Netherlands) isin administrative insolvency proceedings in the Netherlands, and The BoydsCollection, GMBH (Germany) is an inactive holding company without materialassets or liabilities.

Boyds holds most of the Debtors’ domestic assets andemploys all of Debtors’ domestic employees. As of the Commencement Date, Boydsemployed approximately 340 full-time employees, and approximately 150 part-timeemployees. The employees perform a variety of functions for Boyds and itsDebtor affiliates, including sales, design, marketing, shipping,administrative, accounting, supervisory, management, maintenance, cashier, foodpreparation, systems, human resources and other tasks.

**3.1.2****                                          FinancialInformation**

On a consolidated basis, the Debtors and theNon-Debtor Subsidiaries generated revenues for the three-month period ended June 30,2005, of $17.1 million, compared to $22.6 million for the three-monthperiod ended June 30, 2004. Operating losses for the three-month periodended June 30, 2005, were $101.3 million compared to a profit of$0.5 million for the three-month period ended June 30, 2004. Of the$101.3 million loss in 2005, $94.6 million was comprised of awrite-down of Boyds’ deferred tax asset. Information concerning Boyds’ historicfinancial performance and operating losses is included in Boyds’ Form 10-Kfor fiscal year ended December 31, 2004, which forms can be found atwww.sec.gov or can be obtained upon written request addressed to counsel forthe Debtors, Kirkland & Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York 10022Attention:  Jill Baron, or by e-mail sentto jbaron@kirkland.com. Additional financial information is available in theSchedules, Statement of Financial Affairs, and Monthly Operating Reports thatthe Debtors have Filed in the Chapter 11 Cases. Copies of these documentsare available from either (i) the Clerk’s Office of the Bankruptcy Court,which is located at the Edward A. Garmatz Federal Building and United StatesCourthouse, Suite 8308, 101 West Lombard Street, Baltimore, Maryland21201, or (ii) upon written request addressed to counsel for the Debtors,Kirkland & Ellis LLP, Citigroup Center, 153 East 53rd Street, New York, New York 10022Attention:  Jill Baron, or by e-mail sentto jbaron@kirkland.com. In addition, the Debtors have filed their MonthlyOperating Reports with the Securities and Exchange Commission (“SEC”) aspart of Forms 8-K and these reports are available at www.sec.gov.

Boyds was, as of the Commencement Date, current in itsSEC filings. However, Boyds has not remained current in its SEC filings duringthe pendency of these Chapter 11 Cases. Prior to the Effective Date, Boydsintends to file a Form 10-Q for the period ended September 30,2005 and a Form 10-K for the fiscal year ended December 31,2005.

For the fiscal year ending December 31, 2005,Boyds recorded (preliminary and unaudited) total assets of $66.2 millionand total liabilities of $90.9 million. For the same period, Boydsrecorded (preliminary and unaudited) revenue of $78.6 million and a netloss of $182.9 million (including a $166.2 million write-down of Boyds’deferred tax asset and a $2.6 million charge for impairment of goodwill).

**3.2****    Pre-PetitionCapital Structure**

**3.2.1            Equity**

Boyds has 61,838,238 authorized shares of Boyds’common stock (“Boyds’ Common Stock”), par value $0.0001 per share, of which59,004,202 shares were issued and outstanding as of the Commencement Date.

Boyds’ Common Stock was previously listed on the NewYork Stock Exchange. On October 10, 2005, however, the stock was delisted.

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**3.2.2            Debt**

As of the Commencement Date, the principal debtobligations of the Debtors were as follows:

(i)                                     Inconnection with its recapitalization in 1998, Boyds issued 9.0% SeniorSubordinated Notes due 2008 in the amount of $165 million. As of theCommencement Date, Boyds had unsecured indebtedness under the SeniorSubordinated Notes of approximately $34.4 million.

(ii)                                  Alsoin 1998, Boyds entered into a credit agreement providing for a$325 million senior secured term loan, and a senior secured revolvingcredit facility providing for borrowings up to $40.0 million. On February 23,2005, Boyds entered into a new credit agreement (the “Pre-Petition CreditAgreement”) which replaced its 1998 term debt. Under the new agreement, Boydsreceived a $45 million term loan with a revolving credit facility of up to$20 million. As of the Commencement Date, Boyds owed approximately$56.5 million in aggregate principal amount under the Pre-Petition CreditAgreement.

**3.3         Businessand Properties**

*Business and Products*

Boyds (together with its domestic subsidiaries, the “Company”)operates in two segments that consist of the Company’s wholesale gift businessand the Company’s retail gift/entertainment business. The Company’s retailstores are in two locations, *Boyds BearCountry — Gettysburg* and *BoydsBear Country — Pigeon Forge*. These retail stores are being usedto generate income and expand the brand awareness and image of Boyds.

Since 1984, Boyds’ product lines have expanded fromplush bears to include other plush animals such as hares, moose and cats, aswell as resin figurines and other products.

The Company continues to expand its “giftable” productlines. These are products that are in the $5 to $20 price point and are eitherfocused on women-to-women gifting or on gifts to babies and children. One ofthe most successful lines is the Company’s Message Bear line which debuted in2001, and has expanded since then. More recently, in 2003, the Companyintroduced its Bears & Friends line which is an everyday affordableplush line targeted at children.

Retail prices for the plush animals range from $5 to$200. Animals in the plush animal category are made of various materials withouter coverings ranging from acrylic plush to custom-dyed chenille and wool. Interiorsare filled with plastic pellets for the beanbag animals and 100% acrylicfiberfill for the other animals.

Boyds’ resin figurine category currently consists ofthe main collection, *Bearstones*,and sub-collections, *Dollstones*, *Charming Angels*, *Shoebox Bears* and *Faeriessence*. Together, these categoriesinclude over 300 styles of finely detailed, and hand-painted miniature castresin bears, other animals and people. Prices in the resin figurine categoryare generally priced between $9 and $60 at retail. Each figurine is inscribedwith Boyds’ distinctive symbol of authenticity, a hidden bear paw, and a bottomstamp indicating the name, edition, and piece number. Many figurines containfamous quotes which help the customer identify with the piece. The items arepackaged individually with a certificate of authenticity describing theproduct.

The Company’s retail locations have built verysuccessful interactive environments for adults, children and the entire family.*Boyds Bear Factory*enables toconsumer to choose the desired animal, fill the animal with specially coloredbeans and bring it to life with a “magic” bean. After the animal comes to life,they may then choose a special outfit for it to wear home. Additionally, in theretail stores, Boyds has its Bear Nursery.

With respect to sales and marketing, Boyds generatesits order volume through a nationwide direct and telemarketing sales force,catalogue mailings to its retailers, trade show sales, its business-to-businesswebsite, and its retail stores. Boyds sends catalogues and promotional mailingsto retail customers at least twice a year for its spring and fall productofferings. In October of 2004, Boyds restructured its sales force so thatit now operates with

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a more focused customer service/telemarketing groupand interacts directly with customers, thereby strengthening relations withcurrent customers and creating new customers.

*Properties*

Boyds leases approximately 209,000 square feet ofdistribution and warehouse space in McSherrystown, Pennsylvania. Boyds’existing distribution center includes two loading docks, two automated conveyorsystems and 180,000 square feet of storage area, which are in good operatingcondition. Boyds’ lease expires in 2009. Attached to the warehouse area isBoyds’ 24,000 square foot corporate headquarters which is subject to the samelease provisions. Boyds also leases showroom space in Atlanta. Managementbelieves that its current facilities are suitable and adequate for Boyds’planned growth needs for the next several years, and vacant land is availableon-site for additional expansion, should it be necessary.

**3.4         Competition**

Boyds competes generally for the disposable income ofconsumers and, in particular, with other producers of fine qualitycollectibles, specialty giftware and home decorative products. The collectiblesarea, in particular, is affected by changing consumer tastes and interests. Thegiftware and collectibles industries are highly competitive, with a largenumber of both large and small participants. Boyds’ competitors distributetheir products through independent gift retailers, department stores, mass merchandisersand catalogue retailers or through direct response marketing. Boyds believesthe principal elements of competition in the giftware and collectiblesindustries are product design and quality, product and brand name loyalty,product display and price. Boyds believes its competitive position is enhancedby a variety of factors, including the innovativeness, quality and enduringthemes of Boyds’ products, its reputation among retailers and consumers, itsin-house design expertise, its sourcing and marketing capabilities and thepricing of its products. Some of Boyds’ competitors, however, are part oflarge, diversified companies having greater financial resources and a widerrange of products than Boyds. In addition, this industry is subject to intensecompetition from small and large companies, each with the ability to createunique, appealing products at relatively low entry cost.

**3.5         EventsLeading to Chapter 11 Filing**

During 2001, Boyds’ financial results began todeteriorate significantly as a consequence of industry-wide andcompany-specific factors. Over a period of several years, retail sales of plushtoys shifted from small independent retailers, in which Boyds had a leadingpresence, to large regional and national retailers and mass merchandisers, inwhich Boyds did not have a meaningful presence. Moreover, the large retailerscompeted with Boyds’ product line at lower price points. This shift indistribution channels coincided with a general cooling of consumer demand for “collectible”products. As a result, the retail sales of Boyds and its direct industrycompetitors were negatively affected.

In response to the ongoing industry pressures andassociated decline in independent retailers, during 2004 Boyds began toimplement various operational restructuring and cost reduction programs. Suchprograms focused on (i) redirecting sales efforts towards larger regionaland national channels, (ii) developing products specifically targeted tothese channels, (iii) selectively expanding distribution to include directin-home marketing initiatives, and (iv) developing co-branding campaignswith well-recognized brands such as NASCAR, Coca-Cola, Crayola, and M&Ms. Therestructuring program and the efforts of Boyds’ management had a measurableimpact, enabling Boyds to achieve a greater presence among regional andnational retailers and to lower ongoing operating costs.

Unfortunately, despite the efforts of Boyds’management to reposition the Company in response to the changing industry salesdynamics, Boyds was not able to increase sales in the new channels quicklyenough to offset the dramatic decline in sales from the Company’s traditional,core-market of independent retailers. In 2004, Boyds saw its net sales declineby approximately 8% while net income declined by approximately 50%. During thetwelve-months ending June 30, 2005, Boyds’ EBITDA declined to$0.4 million, as compared to $88.5 million for the twelve-monthsending June 30, 2000. The decline in Boyds’ financial performanceaccelerated dramatically during the three quarters preceding the third quarterof 2005.

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By the late summer of 2005, Boyds’ managementrecognized that the Company could no longer comply with the financial covenantsin the Pre-Petition Credit Agreement. On August 11, 2005, in connectionwith the Company’s second quarter earnings release, Boyds disclosed that therewas a significant likelihood that the Company would not be in compliance withone or more financial covenants as of the end of the third and fourth quartersof 2005.

Following Boyds’ announcement of second quarterresults, Boyds’ primary senior lender, Laminar, requested a meeting with Boyds’management to discuss its business plan, as well as its recent and projectedfinancial results. Based in part upon Boyds’ second-quarter results, the SeniorSecured Lenders believed, and Boyds confirmed, that the Company would not beable to comply with the financial covenants regarding ratios of outstandingdebt to EBITDA and minimum EBITDA contained in Section 7.6 of thePre-Petition Credit Agreement. A failure by Boyds to comply with the financialcovenants would immediately trigger events of default under the Pre-PetitionCredit Agreement, entitling the Lenders to accelerate the entire principalamount of indebtedness under the Pre-Petition Credit Agreement or impose a twoper cent increase in the interest rate. At the meeting, which took place on August 24,2005, Boyds requested that the Senior Secured Lenders waive Boyds’ anticipatedbreach of the financial covenants. Although the meeting did not yield anagreement, the Senior Secured Lenders agreed to continue negotiations. On September 13,2005, representatives of Boyds met with Bank of America, holder of$5 million of the Company’s senior debt, to discuss the Company’s deterioratingfinancial situation.

Meanwhile, the share price for Boyds’ Common Stock,which had been declining since February 2005, fell below one dollar. On September 21,2005, the New York Stock Exchange (NYSE) notified Boyds that it was not incompliance with the NYSE’s newly increased continued listing standards, asBoyds’ average market capitalization and shareholders’ equity over a 30trading-day period had fallen below $75 million, and the average closingprice of Boyds’ shares over a consecutive 30 trading-day period had fallenbelow $1.00. On October 10, 2005, Boyds’ shares were de-listed by theNYSE.

In late September 2005, Boyds confirmed to theSenior Secured Lenders that it had breached the financial covenants under thePre-Petition Credit Agreement, and consequently that defaults had beentriggered thereunder and were continuing (the “Existing Defaults”). On October 3,2005, following weeks of negotiations, Boyds entered into a waiver agreement(the “Waiver”) with the Senior Secured Lenders. The Waiver provided for, amongother things, the Senior Secured Lenders’ forbearance from exercisingcontractual remedies under the Pre-Petition Credit Agreement on account of theExisting Defaults through October 16, 2005. Although Boyds did not provideCash to the Senior Secured Lenders in consideration for the Waiver, the Waiverprovided that future interest under the Pre-Petition Credit Agreement wouldaccrue at the two percent default rate. In addition, notwithstanding theWaiver, Boyds would not be permitted to incur additional indebtedness or issueletters of credit without the Senior Secured Lenders’ consent.

From October 3, 2005 through October 16,2005, Boyds continued to engage in discussions with its Senior Secured Lendersregarding a comprehensive plan to restructure the Company’s operations andexisting debt obligations. On the Commencement Date, the Debtors, in theexercise of their prudent business judgment, determined that it was in the bestinterest of all their stakeholders and for the maximization of the value oftheir businesses to commence the Chapter 11 Cases and to continuenegotiations with their creditor constituencies and consummate a restructuringunder the auspices of the Bankruptcy Court.

**3.6         Debtors’Business Plan**

The Debtors are optimistic about their long-termprospects. Beginning in late 2003, the Debtors accelerated implementation of anew strategy to offset the decline in performance from the Debtors’ traditionalretail customer base. Key components of the new strategy included repositioningthe Debtors’ strong brand to increase penetration of new distribution channelsand customers, and to significantly reduce operating costs to improve overallprofitability.

The Debtors’ introduced more giftable product andintroduced new product lines to drive revenue growth, including new productsbased on new licensing arrangements with brands relevant to the Debtors’ targetconsumers. The Debtors also added new regional and national wholesaledistribution channels and accounts, including full-line grocery retailers, foodand drug chains, general merchandise chains, and specialty retailers, includingbooksellers.

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In addition, the Debtors have continued to bringinnovation to their core collector base through new product lines like the “Signature”,“Bear of the Month” and “Patty Duke”, which are reengaging the collector andsupporting the remaining traditional retailer base. Building on the recentsuccesses with new products and customers, the Debtors are now exploringadditional distribution alternatives, including a larger online presence thatwill include direct-to-consumer sales of certain selected specialized productofferings. To lower operating expenses, the Debtors took significant actions,including a restructuring of the sales force, reduction in corporate overhead,and closure of certain unprofitable international operations.

The Debtors believe that it is critical tosignificantly de-lever their balance sheet as they refocus and restructureoperations to adapt to the changing marketplace. In the opinion of the Debtors’management team, successful execution of the business plan and therestructuring contemplated in the Plan will enable the Debtors to achievefuture growth for the benefit of the parties-in-interest in theseChapter 11 Cases.

**ARTICLE 4THE CHAPTER 11 CASES**

**4.1         Commencementof the Cases**

On the Commencement Date, the Debtors commenced theChapter 11 Cases. Since the Commencement Date, the Debtors have continuedto operate as debtors-in-possession subject to the supervision of the BankruptcyCourt. Transactions out of the ordinary course of business have requiredBankruptcy Court approval. In addition, the Bankruptcy Court has supervised theDebtors’ employment of attorneys and other Professionals. The Debtors retainedthe law firms Kirkland & Ellis LLP and Swidler Berlin LLP(1) as theirbankruptcy counsel, and retained Houlihan Lokey Howard & Zukin Capital, Inc.(“Houlihan”) as their financial advisors and investment bankers.

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(1)           EffectiveFebruary 6, 2006, the principal attorneys at Swidler Berlin LLP(“Swidler”) who act as co-counsel to the Debtors joined the law firm ofOrrick, Herrington & Sutcliffe LLP (“Orrick”).  On February 28, 2006, Swidler filed amotion in the Chapter 11 Cases to withdraw as co-counsel to theDebtors.  On that same date, Orrick filedits application to substitute as co-counsel to the Debtors

The Debtors’ management has spent considerable timeand energy responding to the many demands placed on the Debtors as debtors anddebtors-in-possession. For example, the Debtors have (i) filed theirschedules of assets, liabilities and executory contracts and their statementsof financial affairs, (ii) caused notice of the Bar Date to be sent to allparties in-interest, and (iii) submitted monthly operating reports to theU.S. Trustee summarizing their post-petition operations and financialperformance and conferred with representatives of the U.S. Trustee’s Office. TheDebtors have negotiated and resolved a variety of issues that have arisenthroughout the Chapter 11 Cases.

**4.2         Appointmentof Creditors’ Committee**

On October 24, 2005, the United States Trusteeappointed the Creditors’ Committee, which consists of the followingmembers:  The Bank of New York (asindenture trustee), Receivables Management Services (as agent for UPS), TheCapital Group, Dynamic Print Group, and Taiwan Merchant.

The Creditors’ Committee has retained the law firms ofPaul, Weiss, Rifkind, Wharton & Garrison LLP and Tydings and RosenbergLLP as counsel. It has also retained FTI Consulting, Inc. as its financialadvisors.

**4.3         OtherSignificant Chapter 11 Events**

**4.3.1            TheDIP Facility Agreement**

On the Commencement Date, the Debtors Filed a motionseeking authority of the Bankruptcy Court to, among other things, enter intothe DIP Facility Agreement. On October 19, 2005, the Bankruptcy Courtapproved

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the DIP Facility Agreement on an interim basis. On November 3,2005, the Bankruptcy Court entered the Final DIP Order approving the DIPFacility Agreement.

The DIP Facility Agreement provides for an $8 millionrevolving credit facility to be available for the Debtors to pay fees andexpenses associated with the DIP Facility Agreement as well as fund workingcapital and other general corporate purposes for the Debtors. The DIP FacilityAgreement also allows the Debtors to obtain letters of credit in connectionwith the Debtors’ ongoing business obligations.

**4.3.2            Schedulesand Statements of Financial Affairs**

Section 521 of the Bankruptcy Code and BankruptcyRule 1007 direct that a debtor must prepare and file certain schedules ofassets and liabilities, current income and current expenditures, executorycontracts and unexpired leases and related information (the “Schedules”) andstatements of financial affairs (the “Statements”) when a chapter 11 caseis commenced. The purpose of filing the Schedules and Statements is to providea debtor’s creditors, equity interest holders and other interested parties withsufficient information to make informed decisions regarding the debtor’sreorganization. On the Commencement Date, the Debtors requested, and weregranted, an extension of time to File their Schedules and Statements. TheSchedules and Statements were Filed with the Bankruptcy Court on December 14,2005. See Article 3.2.2 for information regarding the Debtors’ debts andliabilities.

**4.3.3            BarDate**

On or around December 22, 2005, in accordancewith Local Rule 3003-1, the Bankruptcy Court fixed February 14,2006, as the deadline by which all proofs of claim (other than by GovernmentalUnits) were required to be Filed in the Chapter 11 Cases. All Claimsby Governmental Units are required to be Filed by April 14, 2006. TheClerk’s Office of the Bankruptcy Court and the Debtors provided notice of theBar Date to all known Creditors. The Debtors are currently reviewing, analyzingand reconciling the amounts estimated by the Debtors and Claims Filed byCreditors. However, the Bankruptcy Court will make a final determination of theallowability of Disputed Claims to which the Debtors may object. Accordingly,the ultimate amount of such liabilities is presently not determined.

**4.3.4            EmployeeClaims**

On the Commencement Date, the Debtors Filed a motionrequesting authorization to pay pre-petition employee compensation, benefits,expenses and related items. The Bankruptcy Court issued a first-day Order on October 18,2005, granting permission to pay such employee claims up to $4,925 per employee(the applicable limit under the Bankruptcy Code for priority treatment ofemployee Claims). Because no objections to the motion were Filed by theapplicable deadline, the Bankruptcy Court entered a second and final order on October 24,2005. The Debtors are not aware of any outstanding undisputed pre-petitionClaims of the Debtors’ employees as of the Commencement Date related to employeecompensation, benefits, expenses and related items.

**4.3.5            Rejectionof Executory Contracts**

After the Commencement Date, the Debtors reviewedtheir unexpired leases and executory contracts to identify leases and contractsthat were not favorable and that could be rejected, thereby reducing theDebtors’ administrative expenses. Although the Debtors have not rejected anyexecutory contracts or leases yet in these Chapter 11 Cases, the Debtorsmay reject executory contracts or unexpired leases in connection withConfirmation of the Plan. See Article 5.6.2 below.

**4.3.6            Insurance**

On the Commencement Date, the Debtors sought and laterobtained Bankruptcy Court approval to make various payments to maintain, on anuninterrupted basis, various insurance coverage, including directors’ andofficers’ liability and other liability policies, and to enter intopost-petition financing arrangements with respect to insurance premiums. TheDebtors believe that substantially all of their insurance coverage as of theCommencement

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Date remains in effect. Nothing in the Plan isintended to vitiate any such coverage or the Debtors’ rights thereunder.

**4.3.7            KeyEmployee Retention Plan**

On November 23, 2005, the Debtors sought andlater obtained Bankruptcy Court approval to establish a key employee retentionprogram (the “KERP”) for seven members of the Debtors’ senior management. Priorto receiving Bankruptcy Court approval, the terms of the KERP were heavilynegotiated among, and ultimately agreed to by, the Creditors’ Committee andSenior Secured Lenders

Under the KERP, the covered employees are entitled toreceive periodic retention payments during the Chapter 11 Cases equal to afixed percentage of each employee’s salary. Further, the KERP includesadditional performance-based compensation payments to such employees in theevent to company meets certain EBITDA targets. In addition, in the event any ofthe covered employees are terminated without cause, the KERP entitles suchemployees to company-sponsored health care coverage for 12 months followingtermination, provided that the Debtors’ aggregate contributions for suchcoverage do not exceed $25,000 for all covered employees.

**4.3.8            EventsLeading To The Formulation Of The Plan**

Under the Bankruptcy Code, the Debtors had the exclusiveright to propose a plan of reorganization for the first 120 days after theCommencement Date and to solicit acceptances of a plan for the first 180 daysafter the Commencement Date. By Order entered on February 9, 2006, theBankruptcy Court extended the Debtors’ exclusive period to File a plan until May 15,2006, and to solicit acceptances until July 13, 2006, without prejudice tothe Debtors’ right to seek further extension(s). The Debtors first Filed thePlan on March 14, 2006.

Since the Filing of the Bankruptcy Petitions on October 16,2005, the Debtors have proceeded diligently to develop a Plan that would permitthe Debtors to continue in business as going concerns under a new capitalstructure that would permit Distributions to unsecured creditors. The Debtorsand their advisors continued to negotiate the terms of a potential plan ofreorganization with the Senior Secured Lenders, including Laminar, as well aswith the Creditors’ Committee and their advisors.

As a result of these negotiations, as set forth in thePlan, the Senior Secured Lenders have agreed to exchange most of their secureddebt under the Pre-Petition Credit Agreement and DIP Facility Agreement forequity  in Reorganized Boyds and haveagreed to new terms for the remainder of their debt.

The Debtors and Laminar have discussed certain of theterms of the restructured debt, new equity, employment arrangements with keymanagement, and other matters. The Debtors and Laminar additionally exchangeddrafts of the Plan and engaged in follow-up discussions with the Creditors’Committee. Subsequently, the Debtors and Laminar engaged in further, spiritednegotiations with the Creditors’ Committee, and agreed to certain modificationsto the Plan in exchange for the Creditors’ Committee’s support.

On March 14, 2006, the Creditors’ Committee,together with Laminar, agreed to support the Debtors’ Plan.

**4.3.9            OperationsSince the Commencement Date**

Prior to the Commencement Date, the Debtors reducedtheir workforce and took other actions to reduce costs. See Article 3.5above. Since the Commencement Date, the Debtors have continued to reduce theirworkforce and have sought to stabilize and reassure their remaining employees,whom the Debtors believe are vital to the Debtors’ future. See Article 3.6above. The Debtors believe they have largely been successful in these effortsand have had relatively few employee defections. The Debtors and theirNon-Debtor Subsidiaries have for the most part continued to operate in the samebusinesses and markets as they did before the Commencement Date. The Debtors’financial results since the Commencement Date are summarized in the MonthlyOperating Reports they have submitted to the Office of the United StatesTrustee. Those reports are available as set forth in Article 3.1.2 above.

 

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**ARTICLE 5SUMMARY OF THE PLAN**

**THISARTICLE PROVIDES A SUMMARY OF THE STRUCTURE AND MEANS FOR IMPLEMENTATIONOF THE PLAN, AND OF THE CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTSUNDER THE PLAN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN (ASWELL AS ANY EXHIBITS THERETO AND DEFINITIONS THEREIN), WHICH IS ANNEXED TO THISDISCLOSURE STATEMENT AS APPENDIX A. THE STATEMENTS CONTAINED IN THISDISCLOSURE STATEMENT INCLUDE SUMMARIES OF THE PROVISIONS CONTAINED IN THE PLANAND IN DOCUMENTS REFERRED TO THEREIN. THE STATEMENTS CONTAINED IN THISDISCLOSURE STATEMENT DO NOT PURPORT TO BE PRECISE OR COMPLETE STATEMENTS OF ALLTHE TERMS AND PROVISIONS OF THE PLAN OR DOCUMENTS REFERRED TO THEREIN, ANDREFERENCE IS MADE TO THE PLAN AND TO SUCH DOCUMENTS FOR THE FULL AND COMPLETESTATEMENTS OF SUCH TERMS AND PROVISIONS. THE PLAN ITSELF AND THE DOCUMENTSREFERRED TO THEREIN CONTROL THE ACTUAL TREATMENT OF CLAIMS AGAINST, ANDINTERESTS IN, THE DEBTORS UNDER THE PLAN AND WILL, UPON OCCURRENCE OF THEEFFECTIVE DATE, BE BINDING UPON ALL HOLDERS OF CLAIMS AGAINST, AND INTERESTSIN, THE DEBTORS AND THEIR ESTATES, AND OTHER PARTIES-IN-INTEREST. IN THE EVENTOF ANY CONFLICT BETWEEN THIS DISCLOSURE STATEMENT AND THE PLAN OR ANY OTHEROPERATIVE DOCUMENT, THE TERMS OF THE PLAN AND/OR SUCH OTHER OPERATIVE DOCUMENTSHALL CONTROL.**

## **5.1**          **Brief Overview ofChapter 11**

Chapter 11 is the principal businessreorganization chapter of the Bankruptcy Code. Under chapter 11 of theBankruptcy Code, a debtor is authorized to reorganize its business for thebenefit of itself and its creditors and stockholders.

The consummation of a plan of reorganization is theprincipal objective of a chapter 11 case. A plan of reorganization setsforth the treatment of claims against and equity interests in a debtor. Confirmationof a plan of reorganization by the Bankruptcy Court makes the plan binding uponthe debtor, any issuer of securities under the plan, any person or entityacquiring property under the plan and any creditor of or equity security holderin the debtor, whether or not such creditor or equity security holder (i) isimpaired under or has accepted the plan or (ii) receives or retains anyproperty under the plan. Subject to certain limited exceptions, and except asprovided in the plan itself or the confirmation order, confirmation dischargesthe debtor from any debt that arose prior to the date of confirmation of theplan and substitutes therefor the obligations specified under the confirmedplan, and terminates all rights and interests of pre-petition equity securityholders, unless otherwise provided in such plan.

## **5.2          LimitedSubstantive Consolidation for Plan Administration**

The Plan is predicated upon the entry of an Order ofthe Bankruptcy Court substantively consolidating the Estates of all of theDebtors for the purposes specified in the Plan. Unless the Bankruptcy Court hasapproved the substantive consolidation of the Chapter 11 Cases by priorOrder, the Plan will serve as, and will be deemed to be, a motion for entry ofan Order substantively consolidating the Debtors’ Chapter 11 Cases inaccordance with the terms of Article 9.8 of the Plan.

Under the Plan, as consolidated, (i) all claimsby, between, and among the Debtors shall be eliminated; (ii) anyobligation of a Debtor and all guarantees thereof by one or more of the otherDebtors shall be deemed to be one obligation of the Debtors, collectively; and (iii) eachAllowed Claim Filed or to be Filed against any Debtor shall be deemed a singleAllowed Claim against, and a single obligation of, the Debtors collectively. Substantiveconsolidation (x) shall be solely for the purposes of determining theright to Distributions under the Plan, (y) shall not affect either therights of any holder of a secured Claim with respect to the Collateral securingits Claim, or the terms and implementation of any settlement, and the rightsand obligations of the parties thereto, entered into in connection with theConfirmation of the Plan, and (z) shall not, except as expressly providedin the Plan, be deemed to, prejudice any litigation rights or avoidanceactions, which shall survive entry of the substantive consolidation

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Order for the benefit ofthe Debtors and their Estates, as if there had been no substantiveconsolidation of the Debtors and their Estates.

Nothing in the Plan shall result in the consolidationof the Non-Debtor Subsidiaries with the Debtors or the Reorganized Debtors. Norshall anything therein be construed to release or discharge any claims that anyof the Reorganized Debtors has or may have against any Non-Debtor Subsidiary,all of which Claims shall be fully preserved. Nothing in the Plan, includingany substantive consolidation of the Chapter 11 Cases for purposes ofDistribution contemplated by Article 9.8 of the Plan, is intended or shallbe construed to limit or otherwise affect any claims, defenses or rights of anyDebtor with respect to setoff or recoupment. The Debtors expressly reserve allsuch claims, defenses and rights with respect to setoff and recoupment.

Notwithstanding such provisions of the Plan, eachDebtor shall, as a Reorganized Debtor, continue to exist after the EffectiveDate as a separate legal entity from all other Reorganized Debtors and shallretain title to all the Assets such Debtor owned immediately prior to theEffective Date. Nothing in Article 9.8 of the Plan shall affect the legaland organizational structure of the Reorganized Debtors or limit, modify orotherwise affect the classification of Claims set forth in Article 4 ofthe Plan and the different Distributions each such Class is entitled toreceive as set forth in Article 6 of the Plan.

The Debtors believe that the foregoing deemedsubstantive consolidation, for Plan purposes only, of the Debtors’ estates iswarranted. It is well established that section 105(a) of theBankruptcy Code empowers a bankruptcy court to authorize substantiveconsolidation. Courts in the Fourth Circuit, the federal judicial circuit inwhich the Chapter 11 Cases are pending, as well as many other circuitshave followed the test articulated by *UnionSav. Bank v. Augie/Restivo Baking Co. (In re Augie Restivo Baking Co.),860 F.2d 515 (2d Cir. 1998)*, which is utilized to evaluate a requestfor substantive consolidation. *See, e.g., Inre FasMart Convenience Store, Inc., 320 B.R. 587* (Bankr. E.D.Va. 2004). The test, as formulated by the Second Circuit, considers (i) whethercreditors dealt with the Debtors as a single economic unit and did not rely ontheir separate identity in extending credit, or (ii) whether the affairsof the Debtors are so entangled that consolidation will benefit all creditors. *Id*. at 518. With respect to the firstfactor, creditors who make loans on the basis of the financial status of aseparate entity expect to be able to look to the assets of their particularborrower for satisfaction of the loan. The second factor involves whether therehas been a commingling of assets and business functions and considers whetherall creditors will benefit because untangling is either impossible or so costlyas to consume the assets. If either factor is satisfied, substantiveconsolidation is appropriate.

In these Chapter 11 Cases, the first factor issatisfied. The facts supporting this include, but are not limited to, thefollowing:

·                                          The Debtors’trade creditors dealt with substantially all of the Debtors as a singleeconomic unit and did not rely on their separate identity in extending credit;

·                                          The Debtorsfile consolidated federal income tax returns for all entities under The BoydsCollection, Ltd. and prepare financial statements, annual reports and otherdocuments filed with the Securities and Exchange commission on a consolidatedbasis. The Debtors file a separate individual income tax return only for TheBoyds Collection, Ltd., L.P.  Thus it isimpossible for a trade creditor to obtain separate financial informationregarding nearly all of the individual Debtors from the Debtors’ publicfilings;

·                                          All financialinformation the Debtors disseminated into the public, including to customers,suppliers, landlords and lenders, is prepared and presented on a consolidatedbasis;

·                                          The Debtors’Cash is swept on a weekly basis into a concentration account held by oneentity;

·                                          The Debtorsshare common directors and officers;

·                                          The vastmajority of the Debtors exist solely to operate the Boyds business in anindividual state;

·                                          The Debtorsshare overhead, management, accounting and other related expenses;

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·                                          Oneentity pays the expenses and salaries of all of the Debtors; and

·                                          Otherthan with respect to the Debtors’ two retail locations, one of which isoperated out of a separate location from the headquarters in Gettysburg, PA andthe other of which is operated in Pigeon Forge, Tennessee, all of the Debtorsact from the same business location.

In addition, there is no prejudice to unsecuredcreditors of any of the Debtors that would result from the proposed substantiveconsolidation. In fact, all unsecured creditors stand to substantially benefit.This is because the obligations to the Senior Secured Lenders are the joint andseveral liability of*all* of theDebtors, and are secured by the assets of*all* of the Debtors. The Debtors believe that the liquidation valueof the Debtors, in the aggregate, is insufficient to satisfy the claims of theSenior Secured Lenders. Therefore, in the absence of the recoveries madeavailable to unsecured creditors solely through the Debtors’ rehabilitation ascontemplated by the Plan, none of the unsecured creditors of any of the Debtorsstands to receive any value on account of their Claims.

Finally, pursuant to Bankruptcy Rule 9019 and anyapplicable state law, and as consideration for the Distribution, classificationof Claims, and other benefits provided under the Plan, the provisions of Article 12.3of the Plan shall constitute a compromise and settlement of any Cause of Actionor dispute that could be brought by any holder of a Claim or Interest assertingthat such holder’s Claim or Interest would have received more favorabletreatment had substantive consolidation not been effected. Specifically,holders of Claims in Class 3 (General Unsecured Claims), the majority ofwhich are against The Boyds Collection, Ltd., L.P., are receiving a higherrecovery under the Plan than holders of Claims in Class 4A (QualifyingNoteholder Claims) and Class 4B (Non-Qualifying Noteholder Claims), whoseClaims are also unsecured, but are against The Boyds Collection, Ltd, an entitywith fewer assets than the Boyds Collection, Ltd., L.P. In addition, under thePlan, any claims against holders of Claims in Class 3 (other thaninsiders) arising under section 547 of the Bankruptcy code are being waived. Thissettlement, pursuant to Bankruptcy Rule 9019, provides holders of Class 3Claims with a greater and more certain Distribution in exchange for reducingthe risk that such holders may attempt to defeat substantive consolidationunder the Plan. The Confirmation Order shall constitute the Bankruptcy Court’sapproval of such settlement and compromise, and its findings that such is ingood faith, pursuant to applicable law, given and made after due notice andopportunity for a hearing, and shall bar any Cause of Action by any holder of aClaim or Interest with respect to any matters described in Article 9 ofthe Plan.

## **5.3**          **Classification andTreatment of Claims and Interests**

### **5.3.1       Generally**

Section 1123 of the Bankruptcy Code requiresthat, for purposes of treatment and voting, a chapter 11 plan divide thedifferent claims against, and equity interests in, the debtors into separateclasses based upon their legal nature. In accordance withsection 1123 of the Bankruptcy Code, claims of a substantially similarlegal nature are usually classified together, as are equity interests whichgive rise to the same legal rights.

Under a chapter 11 plan, the separateclasses of claims and equity interests must be designated either as “impaired”or “unimpaired” by the plan. If a class of claims is “impaired,” theBankruptcy Code affords certain rights to the holders of such claims, such asthe right to vote on the plan (unless the plan provides for no Distribution tothe holders, in which case, the holder is deemed to reject the plan), and (ifthe holder of the claim does not accept the plan) the right to receive underthe plan property of a value that is not less than the value the holder wouldreceive if the debtor were liquidated under chapter 7. Undersection 1124 of the Bankruptcy Code, a class of claims or equityinterests is “impaired” unless the plan (i) does not alter the legal,equitable, or contractual rights of the holders or (ii) irrespective ofthe holders’ acceleration rights, cures all defaults (other than those arisingfrom the debtor’s insolvency, the commencement of the case, or nonperformanceof a non-monetary obligation), reinstates the maturity of the claims or equityinterests in the class, compensates the holders for actual damages incurred asa result of their reasonable reliance upon any acceleration rights, and doesnot otherwise alter their legal, equitable, or contractual rights. Thus, otherthan its right to accelerate the debtor’s obligations, the holder of anunimpaired claim will be placed in the position it would have been in had thedebtor’s case not been commenced.

The Plan divides Claims and Interests into Classes andsets forth the treatment for each Class. In accordance with section l123(a) ofthe Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims

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have not been classified.The Debtors also are required, as discussed above, under section 1122 ofthe Bankruptcy Code, to classify Claims and Interests into Classes that containClaims and Interests that are not dissimilar to the other Claims and Interestsin such Classes. The Debtors believe that the Plan has classified all Claimsand Interests in compliance with the provisions of section 1122 of theBankruptcy Code, but it is possible that a holder of a Claim or Interest maychallenge the classification of Claims and Interests and that the BankruptcyCourt may find that a different classification is required for the Plan to beconfirmed. In such event, the Debtors intend, to the extent permitted by theBankruptcy Court and the Plan, to make such reasonable modifications of theclassifications under the Plan to permit Confirmation and to use the Planacceptances received in this Solicitation for the purpose of obtaining theapproval of the reconstituted Class or Classes of which the acceptingholder is ultimately deemed to be a member.

The classification of Claims and Interests and thenature of Distributions to holders of Impaired Claims or Impaired Interests ineach Class are summarized below. See Article 5.4 herein for adescription of the manner in which the number of shares of New Common Stockwill be determined and Article 9 below, entitled “Risk Factors to beConsidered,” for a discussion of various other factors that could materiallyaffect the value of the New Common Stock distributed pursuant to the Plan.

### **5.3.2       Unclassified Claims**

The Bankruptcy Code does not require classification ofcertain priority claims against a debtor. In these Chapter 11 Cases, theseunclassified Claims include Administrative Expense Claims, Professional FeeClaims, DIP Facility Claims, and Priority Tax Claims. Unless specificallyprovided, all Distributions referred to below that are scheduled for theEffective Date will be made on the Effective Date or as soon as practicablethereafter.

#### *5.3.2.1    Administrative Expense Claims*

Administrative Expense Claims arise from the actualand necessary costs and expenses of the Debtors’ Chapter 11 Cases that areAllowed under section 503(b) of the Bankruptcy Code. Those expenseswill include post-petition salaries and other employee benefits, post-petitionrents, amounts owed to vendors providing goods and services to the Debtorsduring the Chapter 11 Cases, tax obligations incurred after theCommencement Date, reasonable fees and expenses of the Indenture Trustee up to$80,000, and certain statutory fees and charges assessed undersection 1930 of title 28 of the United States Code. The Debtorsanticipate that most Administrative Expense Claims will be paid as they comedue during the Chapter 11 Cases.

Pursuant to the Plan, at least two (2) weeksprior to the Effective Date, the Indenture Trustee shall provide counsel to theDebtors, Laminar and the Creditors’ Committee with documentation describing theIndenture Trustee Fees and Expenses (the “Payment Request”). Unless a writtenobjection to the Payment Request is submitted by the Debtors, Laminar or theCreditors’ Committee prior to the Effective Date, which objection shall setforth with specificity the reasons therefor and state the amounts that areobjectionable, and agreement cannot be reached to resolve such objections, theIndenture Trustee Fees and Expenses up to $80,000 shall be paid on theEffective Date, in full and in Cash, which payment shall not reduce theDistribution to holders of Senior Subordinated Noteholder Claims pursuant to Article 6.3.2of the Plan. In the event the Debtors, Laminar or the Creditors’ Committee, onthe one hand, and the Indenture Trustee, on the other, cannot reach agreementconcerning the Payment Request, the amount of the Indenture Trustee Fees andExpenses shall be determined by the Bankruptcy Court pursuant to a motion filedby any of the parties, and shall be paid in full and in Cash, up to $80,000, asaforesaid, following entry of a Final Order by the Bankruptcy Court or anagreement between the parties resolving such motion. Such motion shall not besubject to Articles 2.1 and 2.2 of the Plan, nor shall the Indenture Trustee berequired to satisfy the requirements of section 503 of the Bankruptcy Code inany such motion. Notwithstanding anything to the contrary herein or in Article 2.1of the Plan, the Indenture Trustee shall be entitled to payment on theEffective Date of all Indenture Trustee Fees and Expenses, up to $80,000, notobjected to by the Debtors, Laminar or the Creditors’ Committee. Pursuant to Article 2.1of the Plan, upon receipt of payment by the Indenture Trustee of the IndentureTrustee Fees and Expenses as set forth herein, the Indenture Trustee ChargingLien shall automatically be deemed releases to the extent of such payment, butonly to the extent thereof.

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#### *5.3.2.2    Professional Fee Claims*

Professional Fee Claims include the actual, reasonablefees and expenses incurred during the Chapter 11 Cases of the Debtors’Professionals and the Professionals retained by the Creditors’ Committee. Allpayments to Professionals for compensation and reimbursement of expenses andall payments to reimburse expenses of members of the Creditors’ Committee shallbe made in accordance with the procedures established by the Bankruptcy Codeand the Bankruptcy Rules relating to the payment of interim and finalcompensation and expenses. The Bankruptcy Court will review and determine allsuch requests. In addition to the foregoing, section 503(b) of theBankruptcy Code provides for payment of compensation to creditors and otherpersons making a “substantial contribution” to a chapter 11 case, and toattorneys for, and other professional advisors to, such persons. Requests forsuch compensation must be approved by the Bankruptcy Court after notice and ahearing at which the Debtors and other parties-in-interest may participate, andif appropriate, object to the allowance thereof.

Each Professional seeking any award in respect of aProfessional Fee Claim incurred through and including the Confirmation Dateshall be required to file and serve a final application for allowance ofcompensation and reimbursement of expenses on or before the date that is sixtydays after the Effective Date. Within five Business Days after a ProfessionalFee Claim is Allowed by Final Order, the relevant Professional shall receive,on account of and in full and complete satisfaction, settlement, release anddischarge of its Allowed Professional Fee Claim, (a) Cash equal to theamount awarded to such Professional by Final Order, less all amounts previouslypaid to such Professional pursuant to any order of the Bankruptcy Courtproviding for payment of interim compensation to Professionals, or (b) suchother less favorable treatment as to which the Debtors and such Professionalshall have agreed upon in writing.

Pursuant to Orders entered by the Bankruptcy Court,the Debtors have paid some Professional Fees incurred to date. While the extentof the remaining Professional Fees to be paid in these Chapter 11 Cases islikely to depend on a number of factors that are currently uncertain (includingthe extent of any objections to Confirmation of the Plan) and therefore cannotbe projected with certainty, the Debtors estimate that the currently unpaidProfessional Fees, incurred through Confirmation, could approximate or exceed$5.0 million. This estimate does not include Professional Fees paid todate, Professional Fees that may be incurred after Confirmation, amounts neededto cure defaults on executory contracts or unexpired leases to be assumedpursuant to the Plan, or other Administrative Expense Claims, includingpost-petition payables incurred in the ordinary course of the Debtors’ businessoperations.

#### *5.3.2.3    Post-Effective Date Fees and Expenses*

Any reasonable fees and expenses:  (a) of Professionals or other attorneys,accountants or other professionals retained by the Debtors or the ReorganizedDebtors for services rendered after the Confirmation Date, including those forservices rendered after the Effective Date relating to objections to DisputedClaims, the implementation of the Plan, and the Indenture Trustee’s Fees andExpenses; or (b) payable under the DIP Facility Agreement, but notsatisfied on the Effective Date (because not yet invoiced by such date orotherwise) shall not require the filing of any applications with theBankruptcy Court and may be paid by the Reorganized Debtors in the ordinarycourse of business and without further Bankruptcy Court approval.

#### *5.3.2.4    DIP**Facility Claims*

The lenders under the DIP Facility Agreement (on a prorata basis based on the amounts owed to them), and the DIP Agent, shall be paid100% of any unpaid non-contingent amount of any DIP Facility Claim and anyoutstanding and unpaid fees and expenses owed to such lenders and DIP Agent,respectively, including but not limited to, the reasonable fees and expenses of counsel, in Cash on the Effective Date, and such DIP Facility Claims otherwiseshall be treated in accordance with the DIP Facility Agreement. Upon payment infull of the DIP Facility Claims, such lenders and the DIP Agent shall releaseany and all Liens against and security interests in the Debtors’ (and theEstates’) property, the DIP Facility Agreement shall be deemed terminated (exceptfor customary provisions that by their terms survive such termination) and the Reorganized Debtors’ obligationsthereunder shall be canceled.

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#### *5.3.2.5    Priority Tax Claims*.

Priority Tax Claims consist of unsecured Claims byfederal, state and local Governmental Units for taxes specified insection 507(a)(8) of the Bankruptcy Code, such as certain incometaxes, property taxes, and excise taxes. These unsecured Claims are given astatutory priority in right of payment.

Each holder of an Allowed Priority Tax Claim shallreceive, on account of and in full and complete settlement, release anddischarge of such Allowed Priority Tax Claim, at the sole option of theReorganized Debtors (exercisable upon written notice to the relevant PriorityTax Claim holder sent on or prior to the Effective Date):  (a) on the latter of (i) theEffective Date (or as soon thereafter as is reasonably practicable), (ii) fiveBusiness Days after the Allowance Date with respect to such Allowed PriorityTax Claim, or (iii) the date on which the Debtors and the holder of suchAllowed Priority Tax Claim otherwise agree, Cash in an amount equal to suchAllowed Priority Tax Claim; (b) beginning on the first anniversaryfollowing the Effective Date or such earlier date as the Bankruptcy Court mayorder, Cash payments made in equal annual (or more frequent if the BankruptcyCourt so orders or the Debtors, with the consent of Laminar,agree) installments, with the final installment being payable no laterthan the sixth anniversary of the date of the assessment of such AllowedPriority Tax Claim, in an aggregate amount equal to such Allowed Priority TaxClaim, together with interest on the unpaid balance of such Allowed PriorityTax Claim calculated from the Effective Date through the date of payment at theApplicable Rate; or (c) such other treatment agreed to by the holder ofsuch Allowed Priority Tax Claim and the Reorganized Debtors.

Although there can be no certainty about the dollaramount of Priority Tax Claims that will be Allowed, the Debtors estimate thatthe amount of Allowed Priority Tax Claims will be approximately $200,000 orless.

### **5.3.3       Classified Claims and Interests**

#### *5.3.3.1    Other Priority Claims (Class 1)*

Other Priority Claims are Claims accorded priorityunder the Bankruptcy Code, other than Priority Tax Claims. On the latest of (a) theEffective Date (or as soon thereafter as is reasonably practicable), or (b) fiveBusiness Days after the Allowance Date for such Other Priority Claim, or (c) thedate on which the Debtors and the holder of such Allowed Priority Claimotherwise agree, each holder of an Allowed Other Priority Claim shall receive,on account of and in full and complete settlement, release and discharge ofsuch Allowed Other Priority Claim, (a) Cash equal to the amount of suchAllowed Other Priority Claim or (b) such other treatment as to which theReorganized Debtors and such holder shall have agreed upon in writing in anamount sufficient to render such Allowed Priority Claim not Impaired undersection 1124 of the Bankruptcy Code.

The Debtors do not believe that there are any materialamounts of Other Priority Claims. The Debtors believe that all employee Claimsthat otherwise might have been entitled to priority were paid pursuant to theDebtors’ first-day Order permitting payment of pre-petition employmentobligations. See Article 4.3.4, above.

Class 1 is not Impaired and therefore shall beconclusively presumed to have accepted the Plan.

#### *5.3.3.2    Senior Secured Claims (Class 2A)*

The Senior Secured Claims arise from the pre-petitionsecured debt of the Debtors. Under the Plan, the Senior Secured Claims shall beAllowed in the amount of $57.7 million, which is the amount of unpaidprincipal and interest owed to the Senior Secured Lenders as of theCommencement Date.

On the Effective Date (or as soon thereafter as isreasonably practicable), on account of and in full and complete settlement,release, and discharge, holders of Senior Secured Claims shall receive, theirPro Rata Share of (A) 48.5% of the New Common Stock, and (B) 100% ofthe New Senior Secured Notes in the aggregate principal amount of$30 million. The New Senior Secured Notes will be secured by Liens on allor substantially all of the assets of the Reorganized Debtors and theirdomestic subsidiaries, including Cash, and junior only to Liens granted underthe Exit Facility.

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Class 2A is Impaired and is entitled to vote onthe Plan.

#### *5.3.3.3    Miscellaneous Secured Claims (Class 2B)*

Miscellaneous Secured Claims are all Claims that aresecured by property of the Debtors other than those described above.

Each Allowed Miscellaneous Secured Claim shall bedeemed to be separately classified in a subclass of Class 2B and shallhave all rights associated with separate classification under the BankruptcyCode.

On the latest of (i) the Effective Date, (ii) thedate on which a Miscellaneous Secured Claim becomes an Allowed Claim, and (iii) thedate on which the Debtors and the holder of such Allowed Miscellaneous SecuredClaim otherwise agree, at the election of the Debtors, each holder of anAllowed Miscellaneous Secured Claim shall be entitled to receive, on account ofsuch holder’s Allowed Miscellaneous Secured Claim, one of the followingtreatments:  (A) the unalteredlegal, equitable and contractual rights to which such holder of an AllowedMiscellaneous Secured Claim is entitled, (B) such holder’s AllowedMiscellaneous Secured Claim shall be reinstated and rendered unimpaired inaccordance with section 1124(2) of the Bankruptcy Code, or (C) suchother treatment as mutually agreed to by such holder and the Debtors.

The Debtors believe there are few, if any,Miscellaneous Secured Claims other than rights of offset that some Creditorshave asserted or may have. Under Article 10.15 of the Plan, unless theBankruptcy Court orders otherwise, any holder of a pre-petition Claim againstany of the Debtors who asserts a right of setoff against any debt owing to anyof the Debtors that arose before the Filing Date must assert such right ofsetoff in a timely filed Proof of Claim or, to the extent such Proof of Claimis not required to preserve such right of setoff under applicable law, withinninety (90) days of the Effective Date, or such right of setoff shall beforever barred. See Article 5.8.10, below.

Class 2B is not Impaired and is conclusivelypresumed to have accepted the Plan.

#### *5.3.3.4    General Unsecured Claims (Class 3)*

Class 3 includes all General Unsecured Claims. GeneralUnsecured Claims consist of any Claim against any of the Debtors that is not anAdministrative Expense Claim, a Professional Fee Claim, a Priority Tax Claim,an Other Priority Claim, a Senior Secured Claim, a Miscellaneous Secured Claim,a Qualifying Noteholder Claim, a Non-Qualifying Noteholder Claim, anIntercompany Claim, or an Interest.

On the later of (i) the Effective Date (or assoon as reasonably practicable thereafter), and (ii) the date on whichsuch General Unsecured Claim becomes an Allowed Claim, each holder of anAllowed General Unsecured Claim shall receive, in Cash, 28% of the allowedamount of such General Unsecured Claims.

Based on their Schedules, the Debtors estimate totalAllowed General Unsecured Claims in this Class will be approximately$4.0 million (although the total dollar amount of the Proofs of Claimthat, if Allowed, would be in this Class may exceed this amount and therecan be no assurances of the total dollar amount of Claims that will beAllowed).

Class 3 is Impairedand is entitled to vote on the Plan.

#### *5.3.3.5    Qualifying Noteholder Claims (Class 4A)*

The Qualifying Noteholder Claims consist of any andall Claims of the Indenture Trustee and holders or beneficial owners of SeniorSubordinated Notes arising under or relating to the Indenture, where theholders of Senior Subordinated Notes have held such Senior Subordinated Notesfor more than 18 months prior to the Commencement Date through the EffectiveDate (solely with respect to such Senior Subordinated Notes).

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Each holder of an Allowed Qualifying Noteholder Claimshall receive Cash in the amount of 22% of the Allowed amount of such AllowedQualifying Noteholder Claim, to be paid on the date upon which a Future Transaction (if any) isconsummated; plus, on the Effective Date, its Pro Rata Share of 5% ofthe New Common Stock, plus its Pro Rata Share of 50% of the Reallocated Shares.

Class 4A is Impaired under the Plan and isentitled to vote on the Plan.

#### *5.3.3.6    Non-Qualifying Noteholder Claims (Class 4B)*

The Non-Qualifying Noteholder Claims consist of anyand all Claims of the Indenture Trustee and holders or beneficial owners ofSenior Subordinated Notes arising under or relating to the Indenture, where theClaims of holders of Senior Subordinated Notes are not Qualifying NoteholderClaims.

Each holder of an Allowed Non-Qualifying NoteholderClaim shall receive Cash in the amount of 24% of the Allowed amount of suchAllowed Non-Qualifying Noteholder Claim, to be paid on the dateupon which a Future Transaction (if any) is consummated.

Class 4B is Impaired under the Plan and isentitled to vote on the Plan.

#### *5.3.3.7    Interests (Class 5A)*

This Class includes all Interests in Boyds’Common Stock (other than stock held by Boyds in treasury) that is not anEquity Convenience Class Interest.

On the Effective Date, all Interests in Boyds will beextinguished and each holder of an Allowed Interest Claim shall receive, onaccount of its Interests, its Pro Rata Share of 46.5% of the New Common Stock,plus its Pro Rata Share of 50% of the Reallocated Shares.

Class 5A is Impaired and is entitled to vote onthe Plan.

#### *5.3.3.8    Equity**Convenience Class Interests (Class 5B)*

This Class includes all Interests in Boyds thatare held of record by holders of not more than 200 shares of Boyds’ CommonStock as of the Distribution Record Date. Holders of Interests in this Class maynot elect to be part of Class 5A instead of Class 5B.

On the Effective Date, each holder of an AllowedEquity Convenience Class Interest shall receive Cash in the amount of 15cents per share of Boyds’ Common Stock held by such holder. This distributionamount is based on the average market price for such Interests during the 30days prior to the initial Disclosure Statement, dated March 14, 2006.

Class 5B is Impaired and is entitled to vote onthe Plan.

## **5.4**          **Terms of Debt and NewSecurities to be Issued under the Plan**

*New Senior Secured Notes*.The New Senior Secured Notes will be senior secured notes of the ReorganizedDebtors, guaranteed by the other Reorganized Debtors, in substantially the formset forth in the Plan Supplement. The New Senior Secured Notes will be in theoriginal principal amount of $30 million and will bear Cash interest atthe rate of LIBOR plus 5.0%. The New Senior Secured Notes will mature in fiveyears from the Effective Date and will be due and payable in full at maturityand will not require any scheduled interim principal payments. The New SeniorSecured Notes will be secured by Liens on all or substantially all of theassets of the Reorganized Debtors and their domestic subsidiaries, junior toLiens securing obligations under the Exit Facility.

*Exit Facility.*Toprovide the Reorganized Debtors with sufficient liquidity and working capitalon a go-forward basis, on the Effective Date, the Reorganized Debtors will,subject to final negotiation and execution with

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the new lenders, enterinto the credit agreement for the Exit Facility, in substantially the form setforth in the Plan Supplement. The Exit Facility will be comprised of an$11 million revolving credit facility with a $4 million sub-limit forletters of credit, and providing for over-advance borrowings for the months ofJuly, August, September, and October. The Exit Facility will mature in threeyears and will bear Cash interest at a rate based on LIBOR plus 3.0%. The ExitFacility will be secured by a first priority, perfected security interest inall or substantially all of the  assetsof the Reorganized Debtors and their domestic subsidiaries.

*New Common Stock*. ReorganizedBoyds will have 10 million authorized shares of New Common Stock, par value$0.0001 per share. At consummation, approximately 2 million shares areexpected to be issued under the Plan. Each share will have one vote on allmatters submitted to the stockholders generally.

## **5.5**          **Sources of Cash to MakePlan Distributions**

Except as otherwise provided in the ConfirmationOrder, Cash necessary for the Reorganized Debtors to make payments pursuant tothe Plan shall be obtained from operating cash flow or from borrowings underthe Exit Facility. Nothing in the Plan will preclude Laminar or any third partyfrom providing additional funding (on a secured or other basis) on orafter the Effective Date for capital items or other expenses of the ReorganizedDebtors, subject to any restrictions that may be contained in the PlanDocuments.

## **5.6**          **UnexpiredLeases and Executory Contracts**

### **5.6.1       Generally**

Under section 365 of the Bankruptcy Code, theDebtors have the right, subject to Bankruptcy Court approval, to assume orreject executory contracts or unexpired leases. If an executory contract or unexpiredlease entered into before the Commencement Date is rejected by the Debtors, itwill be treated as if the Debtors breached such contract or lease on the dateimmediately preceding the Commencement Date, and the other party to theagreement may assert a General Unsecured Claim for damages incurred as a resultof the rejection. In the case of rejection of real property leases andemployment agreements, damages are subject to certain limitations imposed bysections 365 and 502 of the Bankruptcy Code.

### **5.6.2       Assumption and Rejection of ExecutoryContracts and Unexpired Leases**

On the Effective Date, subject to Article 8.1 ofthe Plan, all executory contracts and unexpired leases to which any or all ofthe Debtors are a party shall be deemed assumed, except for any executorycontracts or unexpired leases that (a) have already, by such date, beenassumed or rejected pursuant to Final Order, (b) are designated as acontract or lease to be rejected on the Schedule of Rejected Contracts andLeases to the Plan Supplement, as such Schedule of Rejected Contracts andLeases may be amended from time to time on or prior to the Confirmation Date,or (c) are the subject of a separate motion by the Debtors to assume orreject pursuant to section 365 of the Bankruptcy Code. The Debtors mayamend the Schedule of Rejected Contracts and Leases at any time on or prior tothe Confirmation Date by filing such amendment with the Bankruptcy Court andserving it on the non-debtor parties to the executory contracts or unexpiredleases added to or deleted from the Schedule of Rejected Contracts and Leases.

On the Effective Date, each executory contract orunexpired lease of any and all of the Debtors on the Schedule of RejectedContracts and Leases, as it may be amended from time to time on or prior to theConfirmation Date, shall be rejected by the Reorganized Debtor identified inthe Schedule of Rejected Contracts and Leases as the Debtor-party to suchexecutory contract or unexpired lease.

Notwithstanding anything to the contrary contained inthe Plan, the Debtors reserve the right, through the date that is 90 days afterthe Effective Date, to File a motion, complaint or other pleading with theBankruptcy Court seeking to “recharacterize” any agreement in the form of alease of personal or real property as, or declare such an agreement, afinancing. To the extent that, in response to such a pleading, the BankruptcyCourt enters a Final Order, either before, on, or after the Effective Date,that any such agreement identified for assumption pursuant to the Plan is, infact, a financing transaction, the non-debtor party to the Agreement shall havea Miscellaneous

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Secured Claim to theextent that its Claim for the indebtedness resulting from therecharacterization is a Secured Claim secured by an unavoidable Lien and, toany other extent, a General Unsecured Claim.

### **5.6.3       Bar Date for Rejection Damages**

Unless otherwise provided by a Final Order enteredprior to the Confirmation Date, if the rejection of any executory contract orunexpired lease of any and all of the Debtors gives rise to any Claim againstany of the Debtors, a Proof of Claim with respect to such Claim must be Filed(with a copy served on the Debtors) within sixty (60) days after the later of (i) the date ofentry of an order of the Bankruptcy Court approving such rejection or(ii) the Confirmation Date. Any such Claims not filed within such timesshall be forever barred from assertion against the respective Debtor, itsEstate, and its property. All Claims arising from the rejection ofexecutory contracts or unexpired leases shall be classified as a GeneralUnsecured Claim; provided, however, with respect to any unexpired lease ofequipment or other property that is rejected (and that is not “recharacterized”under Article 8.1(b) of the Plan or that is not otherwise addressedtherein), the equipment shall be returned to the non-Debtor party to the lease.

### **5.6.4       Cure of Defaults**

Except to the extent that different treatment has beenagreed to by the non-Debtor party to any executory contract or unexpired leaseto be assumed pursuant to the Plan, the Debtors shall, pursuant tosections 365, l123(a)(5)(G) and l123(b)(2) of the BankruptcyCode, on the Effective Date (or such other date as the Bankruptcy Court mayrequire), file with the Bankruptcy Court, and serve on the non-Debtor party toeach such executory contract or unexpired lease to be assumed, a notice listingthe monetary payment or other action the Debtors assert is needed undersection 365 of the Bankruptcy Code to cure all defaults by the Debtorsunder the executory contract or unexpired lease to be assumed arising oraccruing on or prior to the Effective Date. The non-Debtor party shall havefifteen days from the date of service of such notice to file with theBankruptcy Court and serve on the Debtors any objection to the proposedmonetary cure amount or other cure set forth in the notice served by theDebtors. If such an objection is not timely filed and served, the monetary cureamount or other cure set forth in the Debtors’ notice shall control, theDebtors shall pay any such monetary cure amount in Cash and promptly performany such non-monetary cure (unless the Debtors and the non-Debtor party to theexecutory contract or unexpired lease have agreed to different treatment), andthe non-Debtor party shall be forever barred from claiming that any additionalmonetary cure amount or other cure is owed by any of the Debtors under theexecutory contract or unexpired lease as a result of any default arising oraccruing on or prior to the Effective Date. If an objection is timely filed andserved by the non-Debtor party to the executory contract or unexpired lease,the Bankruptcy Court shall determine the proper monetary cure amount or othercure in accordance with section 365 of the Bankruptcy Code.Notwithstanding anything to the contrary contained in the Plan, at all timesthrough the date that is five Business Days after the Bankruptcy Court enters aFinal Order resolving and fixing any disputed cure or cure amount, the Debtorsshall have the right to reject such executory contract or unexpired leasewithout further Bankruptcy Court Order by providing notice of the rejection tothe non-Debtor party to the executory contract or unexpired lease.

## **5.7         ****Implementation of the Plan**

### **5.7.1       Vesting of Property**

Except as otherwise provided in the Plan, on theEffective Date, title to all property of the Debtors’ Estates shall pass to andvest in the applicable Reorganized Debtors, free and clear of all Claims,Interests, Liens, security interests, charges and other encumbrances.Confirmation of the Plan (subject to the occurrence of the Effective Date)shall be binding and all holders of a Claim or Interest in the Debtors, and theDebtors’ debts shall, without in any way limiting Article 12.1 of thePlan, be discharged, as and to the full extent provided in section 1141 ofthe Bankruptcy Code.

### **5.7.2       Corporate or Other Action for ReorganizedDebtors**

On the Effective Date (oras soon as reasonably practicable thereafter), Reorganized Boyds shall filewith the Secretary of State of the State of Maryland, the Reorganized BoydsCertificate of Incorporation and such 

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certificate shall be the certificate of incorporationfor Reorganized Boyds. On the Effective Date, the Reorganized Boyds By-Lawsshall become the By-Laws of Reorganized Boyds. On the Effective Date (or assoon as reasonably practicable thereafter), each of the Reorganized Debtors(other than Reorganized Boyds) shall file with the Secretary of State oftheir respective states of incorporation or organization their New SubsidiaryCertificates of Incorporation (or other constituent documents) and suchNew Subsidiary Certificates of Incorporation shall be the certificates ofincorporation (or other relevant documents) for the Reorganized Debtors(other than Reorganized Boyds). On the Effective Date, the By-Laws of eachSubsidiary Debtor shall become the By-Laws of the respective ReorganizedDebtors (other than Reorganized Boyds).

### **5.7.3       Implementation**

Pursuant to the Confirmation Order and uponConfirmation of the Plan, the Reorganized Debtors shall be authorized to takeall necessary or appropriate steps, and perform all necessary or appropriateacts, to consummate the terms and conditions of the Plan. The ReorganizedDebtors shall be authorized to and shall execute all Plan Documents,instruments and such other documents, and take such other actions, as are necessaryor appropriate to effectuate the transactions provided for in the Plan, withoutthe need for any additional approvals, authorizations and consents.

### **5.7.4       Issuance of New Securities**

The issuance and Distribution of the New Common Stockwill be authorized and directed (by Confirmation of the Plan and the occurrenceof the Effective Date) without the need for any further corporate or otheraction, under applicable law, regulation, order, rule or otherwise. Inaccordance with section l146(c) of the Bankruptcy Code, the issuance,transfer or exchange of a security, or the making or delivery of an instrumentof transfer under the Plan, including the granting or recording of any Lien(including a mortgage) on any property under the credit agreement for theExit Facility and the New Senior Secured Note documents may not be taxed underany law imposing a stamp tax or similar tax, including a mortgage recordingtax.

### **5.7.5       Cancellation of Existing Securities andAgreements**

As of theEffective Date, the Certificates shall evidence solely the right to receivefrom the Debtors the Distributions of the consideration, if any, set forth in Article 6of the Plan. On the Effective Date, except as otherwise provided for in thePlan, (i) the Extinguished Securities, to the extent not alreadycancelled, shall be deemed cancelled and of no further force or effect withoutany further action on the part of the Bankruptcy Court or any other Person and (ii) theobligations of the Debtors under the Extinguished Securities and under theDebtors’ certificates of incorporation, or other constituent documents, or any agreements, indentures, orcertificates of designations, governing the Extinguished Securities shall beterminated and discharged; provided, however, that each indentureor other agreement that governs the rights of the holder of a Claim based onthe Extinguished Securities and that is administered by an indenture trustee,agent, or servicer shall continue in effect solely for the purposes of (a) allowingsuch indenture trustee, agent, or servicer to make the Distributions to be madeon account of such Claims and (b) permitting such indenture trustee,agent, or servicer to maintain any rights it may have for fees, costs, andexpenses under such indenture or other agreement. Additionally, thecancellation of any indenture shall not impair the rights and duties under suchindenture as between the indenture trustee thereunder and the beneficiaries ofthe trust created thereby. The Boyds Subsidiary Debtor Stock shall not becancelled, but shall be reinstated and shall vest in Reorganized Boyds as ofthe Effective Date.

Any actions takenby an indenture trustee, agent or servicer that are not for the purposesauthorized under the Plan shall not be binding upon the Debtors.  Except with respect to the making ofDistributions, as provided in the preceding paragraph, the Reorganized Debtorsmay, with or without cause, terminate any indenture or other governingagreement and the authority of any indenture trustee, agent or servicer to actthereunder at anytime by giving five Business Days’ written notice oftermination to the indenture trustee, agent or servicer. As of the EffectiveDate, all Liens, charges, encumbrances and rights related to any Claim orInterest, including, without limitation, those existing under the Indenture,the Senior Subordinated Notes, and any other documents, except to the extentspecifically permitted under Article 9 of the Plan shall be terminated,null and void and of no effect; provided, however, that the Indenture and otheragreements that govern the rights of the holders of Senior SubordinatedNoteholder Claims shall continue in effect for the purpose of allowing theIndenture Trustee to make

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the Distributionsunder the Plan on account of such Claims and enforce the Indenture TrusteeCharging Lien, at which point the Indenture shall be cancelled and dischargedpursuant to section 1141 of the Bankruptcy Code.

### **5.7.6       Board of Directors and Officers ofReorganized Debtors**

On the EffectiveDate, the term of each member of the current Board of Directors of Boyds shallautomatically expire. The initial Board of Directors of Reorganized Boyds onand after the Effective Date shall consist of four members, consisting of thepost-Effective Date Chief Executive Officer of Reorganized Boyds and threemembers to be designated by the Senior Secured Lenders. The Debtors shallidentify the individuals proposed to serve as directors of Reorganized Boyds nolater than May 15, 2006, however, such list may be subject to amendment thereafter.The list of proposed directors, together with background information regardingsuch proposed directors, will be made available on the website of theSolicitation Agent, www.gardencitygroup.com/cases/bbc, and will also bemade available by written request to the Garden City Group, Inc., Attn.Boyds Balloting Agent, 105 Maxess Road, Melville, NY 11747 or by calling 1-800-916-4890.Such list will be included in the Plan Supplement, which shall be Filed withthe Bankruptcy Court on or before the date that is ten calendar days prior tothe Confirmation Hearing. The Board of Directors of Reorganized Boyds shallhave the responsibility for the overall management, control, and operation ofReorganized Boyds on and after the Effective Date in accordance with applicablelaw. The members of the Debtors’ management team shall maintain their currentpositions as executive officers of the Reorganized Debtors on and after theEffective Date, unless otherwise provided in the Plan Supplement. The currentofficers and directors of each of the Boyds Subsidiaries shall also serve asthe officers and directors of each of the Reorganized Boyds Subsidiaries,respectively, on and after the Effective Date unless otherwise provided in thePlan Supplement or otherwise determined by the Board of Directors ofReorganized Boyds.

### **5.7.7       Survival of Indemnification andContribution Obligations**

Notwithstanding anything to the contrary contained inthe Plan, subject to and up to the amount of any available insurance coverageunder the Debtors’ policies available to indemnify the Debtors for suchobligations (subject to reduction as coverage may be used and reduced), theobligations of the Debtors to indemnify and/or provide contribution to theirdirectors, officers, mangers, agents, employees and representatives who areserving in such capacity on the Confirmation Date, in respect of all past,present and future actions, suits, proceedings or claims against any of suchdirectors, officers, managers, agents, employees and representatives, basedupon any act or omission related to service with, for or on behalf of theDebtors, whether occurring before or after the Effective Date, shall not bedischarged or impaired by Confirmation or Consummation of the Plan, but rathershall survive unaffected by the Plan and the Confirmation Order and be assumedby the Reorganized Debtors to the extent of such insurance coverage. To the extent that any such insurancecoverage is insufficient to render Unimpaired any Claim for indemnity and/orcontribution of any of the Debtors’ directors, officers, managers, agents,employees and representatives, such person shall be entitled to File a Proof ofClaim or Interest for such indemnity and/or contribution, which will be treatedin accordance with the applicable provisions of the Bankruptcy Code and thePlan. Any such Claim must be filed within thirty days of the Confirmation Date.Any such Claim not filed by that date shall be forever barred, and maynot be asserted against any or all of the Debtors, the Reorganized Debtors, orthe property or interests in property of the Debtors or the ReorganizedDebtors.

### **5.7.8       Creditor Representative**

By not later than May 15, 2006, the Creditors’ Committee shalldesignate the Creditor-Representative. The Creditor Representative shall havethe right to attend and observe, but not vote at, any meeting of the Board ofDirectors of Reorganized Boyds, and shall be provided advance notice of anysuch meetings to the same extent provided to the members of the Board ofDirectors.

The Creditor Representative shall be provided any documents and informationregarding the Reorganized Debtors as may be provided by the Reorganized Debtorsto the members of the Board of Directors (in their capacities as such). For theavoidance of doubt, such information shall always include notice of anyTransaction (other than a Transaction described in Article 1.1.63 of thePlan) and, upon the reasonable request of the Creditor Representative, shallinclude any additional financial or other information in the possession of, orreasonably available to, Reorganized Boyds and necessary, in the reasonablejudgment of the Creditor Representative, to

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determine if such Transaction is a Future Transaction. In addition, theCreditor Representative shall be entitled to receive unaudited quarterly andannual financial statements for Reorganized Boyds (which shall include anincome statement, balance sheet, and statement of cash flows), irrespective ofwhether the same is provided to the Board of Directors of Reorganized Boyds.

The Creditor Representative shall have a duty ofconfidentiality to Reorganized Boyds commensurate with that of the members ofthe Board of Directors and shall be prohibited from using confidentialinformation obtained in its capacity as a Creditor Representative for anypurpose other than for the purpose of exercising its rights andresponsibilities accorded under this Plan. In furtherance of, and consistentwith, Article 9.10(c) of the Plan, as of the Effective Date,Reorganized Boyds and the Creditor Representative shall enter into an agreementreasonably acceptable to Reorganized Boyds and the Creditor Representative withrespect to such matters and to such other matters (including conflicts ofinterest, corporate opportunity and information about the CreditorRepresentative) customarily addressed in similar arrangements between a companyand its non-employee directors. The Creditor Representative shall have no otherduties or obligations to Reorganized Boyds except as set forth in Article 9.10of the Plan and such agreement.

The Creditor Representative shall represent theinterests of the holders of Allowed Claims in Classes 4A and 4B under Article 4.2of the Plan; *provided, however*,that the Creditor Representative shall have no liability to such holders exceptin the event of the Creditor Representative’s willful misconduct. Specifically,the Creditor Representative shall be entitled to make his own independentjudgment as to whether any Transaction qualifies as a Future Transaction. Ifthere is a Disagreement, the Creditor Representative: (i) shall promptlynotify Reorganized Boyds and holders of Allowed Claims in Classes 4A and 4B ofsuch Disagreement; and (ii) shall have standing, on behalf of all suchholders, to bring such Disagreement to the Bankruptcy Court for adjudication,by motion filed not 90 days after the date that the Creditor Representativefirst notified Reorganized Boyds in writing of the existence of a Disagreement.Notwithstanding the foregoing, in the event of a Disagreement, the CreditorRepresentative’s only duty shall be to provide notice in accordance with clause(i) hereof and the Creditor Representative shall have no obligation tobring any Disagreement to the Bankruptcy Court for adjudication.

In the event of a resignation of the CreditorRepresentative, the Creditor Representative shall name a successor CreditorRepresentative. In the event of a Vacancy, a successor Creditor Representativemay be designated by the holder or holders of a majority of outstanding AllowedClaims in Classes 4A and 4B, collectively. Notice of a Vacancy shall beprovided by the Reorganized Debtors solely by: (i) the posting of a noticeof such Vacancy and the opportunity of a majority holder to fill such Vacancyon the Reorganized Debtors’ website; and (ii) the filing of such notice inthe Bankruptcy Court, if the Chapter 11 Cases remain pending at the time ofsuch Vacancy.

For the purposes of determining whether one or a groupof holders that wish to remove or designate a successor Creditor Representativepursuant to Article 9.10(e) of the Plan hold a majority of theoutstanding Allowed Claims in Classes 4A and 4B, Reorganized Boyds shall beentitled to conclusively rely upon sworn written certifications provided by therelevant holders.

The Creditor Representative shall not be entitled toany compensation, but shall be entitled to be reimbursed by Reorganized Boydsfor its reasonable out-of-pocket expenses that may be incurred in connectionwith its attendance at meetings of the Board of Directors of Reorganized Boyds.The role of the Creditor Representative shall permanently terminate upon theearlier of: (i) the date upon which a Future Transaction is consummated;and (b) 36 months after the Effective Date (unless there is aDisagreement).

### **5.7.9       Reorganized Debtors’ Retention of ClaimsAgainst Other Persons or Entities**

The Debtors are currently investigating whether topursue potential Causes of Action against certain Persons or Entities. Theinvestigation has not been completed to date, and the Reorganized Debtors shallretain all rights on behalf of the Debtors to commence and pursue any and allCauses of Action (under any theory of law, including, without limitation, theBankruptcy Code, and in any court or other tribunal including, without limitation,in an adversary proceeding Filed in the Chapter 11 Cases) discoveredin such an investigation to the extent the Reorganized Debtors deem appropriate.Potential Causes of Action currently being investigated by the Debtors,

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which may but need not be pursued by the Debtors priorto the Effective Date and by the Reorganized Debtors after the Effective Dateto the extent warranted include, without limitation:

Any other Causes ofAction, whether legal, equitable or statutory in nature, arising out of, or inconnection with the Debtor’s businesses or operations, including, withoutlimitation, the following:  possibleclaims against vendors, landlords, sublessees, assignees, customers orsuppliers for warranty, indemnity, back charge/set-off issues, overpayment orduplicate payment issues and collections/accounts receivables matters; depositsor other amounts owed by any creditor, lessor, utility, supplier, vendor,landlord, sublessee, assignee, or other entity; employee, management oroperational matters; claims against landlords, sublessees and assignees arisingfrom the various leases, subleases and assignment agreements relating thereto,including, without limitation, claims for overcharges relating to taxes, commonarea maintenance and other similar charges; financial reporting; environmental,and product liability matters; actions against insurance carriers relating tocoverage, indemnity or other matters; counterclaims and defenses relating tonotes or other obligations; contract or tort claims which may exist orsubsequently arise;

Any and all AvoidanceActions pursuant to any applicable section of the Bankruptcy Code,including, without limitation sections 544, 545, 547, 548, 549, 550, 551,553(b) and/or 724(a) of the Bankruptcy Code, arising from anytransaction involving or concerning any of the Debtors;(2) and

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(2)           TheDebtors have not yet analyzed the projected realizable value from the recoveryof any preferential or otherwise voidable transfers.

Any and all Causes ofAction listed in the Schedule of Causes of Action set forth in the PlanSupplement.

Notwithstanding anythingin this Article to the contrary, and pursuant to Article 9.11 of thePlan, as a component of the Plan consideration negotiated with the Creditors’Committee, the Debtors expressly waive their rights to pursue (including by wayof counterclaim or setoff) any actions pursuant to section 547 of theBankruptcy Code against holders of General Unsecured Claims (other thaninsiders).(3)

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(3)           TheDebtors estimate that an aggregate amount of $18 million was transferred by theDebtors to non-insiders within 90 days prior to the Commencement Date.  Some or all of these transfers might arguablybe Avoidance Actions potentially recoverable by the Debtors.  However, the Debtors believe a substantialamount, if not all, of these transfers would not constitute actions undersection 547 of the Bankruptcy Code or would be subject to substantial defensesfor, among other things, payments made in the ordinary course of business, newvalue, and contemporaneous exchange of value. As such, when considering the potential cost of litigation, the likelyoutcome of litigation, the time value of money, the Distributions under thePlan, and to achieve a consensual plan of reorganization, the Debtors’ havedetermined that they will not pursue Avoidance Actions against holders ofGeneral Unsecured Claims. 

A list of potentialCauses of Action (“List of Retained Causes of Action”) will be set forth in thePlan Supplement to the extent determined as of the date thereof.

In addition, there may benumerous other Causes of Action which currently exist or may subsequently arisethat are not set forth herein, or in the List of Retained Causes of Action,because the facts upon which such Causes of Action are based are not currentlyor fully known by the Debtors and, as a result, can not be raised during thependency of the Chapter 11 Cases (collectively, the “Unknown Causes ofAction”). The failure to list any such Unknown Cause of Action herein, or inthe List of Retained Causes of Action, is not intended to limit the rights ofthe Reorganized Debtors to pursue any Unknown Cause of Action to the extent thefacts underlying such Unknown Cause of Action subsequently become fully knownto the Debtors.

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Unless Causes of Actionagainst a Person or Entity are expressly waived, relinquished, released,compromised or settled in the Plan or any Final Order, the Debtors expresslyreserve all Causes of Action and Unknown Causes of Action, including the Causesof Action described herein and in the List of Retained Causes of Action, aswell as any other Causes of Action or Unknown Causes of Action, for lateradjudication and therefore, no preclusion doctrine, including, withoutlimitation, the doctrines of *res judicata*,collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,equitable or otherwise) or laches shall apply to such Causes of Action upon orafter the Confirmation or Consummation of the Plan. In addition, the Debtorsexpressly reserve the right to pursue or adopt any claims alleged in anylawsuit in which the Debtors are a defendant or an interested party, againstany Person or Entity, including, without limitation, the plaintiffs andco-defendants in such lawsuits.

Except as otherwiseprovided in the Plan or in any contract, instrument, release, indenture orother agreement entered into in connection with the Plan, in accordance withsection 1123(b)(3) of the Bankruptcy Code, any claims, rights, andCauses of Action that the respective Debtors and their Estates may hold againstany Person or Entity shall vest in the Reorganized Debtors, and the ReorganizedDebtors shall retain and may exclusively enforce, as the authorizedrepresentatives of the respective Estates, any and all such claims, rights or Causesof Action. The Reorganized Debtors may pursue any and all such claims, rights,or Causes of Action, as appropriate, in accordance with the best interests ofthe Reorganized Debtors. The Reorganized Debtors shall have the exclusiveright, authority, and discretion to institute, prosecute, abandon, settle, orcompromise any and all such claims, rights, and Causes of Action without theconsent or approval of any third party and without any further order of court. TheDebtors are not aware of any material transactions with Insiders, as such termis defined in section 101(31) of the Bankruptcy Code.

### **5.7.10     Effective Date**

The Plan provides that the Effective Date will be thefirst Business Day on or after the Confirmation Date on which (a) no stayof the Confirmation Order is in effect (which date may be before the expirationof the 10-day period specified in Bankruptcy Rule 3020(e) if sorequested by the Reorganized Debtors and ordered by the Bankruptcy Court); and (b) allconditions to the effectiveness of the Plan and Consummation specified in Article 13.2of the Plan have been satisfied or waived, or such later date as the Debtorsmay determine prior to the entry of the Confirmation Order.

## **5.8          ProvisionsCovering Distributions**

### **5.8.1       Cash Payments**

Any Cash payment to be made pursuant to the Plan maybe made, at the option of the Reorganized Debtors, by draft, check, wiretransfer, or as otherwise required or provided in any relevant agreement orapplicable law. Cash payments to foreign Creditors may be made, at the optionof the Reorganized Debtors, in such funds and by such means as are necessary orcustomary in a particular foreign jurisdiction. Cash payments made pursuant tothe Plan in the form of checks shall be null and void if not cashed within 120days of the date of the issuance thereof. Requests for reissuance of any checkshall be made directly to the Reorganized Debtors as set forth in Article 10.12of the Plan.

### **5.8.2       Payment of Statutory Fees**

All fees payable pursuant to 28 U.S.C. § 1930that are due through the Effective Date shall be paid by the Debtors and anysuch fees payable by the Reorganized Debtors thereafter shall be paid by theReorganized Debtors as and when due.

### **5.8.3       No Interest**

Except with respect to holders of unimpaired Claims orAdministrative Expense Claims to the extent they are entitled to interest underapplicable law or as otherwise expressly provided in the Plan, no holder of anAllowed Claim or Interest shall receive interest on the Distribution to whichsuch holder is entitled under the Plan, regardless of whether such Distributionis made on the Effective Date or thereafter.

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### **5.8.4       Fractional Securities**

Notwithstanding any other provision of the Plan, onlywhole numbers of shares of New Common Stock will be issued or transferred, asthe case may be, pursuant to the Plan. Reorganized Boyds will not distributeany fractional shares of New Common Stock under the Plan. For purposes ofDistributions, fractional shares of New Common Stock shall be rounded up ordown to the nearest share of New Common Stock, with 1⁄2 shares or greater beingrounded up.

### **5.8.5       De Minimis Distributions**

No Cash payment of less than $10 shall be required tobe made to the holder of any Claim or Interest.

### **5.8.6       Withholding of Taxes**

The Reorganized Debtors may withhold from any property distributable underthe Plan to the extent required by applicable law. As a condition to making anyCash Distribution, the Reorganized Debtors may request that the holder of anyAllowed Claim provide such holder’s taxpayer identification and such othercertification as may be deemed necessary to comply with applicable taxreporting and withholding laws. As a condition to making any Distribution ofNew Common Stock, the Reorganized Debtors shall have received from the intendedrecipient of such Distribution, prior to the Effective Date, such forms anddocumentation as are necessary or appropriate to establish a complete exemptionfrom withholding taxes. To the extent that such exemption is not establishedprior to the Effective Date, any shares that would have been distributed tosuch intended recipient shall instead become Reallocated Shares. Anyamount to be distributed pursuant to the Plan shall, pending the implementationof such arrangements, be treated as undeliverable pursuant to Article 5.8.8hereof.

### **5.8.7       Surrender of Instruments**

As a condition to receiving any Distribution under thePlan, at the election of the Reorganized Debtors, each holder of an Instrumentevidencing a Claim or  Interest mustsurrender such Instrument to Reorganized Boyds or its designee. Except as mayotherwise be agreed by the Reorganized Debtors, any holder of a Claim orInterest that fails to (a) surrender such Instrument or (b) executeand deliver an affidavit of loss and/or indemnity reasonably satisfactory tothe Reorganized Debtors or their designee before the later to occur of (i) oneyear following the Effective Date and (ii) six months following the datesuch holder’s Claim or Interest becomes an Allowed Claim or Allowed Interest,shall be deemed to have forfeited all rights, Claims, and/or Interests and maynot participate in any Distribution under the Plan. Upon timely compliance withArticle 10 of the Plan, the holder of a Claim or Interest evidenced by anysuch lost, stolen, mutilated or destroyed Instrument will, for all purposesunder the Plan, be deemed to have surrendered such Instrument.

### **5.8.8       Undeliverable or Unclaimed Distributions**

If a Distribution under the Plan is undeliverableand/or remains unclaimed twelve (12) months following the date of suchDistribution, then the holder of the applicable Allowed Claim shall cease to beentitled to such Distribution and such Distribution shall, subject toapplicable law, be retained by the Reorganized Debtor. Requests for re-issuanceof any checks must be made to the Reorganized Debtors, in writing, withinninety days of the original date of issue of the check.

### **5.8.9       Effect of Foreign Proceedings**

If any Entity receives, in a foreign proceeding,payment of, or a transfer of property on account of, an Allowed Claim, suchEntity may not receive any payment under the Plan on account of such Claimuntil each of the other holders of Claims in the same Class has receivedunder the Plan Distributions, based on such other holders’ Pro Rata Share,equal in value to the consideration received by such Entity in the foreignproceeding.

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### **5.8.10     Distribution Record Date**

Except as and to the extent otherwise required by thecustomary procedures of DTC, to the extent applicable, as of the close ofbusiness on the Distribution Record Date, the various transfer registers foreach of the Classes of Claims or Interests as maintained by the Debtors, ortheir agents, will be deemed closed, and there will be no further changes inthe record holders of any of the Claims or Interests. The Debtors and theReorganized Debtors will have no obligation to recognize any transfer of Claimsor Interests that occur on or after the Distribution Record Date. The Debtorsand the Reorganized Debtors will be entitled to recognize and deal for allpurposes under the Plan only with those record holders stated on the transferledgers as of the close of business on the Distribution Record Date, to theextent applicable. Notwithstanding the foregoing or anything to the contrary inthe Plan, in connection with any Distribution under the Plan to be effectedthrough the facilities of DTC (whether by means of book-entry exchange, freedelivery, DTC’s procedure for Delivery/Withdrawal At Custodian (DWAC) orotherwise), the Debtors and the Reorganized Debtors will be entitled torecognize and deal for all purposes under the Plan with holders to the extentconsistent with the customary practices of DTC used in connection with suchDistribution.

### **5.8.11     Distributions to Holders of Claims in Class 4Aand Class 4B**

All Distributions (if any) on account of Claims in Class 4Aor Class 4B shall be made as provided for in Article 10.10 of thePlan. Any such Distribution by the Indenture Trustee shall be made pursuant tothe terms of the Plan and the Indenture. Subject to the Indenture Trustee’sreceipt of Distributions from the Debtors, the Indenture Trustee shall besolely responsible for all Distributions to holders of Allowed Claims in Class 4Aand Class 4B and no such holder shall have any Claim against the ReorganizedDebtors for any act or omissions of the Indenture Trustee. Notwithstanding anyprovision in the Plan to the contrary, the Indenture shall continue in effectto the extent necessary to allow the Indenture Trustee to receive and makeDistributions pursuant to the Plan on account Claims in Class 4A or Class 4B.Any actions taken by the Indenture Trustee on or after the Effective Date thatare not consistent with the Plan and Indenture shall be null and void asagainst the Reorganized Debtors and (except as may otherwise be ordered by theBankruptcy Court) the Reorganized Debtors shall have no obligations to theIndenture Trustee for any fees, costs and expenses incurred in connection withany such unauthorized action.

### **5.8.12     Setoffs**

The Debtors may, but shall not be required to, set offagainst any Claim, and the payments or other Distributions to be made pursuantto the Plan in respect of such Claim, claims (whether arising before, on orafter the Commencement Date or the Effective Date) of any nature whatsoeverthat the Debtors may have against the holder of such Claim; but neither thefailure to do so nor the allowance of any Claim hereunder shall constitute awaiver or release by the Debtors of any such claim that the Debtors may haveagainst such holder.

Nothing within the Plan, including any limitedsubstantive consolidation of the Chapter 11 Cases for purposes ofDistribution contemplated by Article 9.8 of the Plan, is intended or shallbe construed to limit or otherwise affect any claims, defenses or rights of anyDebtor with respect to setoff or recoupment. The Debtors expressly reserve allsuch claims, defenses and rights with respect to setoff and recoupment.

**UNLESSTHE BANKRUPTCY COURT ORDERS OTHERWISE, ANY HOLDER OF A PRE-PETITION CLAIM AGAINSTANY OF THE DEBTORS WHO ASSERTS A RIGHT OF SETOFF AGAINST ANY DEBT OWING TO ANYOF THE DEBTORS THAT AROSE BEFORE THE COMMENCEMENT DATE MUST ASSERT SUCH RIGHTOF SETOFF IN A TIMELY FILED PROOF OF CLAIM OR, TO THE EXTENT SUCH PROOF OFCLAIM IS NOT REQUIRED TO PRESERVE SUCH RIGHT OF SETOFF UNDER APPLICABLE LAW,WITHIN NINETY (90) DAYS OF THE EFFECTIVE DATE, OR SUCH RIGHT OF SETOFFSHALL BE FOREVER BARRED.**

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** **

## **5.9          ProceduresFor Resolving Disputed Claims**

### **5.9.1       Objections to Claims**

After the Effective Date, only the Reorganized Debtorsshall have the authority to (in their sole discretion) File, settle,compromise, withdraw or litigate to judgment objections to Claims. TheReorganized Debtors may object to a Claim by filing an objection with theBankruptcy Court and serving such objection upon the holder of such Claim on orbefore the Claims Objection Deadline, which, as to any pre-petition Claim,shall be the date that is (90) days after the Effective Date or ninety(90) days after the Filing of the Proof of Claim for such Claim, whicheveris later, or such other date determined by the Bankruptcy Court by Final Order.

### **5.9.2       Litigation and Settlement of Objections**

Unless otherwise ordered by the Bankruptcy Court oragreed to by written stipulation of the Debtors or the Reorganized Debtors, oruntil an objection thereto by the Debtors or by Reorganized Debtors iswithdrawn, the Debtors or the Reorganized Debtors shall litigate the merits ofeach Disputed Claim until determined by a Final Order; provided, however, that,(a) prior to the Effective Date, the Debtors, subject to the approval ofthe Bankruptcy Court, and (b) after the Effective Date, the ReorganizedDebtors, without approval of the Bankruptcy Court, may compromise and settle orwithdraw any objection to any Claim, including any Administrative ExpenseClaims.

### **5.9.3       Payments and Distributions With Respectto Disputed Claims**

No payments or Distributions shall be made in respectof any Disputed Claim (or any disputed Administrative Expense Claim) until suchDisputed Claim (or disputed Administrative Expense Claim) becomes an AllowedClaim (or any Allowed Administrative Expense Claim). Distributions to eachholder of a Claim, to the extent that such Claim ultimately becomes an AllowedClaim (or Allowed Administrative Expense Claim), will be made, withoutinterest, in accordance with the provisions of the Plan.

### **5.9.4       Disputed Claim Reserve**

On the Effective Date (or as soon thereafter as ispracticable) the Reorganized Debtors shall establish the Disputed Claim Reserveand shall reserve in respect of each Disputed Claim, Cash in an amount requiredby order of the Bankruptcy Court (including, without limitation, any ClaimsEstimation Order) or, in the absence of such order, an amount of Cash thatwould have been distributed to the holder of such Disputed Claim on theEffective Date (or as soon thereafter as is practicable) if such DisputedClaim had been an Allowed Claim on the Effective Date in an amount equal to theleast of (i) the amount of the Claim filed with the Bankruptcy Court, or,if no amount was specified, an amount reasonably determined by the Debtors, (ii) ifno Claim was filed, the amount listed by the Debtors in the Schedules as notdisputed, contingent or unliquidated, or (iii) the amount, if any, estimatedby the Bankruptcy Court pursuant to section 502(c) of the BankruptcyCode. Any Cash reserved by the Reorganized Debtors on account of such DisputedClaims shall be set aside, segregated and held in interest-bearing accounts orcertificates of deposit. Notwithstanding anything else to the contrarycontained in the Plan, the amount of Cash (plus interest payments and otherpayments and distributions in respect thereof and any interest actually earnedthereon) reserved in respect of any Disputed Claim pursuant to Article 11.5of the Plan shall constitute the maximum amount of Cash to be distributed tothe holder of such Disputed Claim (except with respect to any payments due uponthe occurrence of a Future Transaction).

### **5.9.5       Estimation**

For purposes of effectuating the Plan (including Article 11.4of the Plan) and the allocations and Distributions to holders of Allowed Claimsand Allowed Interests, the Bankruptcy Court may, pursuant to section 502of the Bankruptcy Code, by estimation or otherwise, fix or liquidate the amountof any contingent or unliquidated Claim, in which event the amount so fixedwill be deemed the Allowed amount of such Claim for purposes of the Plan or, inlieu thereof, the Bankruptcy Court may determine the maximum contingent or unliquidatedamount for such Claim, which amount shall be the maximum amount in which suchClaim ultimately

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may be Allowed under the Plan, if such Claim isAllowed in whole or part. The Bankruptcy Court’s determination may limit theDistribution to be made on individual Disputed Claims, regardless of the amountfinally Allowed on account of such Disputed Claims, and no holder shall haverecourse against the Debtors or the Reorganized Debtors or any of theirrespective professional consultants, attorneys, advisors, officers, directors,managers or members or their successors or assigns, or any of their respectiveproperty on account thereof.

## **5.10        EFFECTOF THE PLAN ON CLAIMS AND INTERESTS**

### **5.10.1     DISCHARGE OF ALL CLAIMS AND INTERESTS ANDRELEASES**

##### **(a)           EXCEPT AS OTHERWISESPECIFICALLY PROVIDED BY THE PLAN, CONFIRMATION OF THE PLAN (SUBJECT TO THEOCCURRENCE OF THE EFFECTIVE DATE) SHALL DISCHARGE AND RELEASE THE DEBTORS, THEREORGANIZED DEBTORS, THEIR SUCCESSORS AND ASSIGNS AND THEIR RESPECTIVE ASSETSAND PROPERTIES FROM ANY DEBT, CHARGE, CAUSE OF ACTION, LIABILITY, LIEN,ENCUMBRANCE, SECURITY INTEREST, CLAIM, INTEREST, OR OTHER CAUSE OF ACTION OFANY KIND, NATURE OR DESCRIPTION (INCLUDING ANY CLAIM OF SUCCESSOR LIABILITY)THAT AROSE BEFORE THE CONFIRMATION DATE, AND ANY DEBT OF THE KIND SPECIFIED INSECTIONS 502(g), 502(h) OR 502(i) OF THE BANKRUPTCY CODE,WHETHER OR NOT A PROOF OF CLAIM OR INTEREST IS OR COULD HAVE BEEN FILED, OR ISDEEMED FILED, WHETHER OR NOT SUCH CLAIM OR INTEREST IS OR COULD HAVE BEENALLOWED, AND WHETHER OR NOT THE HOLDER OF SUCH CLAIM OR INTEREST VOTED OR COULDHAVE VOTED TO ACCEPT OR REJECT THE PLAN.**

##### **(b)           EXCEPT AS OTHERWISESPECIFICALLY PROVIDED BY THE PLAN OR THE CONFIRMATION ORDER, EFFECTIVE AS OFTHE EFFECTIVE DATE, NONE OF THE DEBTOR RELEASEES SHALL HAVE ANY RESPONSIBILITY,OR HAVE OR INCUR ANY LIABILITY, TO ANY ENTITY WHATSOEVER (I) FOR ANYMATTER EXPRESSLY APPROVED OR DIRECTED BY THE CONFIRMATION ORDER OR (II) UNDERANY THEORY OF LIABILITY (EXCEPT FOR ANY CLAIM BASED UPON WILLFUL MISCONDUCT ORGROSS NEGLIGENCE) FOR ANY ACT TAKEN OR OMISSION MADE IN GOOD FAITH DIRECTLYRELATED TO FORMULATING, IMPLEMENTING, CONFIRMING, OR CONSUMMATING THE PLAN,THIS DISCLOSURE STATEMENT, OR ANY PLAN DOCUMENT; PROVIDED, HOWEVER, THATNOTHING IN ARTICLE 12.1 OF THE PLAN SHALL LIMIT THE LIABILITY OF ANYENTITY FOR BREACH OF ANY EXPRESS OBLIGATION IT HAS UNDER THE PLAN, THE PLANDOCUMENTS, OR ANY OTHER DOCUMENTS EXECUTED IN CONNECTION THEREWITH OR PURSUANTTHERETO, OR UNDER ANY OTHER AGREEMENT OR DOCUMENT ENTERED INTO BY SUCH ENTITYIN ACCORDANCE WITH OR PURSUANT TO THE TERMS OF THE PLAN, EXCEPT TO THE EXTENTEXPRESSLY PROVIDED IN THE PLAN.  DEBTORRELEASEES ARE THE DEBTORS’ CURRENT OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS,MANAGERS, EMPLOYEES, CONSULTANTS, ATTORNEYS, ACCOUNTANTS, FINANCIAL ADVISORSAND OTHER REPRESENTATIVES (SOLELY IN THEIR CAPACITY AS SUCH), AS OF THECONFIRMATION DATE.**

##### **(c)           EXCEPT AS OTHERWISESPECIFICALLY PROVIDED BY THE PLAN OR THE CONFIRMATION ORDER, ON THE EFFECTIVEDATE, EACH OF THE DEBTORS SHALL RELEASE UNCONDITIONALLY, AND HEREBY IS DEEMEDTO RELEASE UNCONDITIONALLY EACH OF THE DEBTOR RELEASEES FROM ANY AND ALLCLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSES OF ACTION ANDLIABILITIES WHATSOEVER, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN,EXISTING OR HEREAFTER ARISING, IN LAW, EQUITY OR OTHERWISE, BASED IN WHOLE ORIN PART UPON ANY ACT OR OMISSION, TRANSACTION, EVENT OR OTHER OCCURRENCETAKING PLACE ON OR AFTER THE COMMENCEMENT DATE AND UP TO AND INCLUDING THEEFFECTIVE DATE IN ANY WAY RELATING TO THE CHAPTER 11 CASES, THE PLAN ORTHIS DISCLOSURE STATEMENT; PROVIDED, HOWEVER, NOTHING IN THE PLAN SHALL  LIMIT ANY RIGHT TO OBJECT TO ANY PROFESSIONALFEE CLAIM.**

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#####  

##### **(D)         ****NOTWITHSTANDING ANYTHING IN THE PLAN TO THE CONTRARY,AND SOLELY WITH RESPECT TO THE UNITED STATES (WHICH TERM SHALL INCLUDE FORPURPOSES OF THE PLAN, ALL AGENCIES OF THE UNITED STATES), THE DISCHARGEPROVISIONS SET FORTH IN THE PLAN SHALL NOT OPERATE TO EXPAND THE DEBTORS’DISCHARGE BEYOND THOSE ESTABLISHED BY THE BANKRUPTCY CODE, UNLESS OTHERWISEAGREED TO IN WRITING BY THE UNITED STATES AND THE DEBTORS OR THE REORGANIZEDDEBTORS, AS THE CASE MAY BE. THE DISCHARGE PROVISIONS SET FORTH IN THEPLAN ARE NOT INTENDED, AND SHALL NOT BE CONSTRUED, TO BAR THE UNITED STATESFROM PURSUING ANY POLICE OR REGULATORY ACTION AGAINST THE DEBTORS TO THE EXTENTEXCEPTED FROM THE AUTOMATIC STAY PROVISIONS OF SECTION 362 OF THEBANKRUPTCY CODE.**

### **5.10.2     INJUNCTION**

**THE RELEASE AND DISCHARGE PURSUANT TOARTICLE 12 OF THE PLAN SHALL ACT AS AN INJUNCTION AGAINST ANY ENTITY COMMENCINGOR CONTINUING, AGAINST THE DEBTORS, THE REORGANIZED DEBTORS, OR THEIRSUCCESSORS, OR THE PROPERTIES OF ANY OF THE FOREGOING, ANY ACTION, EMPLOYMENTOF PROCESS, OR ACT TO COLLECT, OFFSET OR RECOVER ANY CLAIM OR CAUSE OF ACTIONSO RELEASED OR DISCHARGED. THE INJUNCTION, DISCHARGE AND RELEASES DESCRIBED INARTICLE 12 OF THE PLAN SHALL APPLY REGARDLESS OF WHETHER OR NOT A PROOF OFCLAIM OR INTEREST BASED ON ANY CLAIM, DEBT, LIABILITY OR INTEREST IS FILED ORWHETHER OR NOT A CLAIM OR INTEREST BASED ON SUCH CLAIM, DEBT, LIABILITY ORINTEREST IS ALLOWED, OR WHETHER OR NOT SUCH ENTITY VOTED TO ACCEPT OR REJECTTHE PLAN. WITHOUT IN ANY WAY LIMITING THE FOREGOING, ALL INJUNCTIONS OR STAYSENTERED IN THESE CHAPTER 11 CASES AND EXISTING IMMEDIATELY PRIOR TO THECONFIRMATION DATE SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL THE EFFECTIVEDATE.**

### **5.10.3     RELEASE/EXCULPATION**

**AS OF THE CONFIRMATION DATE, BUTSUBJECT TO THE OCCURRENCE OF THE EFFECTIVE DATE, AND IN CONSIDERATION OF THEDISTRIBUTIONS TO BE RECEIVED UNDER THE PLAN, EXCEPT AS OTHERWISE SPECIFICALLYPROVIDED BY THE PLAN OR THE CONFIRMATION ORDER, (I) EACH HOLDER OF A CLAIMOR INTEREST WHO HAS VOTED TO ACCEPT THE PLAN SHALL BE DEEMED TO HAVEUNCONDITIONALLY RELEASED THE DEBTOR RELEASEES FROM ANY AND ALL CLAIMS,OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSES OF ACTION ANDLIABILITIES WHATSOEVER WHICH ANY SUCH HOLDER MAY BE ENTITLED TO ASSERT,WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR HEREAFTER ARISING,IN LAW, EQUITY OR OTHERWISE, BASED IN WHOLE OR IN PART UPON ANY ACT OROMISSION, TRANSACTION, EVENT OR OTHER OCCURRENCE TAKING PLACE FROM THEBEGINNING OF TIME UP TO AND INCLUDING THE EFFECTIVE DATE IN ANY WAY RELATING TOTHE CHAPTER 11 CASES, THE PLAN OR THIS DISCLOSURE STATEMENT, EXCEPTING,HOWEVER, FROM SUCH RELEASE ANY OBLIGATION OWING TO A HOLDER OF AN ALLOWED CLAIMOR INTEREST ARISING UNDER THE PLAN, AND FURTHER EXCEPTING ANY ACT OF GROSSNEGLIGENCE OR WILLFUL MISCONDUCT; AND (II) EACH HOLDER OF A CLAIM ORINTEREST SHALL BE DEEMED TO HAVE UNCONDITIONALLY RELEASED THE DEBTOR RELEASEESFROM ANY AND ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, RIGHTS, CAUSESOF ACTION AND LIABILITIES WHATSOEVER WHICH ANY SUCH HOLDER MAYBE ENTITLED TOASSERT, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, EXISTING OR HEREAFTERARISING, IN LAW, EQUITY OR OTHERWISE, BASED IN WHOLE OR IN PART UPON ANYACT OR OMISSION, TRANSACTION, EVENT OR OTHER OCCURRENCE TAKING PLACE ON ORAFTER THE COMMENCEMENT DATE AND UP TO AND INCLUDING THE EFFECTIVE DATE FORWHICH RELEASED RIGHTS THE HOLDER IS ENTITLED TO A CLAIM THAT RECEIVES ORRETAINS VALUE AS PROVIDED IN THE PLAN, EXCEPTING ANY ACT OF GROSS NEGLIGENCE OR**

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**WILLFUL MISCONDUCT, PROVIDED, HOWEVER, THATNOTHING IN THE PLAN SHALL LIMIT ANY RIGHT TO OBJECT TO ANY PROFESSIONAL FEECLAIM.**

# **ARTICLE 6FINANCIAL PROJECTIONS AND VALUATION**

The Debtors determined that it was necessary toestimate the post-confirmation reorganization values of the Reorganized Debtors’enterprise and equity in order to equitably allocate distributions among thevarious Classes of Claims and Interests. Accordingly, the Debtors directedHoulihan Lokey to prepare a valuation analysis of the Reorganized Debtors(including their non-debtor subsidiaries). That valuation is set forth in Article 6.2below.

In order to assess the Reorganized Debtors’ valuegenerally and specifically to determine the reorganization value of the NewCommon Stock to be distributed under the Plan, the Debtors developed a set offinancial projections, summarized below and in Exhibit A attached hereto (the “Projections”). In addition,the Debtors have developed a Liquidation Analysis set forth in Exhibit B attached hereto describingthe estimated recoveries to Holders of certain Allowed Claims and AllowedInterests. The recoveries and projections set forth below and in the attached exhibits are based on anumber of significant assumptions including, among other things, the Debtors’successful reorganization, an assumed Effective Date of June 30, 2006,their ability to achieve the operating and financial results included in theProjections, their ability to maintain adequate liquidity to fund operationsand the assumption that capital and equity market conditions remain consistentwith current conditions. **THE PROJECTIONS ARE BASEDUPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL OPERATING RESULTS AND VALUES MAY VARYSIGNIFICANTLY FROM THESE PROJECTIONS.**

## **6.1          FinancialProjections**

As a condition to plan confirmation, the BankruptcyCode requires, among other things, the Bankruptcy Court to find thatconfirmation is not likely to be followed by either a liquidation or the needto further reorganize the debtor. In connection with developing the Plan, andfor purposes of determining whether the Plan satisfies feasibility standards,the Debtors’ management has, through the development of the Projections,analyzed the Reorganized Debtors’ ability to meet their obligations under thePlan to maintain sufficient liquidity and capital resources to conduct theirbusinesses. The Projections will also assist each Holder of a Claim or EquityInterest in determining whether to accept or reject the Plan.

The Debtors prepared the Projections in good faith,based upon estimates and hypothetical assumptions made by the Debtors’management. These include, but are not limited to, estimates and assumptionswith respect to product sales volume and pricing by market and segment, costand timing of product sourcing, foreign exchange rates, production costslogistics, costs, capital spending and working capital levels, some of whichare described in more detail in Exhibit Aattached hereto. The Debtors developed the Projections over the fourthquarter of 2005. The Debtors believe that EBITDA from continuing operationsbefore reorganization costs, fresh start adjustments, and other unusual itemsfor 2005 may be approximately $5.9 million.(4)

The Projections’ estimates and assumptions, whileconsidered reasonable by management, may not be realized, and are inherentlysubject to uncertainties and contingencies. They are also based on factors suchas industry performance, general business, economic, competitive, regulatory,market and financial conditions, all of which are difficult to predict andgenerally beyond the Debtors’ control. Because future events and circumstancesmay well differ from those assumed and unanticipated events or circumstancesmay occur, the Debtors expect that the actual and projected results will differand the actual results may be materially greater or less than those containedin the Projections. No representations can be made as to the accuracy of theProjections or the Reorganized Debtors’ ability to achieve the projectedresults. Therefore, the Projections may not be relied upon as a guaranty orother assurance of the actual results that will occur. The inclusion of the Projectionsherein should not be

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(4)             Fiscalyear 2005 results have not yet been audited. The Debtors project that EBITDAfrom continuing operations before reorganization costs, fresh start adjustmentsand other unusual items for 2006 may be approximately $6.4 million.

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regarded as an indicationthat the Debtors considered or consider the Projections to reliably predict futureperformance. The Projections are subjective in many respects, and thus aresusceptible to interpretations and periodic revisions based on actualexperience and recent developments. The Debtors do not intend to update orotherwise revise the Projections to reflect the occurrence of future events,even in the event that assumptions underlying the Projections are not borneout.

The Projections should be read in conjunction with theassumptions and qualifications set forth herein, the historical consolidatedfinancial information (including the notes and schedules thereto) and otherinformation set forth in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2005, and the Company’s QuarterlyReport on Form 10-Q for the period ended March 31, 2006, whichthe Debtors expect to file on or before May 15, 2006.

**THE PROJECTIONS WERE NOT PREPARED WITH A VIEWTOWARDS COMPLYING WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTSPUBLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THEDEBTORS’ INDEPENDENT AUDITOR HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYINGPROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND,ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCEWITH RESPECT THERETO**.

**THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISHPROJECTIONS OF THEIR ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS ORCASH FLOWS. ACCORDINGLY, NEITHER THE DEBTORS NOR THE REORGANIZED DEBTORS INTENDTO, AND EACH DISCLAIMS ANY OBLIGATION TO, (A) FURNISH UPDATED PROJECTIONSTO HOLDERS OF ALLOWED CLAIMS OR INTERESTS PRIOR TO THE EFFECTIVE DATE OR TOHOLDERS OF NEW SENIOR SECURED NOTES, NEW COMMON STOCK OR TO ANY OTHER PARTYAFTER THE EFFECTIVE DATE, (B) INCLUDE ANY SUCH UPDATED INFORMATION IN ANYDOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH THE SECURITIES ANDEXCHANGE COMMISSION OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATIONPUBLICLY AVAILABLE.**

## **6.2          Valuation**

The Debtors have been advised by Houlihan Lokey withrespect to the range of estimated reorganization value of the ReorganizedDebtors. Houlihan Lokey estimates that the midpoint of the total reorganizationvalue range, which includes all of Boyds’ operating businesses and otherassets, will be approximately $52.5 million as of an assumed Effective Date of June 30,2006. Houlihan Lokey further estimates that the midpoint of the reorganizationcommon equity value range, which takes into account the estimated average debtbalances (5), will be approximately $15.3 million as of an assumed EffectiveDate of June 30, 2006. The foregoing reorganization equity value (ascribedas of the date of this Disclosure Statement) reflects, among other factorsdiscussed below, current financial market conditions and the inherentuncertainty as to the achievement of the Projections.

Based on the assumed reorganization common equityvalue set forth above, the midpoint value of the approximately 7 million sharesof New Common Stock to be issued to the holders of Allowed Claims under thePlan is estimated to be approximately $2.18 per share. The foregoing valuationsalso reflect a number of assumptions, including a successful reorganization ofthe Debtors’ businesses and finances in a timely manner, the forecastsreflected in the Projections, the amount of available cash, market conditionsand the Plan becoming effective in accordance with its terms on a basisconsistent with the estimates and other assumptions discussed herein.

In preparing the estimated reorganization equityvalue, Houlihan Lokey: (a) reviewed certain historical financialinformation of Boyds for recent years and interim periods; (b) reviewedcertain internal financial and operating data of Boyds; (c) analyzed andreviewed the Projections provided by Boyds (d) met with certain members

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5                     Estimateddebt balance is composed of the $30.0 million New Senior Secured Notes, ExitRevolver balance of $7.8 million, and cash of $0.6 million.

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of senior management ofBoyds to discuss Boyds’ operations and future prospects; (e) reviewedpublicly available financial data and considered the market values of publiccompanies that Houlihan Lokey deemed generally comparable to the operatingbusinesses of Boyds; (f) reviewed the financial terms, to the extentpublicly available, of certain acquisitions of companies that Houlihan Lokeybelieves were comparable to the operating businesses of Boyds; (g) consideredcertain economic and industry information relevant to Boyds’ operatingbusinesses; and (h) reviewed certain analyses prepared by other firmsretained by the Debtors and conducted such other analyses as Houlihan Lokeydeemed appropriate. Although Houlihan Lokey conducted a review and analysis ofBoyds’ businesses, operating assets and liabilities and business plans,Houlihan Lokey assumed and relied on the accuracy and completeness of all (a) financialand other information furnished to it by the Debtors and by other firmsretained by the Debtors and (b) publicly available information. Inaddition, Houlihan Lokey did not independently verify the assumptionsunderlying the Projections in connection with such valuation. No independentevaluations or appraisals of the Debtors’ assets were sought or were obtainedin connection therewith.

The estimates of reorganization equity value preparedby Houlihan Lokey assume that the Reorganized Debtors will continue as theowner and operator of their businesses and assets. Such estimates weredeveloped solely for purposes of formulation and negotiation of a plan ofreorganization and analysis of implied relative recoveries to creditorsthereunder. Such estimates do not purport to reflect or constitute appraisals,liquidation values or estimates of the actual market value that may be realizedthrough the sale of any securities to be issued pursuant to the Plan, which maybe significantly different from the amounts set forth herein. Such estimatesreflect computations of the estimated reorganization equity value of Boydsthrough the application of various valuation techniques, including, amongothers: (a) a comparable company analysis, in which Houlihan Lokeyanalyzed the enterprise value of public companies that Houlihan Lokey deemedgenerally comparable to the operating businesses of Boyds as a multiple ofearnings before interest, taxes, depreciation and amortization (“EBITDA”) andthen applied multiples provided by such analysis to the projected EBITDA ofReorganized Boyds; (b) a discounted cash flow analysis, in which HoulihanLokey, using a weighted average cost of capital, computed the present value offree cash flows and terminal value of Boyds; and (c) a comparableacquisitions analysis, in which Houlihan Lokey analyzed the financial terms ofcertain acquisitions of companies that Houlihan Lokey believed were comparableto the operating businesses of Boyds and then applied the EBITDA multiplesprovided by such analysis to the projected EBITDA of Reorganized Boyds. Inaddition, Houlihan Lokey valued the tax assets that will be available toReorganized Boyds. This value was added to the values implied under the methodologieslisted as (a) through (c) above. An estimate of reorganization equityvalue is not entirely mathematical, but rather it involves complexconsiderations and judgments concerning various factors that could affect thatvalue of an operating business. Moreover, the value of an operating business issubject to uncertainties and contingencies that are difficult to predict andwill fluctuate with changes in factors affecting the financial conditions andprospects of such a business. As a result, the estimate of reorganizationequity value set forth herein is not necessarily indicative of actual outcomes,which may be significantly more or less favorable than those set forth herein.Because such estimates are inherently subject to uncertainties, none of Boyds,Houlihan Lokey or any other person assumes responsibility for their accuracy.Depending on the results of the Debtors’ operations or changes in the financialmarkets, Houlihan Lokey’s valuation analysis as of the Effective Date maydiffer from that disclosed herein.

In addition, the valuation of newly issued securitiesis subject to additional uncertainties and contingencies, all of which aredifficult to predict. Actual market prices of such securities at issuance willdepend upon, among other things, prevailing interest rates, conditions in thefinancial markets, the anticipated initial securities holding of prepetitioncreditors, some of which may prefer to liquidate their investment rather thanhold it on a long-term basis, and other factors that generally influence theprices of securities. Actual market prices of such securities also may beaffected by the Debtors’ history in chapter 11, conditions affecting theDebtors’ competitors or the industry generally in which the Debtors participateor by other factors not possible to predict. Accordingly, the reorganizationequity value estimated by Houlihan Lokey does not necessarily reflect, andshould not be construed as reflecting, values that will be attained in thepublic or private markets. The equity value ascribed in the analysis does notpurport to be an estimate of the post-reorganization market trading value. Suchtrading value may be materially different from the reorganization equity valueranges associated with Houlihan Lokey’s valuation analysis. Indeed, there canbe no assurance that a trading market will develop for the New Common Stock.

Furthermore, in the event that the actualDistributions to holders of Allowed Claims and Interests differ from thoseassumed by the Debtors in their recovery analysis, the actual recoveriesrealized by holders of Claims and Interests in those Divisions could besignificantly higher or lower than estimated by the Debtors.

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Set forth below is a summary of the projectedrecoveries to Holders of Claims and Interests that result from suchreorganization values and projected recoveries to Holders of Claims andInterests pursuant to a liquidation of the Debtors under Chapter 7 of theBankruptcy Code.

 
| ** **                          | ** ** | ** **         | ** ** | **Under the Plan** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|--------------------|------------|------------------------------|------------|-------------------|------------|
| ** **                          | ** ** | ** **         | ** ** | ** **                   | ** ** | **Including**(1)  | ** ** | ** ** | ** ** |
| ** **                          | ** ** | ** **         | ** ** | **At**                       | ** ** | **a Future** | ** ** | **Chapter 7** | ** ** |
| **Description**                     | ** ** | **Class No.** | ** ** | **Emergence**                | ** ** | **Transaction**   | ** ** | **Midpoint** | ** ** |
| Administrative Expense Claims       |       |               |       | 100                          | %          | 100               | %          | 0 | % |
| Professional Fee  Claims            |       |               |       | 100                          | %          | 100               | %          | 100 | % |
| Priority Tax  Claims                |       |               |       | 100                          | %          | 100               | %          | 0 | % |
| Other Priority  Claims              |       | 1                  |       | 100                          | %          | 100               | %          | 0 | % |
| Senior Secured  Claims              |       | 2A                 |       | 66                           | %          | 66                | %          | 14 | % |
| Miscellaneous  Secured Claims       |       | 2B                 |       | 100                          | %          | 100               | %          | 100 | % |
| General  Unsecured Claims           |       | 3                  |       | 28                           | %          | 28                | %          | 0 | % |
| Qualifying  Noteholder Claims       |       | 4A                 |       | 3                            | %          | 25                | %          | 0 | % |
| Non-Qualifying  Noteholder Claims   |       | 4B                 |       | 0                            | %          | 24                | %          | 0 | % |
| Interests                           |       | 5A                 |       | NA                           |       | NA                |       | NA |   |
| Equity Convenience  Class Interests |       | 5B                 |       | NA                           |       | NA                |       | NA |   |

 

(1) Includesthe impact of a Future Transaction as defined in the Plan of Reorganization. Recoverybased on nominal dollar amounts and does not adjust for timing of theDistribution and therefore the present value of such Distribution.

**THE ESTIMATED REORGANIZATION VALUE DEPENDS HIGHLYUPON ACHIEVING THE FUTURE FINANCIAL RESULTS SET FORTH IN THE PROJECTIONS ASWELL AS THE REALIZATION OF CERTAIN OTHER ASSUMPTIONS THAT ARE NOT GUARANTEED.**

**THE VALUATIONS SET FORTH HEREIN REPRESENTESTIMATED REORGANIZATION VALUES AND DO NOT NECESSARILY REFLECT VALUES THATCOULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE ESTIMATED EQUITY VALUEASCRIBED IN THE ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATIONMARKET TRADING VALUE. SUCH A MARKET TRADING VALUE, IF ANY, MAY DIFFERMATERIALLY FROM THE ESTIMATED REORGANIZATION EQUITY VALUE ASSOCIATED WITH THEVALUATION ANALYSIS.**

# **ARTICLE 7CONDITIONS PRECEDENTTO CONFIRMATION ORDER AND EFFECTIVE DATE**

## **7.1          ConditionsPrecedent to Entry of the Confirmation Order**

The Confirmation Order must be, in form and substance,acceptable to the Debtors, Laminar and the Creditors’ Committee before the Plancan be confirmed on the Confirmation Date.

## **7.2          ConditionsPrecedent to the Effective Date**

Pursuant to the Plan, the following conditions mustoccur and be satisfied or waived by the Debtors, and Laminar, on or before theEffective Date for the Plan to become effective on the Effective Date.

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###### (a)           *Confirmation Order.*The Confirmation Ordershall have been entered by the Bankruptcy Court and no stay of the ConfirmationOrder shall have been entered and remain in effect.

###### (b)           *Authorizations, Consents and Approvals.*Allauthorizations, consents and regulatory approvals from any Governmental Unitrequired to be obtained by the Debtors, if any, in connection with the Plan’seffectiveness shall have been obtained.

###### (c)           *Exit Financing*. The Debtors shall haveobtained the Exit Facility, or otherwise have available sufficient Cash and liquidityto make the payments and distributions contemplated by the Plan on or about theEffective Date.

###### (d)           *Plan Documents.*The Plan Documents must bereasonably acceptable to the Debtors, Laminar and the Creditors’ Committee.

## **7.3          Effectof Failure of Conditions**

If all the conditions to effectiveness and theoccurrence of the Effective Date have not been satisfied or waived by theDebtors and the Creditors’ Committee in a writing Filed with the BankruptcyCourt on or before the first Business Day that is more than 120 days after theConfirmation Date, then, at the election and upon motion of the Debtors madebefore the time that all of the conditions have been satisfied or so dulywaived, the Confirmation Order shall be vacated by the Bankruptcy Court; provided,however, that notwithstanding the filing of such a motion, the ConfirmationOrder shall not be vacated if all of the conditions to Consummation set forthin Article 13.2 of the Plan are either satisfied or duly waived before theBankruptcy Court enters an Order granting the relief requested in such motion.

# **ARTICLE 8MISCELLANEOUS PROVISIONS**

## **8.1          BankruptcyCourt to Retain Jurisdiction**

The business and Assets of the Debtors shall remainsubject to the jurisdiction of the Bankruptcy Court until the Effective Date. Fromand after the Effective Date, the Bankruptcy Court shall retain and havejurisdiction of all matters arising out of, and related to the Chapter 11Cases of the Debtors or the Plan pursuant to, and for purposes of,sections 105(a) and 1142 of the Bankruptcy Code and for, among otherthings, the following purposes:

·                                          Tohear and determine applications for the assumption or rejection of executorycontracts or unexpired leases and the allowance of Claims resulting therefrom.

·                                          Todetermine any motion, adversary proceeding, avoidance action, application,contested matter, and other litigated matter pending on or commenced after theConfirmation Date.

·                                          Toensure that Distributions to holders of Allowed Claims and Interests areaccomplished as provided in the Plan.

·                                          Toconsider Claims or the allowance, classification, priority, compromise,estimation, or payment of any pre-petition Claim or other Claim, AdministrativeExpense Claim, or Interest.

·                                          Toconsider any objections to a Claim asserted against any of the Debtors and anycounterclaims asserted by the Reorganized Debtors thereto.

·                                          Toenter, implement, or enforce such orders as may be appropriate in the event theConfirmation Order is for any reason stayed, reversed, revoked, modified, orvacated.

·                                          Toissue injunctions, enter and implement other orders, and take such otheractions as may be necessary or appropriate to restrain interference by anyPerson with the consummation,

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                                                implementation,or enforcement of the Plan, the Confirmation Order, or any other order of theBankruptcy Court.

·                                          Tohear and determine any application to modify the Plan in accordance withsection 1127 of the Bankruptcy Code, to remedy any defect or omission orreconcile any inconsistency in the Plan, the Disclosure Statement, or any orderof the Bankruptcy Court, including the Confirmation Order, in such a manner asmay be necessary to carry out the purposes and effects thereof.

·                                          Tohear and determine all Professional Fee Claims.

·                                          Tohear and determine disputes arising in connection with the interpretation,implementation, or enforcement of the Plan, the Confirmation Order, anytransactions or payments contemplated hereby, or any agreement, instrument, orother document governing or relating to any of the foregoing.

·                                          Totake any action and issue such orders as may be necessary to construe, enforce,implement, execute, and consummate the Plan, including any release orinjunction provisions set forth in the Plan, or to maintain the integrity ofthe Plan following consummation.

·                                          Toresolve any disputes concerning any release under the Plan of a non-debtor orthe injunction under the Plan, or in the Confirmation Order, against actionsagainst such non-debtor.

·                                          Toresolve any disputes concerning whether an Entity had sufficient notice of,among other things:  (i) theChapter 11 Cases; (ii) the applicable Bar Date; (iii) thehearing on the approval of the Disclosure Statement as containing adequateinformation; or (iv) the hearing on confirmation of the Plan for thepurposes of determining whether a Claim is discharged hereunder.

·                                          Tocorrect any defect, cure any omission or reconcile any inconsistency in thePlan, Confirmation Order, organizational documents of the Debtors or any otherdocuments relating to the Plan, as may be necessary to carry out the purposesor intent of the Plan.

·                                          Todetermine such other matters and for such other purposes as may be provided inthe Confirmation Order.

·                                          Tohear and determine matters concerning state, local, and federal taxes inaccordance with sections 346, 505, and 1146 of the Bankruptcy Code.

·                                          Tohear any Causes of Action preserved under Article 9.11 of the Planasserted by the Reorganized Debtors, to the extent permitted by law.

·                                          Tohear and determine any other matters related hereto and not inconsistent withthe Bankruptcy Code and title 28 of the United States Code.

·                                          Toenter a final decree closing the Chapter 11 Cases.

·                                          Torecover all Assets of the Reorganized Debtors and property of their Estates,wherever located.

·                                          Toresolve any disputes concerning whether a transaction qualifies as a FutureTransaction or any dispute concerning payments under a Future Transaction.

## **8.2          NonvotingStock**

In accordance with section l123(a)(6) of theBankruptcy Code, the Reorganized Boyds Certificate of Incorporation shallcontain a provision prohibiting the issuance of nonvoting equity securities.

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## **8.3          Withdrawalof the Plan**

The Debtors reserve the right, at any time prior tothe entry of the Confirmation Order, to revoke or withdraw the Plan. If theDebtors revoke or withdraw the Plan, if the Confirmation Date does not occur,if the Confirmation Order is vacated pursuant to Article 13.2 of the Plan,or if the Effective Date does not occur, then (i) the Plan, any settlementor compromise embodied in the Plan (including the fixing or limiting to anamount certain any Claim or Class of Claims or Interests), the assumptionor rejection of executory contracts or unexpired leases effected by the Plan,and any document or agreement executed pursuant to the Plan, shall be deemednull and void; (ii) the Plan shall be of no effect and shall be deemedvacated, and the Chapter 11 Cases shall continue as if the Plan had neverbeen Filed and, in such event, the rights of any holder of a Claim or Interestshall not be affected nor shall such holder be bound by, for purposes ofillustration only, and not limitation, (a) the Plan, (b) anystatement, admission, commitment, valuation or representation contained in thePlan or this Disclosure Statement or (c) the classification and proposedtreatment (including any allowance) of any Claim in the Plan; and (iii) nothingcontained in the Plan or in this Disclosure Statement shall be deemed anadmission or statement against interest or to constitute a waiver or release ofany claims by or against any Debtor or any other Entity or to prejudice in anymanner the rights of any Debtor or any Entity in any further proceedingsinvolving any Debtor or any Entity.

## **8.4          Dissolutionof Creditors’ Committee**

On the Effective Date, as to the Chapter 11 Casesof the Debtors, the Creditors’ Committee shall cease to exist and its membersand employees or agents (including attorneys, investment bankers, financialadvisors, accountants and other Professionals employed) shall cease from furtherduties, responsibilities and obligations relating to and arising from and inconnection with these Chapter 11 Cases and shall have no right tocompensation for any further actions taken; provided, however, that followingthe Effective Date, the responsibilities of the Creditors’ Committee and itsmembers and employees or agents shall be limited to the preparation of theirrespective fee applications, if any.

## **8.5          Amendmentsand Modifications of the Plan**

The Plan may be altered, amended or modified by the Debtors,before or after the Confirmation Date, as provided in section 1127 of theBankruptcy Code, with the consent of the Debtors, and the Senior SecuredLenders. Without limiting the generality of the foregoing, to the extent thatthe Bankruptcy Court determines that any provision of the Plan must bemodified, deleted, or added to obtain Confirmation, the Debtors reserve theright to make such modification, deletion, or addition pursuant to Order of theBankruptcy Court.

## **8.6          Exemptionfrom Securities Registration**

To the maximum extent provided by the Bankruptcy Codeand applicable non-bankruptcy laws, the issuance of any securities pursuant tothe Plan, including the New Senior Secured Notes and the New Common Stock, willbe exempt from registration under the Securities Act of 1933.

# **ARTICLE 9RISK FACTORS TO BE CONSIDERED**

**HOLDERS OF CLAIMS AGAINST ANDINTERESTS IN THE DEBTORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SETFORTH BELOW AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURESTATEMENT (AND THE DOCUMENTS DELIVERED HEREWITH AND/OR INCORPORATED HEREIN BYREFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORSSHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS ASSOCIATED WITHTHE PLAN AND ITS IMPLEMENTATION.**

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## **9.1          CertainRisks of Non-Confirmation and Non-Consummation**

Even if the requisite acceptances are received, therecan be no assurance that the Bankruptcy Court will confirm the Plan. A party ininterest or the U.S. Trustee might challenge the adequacy of the disclosure orthe balloting procedures and results as not being in compliance with theBankruptcy Code. Even if the Bankruptcy Court were to determine that thedisclosure and the balloting procedures and results were appropriate, theBankruptcy Court could still decline to confirm the Plan if it were to findthat any statutory conditions to Confirmation had not been met. Section 1129of the Bankruptcy Code sets forth the requirements for confirmation of a plan. SeeArticle 12 below, entitled “Requirements For Confirmation of Plan.”Although the Debtors believe that the Plan complies with all provisions of theBankruptcy Code, there can be no assurance that the Bankruptcy Court willconclude that these requirements have been met.

Additionally, even if the required acceptances of eachof Class 2A, Class 3, Class 4A, Class 4B, Class 5A andClass 5B are received, the Bankruptcy Court might find that thesolicitation of votes or the Plan did not comply with the solicitationrequirements made applicable by section 1125 of the Bankruptcy Code. Insuch an event, the Debtors may seek to resolicit acceptances, but Confirmationof the Plan could be substantially delayed and possibly jeopardized. TheDebtors believe that their solicitation of acceptances of the Plan complieswith the requirements of section 1125 of the Bankruptcy Code, that dulyexecuted Ballots will be in compliance with applicable provisions of theBankruptcy Code and the Bankruptcy Rules, and that, if sufficient acceptancesare received, the Plan should be confirmed by the Bankruptcy Court.

The Debtors will request that the Bankruptcy Courtconfirm the Plan under Bankruptcy Code section l129(b). Section l129(b) permitsConfirmation of the Plan despite rejection by one or more Impaired Classes ifthe Bankruptcy Court finds that the Plan “does not discriminate unfairly” andis “fair and equitable” as to the non-accepting Class or Classes.

The Debtors will seek Confirmation of the Plan overthe objections of any other non-accepting Class, pursuant to section l129(b) ofthe Bankruptcy Code. For a more detailed description of the requirements foracceptance of the Plan and of the criteria for Confirmation notwithstandingrejection by certain Classes, see section 7.2 of the Plan.

Even if all of the conditions to Confirmation aresatisfied, the Plan may not be consummated if any of the conditions toConsummation are not met. See Article 7 above, entitled “ConditionsPrecedent to Confirmation Order and Effective Date.”

If the Plan, or a plan determined by the BankruptcyCourt not to require resolicitation of acceptances by Classes, were not to beconfirmed, it is not clear that a reorganization could be implemented. If analternative reorganization could not be agreed to and promptly confirmed, it ispossible that the Debtors would have to liquidate Assets, in which case theDebtors believe that the holders of Claims and Interests would receive lessthan they would have received pursuant to the Plan and that holders of GeneralUnsecured Claims, Qualifying Noteholder Claims, Non-Qualifying NoteholderClaims, and Interests would likely receive nothing.

The effect, if any, that the continuation of theseChapter 11 Cases in the absence of Confirmation of the Plan may have uponthe operations of the Debtors cannot be accurately predicted or quantified, butcould adversely affect Boyds’ relationships with its customers, suppliers andemployees, resulting in a material adverse impact on the Debtors’ operations. Thependency of the Chapter 11 Cases has increased the administrative expensesof the Debtors and adversely affected the Debtors’ ability to obtain financingand capital. The Debtors do not believe that they can remain in chapter 11indefinitely.

## **9.2          BusinessRisk Factors**

### **9.2.1       Competitive Conditions**

The markets in which the Debtors provide products andservices continue to be extremely competitive. If the Plan is confirmed, theReorganized Debtors will likely compete with numerous competitors, certain ofwhom are

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financially stronger andcapable of competing effectively with the Reorganized Debtors. Certaincompetitors may be willing to further reduce prices and accept lower profitmargins to compete with the Reorganized Debtors. As a result, the ReorganizedDebtors may be unable to gain sufficient market share to support their workingcapital needs, which could have a material adverse effect on the ReorganizedDebtors’ future performance.

### **9.2.2       Customers**

The future success of the Reorganized Debtors willdepend, in large part, on their ability to retain a significant portion oftheir existing customer base, expand the business relationships with suchcustomers and attract and retain new customers. There can be no assurance thatthe Reorganized Debtors will be able to maintain a significant portion of thecurrent customer base, increase the amount of business done with some or allthese customers or grow the existing customer base. Failure by the ReorganizedDebtors to maintain a significant portion of their existing customer base andto grow that base would have a material adverse effect on their futureperformance.

### **9.2.3       New Product Development/Offerings**

The future success of the Reorganized Debtors willalso depend on their ability to offer products and services not previouslyoffered by the Company. The ability of the Reorganized Debtors to successfullyoffer new products and services will depend upon, among other things, theirability to:  (i) enhance theirbilling, back-office and information systems to accommodate these new productsand services; and (ii) generate customer acceptance of the new productdesign and service offerings. Failure of the Reorganized Debtors tosuccessfully launch new products would have a material adverse effect on theirfuture performance.

### **9.2.4       New Customers/Distribution Systems**

The future success of the Reorganized Debtors willalso depend on their ability to successfully penetrate and sustain businesswith new customer accounts, including full line supermarkets, convenience,drug, and mass merchandise retailers which are a key part of the ReorganizedDebtors’ business plan. In addition, the future success of the ReorganizedDebtors will depend on the Reorganized Debtors’ ability to establish newdirect-to-consumer sales via the Internet and the Company’s redesigned website.To achieve success in these new initiatives the Reorganized Debtors will needto create and deliver appropriate product offerings at competitive prices, aswell as develop and implement new systems and processes to support the newdistribution channels. Failure or a significant delay in achieving success inthese endeavors would have a material adverse effect on the performance of theReorganized Debtors.

### **9.2.5       International Operations**

The operations of the Reorganized Debtors and theNon-Debtor Subsidiaries will be conducted in part in foreign jurisdictions. Theseforeign operations are subject to special risks, including:  (i) uncertain political and economicenvironments; (ii) foreign currency fluctuations; (iii) civildisturbances; and (iv) labor strikes. Events outside the control of theReorganized Debtors may limit or disrupt operations, result in the deprivationof contract rights and increase foreign taxation.

### **9.2.6       Fluctuation in Operating Results**

The future operating results of the ReorganizedDebtors are likely to be subject to substantial fluctuations as a result of avariety of factors, including:  (i) generaleconomic conditions; (ii) the conditions of the collectible industry ingeneral; (iii) the ability of the Reorganized Debtors to introduce newproducts and competitive products, and (iv) timing and implementation ofmarketing and sales initiatives. Variability in the operating results of theReorganized Debtors could have a material adverse effect on their business,financial condition and results of operations.

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### **9.2.7       Reliance on Key Personnel**

The operations and prospects of the ReorganizedDebtors will depend, in large part, on the retention and performance of theirsenior management and design team. There can be no assurance that theReorganized Debtors will be able to find qualified replacements for any ofthese individuals if their services were no longer available. The loss of theservices of one or more members of the senior management team and certain otherkey personnel could have a material adverse effect on the business, financialcondition and operating results of the Reorganized Debtors.

### **9.2.8       Adverse Publicity**

Adverse publicity or news coverage relating to theReorganized Debtors, in connection with the Chapter 11 Cases, may havenegatively impacted the Debtors’ ability, and may continue to impact after theEffective Date the Reorganized Debtors’ ability, to establish and promote namerecognition and a positive image. It could also affect the Reorganized Debtors’ability to obtain credit from vendors and other contractors on customary terms.

## **9.3          RisksAssociated with the New Common Stock**

### **9.3.1       Debt and Common Stock**

If the Plan is confirmed, there will be substantialsecured debt ahead of the New Common Stock. The Plan contemplates thatindebtedness under the Exit Facility will be secured by Liens on all orsubstantially all of the assets of the Reorganized Debtors. The ReorganizedDebtors will also be obligated on the $30 million New Senior SecuredNotes, which will be secured by junior Liens on such assets. Further, theReorganized Debtors may, from time to time, incur or otherwise become liablefor, other secured or unsecured indebtedness and obligations, without theapproval of holders of the New Common Stock.

Reorganized Boyds does not anticipate paying dividendson the New Common Stock in the foreseeable future. It will be precluded fromdoing so by the terms of the Exit Facility, until this debt is paid in full.

### **9.3.2       Assets Subject to Security Interests**

Substantially all cash, receivables, inventory andother assets of the Reorganized Debtors and their domestic subsidiaries will besubject to Liens and security interests after the Effective Date. If a holderof a security interest becomes entitled to exercise its rights as a securedparty, it would have the right to foreclose upon and sell or otherwise transferthe collateral subject to its security interest, and the collateral accordinglywould be unavailable to the Reorganized Debtors or to their creditors, exceptto the extent, if any, that such other creditors had superior or equal securityinterests in the affected collateral or the value of the affected collateralexceeded the amount of indebtedness in respect of which such foreclosure rightsare exercised.

### **9.3.3       Control by Laminar**

On the Effective Date, it is anticipated that Laminarwill own a majority of the outstanding shares of the New Common Stock. Theshares so to be owned by Laminar will be those acquired by Laminar, pursuant tothe provisions of the Plan, as a holder of Class 2A Claims, and as aholder of 11,795,725 shares of old common stock. As a result, Laminar will bein a position to control the outcome of actions requiring shareholder approval,including the election of directors (subject to provisions of Article 9.9of the Plan regarding the initial Board of Directors). Furthermore, becauseLaminar will be able to cause the election of a majority of directors ofReorganized Boyds, it will have the ability to cause Reorganized Boyds and itsmanagement to take or omit to take corporate and other action, which, couldhave either a position or negative impact upon the value of the New CommonStock.

### **9.3.4       Absence of Public Market**

The Debtors anticipate that there will not be atrading market for the New Common Stock or that any trading market will belimited. Reorganized Boyds does not intend to seek to have the New Common Stocklisted or

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admitted for trading onthe NYSE, NASDAQ or any other securities exchange or trading system.Accordingly, there can be no assurance that holders of New Common Stock will beable to dispose of the New Common Stock they receive under the Plan at anyprice or at any time. Recipients of New Common Stock should view these sharesessentially as a right to participate in any ultimate liquidity event by ReorganizedBoyds such as a sale of the company or public offering. There is no assurancethat any such event will ever occur, or, if it does occur, when it will occurand what the value of the New Common Stock will be at the time.

### **9.3.5       Exchange Act Listing — ReportingObligations**

The common stock of Boyds is registered under theSecurities Exchange Act of 1934 (the “Exchange Act”). If, upon effectiveness ofthe Plan, the number of holders of record of the New Common Stock is less than300, Reorganized Boyds could, subject to certain conditions, seek to terminatesuch registration, and Reorganized Boyds presently expects that, in such event,it would seek to do so. If such termination occurred, holders of the New CommonStock would not be entitled to receive the periodic reports mandated by theExchange Act. If Reorganized Boyds continued to be so registered, compliancewith the Exchange Act’s reporting requirements would result in addedexpense  and could be administrativelyburdensome for Reorganized Boyds. Further, should Reorganized Boyds continue tobe so registered and to report under the Exchange Act, there can be noguarantee that it would be able to satisfy the SEC’s disclosure requirements.

Boyds was, as ofthe Commencement Date, current in its SEC filings. However, Boyds has notremained current in its SEC filings during the pendency of these Chapter 11Cases. Prior to the Effective Date, Boyds intends to file a Form 10-Qfor the period ended September 30, 2005 and a Form 10-K for thefiscal year ended December 31, 2005.

### **9.3.6       SEC Reporting Delinquencies**

As a result of its ongoing restructuring, Boyds didnot file its required quarterly report with the SEC for the quarter ended underSeptember 30, 2005, nor did it file its required annual report for the fiscalyear ended December 31, 2005, and there can be no assurance thatReorganized Boyds will be able to file reports required in the future or tofile such reports on a timely basis. Reorganized Boyds may be subject toadverse regulatory or other consequences, which could include administrative,enforcement or other proceedings brought by the SEC, related to its prior orany future delinquencies.

### **9.3.7       Additional Financing Risk**

The Debtors estimate that, as of the Effective Date(assuming an Effective Date of June 30, 2006), the Reorganized Debtorswill have sufficient Cash and financing available to fund their futureoperations after payment of all Administrative Expense Claims, cure amounts forassumed executory contracts and unexpired leases, and other amounts necessaryto fund the Plan. Nevertheless, the ability of the Reorganized Debtors to fundoperations through December 2006 is subject to a number of uncertaintiesbeyond the control of the Reorganized Debtors.

### **9.3.8       New Common Stock Dilution Risk**

The Reorganized Debtors may seek additional financing,possible acquisitions, mergers or other transactions. Any such transactionscould entail, among other things, the issuance of additional common stock orpreferred stock, and/or the incurrence of debt, including secured debt. TheReorganized Boyds Certificate of Incorporation authorizes Reorganized Boyds toissue 10 million shares of New Common Stock, which is 8 million morethan will be issued under the Plan. If Reorganized Boyds issues additional NewCommon Stock, the interests of the holders of New Common Stock will be dilutedat that time. If Reorganized Boyds issues preferred stock or incurs additionaldebt, the interests of the holders of the New Common Stock will be effectivelysubordinated to such preferred stock or debt.

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# **ARTICLE10APPLICATION OF SECURITIES ACT TO THE ISSUANCE ANDRESALE OF NEW SECURITIES UNDER THE PLAN**

### **10.1.1     New Securities**

The Plan provides for the issuance of the New SeniorSecured Notes and the New Common Stock to certain Creditors in exchange forClaims against the Debtors. Other than as set forth herein or in the Plan, theDebtors do not believe there will be any restriction on the transferability ofthe new securities.

## **10.2        Section 1145of the Bankruptcy Code**

Section 1145 of the Bankruptcy Code generallyexempts the issuance of a security (including the offer of a security throughany warrant, option, or right to subscribe, or the sale of a security upon theexercise of such warrant, option, or right) from registration under theSecurities Act (and any equivalent state securities or “blue sky” laws) if thefollowing conditions are satisfied:  (i) thesecurity is issued by a debtor (or its successor) under a chapter 11plan, (ii) the recipient of the security holds a claim against, aninterest in, or a claim for an administrative expense against, the debtor and (iii) thesecurity is issued entirely in exchange for such claim or interest, or isissued “principally” in exchange for such claim or interest and “partly” forCash or property. The Debtors believe that the provisions ofsection 1145(a)(1) of the Bankruptcy Code exempt the initial offerand distribution of the New Senior Secured Notes and the New Common Stock underthe Plan from U.S. federal and state securities registration requirements.

Securities exempt from registration undersection 1145 of the Bankruptcy Code generally may be resold withoutregistration under the Securities Act of 1933, as amended (the “Securities Act”)or other federal securities laws pursuant to the exemption provided bysection 4(1) of the Securities Act, unless the holder is an “underwriter”with respect to such securities, as that term is defined in the Bankruptcy Code.In addition, while such securities generally may be resold without registrationunder state securities laws pursuant to various exemptions provided by the lawsof the several U.S. states, the Debtors have not sought the views of therelevant agencies of the various U.S. stats and can provide no assurance thatany such exemptions would be available to holders of securities issued underthe Plan. The Debtors do not anticipate an active market for any of thesecurities issued pursuant to the Plan.

Section 1145(b) of the Bankruptcy Codedefines four types of “underwriters”:

##### (a)           persons who purchasea claim against, an interest in, or a claim for administrative expense against,the debtor with a view to distributing any security received in exchange forsuch a claim or interest (“accumulators”);

##### (b)           persons who offer tosell securities offered under a plan for the holders of such securities (“distributors”)

##### (c)           persons who offer tobuy securities from the holders of such securities, if the offer to buy is (i) witha view to distributing such securities and (i) made under a distributionagreement; and

##### (d)           a person who is an “issuer”with respect to the securities, as the term “issuer” is defined insection 2(11) of the Securities Act.

Under section 2(11) of the Securities Act,an “issuer” includes any “affiliate” of the issuer, which means any persondirectly or indirectly through one or more intermediaries controlling,controlled by, or under common control with the issuer. Undersection 2(12) of the Securities Act, a ‘dealer’ is any person whoengages in part or in whole, directly or indirectly, as agent, broker, orprincipal, in the business of offering, buying, selling, or otherwise dealingor trading in securities issued by another person. Whether or not anyparticular person would be deemed to be an ‘underwriter’ or an ‘affiliate’ withrespect to any security to be issued pursuant to the Plan would depend uponvarious facts and circumstances applicable to that person.

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The Debtors express no view as to whether any personwould be deemed to be an ‘underwriter’ or an ‘affiliate’, or an accumulator,distributor or dealer, with respect to any security to be issued pursuant tothe Plan.

**BECAUSE OF THE COMPLEX, SUBJECTIVENATURE OF DETERMINING WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER,THE DEBTORS MAKE NO REPRESENTATION CONCERNING THE ABILITY OF ANY PERSON TODISPOSE OF THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN. MOREOVER, SUCHSECURITIES, OR THE DOCUMENTS THAT ESTABLISH THE TERMS AND PROVISIONS THEREOF, MAY CONTAINTERMS AND LEGENDS THAT RESTRICT OR INDICATE THE EXISTENCE OF RESTRICTIONS ONTHE TRANSFERABILITY OF SUCH SECURITIES. THE DEBTORS RECOMMEND THAT RECIPIENTSOF SECURITIES UNDER THE PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THELIMITATIONS ON THEIR ABILITY TO DISPOSE OF SUCH SECURITIES.**

# **ARTICLE11CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES**

## **11.1        CertainU.S. Federal Income Tax Consequences of the Plan**

### **11.1.1     Introduction**

The following discussion summarizes certain U.S.federal income tax consequences of the Plan to certain holders of Claims andInterests that are entitled to vote on the Plan and to the Debtors. Thisdiscussion does not address the tax consequences to the Senior Secured Lenders.A description of the tax consequences to the Senior Secured Lenders is notincluded because such parties have advisors that can inform them of such taxconsequences.

This summary is based upon the Internal Revenue Codeof 1986, as amended (the “Tax Code”), the Treasury regulations (includingtemporary and proposed regulations) promulgated thereunder (the “Regulations”),judicial authorities, and current administrative rulings and practice, all ofwhich are subject to change or differing interpretations (possibly withretroactive effect). The U.S. federal income tax consequences of certainaspects of the Plan are uncertain because of the lack of applicable legalauthority and may be subject to administrative or judicial interpretations thatdiffer from the discussion below. The Debtors have not requested and do notintend to request a ruling from the Internal Revenue Service (“IRS”) withrespect to these matters, and no opinion of counsel has been or will be soughtor obtained by the Debtors with respect thereto. The following discussion doesnot apply to holders of Claims and Interests that are not “U.S. Persons” (assuch phrase is defined in the Tax Code). Further, the following discussion doesnot address all matters that may be relevant to particular holders of Claimsand Interests that are subject to special rules under the Tax Code,including, but not limited to, regulated investment companies, financialinstitutions, life insurance companies, tax-exempt organizations, and foreignindividuals and entities and does not address any tax consequences other thanU.S. federal income tax consequences.

**THE U.S. FEDERAL INCOME AND OTHER TAXCONSEQUENCES TO HOLDERS OF CLAIMS AND INTERESTS MAY VARY BASED UPON THEINDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. MOREOVER, THE U.S. FEDERAL TAXCONSEQUENCES OF CERTAIN ASPECTS OF THE PLAN ARE UNCERTAIN DUE TO THE LACK OFAPPLICABLE LEGAL PRECEDENT. THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOTCHALLENGE ANY OF THE TAX CONSEQUENCES DESCRIBED HEREIN, OR THAT SUCH ACHALLENGE, IF ASSERTED, WOULD NOT BE SUSTAINED. ACCORDINGLY, HOLDERS OF CLAIMSAND INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAXCONSEQUENCES OF THE PLAN TO THEM AND TO THE DEBTORS.**

**IRS CIRCULAR 230 DISCLOSURE:  TO ENSURE COMPLIANCE WITH REQUIREMENTSIMPOSED BY THE IRS, ANY TAX ADVICE CONTAINED IN THIS SUMMARY (INCLUDING ANYATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANYTAXPAYER FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES UNDER THE TAX CODE. TAXADVICE CONTAINED IN THIS SUMMARY (INCLUDING ANY ATTACHMENTS) IS WRITTEN TOSUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR**

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**MATTERSADDRESSED BY THE SUMMARY. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THETAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.**

## **11.2        TaxConsequences to Holders of Claims and Interests**

### **11.2.1     In General**

The U.S. federal income tax consequences of the Planto a holder of a Claim or Interest may vary depending upon whether (i) theholder reports income for federal income tax purposes using the cash or accrualmethod, (ii) the Claim constitutes a claim for principal or interest, and (iii) theholder has taken a bad debt or worthless security deduction with respect to itsClaim. Holders of Claims and Interests should evaluate the U.S. federal incometax consequences of the Plan to them based on their own particularcircumstances and should not rely solely on the general discussion herein.

In addition, the U.S. federal income tax consequencesof the Plan to holders of Claims and Interests may depend in part on whethertheir Claims or Interests and any debt obligations issued as consideration fortheir Claims or Interest under the Plan constitute “securities” for purposes ofthe reorganization provisions of the Tax Code. The determination of whether adebt obligation constitutes a security depends upon an evaluation of that debtobligation. Factors to be considered include, among other things, the term ofthe debt obligation, the degree of continuing interest in the issuer, thesimilarity of the debt obligation to a cash payment, and the purpose of theborrowing. Generally, trade claims and corporate debt instruments withmaturities when issued of less than five years are not considered securities,and corporate debt instruments with maturities when issued of ten years or moreare considered securities.

The Debtors intend to take the position, and thediscussion herein assumes, that the Senior Subordinated Notes constitutesecurities for federal income tax purposes, and that no otherClaims against the Debtors discussed herein qualify as securities. Theforegoing treatment is, however, uncertain with respect to certain of theseClaims, Interests and debt obligations, and holders of Claims should consulttheir own tax advisors as to whether their Claims and any debt obligationsreceived in respect of their Claims constitute securities for U.S. federalincome tax purposes. If any of the Claims, or the debt obligations received inrespect of those Claims, are not classified in the manner described above, thetax consequences of an exchange of those Claims pursuant to the Plan may besignificantly different from those set forth herein.

The U.S. federal income tax consequences of the Planto a holder of a Claim or Interest may also depend on whether the Claim orInterest consists of a debt obligation arising from a qualifying installmentsale of property that is being reported in accordance with the installmentmethod for federal income purposes, or whether the consideration issued inrespect of the Claim pursuant to the Plan is eligible for installment methodreporting. The following discussion does not discuss the impact of theinstallment sale rules, and holders of Claims for which the installment sale rules maybe relevant should consult their tax advisors concerning the operation andeffects of these rules.

### **11.2.2     Recognition of Gain or Loss**

#### 11.2.2.1         *Claims andInterests Other Than Claims Arising from Senior Subordinated Notes*

In the case of Claims other than Claims arising fromthe Senior Subordinated Notes, a holder’s exchange of a Claim for theconsideration distributed in respect of such Claim pursuant to the Plan shouldbe treated as a taxable exchange, resulting in gain or loss to the holder. Suchgain or loss will be measured by the difference between (i) the holder’stax basis in its Claim (adjusted to take into account the amount of any baddebt deduction previously taken with respect to such Claim) and (ii) thesum of the amount of cash, the issue price of any debt instruments, the valueof any contingent future right to receive cash, and the fair value of the NewCommon Stock received, exclusive of the amount (if any) of suchconsideration, received in respect of accrued interest. A holder’s ability todeduct a loss resulting from the exchange of its Claim may be subject togenerally applicable loss limitation rules.

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Because the determination of the issue price of thevarious debt obligations issued under the Plan is not certain and may depend onfacts in existence at or about the time of the Effective Date, holders ofClaims should consult their own tax advisors concerning the determination ofthe issue price of any debt instruments they receive under the Plan.

Except as discussed below with respect to accruedinterest and market discount, if a holder’s Claim is held as a capital asset,any gain or loss recognized by the holder on the exchange of its Claim pursuantto the Plan will be capital gain or loss. The capital gain or loss generallywill be long-term capital gain or loss if the Claim has been held for more thanone year as of the Effective Date. Claims arising out of the extension of tradecredit or the performance of services generally are not held as capital assetsby their original holders. Each holder of a Claim should consult its own taxadvisor as to whether its Claim qualifies as a capital asset.

In the case of holders of Interests in Boyds, a holderwho exchanges its Interests for New Common Stock should be deemed to haveexchanged the Interests for stock in a recapitalization under Section 368(a)(1)(E) ofthe Tax Code and should not therefore be deemed to recognize any gain or losson such exchange. The holder’s tax basis should equal its tax basis in itsInterests prior to the exchange and the holding period for such New CommonStock should include the period during which the Interests were held. A holderof Interests who exchanges its Interests for cash will recognize gain or losson such exchange in an amount equal to the difference between its tax basis inthe Interests and the amount of cash received.

#### 11.2.2.2         *QualifyingNoteholder Claims*

The Debtors believe that the exchange of Qualifying NoteholderClaims for New Common Stock should qualify as a recapitalization undersection 368(a)(l)(E) of the Tax Code. In such case, a holder of suchClaim will recognize gain (but not loss) only to the extent of the lesser of (i) theamount of gain realized and (ii) any cash (or other “boot”) received. Theholder’s tax basis in the New Common Stock received in the exchange generallywill equal the holder’s adjusted tax basis in its Qualifying Noteholder Claimsincreased by any gain recognized and decreased by the amount of cash (or other “boot”) received.The holder’s holding period for the New Common Stock will include the holdingperiod of its Qualifying Noteholder Claims.

Under the “market discount” provisions of Sections1276 through 1278 of the Tax Code, some or all of the gain realized by a holderexchanging debt instruments constituting its Claim may be treated as ordinaryincome (instead of capital gain), to the extent of the amount of “marketdiscount” on the debt instrument constituting the surrendered Claim.

In general, a debt instrument is considered to havebeen acquired with “market discount” if its holder’s adjusted tax basis in thedebt instrument at the time of acquisition is less than (i) the sum of allremaining payments to be made on the debt instrument, excluding “qualifiedstated interest” or, (ii) in the case of a debt instrument issued withOID, its adjusted issue price, by at least a *deminimis* amount (equal to 0.25% of the sum of all remaining paymentsto be made on the debt instrument, excluding qualified stated interest,multiplied by the number of remaining whole years to maturity).

Any gain recognized by a holder on the taxabledisposition of debt instruments that it acquired with market discount should betreated as ordinary income to the extent of the market discount that accruedthereon while such debt instruments were considered to be held by the holder(unless the holder elected to include market discount in income as it accrued).To the extent that the surrendered debt instruments that had been acquired withmarket discount are exchanged in a tax-free or other reorganization transactionfor other property (as may occur here), any market discount that accrued onsuch debts but was not recognized by the holder may be required to be carriedover to the property received therefor and any gain recognized on thesubsequent sale, exchange, redemption or other disposition of such property maybe treated as ordinary income to the extent of the accrued but unrecognizedmarket discount with respect to the exchanged debt instruments.

Holders of Qualifying Noteholder Claims may also receive cash from the Debtors fortheir Claims upon the occurrence of a Future Transaction. The tax consequencesof the receipt of such cash, if any, are complex and are not clear underexisting law. In particular, the tax treatment of such cash my depend onwhether the overall transaction with respect to a holder of QualifyingNoteholder Claims is treated as a “closed” transaction or an

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“open” transaction. The taxconsequences may also depend on whether the right to receive such futurepayment is treated as a contract payment or as a debt instrument. In general,the Debtors expect to report the transaction as a “closed” transaction and donot expect to treat the right to the future payment as a debt instrument. Ifthe transaction is treated as a closed transaction, holders of QualifyingNoteholder Claims who receive the right to the future payment should treat suchright as “boot” and should therefore recognize gain (but not loss) with respectto such right equal to the lesser of the fair market value of such right or thetotal amount of gain recognized. Such holder may then recognize gain or loss ata future time when a Future Transaction does (or does not) occur. Some portionof the cash received may also constitute imputed interest under Section 483of the Tax Code. Holders should consult with their own tax advisors regardingthe tax consequences of the right to receive the potential future payments onthe occurrence of a Future Transaction.

#### 11.2.2.3   *Non-Qualifying NoteholderClaims*

Holders of Non-Qualifying Noteholder Claims will receive a fixed amount of cashfrom the Debtors for their Claims if a Future Transaction occurs.  The tax consequences of this exchange forcontingent future cash are complex and are not clear under existing law. Inparticular, the tax treatment of such payments may depend on whether theoverall transaction with respect to holders of Non-Qualifying Noteholder Claimsis treated as a “closed” transaction or an “open” transaction. The taxconsequences may also depend on whether the right to receive the contingentfuture payment is treated as a contract payment or as a debt instrument. Ingeneral, the Debtors expect to report the transaction as a “closed” transactionand do not expect to treat the right to the future contingent payment as a debtinstrument.

Assuming that the transaction is a closed transactionfor U.S. federal income tax purposes, holders of Non-Qualifying NoteholderClaims should recognize gain or loss upon the exchange of a Claim for theconsideration distributed in respect of such Claim. Such gain or loss will bemeasured by the difference between (i) the holder’s tax basis in its Claim(including any adjustments for bad debts) and (ii) the fair value ofthe right to the future continent payment, exclusive of the amount (ifany) of such consideration received in respect of accrued interest. To theextent that a holder has a gain with respect to such exchange, the holder (dependingon its tax status) may be entitled to report such gain as an installment sale. Aholder’s ability to deduct a loss resulting from the exchange of its Claim maybe subject to generally applicable loss limitation rules.

Based on how a holder of a Non-Qualifying NoteholderClaim treats for U.S. federal income tax purposes the right to receive thecontingent future payment upon the occurrence of a Future Transaction, suchHolder may subsequently recognize gain or loss based on whether a FutureTransaction does (or does not) occur, some of which may be treated as imputedinterest under Section 483 of the Tax Code. Holders of such Claims shouldconsult their own tax advisors regarding the consequences to them of holdingthe right to receive future payments issued to them under the Plan.

Except as discussed below with respect to accruedinterest and market discount, if a holder’s Non-Qualifying Noteholder Claim isheld as a capital asset, any gain or loss recognized by the holder on theexchange of its Claim pursuant to the Plan will be capital gain or loss. Thecapital gain or loss generally will be long-term capital gain or loss if theClaim has been held for more than one year as of the Effective Date.

Under the “market discount” provisions of Sections1276 through 1278 of the Tax Code, some or all of the gain realized by a holderof a Non-Qualifying Noteholder Claim may be treated as ordinary income (insteadof capital gain), to the extent of the amount of “market discount” on the debtinstrument constituting the surrendered Claim.

In general, a debt instrument is considered to havebeen acquired with “market discount” if its holder’s adjusted tax basis in thedebt instrument at the time of acquisition is less than (i) the sum of allremaining payments to be made on the debt instrument, excluding “qualifiedstated interest” or, (ii) in the case of a debt instrument issued withOID, its adjusted issue price, by at least a *deminimis* amount (equal to 0.25% of the sum of all remaining paymentsto be made on the debt instrument, excluding qualified stated interest,multiplied by the number of remaining whole years to maturity).

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Any gain recognized by a holder on the taxabledisposition of debt instruments that it acquired with market discount should betreated as ordinary income to the extent of the market discount that accruedthereon while such debt instruments were considered to be held by the holder(unless the holder elected to include market discount in income as it accrued).To the extent that the surrendered debt instruments that had been acquired withmarket discount are exchanged in a tax-free or other reorganization transactionfor other property (as may occur here), any market discount that accrued onsuch debts but was not recognized by the holder may be required to be carriedover to the property received therefore and any gain recognized on thesubsequent sale, exchange, redemption or other disposition of such property maybe treated as ordinary income to the extent of the accrued but unrecognizedmarket discount with respect to the exchanged debt instruments.

#### 11.2.2.4*         Allocation ofConsideration Received*

Under the Plan, the aggregate consideration to bedistributed to holders of Allowed Claims and Interests in each Class willbe treated as first satisfying an amount equal to the stated principal amountof the Allowed Claim for such holders and any remaining consideration assatisfying accrued but unpaid interest, if any. However, there is no assurancethat such allocation would be respected by the IRS for U.S. federal income taxpurposes. Holders of Claims should consult their own tax advisors regarding theproper allocation of the consideration received by them under the Plan.

#### 11.2.2.5*         Accrued Interest*

Assuming the allocation of consideration describedabove is respected, holders of Claims on which interest has accrued that haveincluded the accrued interest in taxable income generally may take an ordinarydeduction up to the amount of such accrued and previously included interest tothe extent that such Claim is not fully satisfied under the Plan, even if theunderlying Claim is held as a capital asset. Holders of Claims that receiveconsideration under the Plan in respect of accrued interest not previouslyincluded in income must generally include such amounts as ordinary income.

### **11.2.3     Consequences of Owning and Disposing ofInstruments Issued Pursuant to the Plan**

#### 11.2.3.1*         New Common Stock*

*Distributions.*Distributions,if any, on the New Common Stock that are paid out of the current or accumulatedearnings and profits (as defined for U.S. federal income tax purposes) ofthe Reorganized Debtors will generally be treated as dividends includible inincome by the holder when received or accrued in accordance with the holder’smethod of accounting for U.S. federal income tax purposes. To the extent, ifany, that a holder receives a distribution on its New Common Stock and theamount of the distribution exceeds the Reorganized Debtors’ current andaccumulated earnings and profits, the distribution will be treated first as anon-taxable return of capital reducing the holder’s basis in its New CommonStock. Any distribution in excess of the holder’s basis in its New Common Stockwill be treated as capital gain.

*Dispositions.*Asale, exchange or other disposition of the New Common Stock generally willresult in taxable gain or loss to the holder equal to the difference betweenthe amount received and the holder’s adjusted tax basis in New Common Stock. Suchgain or loss generally will be capital gain or loss and will be long-termcapital gain or loss if the holding period for such New Common Stock exceedsone year at the time. However, a holder of a Qualifying or Non-QualifyingNoteholder Claim that purchased its Senior Subordinated Note at a marketdiscount and receives New Common Stock pursuant to the Plan may be required totreat all or a portion of its gain on the disposition of such New Common Stock,if any, as ordinary income pursuant to the market discount rules.

## **11.3        TaxConsequences to the Debtors**

### **11.3.1     Cancellation of Indebtedness**

In connection with the Plan, the amount of the Debtors’aggregate outstanding indebtedness will be substantially reduced. In general,the Debtors will realize cancellation of debt (“COD”) income to the extentthat

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holders of Claims receivefrom the Debtors pursuant to the Plan consideration in respect of their Claimsthat is less than the amount of such Claims. The amount of COD income that theDebtors will realize with respect to each individual Claim will generally beequal to the excess, if any, of (i) the adjusted issue price of the Claim(generally, the amount received upon incurring the obligation plus accrued butunpaid interest or original issue discount) over (ii) the amount ofconsideration distributed to the holder of such Claim. The amount ofconsideration distributed to a holder of a Claim will equal the amount of anycash, the fair market value of New Common Stock, the issue price of any debtinstruments, as the case may be, received by such holder with respect to suchClaim, and the fair value of other consideration provided to the holder,including the right to receive future cash payments upon the occurrence of aFuture Transaction.. However, no COD income will generally be realized withrespect to certain Claims, including Claims the payment of which would havegiven rise to a deduction.

To the extent the Debtors have taken deductions withrespect to Claims for accrued interest and such Claims are not fully satisfiedunder the Plan, the Debtors will realize COD income in an amount equal to theunsatisfied portion of such Claims. If the Debtors have not taken deductionsfor these accrued interest Claims, the Debtors will not recognize income withrespect to such Claims and they will be allowed a deduction equal to the valueof any consideration treated as satisfying such interest Claims.

### **11.3.2     Attribute Reduction**

Because the Debtors will be in a title 11 case atthe time the COD income is realized, they will not be required to include CODincome in their taxable income. Rather, pursuant to section 108(b) ofthe Tax Code, the Reorganized Debtors will be required to reduce their tax attributes(including net operating losses, certain credits, net capital loss carryovers,and the tax basis of their assets) by the amount of the COD income. TheReorganized Debtors may elect under section 108(b)(5) of the Tax Codeto reduce the basis of their depreciable assets prior to reducing other taxattributes. Otherwise, accumulated net operating losses must be reduced priorto reducing net capital loss carryovers, asset basis, and other attributes. TheDebtors are considering whether it would be advantageous to make the electionto reduce the basis of their depreciable assets first undersection 108(b)(5).

### **11.3.3     Utilization of Net Operating LossCarryovers**

Section 382 of the Tax Code generally imposes anannual limitation on a corporation’s use of its net operating losses andcertain other tax attributes (“NOLs”) (and may limit a corporation’s useof certain built-in losses if such built-in losses are recognized within afive-year period following an ownership change and the corporation is in a “netunrealized built in loss” position at the time it undergoes the ownershipchange) if a corporation undergoes an “ownership change.” This discussiondescribes the limitation determined under Section 382 of the Tax Code inthe case of an “ownership change” as the “Section 382 Limitation.”  The annual Section 382 Limitation on theuse of pre-change losses (the NOLs and built-in losses recognized within thefive year post-ownership change period) in any “post change taxable year”is generally equal to the product of the fair market value of the losscorporation’s outstanding stock immediately before the ownership changemultiplied by the long term tax-exempt rate in effect for the month in whichthe ownership change occurs. The long-term tax-exempt rate is published monthlyby the IRS and is intended to reflect current interest rates on long-termtax-exempt debt obligations. Section 383 of the Tax Code applies a similarlimitation to capital loss carryforward and tax credits. As discussed below,however, special rules may apply in the case of a corporation whichexperiences an ownership change pursuant to a bankruptcy proceeding.

In general, an ownership change occurs when thepercentage of the corporation’s stock owned by certain “5 percent shareholders”increases by more than 50 percentage points in the aggregate over the lowestpercentage owned by those shareholders at any time during the applicable “testingperiod” (generally, the shorter of (a) the 36-month period precedingthe testing date or (b) the period of time since the most recent ownershipchange of the corporation). A “5 percent shareholder” for this purposeincludes, generally, an individual or entity that directly or indirectly owns5% or more of a corporation’s stock during the relevant period and one or moregroups of shareholders that own less than 5% of the value of the corporation’sstock. Under applicable Treasury Regulations, an ownership change with respectto an affiliated group of corporations filing a consolidated return that haveconsolidated NOLs is generally measured by changes in stock ownership of theparent corporation of the group.

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The issuance under the Plan of the New Common Stock,along with the cancellation of existing Interests through the Plan, is expectedto****cause an ownership change to occurwith respect to the Debtors’ consolidated group on the Effective Date. As aresult, except as described below, Section 382 of the Tax Code would applyto limit the Debtors’ use of their consolidated NOLs after the Effective Date. Thislimitation is independent of, and in addition to, the reduction of taxattributes described in the preceding Section resulting from the exclusionof CODI. Similarly, except as described below, the ability of the Debtors’consolidated group to use any remaining capital loss carryforwards and taxcredits would also be limited.

Section 382(l)(5) of the Tax Code provides aspecial rule applicable in the case of a bankruptcy reorganization (the “Section 382(l)(5) Rule”).If a corporation qualifies for the Section 382(l)(5) Rule, the annualSection 382 Limitation will not apply to the corporation’s NOLs on accountof an ownership change occurring as a result of the bankruptcy reorganization. TheSection 382(l)(5) Rule does, however, require that thecorporation’s NOL and credit carryovers be computed without taking into accountthe aggregate amount of all interest deductions during the three prior taxableyears and the portion of the current taxable year ending on the date of theownership change in respect of debt exchanged for the corporation’s stock (suchinterest hereinafter called “Disqualified Interest”). The corporation willqualify under the Section 382(l)(5) Rule if the corporation’sshareholders and holders of certain debt (the “Qualifying Debt”) own atleast 50% of the stock of the corporation after the bankruptcy reorganization,and the corporation does not elect not to apply the Section 382(l)(5) Rule.Qualifying Debt is a claim which (i) was held by the same creditor for atleast 18 months prior to the bankruptcy filing or (ii) arose in theordinary course of a corporation’s trade or business and has been owned, at alltimes, by the same creditor. Indebtedness will be treated as arising in theordinary course of a corporation’s trade or business if such indebtedness isincurred by the corporation in connection with the normal, usual or customaryconduct of the corporation’s business. For the purpose of determining whether aclaim constitutes Qualifying Debt, special rules may in some cases applyto treat a subsequent transferee as the transferor creditor.

If the exchanges contemplated by the Plan qualify forU.S. federal income tax treatment under the Section 382(l)(5) Rule andthe Debtors do not elect out of the Section 382(l)(5) Rule, theDebtors’ NOL carryover will be available for future use without any Section 382Limitation (after reduction of the Debtors’ NOLs by Disqualified Interest). However,under the Section 382(l)(5) Rule, if there is a second ownershipchange during the two-year period immediately following consummation of thePlan, the Section 382 Limitation after the second ownership change will bezero. The Debtors expect to qualify for the Section 382(1)(5) Rule,although no assurances can be made in this regard. If the Debtors do soqualify, they do not currently intend to elect out of the Section 382(1)(5) Rule.

If the exchanges do not qualify for tax treatmentunder the Section 382(l)(5) Rule or the Debtors elect not toapply the Section 382(l)(5) Rule, the Debtors’ use of NOLs to offsettaxable income earned after an ownership change will be subject to the annual Section 382Limitation. Since the Debtors are in bankruptcy, however, Section 382(l)(6) ofthe Tax Code will apply. Section 382(l)(6) of the Tax Code providesthat, in the case of an ownership change resulting from a bankruptcy proceedingof a debtor, the value of the debtor’s stock for the purpose of computing the Section 382Limitation will generally be calculated by reference to the net equity value ofdebtor’s stock taking into account the increase of the value of the corporationas a result of the surrender or cancellation of creditors’ claims in thetransaction (rather than the value without taking into account such increases,as is the case under the general rule for non-bankruptcy ownershipchanges). Accordingly, under this rule the Section 382 Limitationwould generally reflect the increase in the value of a debtor’s stock resultingfrom the conversion of debt to equity in the proceeding.

# **ARTICLE12REQUIREMENTS FOR CONFIRMATION OF PLAN**

## **12.1        ConfirmationHearing**

Objections to Confirmation of the Plan are governed bythe Solicitation and Disclosure Statement Order. **Unless an objection to Confirmation is timely served and Filed, it maynot be considered by the Bankruptcy Court.**For more information, seeArticle 2.4 of this Disclosure Statement, the Solicitation and DisclosureStatement Order, and the Confirmation Hearing Notice.

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At the Confirmation Hearing, the Bankruptcy Court willconfirm the Plan only if all of the following requirements of section l129(a) ofthe Bankruptcy Code are met:

·                                          ThePlan complies with the applicable provisions of the Bankruptcy Code.

·                                          TheDebtors have complied with the applicable provisions of the Bankruptcy Code.

·                                          ThePlan has been proposed in good faith and not by any means forbidden by law.

·                                          Anypayment made or to be made by the Debtors, or by an entity issuing securities,or acquiring property under the plan, for services or for costs and expensesin, or in connection with, the Chapter 11 Cases or in connection with theplan and incident to the Chapter 11 Cases has been approved by, or issubject to the approval of, the Bankruptcy Court as reasonable.

·                                          TheDebtors have disclosed the identity and affiliations of any individual proposedto serve, after confirmation of the Plan, as a director or officer of theReorganized Debtors, or a successor to the Debtors under the Plan, and theappointment to or continuance in such office by such individual must beconsistent with the interests of Creditors and holders of Interests and withpublic policy. The Debtors have disclosed the identity of any “insider” whowill be employed or retained by the Reorganized Debtors and the nature of anycompensation for such “insider.”

·                                          Withrespect to each Impaired Class of Claims or Interests, each holder of aClaim or Interest in such Class has either accepted the Plan or willreceive or retain under the Plan on account of such Claim or Interest propertyof a value, as of the Effective Date, that is not less than the amount thatsuch holder would receive or retain if the Debtors were liquidated on theEffective Date under chapter 7 of the Bankruptcy Code.

·                                          Withrespect to each Class of Claims or Interests, such Class has eitheraccepted the Plan or is not Impaired by the Plan. If this requirement is notmet, the Plan may still be confirmed pursuant to section l129(b) ofthe Bankruptcy Code. See Article 12.4, below.

·                                          Exceptto the extent that the holder of a particular Claim has agreed to a differenttreatment of its Claim, the plan provides that (i) Allowed AdministrativeExpense Claims will be paid in full in Cash on the Effective Date, (ii) AllowedOther Priority Claims will be paid in full in Cash on the Effective Date, or ifthe Class of such Claims accepts the Plan, the Plan may provide fordeferred Cash payments, of a value as of the Effective Date, equal to theAllowed amount of such Claims, and (iii) the holder of an Allowed PriorityTax Claim will receive on account of such Claim deferred Cash payments over aperiod not exceeding six years after the date of assessment of such Claim, of avalue, as of the Effective Date, equal to the Allowed amount of such Claim.

·                                          Ifa Class of Claims is impaired under the Plan, at least one Class ofClaims that is Impaired by the Plan has accepted the Plan, determined withoutincluding any acceptance of the Plan by any “insider.”

·                                          Confirmationof the Plan is not likely to be followed by the liquidation, or the need forfurther financial reorganization, of the Debtors or any successor of theDebtors under the Plan, unless proposed by the Plan.

·                                          Allfees payable under section 1930 of title 28 as determined by theBankruptcy Court at the Confirmation Hearing have been paid or the Planprovides for the payment of all such fees on the Effective Date.

The Plan provides for the continuation after theEffective Date of payment of all retiree benefits (as defined insection 1114 of the Bankruptcy Code), at the level established pursuant tosubsection 1114(e)(1)(B) or 1114(g) of

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the Bankruptcy Code atany time prior to confirmation of the Plan, for the duration of the period theDebtors has obligated itself to provide such benefits.

The Debtors believe thatthe Plan satisfies all of the statutory requirements of chapter 11 of theBankruptcy Code. Certain of these requirements are discussed in more detailbelow.

## **12.2        Feasibilityof the Plan**

In connection with confirmation of a plan,section l129(a)(11) requires that the Bankruptcy Court find thatconfirmation of the plan is not likely to be followed by liquidation or theneed for further financial reorganization of the debtor (unless suchliquidation or reorganization is proposed under the plan). This is known as the“feasibility” test. To support their belief in the feasibility of the Plan, theDebtors have prepared projections (the “Projections”) for the fiscal years 2006through 2008. These Projections are described in Exhibit A hereto.

The Projections indicate that the Reorganized Debtorsshould have sufficient cash flow and borrowing availability under the ExitFacility to make the payments required under the Plan on the Effective Dateand, thereafter, to repay and service their debt obligations and to maintaintheir operations for at least a three year period. Accordingly, the Debtorsbelieve that the Plan complies with the standard of section l129(a)(ii) ofthe Bankruptcy Code. The decrease in the amount of debt on the Debtors’ balancesheet will improve the Debtors’ cash flow and reduce interest expense payments.Moreover, the Debtors will benefit from the fact that there is no requiredamortization under the New Senior Secured Notes. Further, the Debtors believethat they have reached agreements as to cure amounts with most non-debtorparties to the executory contracts and unexpired leases that they need toassume for the Reorganized Debtors to be able to operate and that theReorganized Debtors will be able to make all such payments.

The Projections have been prepared by, and are theresponsibility of, the Debtors’ management. As noted in therein, however, theDebtors caution that no representations can be made as to the accuracy of theProjections or as to the Reorganized Debtors’ ability to achieve the projectedresults. The Projections are the result of the Debtors’ management’s estimates.Many of the assumptions upon which the Projections are based are subject touncertainties outside the control of the Debtors. Some assumptions may notmaterialize, and events and circumstances occurring after the date on which theProjections were prepared may be different from those assumed or may beunanticipated, and may adversely affect the Debtors’ financial results. Asdiscussed elsewhere in this Disclosure Statement, there are numerouscircumstances that may cause actual results to vary from the projected results,and the variations may be material and adverse. See Article 9 above,entitled “Risk Factors to be Considered” for a discussion of certain riskfactors that may affect financial feasibility of the Plan.

THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDCOMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OFCERTIFIED PUBLIC ACCOUNTANTS OR THE RULES AND REGULATIONS OF THE SECURITIES ANDEXCHANGE COMMISSION REGARDING PROJECTIONS. FURTHERMORE, NO INDEPENDENTCERTIFIED ACCOUNTANTS HAVE AUDITED THE PROJECTIONS. ALTHOUGH PRESENTED WITHNUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONSAND ESTIMATES, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE AND MAY NOT BEREALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS, LITIGATION,ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH AREBEYOND THE CONTROL OF THE DEBTORS. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BEREGARDED AS A REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON,THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLYFROM THOSE PRESENTED IN THE PROJECTIONS.

## **12.3        BestInterests Test**

The Bankruptcy Code requires that each holder of animpaired Claim or Interest either (a) accepts the plan or (b) receivesor retains under the plan property of a value, as of the effective date of theplan, that is not less than the value such holder would receive or retain ifthe Debtors were liquidated under chapter 7 of the Bankruptcy Code on theEffective Date.

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After consideration of the effects that achapter 7 liquidation would have on the ultimate proceeds available forDistribution, the Debtors have determined that Confirmation of the Plan willprovide each creditor and holder of Interests with a recovery that is not lessthan it would receive pursuant to a liquidation of the Debtors underchapter 7 of the Bankruptcy Code. Indeed, the Debtors believe that it ishighly unlikely that a liquidation would result in any Distribution to theholders of General Unsecured Claims, Qualifying Noteholder Claims andNon-Qualifying Noteholder Claims, or Interests.

The Debtors believe that any liquidation analysis isspeculative because such an analysis is necessarily premised upon assumptionsand estimates that are inherently subject to significant uncertainties andcontingencies, many of which would be beyond the control of the Debtors. Thus,there can be no assurance as to values that would actually be realized in achapter 7 liquidation, nor can there be any assurance that the BankruptcyCourt would accept the Debtors’ conclusions or concur with such assumptions inmaking its determinations under section 1129(a)(7) of the BankruptcyCode.

## **12.4        NonconsensualConfirmation**

In the event that any Impaired Class of Claims orInterests does not accept the Plan, the Bankruptcy Court may neverthelessconfirm the Plan if all other requirements under section 1129(a) ofthe Bankruptcy Code are satisfied, and if, with respect to each Impaired Class whichhas not accepted the Plan, the Bankruptcy Court determines that the Plan doesnot “discriminate unfairly” and is “fair and equitable” with respect to suchClass. Confirmation under section 1129(b) of the Bankruptcy Coderequires that at least one Impaired Class of Claims accepts the Plan,excluding any acceptance of the Plan by an “insider” (as that term is definedin section 101 of the Bankruptcy Code). The Debtors expect that there willbe at least one accepting Impaired Class. The Debtors intend to seekConfirmation of the Plan notwithstanding the non-acceptance of one or moreImpaired Classes.

### **12.4.1     No Unfair Discrimination**

A plan of reorganization does not “discriminateunfairly” with respect to a non-accepting Class if the value of the Cashand/or securities to be distributed to the non-accepting Class is equal orotherwise fair when compared to the value of Distributions to otherClasses whose legal rights are the same as those of the non-acceptingClass. The Debtors believe that the Plan does not discriminate unfairly againstany non-accepting Class of Claims or Interests.

### **12.4.2     Fair and Equitable Test**

The “fair and equitable” test of section 1129(b) ofthe Bankruptcy Code requires absolute priority in the payment of claims andequity interests with respect to any non-accepting class or classes. The “fairand equitable” test established by the Bankruptcy Code is different for securedclaims, unsecured claims and equity interests, and includes the followingtreatment:

*Secured Claims.*Aplan is fair and equitable with respect to a non-accepting class ofsecured claims if (1) the holder of each claim in such class willretain its lien or liens and receive deferred Cash payments totaling theallowed amount of its claim, of a value, as of the effective date of the plan,equal to the value of such holder’s interest in the collateral, (2) theholder of each claim in such class will receive the proceeds from the saleof such collateral or (3) the holder of each claim in such class willrealize the indubitable equivalent of its allowed secured claim. The Debtorsbelieve the treatment of each Class of Secured Claims, except to theextent that the holders thereof have agreed to lesser treatment, complies withthese requirements.

*Unsecured Claims.*Aplan is fair and equitable with respect to a non-accepting class ofunsecured claims if (1) the holder of each claim in such class willreceive or retain under the plan property of a value, as of the effective dateof the plan, equal to the allowed amount of its claim, or (2) holders ofclaims or equity interests that are junior to the claims of such creditors willnot receive or retain any property under the plan on account of such juniorclaim or interest. The Debtors believe this requirement is satisfied. Withrespect to Priority Claims, the Plan provides for such Claims to be paid infull. With respect to Claims in Classes 3, 4A, and 4B, although the Plan doesprovide for a distribution of New Common Stock or a small amount of Cash toholders of Interests in Classes 5A and 5B, respectively, the Debtorsnonetheless believe that the Plan likely would not run afoul ofsection 1129(b) if any of

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Classes 3, 4A, or 4Bvoted to reject the Plan. Because the Senior Secured Lenders hold perfectedliens in all or substantially all of the Debtors’ assets, the Bankruptcy Code’sdistribution provisions are not implicated unless and until the Claims of theSenior Secured Lenders are satisfied in full. However, under the Plan, theClaims of the Senior Secured Lender (Class 2A) will not be fullysatisfied. Therefore, the fact that holders of Interests are receivingDistributions should not be cause for permitting the unsecured creditor Classesto effectively veto the Plan pursuant to section 1129(b) particularly,where, as here, Plan provides for a substantially better result for thoseClasses than that available in a chapter 7 liquidation.

*Interests.*A plan is fair and equitable with respect toa non-accepting class of interests if holders of equity interestsreceive or retain property of a value of any fixed liquidation preference orredemption price to which they otherwise would be entitled. Alternatively, theholders of any interests junior to such dissenting class of holders mustreceive nothing pursuant to the plan. The Debtors believe each of thealternative requirements can be satisfied with respect to holders of Interestsin Class 5A and Class 5B Interests. First, there is no liquidationpreference or redemption price that is applicable to Interests in Class 5Aor Class 5B. Second, there are no Classes of Interests junior toClasses 5A and 5B.

# **ARTICLE13ALTERNATIVES TO CONFIRMATION ANDCONSUMMATION OF THE PLAN**

If the Plan is not confirmed, the possiblealternatives include (a) continuation of the Chapter 11 Cases andformulation of an alternative plan or plans of reorganization or(b) liquidation of the Debtors under chapter 7 or chapter 11 ofthe Bankruptcy Code.

## **13.1        Continuationof the Chapter 11 Cases**

If the Plan is not confirmed and the Debtors remain inchapter 11, the Debtors might be able to continue to operate theirbusinesses and manage their properties as debtors-in-possession for a shortperiod of time. It is not clear, however, whether the Debtors could continue asviable going concerns in protracted chapter 11 cases. The Debtors couldhave difficulty sustaining the high costs (both operating and financing), andthe confidence of the Debtors’ and their subsidiaries’ customers and tradevendors, of the Debtors remaining in chapter 11.

## **13.2        LiquidationUnder Chapter 7 or Chapter 11**

If the Plan is not confirmed, the Debtors’Chapter 11 Cases could be converted to liquidation cases underchapter 7 of the Bankruptcy Code. In chapter 7, a trustee would beappointed to promptly liquidate the Assets of the Debtors.

The Debtors believe that in liquidation underchapter 7, before creditors received any Distributions, additionaladministrative expenses involved in the appointment of a trustee and attorneys,accountants, and other professionals to assist such trustee, along with anincrease in expenses associated with an increase in the number of unsecuredclaims that would be expected, would cause a substantial diminution in thevalue of the Estates. The Assets available for Distribution to creditors wouldbe reduced by such additional expenses and by claims, some of which might beentitled to priority, which would arise by reason of the liquidation and fromthe rejection of leases and other executory contracts in connection with thecessation of the Debtors’ operations and the failure to realize the greater goingconcern value of the Debtors’ Assets.

The Debtors could also be liquidated pursuant to theprovisions of a chapter 11 plan of reorganization. In a chapter 11liquidation, it might be possible for the Debtors’ Assets to be sold in a moreorderly fashion over a longer period of time than in a liquidation underchapter 7. Thus, a chapter 11 liquidation might result in largerrecoveries than in a chapter 7 liquidation, but the delay in Distributionscould result in lower present values received and higher administrative costs.

**THE DEBTORS’ LIQUIDATION ANALYSISINCLUDED IN EXHIBIT B TO THIS DISCLOSURE STATEMENT IS PREMISED UPON AHYPOTHETICAL LIQUIDATION IN CHAPTER 7**

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**CASES. THEDEBTORS DO NOT BELIEVE THAT THE LIQUIDATION VALUE OF THEIR ASSETS EXCEEDS THECLAIMS OF THEIR PRINCIPAL SECURED CREDITORS, THE SENIOR SECURED LENDERS. THEDEBTORS, THEREFORE, BELIEVE THAT ALL UNSECURED CLAIMS AND INTERESTS WOULD NOTRECEIVE ANY DISTRIBUTION UNDER A LIQUIDATION SCENARIO. THE DEBTORS BELIEVE THATTHE PLAN AFFORDS SUBSTANTIALLY GREATER BENEFITS TO CREDITORS THAN WOULD ALIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11 OF THE BANKRUPTCY CODE.**

# **ARTICLE14VOTING AND CONFIRMATION OF THE PLAN**

## **14.1        VotingDeadline**

**It is important that the holders ofClaims and Interests in each Class exercise their rights to vote to acceptor reject the Plan.**All known holders of Claims entitled tovote on the Plan have been sent a Ballot (printed on colored paper) togetherwith this Disclosure Statement. Such holders should read the Ballot carefullyand follow the instructions contained therein. Please use only the Ballot thataccompanies this Disclosure Statement. If you did not receive a separate Ballotbut nevertheless believe that you are entitled to vote, you may obtain a Ballotor Ballots by contacting the Debtors’ Solicitation Agent (definedbelow) at 1-800-916-4890 or by mail at the addresslisted below.

The Debtors have engaged The Garden City Group, Inc.(the “Solicitation Agent”) as their solicitation agent to assist in thetransmission of voting materials and in the tabulation of votes with respect tothe Plan. **For your vote to count, your votemust be actually received at the following applicable addresses of theSolicitation Agent before the Voting Deadline of 4:00 p.m., prevailingEastern Time, on June 1, 2006:**

| If by hand delivery or  overnight courier: |   | The Garden City Group, Inc.  Attention: Boyds Balloting Agent  105 Maxess Road  Melville, New York 11747       |
|--------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|
|                                       |   |                                                                                                                |
| If by mail:                                |   | The Garden City Group, Inc.  Attention: Boyds Balloting Agent  PO Box 9000 #6361  Merrick, New York 11566-9000 |

 

**IF YOU ARE THE BENEFICIAL OWNER OFSENIOR SUBORDINATED NOTES AND HOLD THOSE NOTES THROUGH A BANK, BROKER, OR OTHERNOMINEE (THE “NOMINEE”) AND THE NOMINEE HAS INSTRUCTED YOU TO RETURN ABALLOT TO THE NOMINEE, YOU MUST RETURN YOUR BALLOT TO THE NOMINEE (AND NOT TOTHE SOLICITATION AGENT, AS DESCRIBED ABOVE) IN SUFFICIENT TIME FOR THE NOMINEETO PROCESS IT AND TRANSMIT YOUR VOTE TO THE SOLICITATION AGENT BEFORE THEVOTING DEADLINE.**

**IF A BALLOT IS DAMAGED OR LOST, ORFOR ADDITIONAL COPIES OF THIS DISCLOSURE STATEMENT, YOU MAY CONTACT THEDEBTORS’ SOLICITATION AGENT, THE GARDEN CITY GROUP, INC., AT THE ADDRESS, PHONENUMBER AND WEBSITE SPECIFIED ABOVE OR IN ARTICLE 2.1. IF YOU HAVE ANYQUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING AGENTAT THE ADDRESS SPECIFIED ABOVE. A CREDITOR SHOULD CONSULT ITS OWN ATTORNEY REGARDINGANY OTHER INQUIRIES.**

## **14.2        HoldersOf Claims and Interests Entitled To Vote**

The Claims and Interests in the Classes that may voteare described above in Article 2.1 and below in Article 14.4.

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## **14.3        VoteRequired for Acceptance by a Class**

The Bankruptcy Code defines acceptance of a plan by aclass of claims as acceptance by holders of at least two-thirds in dollaramount and more than one-half in number of the claims of that class whichcast ballots for acceptance or rejection of the plan. Thus, acceptance by aclass of claims occurs only if holders of at least two-thirds in dollaramount and a majority in number of the claims in such class that actuallyvote cast their Ballots in favor of acceptance.

A vote may be disregarded if the Bankruptcy Court determines,after notice and a hearing, that such acceptance or rejection was not solicitedor procured in good faith or in accordance with the provisions of theBankruptcy Code.

## **14.4        VotingProcedures**

The Debtors are providing copies of this DisclosureStatement, the Plan, and where appropriate, Ballots to holders of Claims andInterests in Class 2A, Class 3, Class 4A, Class 4B, Class 5Aand Class 5B. Holders of Claims and Interests may include brokers, banks,and other nominees. If such holders do not hold for their own accounts, they ortheir agents must provide copies of this Disclosure Statement and appropriateBallots to their customers and to beneficial owners as directed by theBankruptcy Court in the Solicitation and Disclosure Statement Order. Any beneficialowner who has not received a Ballot should contact his, her, or its nominee, orthe Solicitation Agent. See also applicable Voting Instructions as included inthe Solicitation and Disclosure Statement Order and the Ballots.

*(continuedon next page)*

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# **ARTICLE15CONCLUSION AND RECOMMENDATION**

**Based onall of the facts and circumstances, the Debtors believe that Confirmation ofthe Plan is in the best interests of the Debtors, their Creditors, Interestholders, and their Estates.**The Plan provides for anequitable and early Distribution to Creditors and Interest holders, andpreserves the going concern value of the Debtors. The Debtors believe thatalternatives to Confirmation of the Plan could result in significant delays,litigation, and costs, as well as a reduction in, or elimination of, the goingconcern value of the Debtors, no Distribution to holders of General UnsecuredClaims or holders of Senior Subordinated Notes, and a loss of jobs by many ofthe Debtors’ employees. **For these reasons,the Debtors urge you to return your Ballot and vote to accept the Plan.**
| Dated:                                             | McSherrystown, Pennsylvania                                                                                                                                                                                                                                                                                                           |   |
|----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                               | April 25, 2006                                                                                                                                                                                                                                                                                                                   |   |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               | Respectfully  submitted,                                                                                                                                                                                                                                                                                                              |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               | BOYDS  COLLECTION, LTD.; THE BOYDS  COLLECTION LTD, LP; BOYDS OPERATIONS INC.;  THE BOYDS COLLECTION—PIGEON FORGE, LLC; THE  BOYDS COLLECTION—MYRTLE BEACH, LLC; THE  BOYDS COLLECTION—BRANSON, LLC; J&T DESIGNS  AND IMAGINATIONS, INC., HC ACCENTS &  ASSOCIATES, INC.; and BOYDS BEAR AND COMPANY,  LP |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               | Debtors and Debtors -In-Possession                                                                                                                                                                                                                                                                                                    |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               | By: /s/ JAN MURLEY                                                                                                                                                                                                                                                                                                                    |
|                                               | Name:   Jan Murley                                                                                                                                                                                                                                                                                                          |
|                                               | Title:   President and Chief Executive Officer                                                                                                                                                                                                                                                                              |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
| KIRKLAND &  ELLIS LLP                     |                                                                                                                                                                                                                                                                                                                                  |
| Counsel for the  Debtors and Debtors-in-Possession |                                                                                                                                                                                                                                                                                                                                  |
| Citigroup Center                                   |                                                                                                                                                                                                                                                                                                                                  |
| 153 East 53rd Street                          |                                                                                                                                                                                                                                                                                                                                  |
| New York, New  York 10022-4611                     |                                                                                                                                                                                                                                                                                                                                  |
| (212) 446-4800                                |                                                                                                                                                                                                                                                                                                                                  |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
|                                               |                                                                                                                                                                                                                                                                                                                                  |
| By: /s/ MATTHEW  A. CANTOR                         |                                                                                                                                                                                                                                                                                                                                  |
| Matthew A.  Cantor                                 |                                                                                                                                                                                                                                                                                                                                  |
| Lisa G. Laukitis                                   |                                                                                                                                                                                                                                                                                                                                  |
| Ryan Blaine  Bennett                               | ** **                                                                                                                                                                                                                                                                                                                            |

 

63

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**EXHIBIT ATO DISCLOSURE STATEMENT**

**Consolidated Pro Forma BalanceSheets Giving**

**Effect tothe Plan or Reorganization Projections**

The followingConsolidated Pro Forma Balance Sheets for the Debtors and the Non-DebtorSubsidiaries (collectively, the “Company”) as of June 30, 2006reflect the effects of certain transactions that are anticipated to occur atthe consummation of the Plan. For purposes of the following Consolidated ProForma Balance Sheets, the assumed Effective Date of the Plan is June 30,2006. Other significant assumptions on which the pro forma adjustments arebased are set forth in the notes to the Consolidated Pro Forma Balance Sheets.

**THEPRO FORMA BALANCE SHEETS SET FORTH IN THIS SECTION ILLUSTRATE THE EFFECTON THE COMPANY’S BALANCE SHEETS OF CONSUMMATION OF THE PLAN. THESE BALANCESHEETS, BOTH PRE-PETITION AND POST-PETITION, HAVE NOT BEEN PREPARED INCONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THE PROJECTIONS HAVENOT BEEN AUDITED OR COMPILED BY THE COMPANY’S INDEPENDENT AUDITORS.**

Pursuant to theGuidance provided by SOP 90-7, “Financial Reporting by Entities inReorganization Under the Bankruptcy Code”, the Debtors will adopt “fresh start”accounting upon emergence from bankruptcy. Under fresh start accounting, thereorganization value of the entity (generally representing its fairvalue) is allocated to the entity’s assets in conformity with FAS 141, “BusinessCombinations.”  For purposes ofcompleting the following Consolidated Pro Forma Balance Sheets, the Debtors didnot attempt to apply FAS 141 guidelines, and instead have created anadjustment to Goodwill in order to bring Total Assets in-line with thereorganization value. A proper allocation of this adjustment will be conductedafter emergence from bankruptcy.

For the purpose ofthe following Consolidated Pro Forma Balance Sheets, management has estimatedthe reorganization value of the Company as of the Effective Date atapproximately $52.5 million. This estimated reorganization value of theCompany is partly based on the Debtors’ estimate and partly on the preliminaryassessments of Houlihan Lokey Howard & Zukin (“Houlihan Lokey”), theDebtors’ financial advisor and investment banker. This estimate assumes (amongother things) that the Effective Date occurs by June 30, 2006 and thatthere are no significant unanticipated costs, losses or other adversedevelopments between the date hereof and the Effective Date. This estimatedreorganization value, as well as its allocation to the specific assets andliabilities, may be significantly different from the final amounts that will bedetermined upon the Debtors’ emergence from bankruptcy. The Debtors believethat this estimated reorganization value is substantially higher than the valuethat would likely by realized for the Company’s assets if the Company were tobe liquidated.

The fresh-startaccounting assumptions and resulting computations were made solely for thepurposes of preparing the Projections. The Projections presented are not basedon management’s estimate of how the Debtors would apply “fresh-start accounting”under the requirements of Statement of Position 90-7 “Financial Reportingby Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7),issued by the American Institute of Certified Public Accountants. Instead, anadjustment to Goodwill was created in order to bring Total Assets in-line withthe reorganization value. Upon emergence from the Chapter 11 Cases, theReorganized Debtors would be required to determine the amount by which theeffective reorganization value as defined by SOP 90-7 exceeds, or is lessthan the fair value of its assets as of the Effective Date of the Plan. Suchdetermination would be based upon the fair values at that time, which may bebased on, among other things, a different methodology with respect to thevaluation of the Debtors. In any event, such valuations, as well as thedetermination of the fair value of the Debtors’ assets and the determination ofits actual liabilities, would be made as of the Effective Date of the Plan, andthe changes between the amounts of any or all of the foregoing items as assumedin the Projections and the actual amounts thereof as of the Effective Date maybe material.

This analysis andthe valuation are also based in part on preliminary assessments of HoulihanLokey, the financial advisors and investment bankers the Debtors have beenauthorized by the Bankruptcy Court to retain. The Debtors anticipate at theconfirmation hearing presenting testimony by Houlihan Lokey on valuation.

1

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**ProjectedFinancial Information**

**Introduction**

As a condition toconfirmation of a plan of reorganization, the Bankruptcy Code requires, amongother things, that the Bankruptcy Court determine that confirmation is notlikely to be followed by the liquidation or the need for further financialreorganization of the Company (unless the Plan so provides). In connection withthe development of the Plan, and for purposes of determining whether the Plansatisfies this feasibility standard, the Company’s management analyzed theability of the Company to meet its obligations under the Plan with sufficientliquidity and capital resources to conduct its businesses. In connection withthis, the Company’s management developed and prepared the Projections of theCompany’s operating profit, cash flow and certain other items for the periodfrom December 31, 2006 through December 31, 2008 (the “ProjectionPeriod”).

The Company doesnot, as a matter of course, publish its business plans, budgets or strategiesor make external projections or forecasts of its anticipated financial positionor results of operations. Accordingly, the Company does not anticipate that itwill, and disclaims any obligation to, furnish updated business plans, budgetsor Projections to Holders of Claims or Equity Interests in the Debtors prior tothe Effective Date or to stockholders or debt holders (with the exception ofLaminar, its principal secured lender) after the Effective Date. Duringthe Chapter 11 Cases, the Debtors will continue to file with the Office ofthe U.S. Trustee monthly operating reports concerning their ongoing operationsand financial performance. These reports are available for review upon requestfrom the Debtors.

The Projectionsshould be read in conjunction with the assumptions, qualifications andexplanations set forth herein.

**GeneralAssumptions**

The Projectionsreflect numerous assumptions, including various assumptions with respect to theanticipated future performance of the Company, industry performance, generalbusiness and economic conditions and other matters, most of which are beyondthe control of the Company. In addition, unanticipated events and circumstancesmay affect the actual financial results of the Company. **Therefore, although the Projections are necessarilypresented with numerical specificity, the actual results achieved throughoutthe Projection Period may vary from the projected results. Accordingly, norepresentations can be made or are made with respect to the accuracy of theProjections or the ability of the Company to achieve the projected results.**SeeArticle 9 of the Disclosure Statement for a discussion of certain factorsthat may affect the future financial performance of the Company and of thevarious risks associated with the securities of the Company.

**PrincipalAssumptions**

The Projectionshave been prepared by the Company’s management, and while they believe that theassumptions underlying the Projections for the Projection Period, arereasonable in light of current circumstances, no assurance can be given or isgiven that the Projections will be realized. The business plan on which theProjections are based assumes, among other things, improvements in the Company’sresults of operations during fiscal year 2006 as compared to fiscal year 2005and continued improvements during the remainder of the Projection Period. Theprojected improvements are reflective of implementation of certain saleschannel initiatives and cost reduction programs discussed in more detailherein. The Debtors believe that the pendency of the Chapter 11 Cases hasadversely affected their ability to grow their business and that emergence fromChapter 11 will have a positive effect. The Projections do not assume,however, that the Company will make any significant acquisitions.

Holders of Claimsand Interests must make their own determinations as to the reasonableness ofsuch assumptions and the reliability of the Projections in reaching theirdeterminations of whether to accept or reject the Plan.

The descriptionbelow summarizes the operating and financial information that managementbelieves is significant and upon which the financial results of the Companywill depend during the Projection Period.

**EffectiveDate:** The Projectionsassume that the Plan will be confirmed and all transactions contemplated by thePlan will be consummated by June 30, 2006. The actual Effective Date couldbe before or after June 30, 2006.

2

----

**BalanceSheet:**  The ProjectedBalance Sheet data reflects debt discharge adjustments and entries required forthe adoption of fresh start accounting as presented in the Consolidated ProForma Balance Sheet section. The Projected Balance Sheet information ispresented as of June 30, 2006, and as of the end of each year ending December 31.

Days of salesoutstanding used to calculate accounts receivable balances are projected to godown from approximately 35 days of Consolidated sales in 2005 to 27 days ofConsolidated sales in 2008. Given that nearly all product purchases are made bythe Company via wire transfer and letter of credit, the vast majority of theCompany’s trade debt and accrued liabilities arise from SG&A costs and notcost of goods sold. As a result, the Company calculates days payableoutstanding using SG&A versus cost of goods sold. Days payable outstandingused to calculate accounts payable balances (excluding $4.5 million of amountssubject to compromise) is projected to go down from 25 days of ConsolidatedSG&A in 2005 to 32 days in 2008. Other current assets are assumed to beunchanged over the Projection Period. Accrued expenses (excluding $0.4 millionof amounts subject to compromise) are assumed at 9.6%, 11.6%, 10.4% and 9.7% ofSG&A for the fiscal years 2005 through 2008, respectively. Depreciation andamortization as a percentage of revenue is projected at 3.2%, 3.2%, 3.1%, and2.9% for the fiscal years 2005 through 2008, respectively.

**Revenues:** The Projections werecreated though a build up of the Company’s two operating segments, Wholesaleoperations and Retail operations.

*WholesaleOperations*:  Wholesalesales reflect the view that the market for smaller, local retailers continuesto decline at 20% to 25% per year. The decline at Boyds is expected to be lessthan that for the overall market in 2006 due to issues that negatively impacted2005 results being corrected in 2006. These corrections will provide anadditional “one-time” lift to Boyds’ market share in this segment. One suchinitiative addressing these issues includes the Company’s plans to transitionout of its third party call center/small account sales force and replace itwith additional “feet on the street” and an in-house customer service team.Although sales are declining over the Projection Period with the Company’straditional customers and channels, new accounts and growth segments representincremental revenue in 2006 and become more meaningful over time as theyreplace lost business. New growth accounts include large format mass retailers,grocery channels, and drug chains. Other growth programs being implemented bymanagement include:  (i) thebuild-out of an online transactional site that will allow consumers to purchasethe full breadth of the Boyds line from a select number of independentretailers, (ii) refinement and build-out of an independent sales forcenetwork working in connection with local retailers by hosting in-home events(called “Home Reunions”), selling direct to consumers, and (iii) increasedCanadian sales due to improved penetration of plush products into the market aswell as growth in national accounts in that market. Sales in the United Kingdomare projected to grow due to that entity beginning to service continentalEurope after the closure of the Company’s operations in the Netherlands whichhad previously provided this function.

*RetailOperations*:  The flatRetail sales forecast for 2006 reflects some cannibalization from a new onlineprogram (discussed below) and continued negative trends in the Company’sexisting retail locations, offset by increased traffic from the promotion ofaffinity group events hosted at the stores. The forecast in 2007 and 2008includes a benefit from partnerships with other retail concepts to bring theirproducts along side Boyds’ in order to mutually improve traffic and revenue.Growth in the Retail segment over the Projection Period is also driven by anumber of other initiatives including:  (i) developmentin 2006, of an online retail transactional website capability whereby Boydswill sell customized product direct to consumers, in a similar manner to theCompany’s competitors, (ii) opening small format Bear Factory locationswithin other retailers, utilizing their traffic and space, and (iii) moderategrowth with FAO Schwarz catalogue and store sales.

**Costof Sales:**  Cost ofsales is projected at $37.0 million, $39.9 million and $43.7 million for the fiscalyears 2006 through 2008, respectively, or 48.3%, 47.2% and 45.5% of revenue.Cost of sales as a percentage of total higher sales reflect Management’s beliefthat wholesale margins will decline due to customer and product mix changes,logistics and freight costs as well as increased licensing expense driven byhigher demand for licensed products. Retail cost of sales is projected todecline due to a reduction in food costs as the Company changes its menu andportion sizes, helping to offset the lower Wholesale profitability in the nearterm. The Company has also identified material cost savings opportunitiesrelated to warehouse costs and logistics process improvements which will beimplemented over the Projection Period.

3

----

**SG&A:**  Consists of selling, general andadministrative costs directly and indirectly associated with operation of theCompany’s sales and back office functions. SG&A is projected at $35.8million, $39.2 million and $44.1 million for the fiscal years 2006 through2008, respectively, or 46.7%, 46.4%, 46.0% of revenue. Wholesale SG&A aspercentage of revenue improves in 2006 versus 2005 based on headcountreductions taken in 2005. Incentive wages to employees are anticipated toincrease in 2006 as no payments were made in 2005 due to under performancecompared to budgeted targets. Profitability in the Retail division improves in2007 and 2008 as new initiatives take hold, primarily in online/direct and theBear Factory initiatives (channels with higher margins). Also contributing toRetail profitability improvements are reductions in professional fees relatedto the outsourced re-merchandising of the stores for holidays and otherin-store events.

**InterestIncome/Expenses:**    Netinterest expense is projected based on the costs associated with the Company’sExit Facility and New Senior Secured Notes. The expense includes interest,amortization of deferred financing fees, and other related fees (i.e.Commitment Fees). For purposes of the Projections, the Company has assumed aconstant LIBOR of  4.94%. Interest rateson the Company’s post-emergence debt obligations are as follows:

| Exit Facility:             |   | LIBOR + 300bps |
|----------------------------|--------|----------------|
|                       |   |           |
| New Senior  Secured Notes: |   | LIBOR + 500bps |

 

**CapitalExpenditure:**  Capitalexpenditures are projected to be $2.1 million, $2.7 million, and $2.8 millionduring the fiscal years 2006 through 2008, respectively. The expenditure isprojected to provide adequate capacity for provision of services to the extentcontemplated through the Projection Period. The increased expense reflectsbuild out of the Company’s contemplated online initiatives as well as the costsof making improvements to Retail locations to support expanded in-store eventsand partnerships.

**CashBalance:**  The Companyis projected to have approximately $0.6 million of cash on hand and $3.0million of DIP borrowings on the Effective Date before payment ofadministrative expenses, cure costs, priority claims, and claims in theconvenience class assumed to be payable by such date. Although noassurances can be provided, management believes there will be sufficient cashand availability to pay all administrative and priority Claims and cure costsanticipated under the Plan, including any administrative expenses andreorganization costs payable after the Effective Date, and to pay all ongoingexpenses of the Company through 2008. The Plan provides the Company with accessto additional liquidity from Laminar under the Exit Financing Facility to fundpayments under the Plan, providing an additional source of cash atConfirmation. The Debtors believe it is likely that they will need to borrow asubstantial portion of this additional amount. By the end of 2006, however,management believes the Company will be able to pay down the outstandingamounts under the Exit Financing Facility. For purposes of the pro formaanalysis, the following assumptions have been made regarding costs incurredupon exit:

| Transaction Costs: $3.5  million                                |
|-----------------------------------------------------------------|
|                                                            |
| Cash Payments to  Holders of Claims and Interests: $1.3 million |

 

**Currency:**  The Projections assume that the respectiveexchange rates among the U.S. Dollar, Canadian Dollar, British Pound and othercurrencies do not fluctuate significantly during the Projection Period.

4

----

**The BoydsCollection, LTD and SubsidiariesConsolidated Pro Forma Balance Sheet as at June 30, 2006**
| ** **                              | ** ** | ** **         | ** ** | ** **            | ** ** | **Restructuring** | ** ** | ** **           | ** ** | ** **         | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|-------------------|------------|----------------------|------------|--------------------|------------|
| ** **                              | ** ** | **March 31,** | ** ** | **Cash Sources** | ** ** | **of Other** | ** ** | **Fresh Start** | ** ** | ** **         | ** ** |
| **($ in Thousands)**          | ** ** | **2006**           | ** ** | **& Uses**   | ** ** | **Claims**        | ** ** | **Adjustments**      | ** ** | **Pro Forma** | ** ** |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Current Assets                          |       |               |       |                  |       |              |       |                 |       |               |       |
| Cash                                    |       | $                  | 600        |                  | $          | 0                 |       | $                    | 0          |               | $          | 0 |   | $ | 600 |   |
| Accounts  Receivable, net               |       | 9,156              |       | 0                     |       | 0                 |       | 0                    |       | 9,156              |       |
| Inventory, net                          |       | 13,671             |       | 0                     |       | 0                 |       | 0                    |       | 13,671             |       |
| Deferred Tax  Asset (current)           |       | 0                  |       | 0                     |       | 0                 |       | 0                    |       | 0                  |       |
| Other Current  Assets                   |       | 1,039              |       | 0                     |       | 0                 |       | 0                    |       | 1,039              |       |
| Total Current Assets                    |       | 24,465             |       | 0                     |       | 0                 |       | 0                    |       | 24,465             |       |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Net Property Plant and  Equipment (net) |       | 31,827             |       | 0                     |       | 0                 |       | 0                    |       | 31,827             |       |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Other Assets                            |       |               |       |                  |       |              |       |                 |       |               |       |
| Deferred Tax  Asset (long term)         |       | 0                  |       | 0                     |       | 0                 |       | 0                    |       | 0                  |       |
| Goodwill                                |       | 0                  |       | 0                     |       | 0                 |       | (10,417              | )          | (10,417            | )          |
| Other                                   |       | 3,624              |       | 0                     |       | 0                 |       | 0                    |       | 3,624              |       |
| Total Other Assets                      |       | 3,624              |       | 0                     |       | 0                 |       | (10,417              | )          | (6,792             | )          |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Total Assets                            |       | $                  | 59,917     |                  | $          | 0                 |       | $                    | 0          |               | ($10,417   | ) | $ | 49,500 |   |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Current Liabilities                     |       |               |       |                  |       |              |       |                 |       |               |       |
| Accounts  Payables                      |       | $                  | 5,248      |                  | $          | 0                 |       | ($4,485              | )          | $                  | 0          |   | $ | 763 |   |
| Accrued Expenses                        |       | 5,423              |       | (3,500                | )          | (447              | )          | 0                    |       | 1,476              |       |
| Accrued Taxes                           |       | 467                |       | 0                     |       | 0                 |       | 0                    |       | 467                |       |
| Short Term Debt                         |       | 0                  |       | 0                     |       | 0                 |       | 0                    |       | 0                  |       |
| Other Current  Liabilities              |       | 2,586              |       | 0                     |       | 0                 |       | 0                    |       | 2,586              |       |
| Total Current  Liabilities              |       | 13,723             |       | (3,500                | )          | (4,932            | )          | 0                    |       | 5,291              |       |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Long Term Debt                          |       |               |       |                  |       |              |       |                 |       |               |       |
| DIP Revolver                            |       | 3,006              |       | (3,006                | )          | 0                 |       | 0                    |       | 0                  |       |
| Pre-Petition  Term Loan                 |       | 56,500             |       | 0                     |       | (56,500           | )          | 0                    |       | 0                  |       |
| 9.00% Senior  Subordinated Notes        |       | 34,392             |       | 0                     |       | (34,392           | )          | 0                    |       | 0                  |       |
| New Revolver                            |       | 0                  |       | 7,890                 |       | 0                 |       | 0                    |       | 7,890              |       |
| New Secured Term  Loan                  |       | 0                  |       | 0                     |       | 30,000            |       | 0                    |       | 30,000             |       |
| New Notes                               |       | 0                  |       | 0                     |       | 0                 |       | 0                    |       | 0                  |       |
| Long Term Debt                          |       | 93,898             |       | 4,884                 |       | (60,892           | )          | 0                    |       | 37,890             |       |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Equity                                  |       |               |       |                  |       |              |       |                 |       |               |       |
| Capital Stock                           |       | (68,640            | )          | 0                     |       | 0                 |       | 68,640               |       | 0                  |       |
| Preferred Equity                        |       | 0                  |       | 0                     |       | 0                 |       | 0                    |       | 0                  |       |
| Retained  Earnings                      |       | 20,936             |       | (1,384                | )          | 65,824            |       | (79,057              | )          | 6,319              |       |
| Total Equity                            |       | (47,704            | )          | (1,384                | )          | 65,824            |       | (10,417              | )          | 6,319              |       |
|                                    |       |               |       |                  |       |              |       |                 |       |               |       |
| Total Liabilities and Equity            |       | $                  | 59,917     |                  | $          | 0                 |       | $                    | 0          |               | ($10,417   | ) | $ | 49,500 |   |

 

5

----

**TheBoyds Collection, LTD and SubsidiariesConsolidated Pro Forma Balance Sheet as at June 30, 2006**
| ** **                     | ** ** | **Projected** | ** ** |
|--------------------------------|------------|---------------|------------|
| **($ in Thousands)** | ** ** | **2006E**     | ** ** | **2007E** | ** ** | **2008E** | ** ** |
|                           |       |          |       |   |   |   |   |
| Sales                          |       |          |       |   |   |   |   |
| Wholesale                      |       | $             | 53,515     |   | $ | 53,879 |   | $ | 55,779 |   |
| Retail                         |       | 23,358        |       | 30,661 |   | 40,239 |   |
| Total Sales                    |       | $             | 76,873     |   | $ | 84,540 |   | $ | 96,018 |   |
|                           |       |          |       |   |   |   |   |
| Cost of Sales                  |       | (37,038       | )          | (39,882 | ) | (43,728 | ) |
|                           |       |          |       |   |   |   |   |
| Gross Profit                   |       | $             | 39,836     |   | $ | 44,658 |   | $ | 52,290 |   |
|                           |       |          |       |   |   |   |   |
| SG&A                       |       | (35,919       | )          | (39,200 | ) | (44,138 | ) |
|                           |       |          |       |   |   |   |   |
| Other Operating  Income        |       | 0             |       | 0 |   | 0 |   |
|                           |       |          |       |   |   |   |   |
| Income from  Operations        |       | $             | 3,917      |   | $ | 5,458 |   | $ | 8,152 |   |
|                           |       |          |       |   |   |   |   |
| Other Income                   |       | (5,993        | )          | 0 |   | 0 |   |
| Interest Expense               |       | (1,942        | )          | (3,063 | ) | (3,044 | ) |
| Tax Provision                  |       | 0             |       | 0 |   | 0 |   |
| Reorganization  Fees           |       |          |       |   |   |   |   |
| Net Income                     |       | ($4,017       | )          | $ | 2,394 |   | $ | 5,108 |   |
|                           |       |          |       |   |   |   |   |
| **EBITDA  Reconciliation**     | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from  Operations        |       | $             | 3,917      |   | $ | 5,458 |   | $ | 8,152 |   |
|                           |       |          |       |   |   |   |   |
| D&A                        |       | 2,441         |       | 2,617 |   | 2,793 |   |
| Adjustments                    |       | 0             |       | 0 |   | 0 |   |
|                           |       |          |       |   |   |   |   |
| EBITDA                         | ** ** | **$**         | **6,358**  | ** ** | **$** | **8,075** | ** ** | **$** | **10,945** | ** ** |

 

6

----

**TheBoyds Collection, LTD and SubsidiariesConsolidated Pro Forma Balance Sheet as at June 30, 2006**
| ** **                              | ** ** | **Preliminary** | ** ** | **Pro Forma** | ** ** | **Projected December 31,** | ** ** |
|-----------------------------------------|------------|-----------------|------------|--------------------|------------|--------------------------------------|------------|
| **($ in Thousands)**          | ** ** | **2005**        | ** ** | **30-Jun-06**      | ** ** | **2006E**                            | ** ** | **2007E** | ** ** | **2008E** | ** ** |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Current Assets                          |       |            |       |               |       |                                 |       |   |   |   |   |
| Cash                                    |       | $               | 8,748      |               | $          | 600                                  |       | $ | 5,928 |   | $ | 7,617 |   | $ | 13,265 |   |
| Accounts Receivable, net                |       | 7,348           |       | 9,156              |       | 5,747                                |       | 6,727 |   | 6,987 |   |
| Inventory, net                          |       | 13,541          |       | 13,671             |       | 14,000                               |       | 13,680 |   | 13,593 |   |
| Deferred Tax Asset (current)            |       | 0               |       | 0                  |       | 0                                    |       | 0 |   | 0 |   |
| Other Current Assets                    |       | 1,039           |       | 1,039              |       | 1,039                                |       | 1,039 |   | 1,039 |   |
| Total Current  Assets                   |       | 30,676          |       | 24,465             |       | 26,714                               |       | 29,063 |   | 34,884 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Net Property  Plant and Equipment (net) |       | 31,875          |       | 31,827             |       | 31,483                               |       | 31,566 |   | 31,573 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Other Assets                            |       |            |       |               |       |                                 |       |   |   |   |   |
| Deferred Tax Asset (long term)          |       | 0               |       | 0                  |       | 0                                    |       | 0 |   | 0 |   |
| Goodwill                                |       | 0               |       | (7,417             | )          | (7,417                               | )          | (7,417 | ) | (7,417 | ) |
| Other                                   |       | 3,624           |       | 3,624              |       | 3,624                                |       | 3,624 |   | 3,624 |   |
| Total Other  Assets                     |       | 3,624           |       | (3,792             | )          | (3,792                               | )          | (3,792 | ) | (3,792 | ) |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Total Assets                            |       | $               | 66,176     |               | $          | 52,500                               |       | $ | 54,405 |   | $ | 56,837 |   | $ | 62,666 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Current  Liabilities                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Accounts Payables                       |       | $               | 6,233      |               | $          | 763                                  |       | $ | 3,204 |   | $ | 3,313 |   | $ | 3,828 |   |
| Accrued Expenses                        |       | 5,015           |       | 1,476              |       | 4,159                                |       | 4,087 |   | 4,292 |   |
| Accrued Taxes                           |       | 467             |       | 467                |       | 467                                  |       | 467 |   | 467 |   |
| Short Term Debt                         |       | 0               |       | 0                  |       | 0                                    |       | 0 |   | 0 |   |
| Other Current Liabilities               |       | 2,586           |       | 2,586              |       | 2,586                                |       | 2,586 |   | 2,586 |   |
| Total Current  Liabilities              |       | 14,300          |       | 5,291              |       | 10,415                               |       | 10,452 |   | 11,173 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Long Term Debt                          |       | 90,892          |       | 37,890             |       | 30,000                               |       | 30,000 |   | 30,000 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Equity                                  |       |            |       |               |       |                                 |       |   |   |   |   |
| Capital Stock                           |       | (68,640         | )          | 0                  |       | 0                                    |       | 0 |   | 0 |   |
| Preferred Equity                        |       | 0               |       | 0                  |       | 0                                    |       | 0 |   | 0 |   |
| Retained Earnings                       |       | 29,624          |       | 9,319              |       | 13,990                               |       | 16,385 |   | 21,493 |   |
| Total Equity                            |       | (39,016         | )          | 9,319              |       | 13,990                               |       | 16,385 |   | 21,493 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |
| Total  Liabilities and Equity           |       | $               | 66,176     |               | $          | 52,500                               |       | $ | 54,405 |   | $ | 56,837 |   | $ | 62,666 |   |
|                                    |       |            |       |               |       |                                 |       |   |   |   |   |

 

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**TheBoyds Collection, Ltd. and Subsidiaries**

**ConsolidatedCash Flow Statements**
| ** **                                | ** ** | **Preliminary** | ** ** | **Projected** | ** ** |
|-------------------------------------------|------------|-----------------|------------|---------------|------------|
| **($ in Thousands)**                 | ** ** | **2005**        | ** ** | **2006E**     | ** ** | **2007E** | ** ** | **2008E** | ** ** |
|                                      |       |            |       |          |       |   |   |   |   |
| *Cash Flows From Operating Activities:*   | * *   | * *        | * *   | * *      | * *   | * * | * * | * * | * * |
| Net income/ (loss)                        |       | ($182,937       | )          | ($4,017       | )          | $2,394 |   | $5,108 |   |
| Depreciation and amortization             |       | 2,520           |       | 2,441         |       | 2,617 |   | 2,793 |   |
| Write-off of deferred debt issuance costs |       | 1,282           |       | 0             |       | 0 |   | 0 |   |
| Other Changes                             |       | 169,260         |       | 0             |       | 0 |   | 0 |   |
| Changes in assets and liabilities:        |       |            |       |          |       |   |   |   |   |
| Accounts receivable -  net                |       | 1,231           |       | 1,601         |       | (980 | ) | (260 | ) |
| Inventory - net                           |       | 1,410           |       | (459          | )          | 320 |   | 88 |   |
| Other current assets                      |       | 1,176           |       | 0             |       | 0 |   | 0 |   |
| Other assets                              |       | (179            | )          | 0             |       | 0 |   | 0 |   |
| Accounts payable                          |       | (114            | )          | 1,456         |       | 109 |   | 515 |   |
| Accrued expenses                          |       | 1,812           |       | 3,091         |       | (72 | ) | 206 |   |
| Accrued taxes                             |       | (651            | )          | 0             |       | 0 |   | 0 |   |
| Other current liabilities                 |       | (7              | )          | 0             |       | 0 |   | 0 |   |
| Interest payable/PIK  Interest            |       | 1,953           |       | 0             |       | 0 |   | 0 |   |
| Net cash used in operating activities     |       | ($3,244         | )          | $4,114        |       | $4,389 |   | $8,449 |   |
|                                      |       |            |       |          |       |   |   |   |   |
| *Cash Flows From Investing Activities:*   | * *   | * *        | * *   | * *      | * *   | * * | * * | * * | * * |
| Purchase of property and equipment        |       | ($986           | )          | ($2,050       | )          | ($2,700 | ) | ($2,800 | ) |
| Net cash used in investing activities     |       | ($986           | )          | ($2,050       | )          | ($2,700 | ) | ($2,800 | ) |
|                                      |       |            |       |          |       |   |   |   |   |
| *Cash Flows From Financing Activities:*   | * *   | * *        | * *   | * *      | * *   | * * | * * | * * | * * |
| Borrowings/(payments) under revolver      |       | $15,750         |       | ($3,500       | )          | $0 |   | $0 |   |
| Other                                     |       | (3,126          | )          | 0             |       | 0 |   | 0 |   |
| Net cash used in financing activities     |       | $12,624         |       | ($3,500       | )          | $0 |   | $0 |   |
|                                      |       |            |       |          |       |   |   |   |   |
| Net cash flow                             |       | $8,394          |       | ($1,436       | )          | $1,689 |   | $5,649 |   |
|                                      |       |            |       |          |       |   |   |   |   |
| *Cash*                                    | * *   | * *        | * *   | * *      | * *   | * * | * * | * * | * * |
| Beginning balance                         |       | $354            |       | $8,748        |       | $5,928 |   | $7,617 |   |
| Net cash flow                             |       | 8,394           |       | (1,436        | )          | 1,689 |   | 5,649 |   |
| Ending balance                            |       | $8,748          |       | $7,311        |       | $7,617 |   | $13,265 |   |

 

 

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**EXHIBIT B TO DISCLOSURESTATEMENT**

**LIQUIDATIONANALYSIS**

The Bankruptcy Code requires that each holder of anAllowed Claim or Interest either (a) accepts the Plan or (b) receivesor retains under the Plan property of a value, as of the Effective Date, that isnot less than the value such holder would receive or retain if the Debtors wereliquidated under chapter 7 of the Bankruptcy Code on the Effective Date.The first step in meeting this test is to determine the amount that would begenerated from the liquidation of the Debtors’ Assets and properties in achapter 7 liquidation case. The net cash available in such a liquidationwould be the sum of the proceeds from the disposition of the Debtors’ Assetsand the cash held by the Debtors immediately prior to the Effective Date asreduced by the amount of any Allowed Claims secured by such Assets, the costsand expenses of the liquidation, and such additional administrative expensesand priority claims that may result from the termination of the Debtors’ businessand the use of chapter 7 for the purposes of liquidation. Any remainingnet cash would be allocated to creditors and shareholders in strict accordancewith the order of priority of claim; required by section 726 of theBankruptcy Code.

A general summary of the assumptions used bymanagement in preparing the liquidation analysis follows.

**Estimate of Proceeds Available for Distribution**

Estimates were made of the cash proceeds that might berealized from the liquidation of the Debtors’ Assets. The liquidation processassumed would entail the shutdown of the Debtors’ operations and an orderlysale of the Debtors’ assets over a 6-month period. While some of theDebtors’ Assets might be liquidated in less than six months, other Assets couldbe more difficult to collect or sell, requiring a liquidation periodsubstantially longer than six months; this time would allow for the collectionof receivables, sale of Assets and the winding down of daily operations.However, it is unclear whether, in light of the Liens on all of the Debtors’Assets, a chapter 7 trustee would be afforded this much time. Liquidationvalues were assessed for general classes of Assets by estimating thepercentage recoveries that the Debtors might achieve through their disposition.

**Estimateof Costs**

The Debtors’ costs of liquidation under chapter 7would include the fees payable to a chapter 7 trustee, as well as thosethat might be payable to attorneys and other professionals a trustee couldengage. Further, costs of liquidation could include any obligations and unpaidexpenses incurred by the Debtors during the Chapter 11 Cases and Allowedin a chapter 7 case, such as trade obligations, compensation forattorneys, financial advisors, and other professionals, and costs and expensesof members of the Creditors’ Committee. Moreover, additional claims could ariseby reason of the breach or rejection of obligations incurred and contracts orleases entered into by the Debtors during the pendency of the Chapter 11Cases.

The foregoing type of claims, costs, expenses, andfees and such other claims that could arise in a liquidation case would be paidin full from the liquidation proceeds before the balance of those proceedswould be made available to pay secured and unsecured claims and interests.Under the absolute priority rule, no junior creditor would receive anyDistribution until all senior creditors are paid in full, and no equityinterest holder would receive any Distribution until all creditors are paid infull.

**Distributionof Net Proceeds under Absolute Priority Rule**

**ASDETAILED ON THE FOLLOWING SCHEDULE, THE DEBTORS’ MANAGEMENT ESTIMATES THATGROSS LIQUIDATION PROCEEDS (REFERRED TO AS TOTAL DISTRIBUTABLE VALUE) WOULDRANGE BETWEEN $11.6 MILLION AND $25.6 MILLION. THIS AMOUNT, LESS PAYMENTOF LIQUIDATION EXPENSES, IS INSUFFICIENT TO PAY SECURED AND ADMINISTRATIVEEXPENSE CLAIMS IN FULL. ACCORDINGLY, IN A CHAPTER 7 LIQUIDATION, THEDEBTORS BELIEVE THERE WOULD BE NO RECOVERY FOR UNSECURED CREDITORS.**

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**Exhibit Bto Disclosure Statement — 2**

**The Debtors’ liquidation analysis isan estimate of the proceeds that may be generated as a result of a hypotheticalchapter 7 liquidation of the Assets of the Debtors.**Underlyingthe liquidation analysis are a number of estimates and assumptions that areinherently subject to significant economic, competitive and operationaluncertainties and contingencies beyond the control of the Debtors or achapter 7 trustee. Additionally, various liquidation decisions on whichcertain assumptions are based are subject to change.

**THERE CAN BE NO ASSURANCE THAT THEASSUMPTIONS AND ESTIMATES EMPLOYED IN DETERMINING THE LIQUIDATION VALUES OF THEDEBTORS’ ASSETS WOULD BE REALIZED IF THE DEBTORS WERE TO ACTUALLY UNDERGO SUCHA LIQUIDATION, AND ACTUAL RESULTS COULD VARY MATERIALLY FROM THOSE SHOWN HERE.**

The actual amounts of Allowed Claims against theEstates could vary significantly from the Debtors’ estimates, depending on theclaims asserted during the pendency of the chapter 7 case. This analysisalso does not include potential recoveries from avoidance actions or additionalproceeds that might result from the sale of certain items with intangiblevalue. Therefore, the actual liquidation proceeds of the Debtors could bematerially different from the estimates provided in this analysis. Moreover,the liquidation analysis set forth below is based on the estimated values ofthe Debtor’s Assets immediately prior to the Effective Date, which for purposesof this analysis has been assumed to be June 30, 2006. To the extentoperations through such date are different from those estimated, the assetvalues may change. These values have not been subject to any compilation,review or audit by any independent accounting firm.

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**Boyds Collection Ltd. and SubsidiariesLiquidation Analysis**
| ** **                            | ** ** | **Estimated**                                                                | ** ** | **Hypothetical**                                                             | ** ** | **Hypothetical**                                                             | ** ** | ** ** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------|------------|
| ** **                            | ** ** | **Book Value A**                                                   | ** ** | **Recovery Amount**                                                     | ** ** | **Recovery Rate**                                                       | ** ** | ** ** | ** ** |
| **($ in Thousands)**        | ** ** | **30-Jun-06**                                                                | ** ** | **Low**                                                                      | ** ** | **High**                                                                     | ** ** | **Low**    | ** ** | **High** | ** ** | **Note** | ** ** |
| **Current  Assets**                   | ** ** | ** **                                                                   | ** ** | ** **                                                                   | ** ** | ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash                                  |       | $            600 |       | $            600 |       | $            600 |       | 100.0      | %          | 100.0 | % | B |   |
| Accounts  Receivable                  |       | 9,156                                                                        |       | 2,747                                                                        |       | 5,493                                                                        |       | 30.0       | %          | 60.0 | % | C |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Inventory                             |       | 13,671                                                                       |       | 2,734                                                                        |       | 9,570                                                                        |       | 20.0       | %          | 70.0 | % | D |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Other Current  Assets                 |       | 1,039                                                                        |       | 0                                                                            |       | 0                                                                            |       | 0.0        | %          | 0.0 | % | E |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Property Plant  and Equipment, Net    |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Domestic Operations, Excluding Retail |       | 1,831                                                                        |       | 0                                                                            |       | 458                                                                          |       | 0.0        | %          | 25.0 | % | F |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Gettysburg Retail Location            |       | 13,809                                                                       |       | 3,000                                                                        |       | 5,000                                                                        |       | 21.7       | %          | 36.2 | % | F |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Pigeon Forge Retail Location          |       | 16,187                                                                       |       | 2,500                                                                        |       | 4,500                                                                        |       | 15.4       | %          | 27.8 | % | F |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| International Operations              |       | 0                                                                            |       | 0                                                                            |       | 0                                                                            |       | 0.0        | %          | 0.0 | % | F |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| Other                                 |       | 3,624                                                                        |       | 0                                                                            |       | 0                                                                            |       | 0.0        | %          | 0.0 | % | G |   |
|                                  |       |                                                                         |       |                                                                         |       |                                                                         |       |       |       |   |   |   |   |
| **Total Distributable Value**         | ** ** | **$     58,877**                                    | ** ** | **$     11,581**                                    | ** ** | **$     25,621**                                    | ** ** | **19.7**   | **%**      | **43.5** | **%** | ** ** | ** ** |

 
| **ALLOCATION OF PROCEEDS**                                | ** ** | **Recovery Amount**                                     | ** ** | ** **                                                   | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Low**                                                      | ** ** | **High**                                                     | ** ** | **Note** | ** ** |
| **Total  Hypothetical Liquidation Value**                           | ** ** | **$ 11,581**                                            | ** ** | **$ 25,621**                                            | ** ** | ** ** | ** ** |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| **Less  Chapter 7 Liquidation Expenses**                            | ** ** | ** **                                                   | ** ** | ** **                                                   | ** ** | ** ** | ** ** |
| Chapter 7  Trustee’s Fees (3% of Assets)                       |       | ($347                                                        | )          | ($769                                                        | )          | H |   |
| Professional  Fees and Transaction Costs (6 Months)                 |       | (2,850                                                       | )          | (2,850                                                       | )          | I |   |
| Wind Down Costs                                                     |       | (3,000                                                       | )          | (3,000                                                       | )          | J |   |
| Professional Fee  Claims                                            |       | (1,000                                                       | )          | (1,000                                                       | )          | K |   |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| **Estimated  Proceeds Available for Distribution**                  | ** ** | **$ 4,383**                                             | ** ** | **$ 18,002**                                            | ** ** | ** ** | ** ** |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| *Less**Secured Debtor In Possession Financing Claim*                |       | (3,006                                                       | )          | (3,006                                                       | )          |   |   |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| **Net  Proceeds Available for Distribution to Secured Creditors**   | ** ** | **$ 1,377**                                             | ** ** | **$ 14,996**                                            | ** ** | ** ** | ** ** |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| Secured Claims  (Pre Petition Credit Facility)                      |       | 57,730                                                       |       | 57,730                                                       |       | L |   |
| **Implied  Percent Recovery**                                       | ** ** | **2.4**                                                      | **%**      | **26.0**                                                     | **%**      | ** ** | ** ** |
| **Net  Proceeds Available for Distribution to Unsecured Creditors** | ** ** | **$         0** | ** ** | **$         0** | ** ** | ** ** | ** ** |
|                                                                |       |                                                         |       |                                                         |       |   |   |
| Administrative  Expense Claims                                      |       | $  2,238                                           |       | $  2,238                                           |       | M |   |
| Other Priority  Claims                                              |       | 193                                                          |       | 193                                                          |       | N |   |
| General  Unsecured Claims                                           |       | 4,545                                                        |       | 4,545                                                        |       | N |   |
| Senior Note  Unsecured Claims                                       |       | 34,392                                                       |       | 34,392                                                       |       | N |   |
| **Implied  Percent Recovery**                                       | ** ** | **0.0**                                                      | **%**      | **0.0**                                                      | **%**      | ** ** | ** ** |
| **Net Proceeds Available for  Distribution to Equity Interests**    | ** ** | **$         0** | ** ** | **$         0** | ** ** | ** ** | ** ** |

 

 

 

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**NOTES**

The following is a summary of the specific assumptionsin connection with the hypothetical liquidation:

NOTE A — BOOK VALUES

Unless otherwise indicated, the book values used inthe Liquidation Analysis are projected book values as of June 30, 2006, aswell as other estimates where appropriate.

NOTE B — CASH ANDCASH EQUIVALENTS

Cash and Cash Equivalents are highly liquidinstruments, including short-term investments and time deposits with maturitiesof three months or less at the time of purchase.

NOTE C — ACCOUNTSRECEIVABLE, NET

Net Accounts Receivable primarily consists of variouscustomer and trade receivables related to the sale of plush and resin products.Net Accounts Receivable have been discounted by between approximately 40.0% -70.0%to reflect the Debtors’ expectations regarding the recoverable cash from thisasset in a liquidation.

NOTE D — INVENTORY

Inventory consists primarily of finished goods locatedeither in the Debtors’ warehouse or in one of their retail stores. Theremaining Inventory includes purchased materials, packaging and supplies heldfor use in the ordinary course of business. Inventory is valued at the lower ofcost or market, with cost determined on a first-in, first-out (“FIFO”) basis. Theliquidation recovery is based on recovery rates experienced when liquidatingslow moving inventory adjusted for the estimated impact of disposing of such alarge volume of product over a condensed period of time.

NOTE E — OTHERCURRENT ASSETS

Other Current Assets consist primarily of prepaidexpenses including rent and insurance. Other Current Assets have been estimatedto have no liquidation recovery value.

NOTE F — PROPERTY,PLANT & EQUIPMENT, NET

Property, Plant and Equipment consists of land andimprovements, buildings and improvements, machinery and equipment, officeequipment, furniture and fixtures, and leasehold improvements. This analysisassumes that all leased equipment would be returned to the lessor in aliquidation and therefore has no liquidation recovery value to the Debtors. Theliquidation recovery on the Debtors owned real estate was based on the originalpurchase prices for the land adjusted for the Debtors’ view of the current realestate markets in these regions as well as the improvements which have beenmade to the property. The Company’s two Retail locations were valued separatelyfrom its domestic and international Wholesale operations. The Debtorsanticipate writing down the value of its international operations to zero as aresult of the closure of the Continental European operations, located in TheNetherlands.

NOTE G — OTHERASSETS

The Debtors’ Other Assets consist of security depositsand deferred financing fees. Other assets have been estimated to have noliquidation value.

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NOTE H — TRUSTEEFEES

Section 326 of the Bankruptcy Code limits theChapter 7 trustee fees to 3.0% of all monies disbursed or turned over in thecase by the Chapter 7 trustee to parties in interest, excluding the Debtor, butincluding holders of secured claims. In this analysis, Chapter 7 trustee feeswere estimated at the cap imposed by Section 326.

NOTE I —PROFESSIONAL FEES AND TRANSACTION COSTS

Professional Fees represent the costs of a Chapter 7case related to attorneys, accountants, appraisers, brokers and otherprofessionals. Based on a review of the nature of these costs and the outcomesof similar liquidations, fees were estimated to be $2.4 million, whichequates to approximately $400 thousand per month for six (6) months. Inaddition, real estate transaction fees of 6% were applied to the midpoint valueof the Company’s two retail locations, resulting in costs of $450 thousand.

NOTE J — WIND DOWNCOSTS

Wind Down Costs consist of estimated severance, staybonuses, overhead (including ongoing costs for rent, utilities, and contractservices necessary to implement the liquidation or sale of assets) andother related costs to be incurred during the Chapter 7 liquidation period. Managementassumes that the liquidation would occur over a 6-month period and thatsuch expenses, costs and overhead would decrease over time.

NOTE K - PROFESSIONAL FEECLAIMS

Professional FeeClaims represent estimated upaid and outstanding amounts for professional feesand expenses incured in connection with the Debtors’ Chapter 11 Cases through June 30,2006. Any amounts due to professionals in connection with, or contingent upon,a successful emergence of the Debtors from Chapter 11 have been excluded fromthis amount. Given the size of the estimated claims pool, it is assumed thatthese expenses would be paid in full as is provided for in the DIP FacilityAgreement.

NOTE L — SECUREDCLAIMS

Secured Claims consist of the Existing Credit FacilityClaims. Existing Credit Facility Claims represent the face amount under theDebtors’ pre-petition Existing Credit Facility and accrued and unpaid interestup to the date of the chapter 11 filing of October 16, 2005. TheDebtors’ pre-petition Existing Credit Facility is secured by substantially allof the assets of the Company, including accounts receivable, documents, inventory,equipment, tangible and intangible property, general intangibles, realproperty, Cash, and the Cash proceeds from each of the foregoing.

NOTE M - ADMINISTRATIVEEXPENSE CLAIMS

Administrative Expense Claims are composed ofestimated Accounts Payable and Accrued Expenses as of June 30, 2006.

NOTE N — UNSECUREDCLAIMS

Unsecured Claims consist of claims of the Debtor’strade creditors, claims of the Indenture Trustee and holders of SeniorSubordinated Notes, as well as claims related to pre-petition severance wagesand taxes. These amounts represents balances at the date of the chapter 11filing of October 16, 2005, excluding accrued and unpaid interest on theSenior Subordinated Notes.

 

5

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**APPENDIX ATO DISCLOSURE STATEMENT**

**SECOND AMENDED JOINT PLAN OFREORGANIZATION**

** **

** **

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**APPENDIX BTO DISCLOSURE STATEMENT**

**SOLICITATION AND DISCLOSURE STATEMENTORDER**

 

 

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